The Advantages of Leasing GSE | Ramp Equipment News

Article was originally featured in the December 2019 issue of Ramp Equipment News

In today’s fast-paced world, companies’ needs are changing, and business models are evolving. Today, businesses in general are shying away from owning their assets and instead migrating towards using those assets through flexible payment solutions. According to the Equipment Leasing and Financing Association, “…78% of US companies use some form of financing when acquiring equipment, including loans, leases and lines of credit (excluding credit cards).” From 2017 to 2018, there was a 4.4% increase in equipment being financed, marking the ninth consecutive year of growth.

The air transportation and ground support industries are no exception. The number of air travelers continues to grow, airport expansions are on the rise and there is increased demand for reliable ground support equipment. In fact, the global GSE market is expected to reach US $24bn by 2023. Financing or leasing can allow ground handlers to preserve cash, have access to the newest equipment, embrace more sustainable solutions and support changing business and financial needs.

More financial flexibility
While an established, stable airline customer with a longstanding vendor relationship may feel more comfortable purchasing new equipment, owning ground support equipment can generally present more financial challenges than leasing the GSE.

Making the initial purchase requires a large amount of cash up front, which ties up working capital that could have otherwise been spent on supplies, personnel or training. There are fewer upfront barriers when leasing, so that working capital is conserved, and more financial flexibility is realized from the beginning; this is an especially attractive option for newer ground handling companies. When leasing, fixed monthly payments enable more accurate budgeting throughout the term and makes for easier cash flow forecasting. At the end of the term, the equipment can then be purchased, upgraded to new equipment or financing can be continued on the same piece of equipment, with substantial savings.

Fewer maintenance challenges
Maintenance on ground support equipment is often burdensome. Repairs are rarely simple; entire rebuilds of the equipment are fairly common, which can be both costly and time consuming. Since this equipment tends to have a longer lifespan, often 15 or more years, maintenance and labor overheads will increase as it ages.

When the equipment is leased, service, software, training and maintenance can be bundled into the monthly payments, minimizing unplanned equipment expenses and softening the burden of cumbersome repairs.

Faster solutions
When an airport customer needs to acquire new assets, executing a lease agreement is generally a quicker process than generating a purchase order and buying equipment, and helps get the asset into the customer’s hands faster.

This speed of doing business is especially beneficial in instances where supplemental equipment is needed at short notice, for example if a piece of equipment breaks or the volume of work suddenly increases. With more passengers choosing to fly, leasing offers a clear advantage when it comes to more efficiently managing added workloads.

Leasing can better support sustainability initiatives
Finally, like many industry sectors now, the GSE market is looking towards more environmentally friendly solutions. Customers are shying away from things like diesel and internal combustion engines and are taking advantage of the ability to upgrade at the end of a lease term in order to have access to new electric or hybrid equipment. And since the previously financed equipment is likely to have a lot of life left in it at the end of the initial term, it can be reused by an organization in the market for used equipment at a more affordable rate – or the parts can be recycled back into the supply chain, enabling a circular economy.

Determining whether to lease, finance or purchase equipment ultimately comes down to how well established the ground handling company is, what its needs are and the amount of risk it is prepared to accept. Leasing ground support equipment can be an excellent choice, offering companies more ease in financial planning, more choices and more flexibility. As the aviation industry continues to evolve, ground handling companies must stay ahead of industry trends and preferences, taking them into consideration when deciding how to acquire equipment, in order to remain successful.