Leasing is one of those dark horses of transportation industry which has emerged as tough competitor to other two forms of financial instruments i.e. debt and equity , which are generally used to raise capital by the organizations. Leasing can be seen somewhere near to debt in terms of its fixed payment schedule whereas it can be seen somewhere near to equity when seen in terms of asset ownership. In fact, the two popular forms of leasing i.e. financial lease and operating lease are two variants of aforementioned varieties where financial lease emulates most of the characteristics of debt where as operating lease nears to the prototype of equity.

In last few years, the world of transportation has leapfrogged towards leasing. The general trend has been first to introduce financial leasing and then gradually move towards operating lease. The simple reason for this is that transportation is a capital intensive industry and the ‘rolling stock’ or movable components like aircrafts consume a lot of initial capital and for any new transporter taking so much debt on its own book could damage its own balance sheet and therefore, most of the transporters have been creating specific financial leasing arms to protect their core profit and loss statements which are under constant investor watch. However, pure financial lease is not much different than debt. So, if the financial arm of the transporter is not able to raise money at lower cost than the transporter itself then financial lease will turn simply into debt .

However, the major development is in the sphere of operating leases whereby the risk is shared by lessor while lessee has the flexibility to operate the vehicle for a term agreed by the parties. The exemplary use of operating lease can be seen in aircraft industry and British Rail system. In the aircraft industry, GECAS, the leasing arm of General Electric owns more aircrafts than the largest aircraft operator by fleet ,American Airlines. As a measure of comparison, GECAS owns 1700 aircrafts approximately compared to American Airlines which has 900 aircrafts in its fleet. In India, 81 percent of aircrafts are on lease and most of them leased by foreign leasing companies. In fact, India’s decision to set up its own aircraft leasing company in GIFT city is a step in right direction as leasing is not only a profitable business but also creates a thriving and efficient transportation market.

In British rail system, ninety five percent of rolling stock is owned by rolling stock leasing companies who have continuously demonstrated strong profits despite mounting losses posted by various franchises. India ,too, has a robust leasing mechanism in railways where ninety percent of rolling stock is owned by IRFC, the leasing arm of railways. However, the financial lease model followed by IRFC is no different than debt directly taken from market. It is high time, that Indian railways should make a shift to operating lease model. Operating lease model will not only bring private players into passengers and freight market but also transform many of the fixed assets like yards and depots which are related to rolling stock.

In fact, if this happens, it will only be a baby step towards more complex and efficient models like Lease for Land and track (LLT) being followed by American rail major BNSF.BNSF in its own 10-K filing has stated that a substantial amount of its assets both fixed and movable are on lease, even when rail market of America is primarily a duopoly not having a very degree of competition. This demonstrates the financial viability of Operating lease model in both fixed and rolling stock segment. It is high time that India keeps an open mind to operating lease segment and in fact, take initiative to further develop leasing market so that customers, both freight and passengers, are able to get high quality service due to creation of a more efficient transportation industry.


  1. gecas.aero

2. https://en.wikipedia.org/wiki/American_Airlines

3) https://www.orr.gov.uk/about/who-we-work-with/industry/rolling-stock-companies

4) https://www.thisismoney.co.uk/money/news/article-3500601/Profits-double-Porterbrook-leasing-company-supplies-rolling-stock-train-operators.html


6) https://centreforaviation.com/analysis/reports/aircraft-leasing-in-india-opportunity-knocks-for-an-indian-lessor-443995