Security Deposits In Aircraft Leasing: The Hidden Complexity Lessors Can’t Ignore

January 14, 2025

In aircraft leasing, security deposits might seem straightforward—an easy-to-track cash inflow that provides security for the lessor. 

But the reality? Security deposits touch almost every part of a lessor’s business, from contracts and treasury to accounting and technical operations. Poorly managed processes can lead to delays, errors, strained lessee relationships, and ultimately, financial exposure.

Here are some common pain points that lessors face when managing security deposits and some key questions to help evaluate whether your processes are working as intended:

1. Managing Security Deposit Refunds: Are You Set Up for Success?

Returning an aircraft typically triggers a security deposit refund, but that’s rarely a simple process. Lease agreements often include detailed return conditions that must be verified by the technical department before refunds are processed. Multiple stakeholders—technical teams, contracts, treasury, and accounting—need to collaborate smoothly to ensure the process is completed without unnecessary delays.

Without a well-defined, standardized process, refunds can become bottlenecks, delaying final settlements and damaging lessee relationships.

2. Accounting Reconciliation: Are Your Records Always Aligned?

Keeping the general ledger in sync with the leasing system is critical, but it’s easier said than done. Differences in timing, manual mis-postings, and complex journal entries for security deposit activity can create discrepancies. If left unresolved, these differences can impact financial reporting, particularly when determining whether a liability is still valid or income should be recognized.

Regular reconciliations are essential, but they can be time-consuming without clear processes or automation in place.

3. Letter of Credit (LOC) Management: Are You Properly Safeguarding LOCs?

Many lessors accept LOCs in place of cash deposits, but LOCs introduce unique risks. These physical documents require secure storage, and ensuring they are current and valid involves coordination with treasury and contracts teams. Misplaced or expired LOCs can lead to financial exposure and unnecessary disputes with lessees.

Do you have a process in place to inventory and independently review LOCs regularly? How often do treasury and contracts coordinate on LOC updates?

4. Outstanding Security Deposits: How Are You Tracking Contingent Deposits?

It’s common for security deposits to remain outstanding after a lease ends due to contingent circumstances like pending maintenance or disputes over return conditions. Without clear tracking and reporting, it’s difficult to determine when those deposits can be refunded or taken into income as forfeited deposits.

Do you have a process for reviewing outstanding security deposits and deciding when they should be recognized as income? How are these decisions communicated across departments?

HOW ZEEVO CAN HELP.

Security deposits are more than just financial safeguards—they’re critical components of cash flow and risk management in leasing. Poorly managed processes can create unnecessary delays, accounting errors, and relationship challenges with lessees. From our experience, lessors benefit from clear, standardized workflows, regular reconciliations, and strong collaboration across departments.

At Zeevo, we’ve worked alongside lessors to help develop effective security deposit management processes that minimize delays and reduce financial risk. If security deposits are an area where you feel improvements could be made, we’d be happy to share insights on best practices and lessons learned.