Can a country lease U.S. defense articles instead of buying them?

Normally, the USG makes defense articles available to international partners by FMS under the AECA. However, there are instances where a lease, rather than sale, to eligible international partners is appropriate. Leases are authorized under the AECA, Section 61, when it is determined that there are compelling foreign policy and national security reasons for leasing rather than selling and the articles are not needed for USG use during the proposed lease period. In addition, impact of the lease on the national industrial base must be considered, including whether a lease reduces the opportunity of U.S. industry to sell new equipment to the leasing international partner. For example, an international partner may desire to obtain a defense article for a short period under a lease for testing purposes to assist it in determining whether to procure the article in quantity. As another example, the USG may only be able to respond to an urgent foreign requirement for defense property by making it available from inventory, but, for national defense reasons, cannot sell the property and must require its return to the inventory after a specified term.

The President may lease defense articles in the stocks of the DoW to an eligible foreign country or international organization if the following occurs:

• He determines there are compelling foreign policy and national security reasons for providing such articles on a lease basis rather than on a sales basis under the AECA.
• He determines that the articles are not for the time needed for public use.
• The country or international organization has agreed to pay, in U.S. dollars, all costs incurred by the USG in leasing such articles, including reimbursement for depreciation of such articles while leased, and the replacement cost if the articles are lost or destroyed while leased.

DoW components must obtain DSCA concurrence before indicating to an international partner or international organization that a lease is being favorably considered or is an available option.

Leases may be written for a maximum of five years with an additional specified period of time required to complete major refurbishment work prior to delivery. Leases may include multiple items with different lease duration periods. The shortest lease period is one month and the longest lease period is sixty months. Leases of one year or more require congressional notification in accordance with the AECA, Section 62(a) (22 U.S.C. 2796a). Leases shall provide that, at any time during the lease period, the USG may terminate the lease and require the immediate return of the defense article. Leases of less than five years may be extended via an amendment, but the total period under a specific lease may not exceed five years plus the time needed for refurbishment.

Lease amendments may be used to extend or change existing leases. Such changes include variations to payment schedules, Schedule A items, or periods of performance. Each amendment includes the original lease designator and undergoes the same staffing process as the original lease. If a lease for less than one year is amended so that the total period of the original lease and the amendment equals or exceeds one year, Congress must be notified of the amendment before it can be offered.

The lessee must agree to pay in U.S. dollars all costs incurred by the USG in leasing articles, including reimbursement for depreciation (rent) of articles while leased. The rental payment is calculated in accordance with DoD 7000.14-R, Volume 15, Chapter 7. Rental payments do not include an administrative charge. The requirement to pay all lease costs does not apply to leases for purposes of cooperative research or development, military exercises, or communications or electronics interface projects. Depreciation may be waived where the leased defense article has passed 75 percent of its service life.

The international partner must agree to pay the costs of restoration or replacement if the articles are lost, damaged, or destroyed while leased. In this case, the international partner is charged the replacement cost (less any depreciation) if the U.S. intends to replace the articles or the actual article value (less any depreciation) if the U.S. does not intend to replace the articles. These charges are recouped under an FMS transaction via a case.