Reference: 20250744
4 December 2025
V Tempsky
[FYI request #32618 email]
Dear V Tempsky
Thank you for your Official Information Act (OIA) request, received on 21 October 2025. You
requested the following:
Treasury Report T2025/2321: Defence Acquisition of Airbus Aircraft: Approval of Finance
Lease and Appointment of Borrowing Agents.
On 19 November you were notified that the time for deciding on your request was extended by
15 days because of the consultation needed to make a decision on your request.
Information being released
Please find enclosed the following document:
Item
Date
Document Description
Decision
1.
24 September
Defence Acquisition of Airbus Aircraft: Approval of
Release in part
2025
Finance Leases and Appointment of Borrowing Agents
I have decided to release the relevant parts of the document listed above, subject to information
being withheld under one or more of the following sections of the OIA, as applicable:
•
section 9(2)(b)(ii) – to protect the commercial position of the person who supplied the
information, or who is the subject of the information,
•
section 9(2)(h) to maintain legal professional privilege,
•
section 9(2)(j) to enable the agency that holds the information to carry on negotiations
without prejudice or disadvantage, and
•
section 9(2)(k) – to prevent the disclosure of information for improper gain or improper
advantage. This reduces the possibility of staff being exposed to phishing, social
engineering and other scams. This is because information released under the OIA may
end up in the public domain, for example, on websites including Treasury’s website.
In making my decision, I have considered the public interest considerations in section 9(1) of the
Official Information Act.
Please note that this letter (with your personal details removed) and enclosed document may be
published on the Treasury website.
This reply addresses the information you requested. You have the right to ask the Ombudsman
to investigate and review my decision.
Yours sincerely
Shelley Robertson
Manager, Infrastructure, Security and Government
1 The Terrace
PO Box 3724
Wellington 6140
New Zealand
tel. +64-4-472-2733
https://treasury.govt.nz
IN CONFIDENCE
Treasury Report: Defence Acquisition of Airbus Aircraft: Approval of
Finance Leases and Appointment of Borrowing Agents
Date:
24 September 2025
Report No:
T2025/2321
File Number:
SH-14-1-1-25-M127858
Action sought
Action sought
Deadline
Hon Nicola Willis
Approve borrowing to enable the New
1 October 2025
Minister of Finance
Zealand Defence Force (NZDF) to acquire
new Airbus A321 XLR aircraft from Air Lease
Corporation under finance leases.
Agree to appoint NZDF officials as borrowing
agents to enter into the lease arrangements
for the delivery of the new aircraft.
Sign and
date the attached warrant to appoint Warrant to be withheld in full:
borrowing agents.
s9(2)(b)(ii)
Contact for telephone discussion (if required)
Name
Position
Telephone
1st Contact
Michael Lonergan Senior Analyst, Justice, Security and
s9(2)(k)
N/A
Government Services
(wk)
(mob)
Colin Hall
Manager, Justice, Security and
s9(2)(k)
s9(2)(k)
Government Services
(wk)
(mob)
Minister’s Office actions (if required)
Return the signed report and warrant to Treasury.
Refer a copy of the signed report to the Minister of Defence.
Note any
feedback on
the quality of
the report
Enclosure:
Warrant to appoint borrowing agents for the purpose of entering aircraft finance leases.
Treasury:5222065v1
IN CONFIDENCE
IN CONFIDENCE
Treasury Report: Defence Acquisition of Airbus Aircraft: Approval of
Finance Leases and Appointment of Borrowing
Agents
Executive summary
On 18 August 2025 Cabinet agreed to acquire two new Airbus aircraft to replace the current
fleet of Boeing 757 aircraft operated by the New Zealand Defence Force (NZDF) [CAB-25-
MIN-0280 refers].
The agreed approach to acquire the aircraft is through a lease-to-buy arrangement with Air
Lease Corporation (ALC), primarily due to the lower net present cost of this arrangement
compared with direct purchase.
