Lease financing
Direct lending and bank financing
Islamic financing

The outright purchase of an aircraft is a highly capital-intensive venture. The emergence of alternative financing models to alleviate the financial burden associated with outright purchase has been welcomed by the aviation industry globally. This update highlights popular financing models adopted by Nigerian airlines.

Lease financing

Lease financing, as it pertains to aircraft, refers to an arrangement between an aircraft financing entity (lessor) and the airline operator (lessee) whereby possession and control of the aircraft (with or without the option of purchase) is granted to the lessee in return for rental or other payment.

According to reports, 60% of airline operators in Nigeria utilise this model.(1) A lease arrangement can be classified as either an operating or finance lease, depending on the duration of the agreement. An operating lease is short term (ie, less than 10 years' duration); the cost flexibility it affords to airline operators and accessibility to new aircraft models make it an attractive option. In contrast, a finance lease provides for the exclusive use of the aircraft for a longer duration, with an option to purchase the aircraft at the end of the leasing agreement at a nominal price.

A lessor can opt to let out the aircraft along with the complete crew; this arrangement is described as a 'wet' lease. Under this arrangement, the lessor exercises operational control and management of the aircraft and assumes responsibility for taking out insurance and ensuring the safe operations of the aircraft. Conversely, the lease of the aircraft without crew is known as a 'dry' lease. In this case the lessee assumes responsibility for insurance, maintenance and other operational costs. Other variations include a 'damp' lease, in which both parties contribute a designated part of the crew.

The Nigerian Civil Aviation Authority (NCAA) Regulations make ample provisions for dry and wet lease operations. Under the regulations, the borrowing or lending of aircraft between air operation certificate holders requires prior approval from the Nigerian Civil Aviation Authority. Further, an air operation certificate holder or applicant may dry lease an aircraft only from another air operation certificate holder, unless granted approval by the NCAA.

The regulations make recourse to the use of a wet lease as a last resort. An applicant may take out a wet lease only where it indisputably proves to the NCAA that a dry lease is not feasible at the time;(2) and the use of a wet lease aircraft shall not exceed six months within a 12-month period.(3)

Direct lending and bank financing

Another option for aircraft financing involves procuring funds from financial institutions (often syndicates of financial institutions, due to acquisition costs) or credit agencies. Under this model of asset-based financing, the lending institution requires the creation of a legal mortgage or charge of the aircraft as security.

Few domestic airlines use this option. This is because local commercial financial institutions are reluctant to undertake financing and recourse to foreign financial institutions comes with stringent requirements, including short-term payment periods, which have a serious impact on the cash flow of the airline.(4)

The registration of a mortgage on an aircraft operated by a domestic airline requires compliance with the registration requirements of the NCAA Regulations. The regulations prescribe the following as a precondition to the registration of aircraft mortgage:

  • registration of the aircraft in Nigeria;
  • application in writing to the director general of the NCAA;
  • submission of the deed of mortgage (specifying, among other things, the aircraft type, registration marks and serial numbers), duly endorsed by the parties with stamp duty paid; and
  • payment of statutory fees in accordance with the NCAA Schedule of Fees stated in the Nigeria Civil Aviation Regulations.(5)

Islamic financing

The emergence of Islamic financing has created an alternative financing model to the conventional financing options. International airlines have used sukkuk bonds to acquire additional aircraft in their fleets. A Sharia-compliant trade credit loan (murabaha) can also be obtained from Islamic financiers.

Although the Islamic banking concept is still relatively nascent in Nigeria – with the first Islamic banking licence issued to Jaiz Bank in 2011 – the does not detract from the business-friendly option that the platform offers, which includes long-term repayment tenor and absence of interest (riba) payments.


Domestic carriers aspire to expand their services to global routes. The acquisition of more aircraft should be the natural next step in this expansion, to accommodate increasing passenger traffic. However, the reality is that domestic carriers cannot compete effectively with their foreign counterparts, due to myriad challenges that threaten their existence as a going concern. These include multiple charges by regulators, high operation costs, the inability to secure financing for acquisition of aircraft and massive debt burdens to regulators. Consolidation of operators might be a viable option for the emergence of stronger domestic airlines.

For further information on this topic please contact Opemipo Omoyeni at George Etomi & Partners by telephone (+234 1 462 1660) or email ([email protected]). The George Etomi & Partners website can be accessed at

(1) See

(2) NCAA Regulations

(3) NCAA Regulations

(4) See

(5) See