EBITDA vs EBITDAR: Why Airlines Add Back Rent

EBITDAR Measures an Airline Before It Pays for Its Aircraft

Take two airlines flying the same aircraft on the same routes. One bought its fleet with borrowed money; the other leases it. The owner’s cost of the aircraft shows up as depreciation and interest, and EBITDA sits above both. Under US GAAP the lessee’s cost shows up as rent inside operating expenses, and EBITDA sits below it. The lessee reports lower EBITDA and less debt, even though the two businesses are the same.

EBITDAR closes that gap by adding the rent back: earnings before interest, tax, depreciation, amortisation and rent. It measures each airline before the cost of its aircraft, whichever way that cost is financed. Delta’s version, set out in Note A to its fourth-quarter 2025 earnings release (8-K, 13 January 2026), is adjusted operating income plus depreciation and amortisation plus the fixed portion of operating lease expense. Variable rent stays in. That detail matters when you build EBITDAR yourself: add back the contracted lease cost, not every payment with “rent” in its name.

Airlines use it because leasing is how a large part of the industry gets its fleet. In most sectors rent is a small line and EBITDA is good enough. Here it can be the difference between two carriers looking alike and looking far apart.

The Pairing Rule: Match the Earnings Line to the Debt

Adding rent back to earnings is only half the adjustment. If rent is no longer treated as an operating cost, it is being treated as a financing cost, and the obligation behind it belongs in debt. So each earnings line has a debt figure that goes with it:

Earnings line	Pairs with	Rent is treated as
EBITDA (rent deducted)	Net debt excluding lease liabilities	An operating cost
EBITDAR (rent added back)	Net debt including lease liabilities	Financing

Both pairs are internally consistent. The lease-inclusive pair is the one that puts owners and lessees on the same footing, and it is the pair US carriers file: Southwest, for instance, files adjusted debt of $5,981m, including operating leases, against adjusted EBITDAR, a ratio of 2.4× at 31 December 2025.

The trouble starts when the pairs get crossed. Lease-adjusted debt over EBITDA counts the rent twice: once as a liability in the numerator, and again as a cost already taken out of the denominator. The ratio comes out too high. Debt that leaves leases out, divided by EBITDAR, makes the opposite mistake: the rent has been added back to earnings but the obligation never appears, so it is counted nowhere and the ratio comes out too low. The same logic applies to an EV multiple, since enterprise value is equity plus net debt. The worked example below puts numbers on all four.

IFRS 16 and ASC 842 Put the Rent in Different Places

Since 2019 both accounting regimes have put operating lease liabilities on the balance sheet. They split on the income statement, and that split changes what the word “EBITDA” means on a filing.

Under IFRS 16 (IAG, Ryanair), most lease rent disappears from operating costs. The lessee books depreciation of a right-of-use asset and interest on the lease liability instead, both below EBITDA. The lease liability sits in borrowings. So a European airline’s reported EBITDA is already struck before most lease costs, close to what a US analyst gets by adding rent back, and its reported net debt already includes the leases. Short-term, low-value and variable lease payments still run through operating costs, so the match with EBITDAR is close, not exact.

IAG shows how far this goes. Its net debt of €5,948m at 31 December 2025 includes €6,995m of lease liabilities: the leases alone are larger than the whole net debt figure, so on a basis that left them out, the same balance sheet would show more cash than borrowings. IAG’s net debt to EBITDA before exceptional items is therefore a lease-inclusive ratio, close in concept to a US adjusted-debt-to-EBITDAR ratio but built on different definitions. The IAG profile carries the reconciliation.

Under US GAAP (ASC 842) (Delta, United, American, Southwest), the operating lease liability goes on the balance sheet, but the cost stays in operating expenses as a single lease cost. Reported operating income and any EBITDA built from it are therefore after rent. US carriers add the fixed rent back themselves to reach EBITDAR, and add the lease liabilities to debt themselves to reach adjusted debt.

The result is that “net debt to EBITDA” on an IFRS filing and “net debt to EBITDA” computed from a US filing are not the same ratio, even for identical airlines. The IFRS figure is the lease-inclusive pair; the US figure built from reported debt and reported EBITDA is the lease-exclusive pair. Label which one you have before putting them in a column together. The EBITDAR and airline leverage guide sets the filed ratios for the six carriers side by side with that labelling.

Before 2019, operating leases sat off the balance sheet entirely, and analysts estimated the missing debt by multiplying annual rent by a rule-of-thumb factor; the reported lease liability, a present value of the contracted payments, has replaced that estimate on filings since.

One Airline, Two Filings

Take a hypothetical carrier with $1,000m of operating income under US GAAP, $600m of depreciation on its owned fleet, and $400m a year of fixed rent on leased aircraft. The present value of its lease payments, the lease liability, is $2,000m. Its borrowings less cash, excluding leases, are $2,400m. All rent is fixed, and all numbers are round demonstration figures.

Under IFRS 16 the same $400m of rent becomes, in this year, $320m of depreciation on the leased aircraft and $80m of interest on the lease liability (4% on $2,000m).

Line	US GAAP filing (ASC 842)	IFRS 16 filing
Aircraft rent in operating costs	$400m	nil
Depreciation (owned + leased)	$600m	$920m
Operating profit	$1,000m	$1,080m
EBITDA as the filing would show it	$1,600m	$2,000m
EBITDAR	$2,000m	$2,000m (EBITDA already before rent)
Net debt excluding leases	$2,400m	$2,400m
Lease liabilities	$2,000m	$2,000m, inside borrowings
Net debt including leases	$4,400m	$4,400m (the reported figure)

Nothing about the airline changed between the columns. Reported EBITDA is 25% higher under IFRS 16 purely because the rent moved below the line.

Now the four ways to pair debt with earnings, using the US figures:

Debt	Earnings	Ratio	What happens to the rent
$2,400m excluding leases	EBITDA $1,600m	1.5×	Consistent: treated as an operating cost
$4,400m including leases	EBITDAR $2,000m	2.2×	Consistent: treated as financing
$4,400m including leases	EBITDA $1,600m	2.75×	Counted twice
$2,400m excluding leases	EBITDAR $2,000m	1.2×	Counted nowhere

The IFRS 16 filing hands you the second row directly: reported net debt $4,400m over reported EBITDA $2,000m is 2.2×. Someone comparing that with 1.5× computed from the US filing would see two different balance sheets. It is one airline.

EV multiples break the same way. With $6,000m of equity value, EV including leases is $10,400m and EV excluding them is $8,400m. The consistent pairs give 5.2× EBITDAR and 5.25× EBITDA, close to each other because each counts the rent once. The crossed pairs give 6.5× (lease-inclusive EV over EBITDA) and 4.2× (lease-exclusive EV over EBITDAR), and neither describes the airline.

Where Rent Hides Elsewhere

Unit cost carries it too. Published ex-fuel CASM still includes depreciation and aircraft rent. A US lessee’s rent includes the lessor’s financing charge, while an owner’s interest sits below operating income, so leasing more of the fleet lifts CASM ex-fuel without the airline costing more to run. Building EBITDAR from unit figures means taking both depreciation and rent back out (RASM and CASM covers the unit build).

Cash flow splits along the same line. Under IFRS 16 the principal part of lease payments is a financing outflow, so operating cash flow, and any free cash flow computed from it, is struck before most lease payments. A US carrier pays its operating lease rent inside operating cash flow. Two free-cash-flow figures that look alike can differ by the whole lease bill, which is why the airline FCF guide asks for the definition before the number.