NZDF will enter into arrangements for the delivery of two aircraft with leases for a six year
lease beginning upon their arrival in 2028, and purchase of the aircraft at the end of the lease
periods. Cabinet also agreed to appropriate the funding set aside at Budget 2025 for the
acquisition of the aircraft [CAB-25-MIN-0280 refers].
The proposed lease arrangement is a form of borrowing. The Public Finance Act 1989 (PFA)
allows you, as the Minister of Finance, to borrow money on behalf of the Crown if it appears
necessary or expedient in the public interest. Cabinet’s agreement to the acquisition is
therefore subject to your approval of the finance lease.
Defence has progressed negotiations with ALC. We recommend you agree to borrow money
to enable the proposed lease arrangements. We consider the lease arrangement is
necessary to allow Defence to purchase the aircraft at the lowest net present cost, and that
the efficient use of Government funding is in the public interest.
The PFA also authorises you to appoint agents to borrow money on your behalf. Defence
has requested your approval to appoint the Chief of Defence Force and the Chief Financial
Officer of NZDF as borrowing agents. In the absence of this appointment, it is likely that you
as the Minister of Finance and signatory to the lease would need to liaise regularly with ALC
as required under the lease terms. Appointment of borrowing agents would enable more
efficient management of these administrative requirements associated with the lease
arrangements.
T2025/2321: Defence Acquisition of Airbus Aircraft: Approval of Finance Leases and Appointment of Borrowing Agents Page 2
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Treasury Report: Defence Acquisition of Airbus Aircraft: Approval of
Finance Lease and Appointment of Borrowing
Agents
Purpose of Report
1.
This report seeks your agreement to:
a.
approve borrowing, on behalf of the Crown, to enable the New Zealand Defence
Force (NZDF) to enter into finance leases to acquire two Airbus A321XLR
aircraft, consistent with Cabinet decisions on 18 August 2025 [CAB-25-MIN-0280
refers]; and
b.
appoint NZDF officials as borrowing agents to enable formal agreement to, and
ongoing management of the obligations in, the finance leases.
Background
2.
NZDF has two Boeing 757 (B757) aircraft to deliver a strategic air mobility capability,
enabling deployment of personnel, delivery of freight and transport of government trade
and diplomatic delegations.
3.
Cabinet approved a Detailed Business Case in December 2024 [CAB-24-MIN-0497
refers], and funding was provided though Budget 2025 for the acquisition of new
aircraft to replace the B757s [CAB-25-MIN-0126.19 refers]. NZDF and the Ministry of
Defence (collectively, ‘Defence’) approached the market with a request for tenders for
new aircraft early in 2025.
4.
On 18 August 2025 Cabinet agreed to the preferred aircraft and commercial
arrangements, as outlined in a Project Implementation Business Case.
5.
The Airbus A321XLR was selected as the replacement aircraft model. Direct purchase
and lease-to-buy options were considered to acquire the aircraft. The lease-to-buy
option offered by the Air Lease Corporation (ALC) was preferred, in large part because
Defence assessed that it would deliver the capability at a9(2)(b)(ii)
lower net
present cost than direct purchase.
6.
Defence also considers that ALC is highly experienced in aircraft leasing arrangements
and is able to effectively manage any additional modifications required after aircraft
leave production facilities but prior to arrival in New Zealand. ALC also provided more
certain and slightly earlier delivery dates s9(2)(b)(ii)
which NZDF considers
to be an advantage.
7.
The lease-to-buy arrangement meets the definition of a finance lease under accounting
standards1. It therefore constitutes borrowing under the Public Finance Act 1989 (PFA)
and requires approval of the Minister of Finance. Cabinet authorised NZDF to enter into
a lease-to-buy arrangement, subject to the approval of the lease under section 47 of
the PFA. Cabinet also agreed to draw down funding from tagged contingencies
established as part of Budget 2025 for the acquisition and ongoing operation of the
new aircraft [CAB-25-MIN-0280 refers].
8.
On 21 August 2025, the Government publicly announced that the new aircraft would be
purchased under a six-year lease-to-buy arrangement with ALC.
