All too often, many view fleet leasing as a simple own or lease question and mainly think of it in terms of the more traditional “full service” equipment lease. Whereas, thanks to today’s creative financial markets, fleet leasing can be used by a lessee as a financial tool, an operational tool and also as a means of leverage to improve a fleet’s purchasing power. The right application of leasing alternatives can be not only a financial or operational problem solver, it can also provide tactical and strategic advantages. 

All too often, many view fleet leasing as a simple own or lease question and mainly think of it in terms of the more traditional “full service” equipment lease. Whereas, thanks to today’s creative financial markets, fleet leasing can be used by a lessee as a financial tool, an operational tool and also as a means of leverage to improve a fleet’s purchasing power. The right application of leasing alternatives can be not only a financial or operational problem solver, it can also provide tactical and strategic advantages. 

Probably the most common example of leasing used primarily as a financial tool would be the “finance lease.” In the traditional form, such a lease is primarily used as an alternative to, or replacement for, the lessee’s own working capital investment. Financial leases may require the lessor to procure new equipment designed to meet the lessee’s specification requirements. Or they may take the form of a “sale and lease back” whereby the lessee purchases new equipment suitable to its needs. It then sells the equipment to the lessor and leases it back from them.  Depending on the lessee’s financial or operating objectives, a finance lease may be designed as a “walk away” at maturity; where the equipment reverts back to the lessor. Or it may be drawn to contain either a lessee purchase obligation or a lessee option to purchase.

In “full service” fleet leases, as the term implies, the lessor provides both the fleet units (capital investment) and all the necessary license, title, taxes, maintenance, fuel, operating supplies and support necessary to keep the equipment operating satisfactorily. Again, just as in financial leases, full service leases may be drawn as a lessee “walk away” at maturity. Or they may contain certain lessee purchase obligations or options at maturity.

What might be described as a hybrid, or modified third form of fleet leasing would be when a lessee combines the use of financial leases with third-party contract maintenance agreements. In such a situation, a knowledgeable but disadvantaged fleet equipment purchaser (due to small size) might use a large financial lessor to gain better new equipment purchasing prices via a financial lease commitment. The lessee then negotiates a separate third-party maintenance agreement on the finance leased equipment. Such a “hybrid” will likely replicate most of the features and benefits of a full service lease along with possibly more flexibility and less cost. In all likelihood however, fleet finance leases combined with the lessee’s own in-house fleet management and maintenance are still by far the most common format for using fleet financial leases.

In my view, there are few fleets for which leasing (in any form) should be viewed as an all-or-nothing decision. Rather than use leasing as an arbitrary across-the-board application, these financial and operating tools are best used as individual, or local, situations and opportunities may dictate or present themselves. For example, (if financial lessors are of such size and equipment volume that they can purchase equipment built to your operating specifications at lower costs and with improved manufacturing warranties and service support) use of that purchasing leverage benefit in a financial lease may be to the lessee’s advantage. Such lessors’ size and capital equipment volumes may very well also afford them leverage advantage in their “cost of money” or interest rates paid. Again, if such leverage offers the lessee access to “cheaper money” than it can obtain on its own, a financial lease may be advantageous.

For dairy or ice cream fleets serving customers more than one driver’s duty cycle distance away, full service leases offer clear solutions to operating support problems and limitations imposed by distant delivery customers. Indeed, full service leases can be used both tactically and strategically to permit “on the road, anywhere, anytime” fleet operating support for expansion of market radius and entry to new distant markets.

My final caveat would be that a prospective lessee’s leasing evaluations and negotiations should never be performed solely by financial and legal staff. Fleet management and operating staff must always be the primary principals in all matters of fleet asset design, specification, procurement, operations, maintenance and useful service life.