A is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time. Basically, the lessor takes the asset on behalf of the lessee and gets compensated by the rental payments that are paid by the lessee during the days of the lease. The ownership of the asset is with the lessor, but the lessee gets exclusive right to use the asset in the way desired. For accounting purposes, the lease provides the lessee with economic characters of ownership of the asset.
Lessor = Leasing Company = Finance Company = HSBC Unit registered in IFSC which is a deemed foreign entity
Lessee = Air India Fleet Services Ltd.
Asset = Airbus A350-900 aircraft
How a Finance Lease Works?
A finance lease is essentially a commercial rental agreement where the following steps take place:
First: Lessee selects an asset that they require for a business.
Second: Lessor, generally a finance company, purchases the asset.
Third: The lessor and lessee enter into a legal Agreement in which the lessee gets the right to use asset during the agreed upon lease.
Fourth: The lessee makes regular payments for the use of the asset.
Fifth: The lessor recovers the cost of the asset plus interest.
And lastly at the end of the lease agreement, the lessee has the option to acquire ownership of the asset.
Financial Lease is a kind of debt instrument and comes under External Commercial Borrowing (ECB). So, basically Air India Fleet Services Ltd. has taken ECB from HSBC Unit registered in IFSC which is a deemed foreign entity