1 PBE IPSAS 13 para 15 (b).
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Your powers to approve borrowing on behalf of the Crown and to appoint borrowing
agents
9.
The PFA authorises you as the Minister of Finance, to:
a.
on behalf of the Crown, borrow money if it appears to be necessary or expedient
in the public interest to do so (section 47), and
b.
appoint 2 or more persons to act on your behalf as joint borrowing agents to
borrow money - an appointment must be made by warrant signed by the Minister
of Finance, and can be amended or revoked at any time by an instrument signed
by the Minister (section 50).
The proposed lease arrangements
10. Defence is finalising negotiations on the proposed lease arrangements and it expects
the leases to be ready for execution by 3 October 2025, subject to the decisions sought
in this report. The key details of the arrangements are summarised below.
11. Two Airbus A321XLR aircraft wil be delivered for NZDF, s9(2)(j)
, following any post-production modifications. Each aircraft wil be the
subject of a separate lease agreement with ALC.
12. The total amount to be borrowed under the leases is 9(2)(b)(ii)
. NZDF bears the
foreign exchange risk and plans to hedge this risk in conjunction with the Treasury
Debt Management Office.
13. The parties to the leases are His Majesty the King acting by and through the Chief of
Defence Force (CDF) and the Chief Financial Officer (CFO) of the New Zealand
Defence Force as proposed borrowing agents2, and nominated subsidiaries of ALC.
14. The legal jurisdiction of the agreements is New Zealand. New Zealand laws apply and
New Zealand courts have exclusive jurisdiction in relation to the leases.
15. Each lease will be for an initial term of six years from delivery date, with an option to
purchase at year six.
16. Upon commencement of each lease, NZDF will begin to make lease payments to ALC.
NZDF will be responsible for maintaining and operating the aircraft, which wil be on the
military aircraft register. To ensure the aircraft are sufficiently maintained to meet ALC’s
standards, NZDF will be required to meet a number of conditions, provide certifications,
reporting and notifications, and to liaise with ALC on a regular basis (see Appendix 1
for a summary).
17. At the end of each six year lease period in 2034, NZDF wil exercise the option to
purchase the relevant aircraft from ALC. Failure to purchase at that point would not
only likely result in the loss of the strategic airlift capability provided by the new aircraft,
but also create an obligation to reinstate the aircraft to the civil aviation register.
Defence considers there is no precedent for such conversion, and it may be technically
challenging as it would require all maintenance work previously undertaken by military
personnel to be undone and redone by aircraft maintenance personnel licenced under
the civil aviation system.
18. The lease will include multiple indemnities, which CDF can approve under the Public
Finance (Departmental Guarantees and Indemnities) Regulations 2007. The
indemnities will cover all aspects of operating the aircraft, including any third-party
liability.
2 In anticipation that you agree to issue a warrant appointing the Chief of Defence Force and NZDF’s Chief Financial
Officer as borrowing agents.
T2025/2321: Defence Acquisition of Airbus Aircraft: Approval of Finance Leases and Appointment of Borrowing Agents Page 4
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19. Defence has full aviation liability insurance that would cover any liability to third parties
(unless as a result of a war risk or allied perils3). NZDF also has insurance for the
aircraft, to cover damage to the aircraft while on the ground and not being readied for
take-off.
20. NZDF has obtained approval from the Minister of Revenue for an exemption from the
10% withholding tax on the interest component of the lease payments under section
CW 8(2)(b) of the Income Tax Act.
Factors to consider in determining whether the borrowing is ‘necessary or
expedient in the public interest’
21. It is a matter for you to decide whether you are satisfied that it is necessary or
expedient in the public interest to borrow money on the terms outlined in the finance
leases.
22. Below are factors that we consider are relevant to that assessment. You may decide to
ignore these factors, or take into account other factors you consider relevant, and you
may give such weight to the factors referred to below as you deem fit. You should
make an independent decision and are not bound to accept the assessment below.
s9(2)(h)
Factors relevant to the assessment of whether it is necessary or expedient in the
public interest
Public interest or benefits of borrowing
25. The current fleet of 757 aircraft provides NZDF a strategic airlift capability, which can
be deployed to transport Ministerial and government delegations, carry military
personnel and their equipment for military deployments, and provide assistance to
other government agencies. The current fleet is aging and faces increasing reliability
and maintenance issues. Funding for two new aircraft to replace the current fleet was
set aside at Budget 2025, and Cabinet has agreed to a preferred aircraft type and
procurement approach, subject to your approval of a finance lease.
26. Defence has assessed that the lease-to-buy arrangement has a lower net present cost
to the Crown in comparison to direct purchase,4 s9(2)(b)(ii)
3 NZDF has assessed the cost of the war risk and al ied perils extension to liability cover is too expensive and the
risk can be managed in other ways.
4 The Net Present Cost reflects the time value of money, in that a dollar today has more buying power in the future.
Defence assessed the costs by discounting future payments using a nominal discount rate of 4.3% to reflect their
costs in today’s dol ars.
T2025/2321: Defence Acquisition of Airbus Aircraft: Approval of Finance Leases and Appointment of Borrowing Agents Page 5
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s9(2)(j)
d.
Foreign exchange rate fluctuations: Payments are denominated in US dollars,
exposing NZDF to fluctuations in exchange rates. NZDF will seek to hedge US
dollars to mitigate any future exchange rate risks.
e.
Modifications to meet NZDF specifications could be delayed or more
complex than anticipated, impacting the delivery timeline of the aircraft: To
mitigate this risk, NZDF will undertake a range of actions, including:
i.
engaging ALC early to define modification specification and approach to
identify critical path activities
i .
leveraging solutions that have been previously certified where possible, and
iii.
actively tracking and managing any changes to ensure impacts are
transparent and controlled.
Assessment of risks and benefits against the public interest threshold
32. In light of the above, we consider that:
a.
there is a public interest in undertaking borrowing on the terms set out in the
finance leases, and
b.
the benefits of the proposed borrowing appear to outweigh those risks when
mitigations are taken into account.
33. Accordingly, we are of the view that the borrowing is necessary or expedient in the
public interest.
Fiscal implications
34. In approving the Project Implementation Business Case, Cabinet agreed to draw down
funding from tagged contingencies established at Budget 2025 for the acquisition and
ongoing operation of the new aircraft [CAB-25-MIN-0280 refers]. The costs of the lease
payments and any associated implementation work for the new aircraft wil be met from
NZDF baselines following this drawdown.
35. NZDF has advised that there have been no changes to the underlying cost
assumptions or the overall fiscal implications since the Cabinet decisions in August.
36. NZDF has assessed that upon delivery of the aircraft (which is the date of
commencement of the lease term), the finance leases are recognised as assets and
liabilities in the NZDF’s Statement of Financial Position at the lower of the fair value of
the leased item or the present value of the minimum lease payments. The finance cost
component (the interest) is calculated at a constant rate and will be charged through
the Statement of Financial Position. The amount recognised as an asset is depreciated
over its useful life.
37. Upon delivery of the aircraft in s9(2)(j)
net core Crown debt will increase to reflect the
aggregate value of the liabilities of the two leases 9(2)(b)(ii)
As lease
payments are made over the six year period, the value of the liability will reduce s9(2)(b)(ii)
9(2)(b)(ii)
. Upon the purchase of the aircraft at the end of the lease period,
the borrowing is fully repaid and the lease liability (and associated net core Crown debt
impact) is zero.
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Appointment of borrowing agents
38. Defence has requested the appointment of the Chief of Defence Force and NZDF’s
Chief Financial Officer as borrowing agents under sections 50 and 53 of the PFA to
enable entry into the leases which constitute lease-to-buy arrangements.
39. The draft Lease Agreements contain various obligations on the Crown to meet
conditions, provide certifications, reporting and notifications, and to liaise with ALC both
at planned and unplanned intervals. Appendix 1 contains a non-exhaustive list of high-
level key obligations of NZDF as the Lessee.
40. In the absence of appointing borrowing agents, the Minister of Finance would be
required to sign the lease agreements. NZDF considers it is unclear whether the
various obligations would have to be performed by the Minister of Finance as signatory
to the Lease Agreement or NZDF as operator of the Aircraft.
41. Requiring the Minister of Finance to liaise with ALC to satisfy lease obligations will
likely impose administrative burden for little benefit. NZDF is best placed to manage the
operational requirements of the lease, rather than the Minister of Finance. Therefore
we recommend you agree to appoint borrowing agents to enable NZDF to enter into
the lease arrangements and manage the ongoing lease obligations to ALC.
42. We have worked with Defence to draft a warrant to appoint borrowing agents for your
approval. The warrant authorises the Chief of Defence Force and Chief Financial
Officer of NZDF to borrow up to 9(2)(b)(ii)
in aggregate under the lease
agreements for the two new aircraft. The maximum term of the borrowing under each
lease would be six years from the delivery of each aircraft. The warrant also specifies
that the leases must be consistent with Cabinet approval and authorisation to enter into
lease agreements [CAB-25-MIN-0280 refers].
Consultation
43. We have consulted with NZDF and the Ministry of Defence and they agree with the
recommendations in this report.
Next Steps
44. If you agree that it is necessary or expedient in the public interest to undertake the
proposed borrowing, agree to the relevant recommendation in this paper.
45. If you do not approve the borrowing, Defence would likely need to seek Cabinet
approval to a different procurement method and engage further s9(2)(b)(ii)
There may be impacts on costs given the time that has elapsed since the tender
process, and public announcements may need to be made regarding the new
procurement approach.
46. If you agree to appoint NZDF officials as borrowing agents, you should sign the
attached warrant to appoint borrowing agents. Defence expects to finalise the lease
documents by 3 October 2025 so that they are ready for execution following your
decisions.
47. If you choose not to appoint borrowing agents, it will be necessary for you to enter into
the lease arrangements on the Crown and NZDF’s behalf. Defence would likely need to
engage with ALC and negotiate amendments to the leases to reflect the legal
requirements for you to enter into the leases under section 47 of the PFA.
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Recommended Action
We recommend that you:
a.
note under section 47 of the Public Finance Act 1989 (PFA), the Minister of Finance
may, on behalf of the Crown, borrow money if it appears to the Minister to be
necessary or expedient in the public interest to do so
b.
note that the New Zealand Defence Force (NZDF) has requested that you approve
borrowing on behalf of the Crown, to enable NZDF to enter into a lease-to-buy
agreement for the acquisition of two Airbus A321XLR aircraft, consistent with recent
Cabinet decisions [CAB-25-MIN-0280 refers]
c.
note that the lease-to-buy arrangement meets the definition of a finance lease and
would constitute borrowing money
d.
note that in the circumstances, we consider the borrowing to be necessary or
expedient in the public interest
e.
approve the proposed borrowing from Air Lease Corporation under section 47 of the
PFA
Approve/not approved
f.
note that appointment of borrowing agents is requested because the proposed lease
arrangements, if signed by the Minister of Finance, may require frequent approvals,
certifications and reporting by the Minister of Finance with potentially significant
administrative burden
g.
note that appointing borrowing agents would enable NZDF to manage any required
approvals, certifications and reporting on behalf of the Crown
h.
agree to appoint the Chief of the Defence Force and NZDF Chief Financial Officer as
borrowing agents to enable NZDF to borrow and enter into a lease arrangement with
Air Lease Corporation on the terms set out in the attached warrant appointing
borrowing agents, under section 50 of the PFA, and
Agree/disagree
i.
sign and date the attached warrant to appoint borrowing agents.
Colin Hall
Manager, Justice, Security and Government Services
Hon Nicola Willis
Minister of Finance
_____/_____/_______
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