EBITDAAL stands for Earnings Before Interest, Taxes, Depreciation, Amortization, and After Leases. It is a non-GAAP financial metric that strips lease costs out of reported earnings so companies that lease their major assets can be compared fairly against companies that own them. The measure shows up most often in airline analysis, where roughly 60% of the global commercial fleet is leased rather than owned,1IATA. More Aircraft Are Leased Than Owned by Airlines Globally but it fits any industry where lease expense is large enough to distort a straight profitability comparison.
The Formula and What Goes Into It
Starting from net income at the bottom of the income statement, the calculation is:
EBITDAAL = Net Income + Interest Expense + Income Tax Expense + Depreciation + Amortization + Aircraft Lease Expense
Each add-back exists for a reason. Interest expense comes out so two companies with different debt loads can be judged on operations alone. Income tax expense comes out because tax bills swing with jurisdiction, credits, and deferred tax timing. Depreciation and amortization are non-cash charges that spread the cost of physical assets like terminals and ground equipment, and intangible assets like software and route authorities, across their useful lives. The lease add-back is what distinguishes the metric: a carrier that owns its planes reports depreciation and interest on them, while a carrier that leases the same planes reports a lease expense instead. Neutralize the difference and you are comparing operations rather than financing choices.
If you prefer to start from operating income (sometimes labeled EBIT), interest and taxes are already excluded, and the formula shortens to:
EBITDAAL = Operating Income + Depreciation + Amortization + Aircraft Lease Expense
Interest and tax expense sit as distinct lines near the bottom of the income statement. Depreciation and amortization are sometimes combined in operating expenses; the notes to the financial statements or the cash flow statement will separate them if you need the split. Aircraft lease expense appears within operating expenses or in the lease commitment footnotes. Isolate the aircraft-specific figure rather than grabbing total rent or total lease expense, which usually sweeps in terminal space, ground vehicles, and corporate offices.
A Worked Example
Say a regional airline reports net income of $120 million, interest expense of $45 million, income tax expense of $40 million, depreciation of $80 million, amortization of $10 million, and aircraft lease expense of $95 million. The calculation runs:
$120M + $45M + $40M + $80M + $10M + $95M = $390 million EBITDAAL
That $390 million represents what the airline generates from flying passengers and cargo before financing structure, tax position, or fleet ownership choices enter the picture. An analyst looking at a rival that owns most of its fleet is now comparing the same kind of operational output from both carriers.
Why EBITDAAL Replaced EBITDAR
Analysts in lease-heavy industries used to rely on EBITDAR, where the “R” stood for rent. The metric worked because operating leases lived entirely off the balance sheet. A carrier leasing 200 aircraft simply reported a large rent expense on the income statement, and EBITDAR added it back. Clean math, easy to find on the page.
That changed when new lease accounting rules took effect. IFRS 16 became effective for international reporters in 2019, and ASC 842, the U.S. GAAP equivalent, took effect for public companies the same year. Both standards required companies to bring most operating leases with terms longer than 12 months onto the balance sheet as a right-of-use asset paired with a lease liability.2KPMG. Lease Accounting: IFRS Accounting Standards vs US GAAP The old off-balance-sheet treatment vanished, and the way lease costs appear on the income statement shifted enough to break EBITDAR.
The US GAAP vs. IFRS Difference
The two standards do not handle the income statement the same way, and the difference matters when you calculate EBITDAAL.
Under IFRS 16, every on-balance-sheet lease is treated like a financed purchase. The right-of-use asset gets depreciated and the lease liability generates interest expense, so the old single rent line disappears entirely. Standard EBITDA already adds back depreciation and interest, which means EBITDA itself now captures what EBITDAR used to capture for IFRS reporters. The “AL” label signals that the analyst has accounted for this shift and that the figure is comparable to pre-standard EBITDAR.
Under ASC 842, treatment splits by lease classification. Finance leases work like IFRS 16: amortization on the asset, interest on the liability, both reported separately. Operating leases under ASC 842 still produce a single straight-line lease expense reported as an operating cost. For a U.S. airline reporting under GAAP with operating leases on its aircraft, that lease expense still shows up as a recognizable line item, much like the old rent expense.
The practical consequence: when calculating EBITDAAL for a U.S. GAAP reporter with operating leases, you still need to identify and add back the lease expense explicitly. It is not automatically caught by the depreciation and interest add-backs. For an IFRS reporter, standard EBITDA may already do the work, and the “AL” designation is more about signaling comparability than performing an extra mechanical adjustment. Getting this wrong produces an apples-to-oranges comparison, which defeats the whole point.
What Analysts Use It For
The most common use is peer comparison across airlines with different fleet strategies. A legacy carrier that bought its widebody fleet decades ago and a newer competitor leasing narrowbodies on 12-year terms will show wildly different expense structures even when they generate similar operating cash. EBITDAAL takes that noise out.
The EBITDAAL margin, calculated by dividing EBITDAAL by total revenue, shows how efficiently an airline converts ticket and cargo revenue into operating cash flow before capital structure effects. A carrier running at a 20% EBITDAAL margin is pulling more operational profit per dollar of revenue than one at 12%, regardless of whether either airline owns or leases its fleet.
Valuation Multiples
Analysts frequently calculate Enterprise Value divided by EBITDAAL (EV/EBITDAAL) to gauge relative valuation. Enterprise value includes market capitalization, net debt, and capitalized lease obligations, which keeps the numerator consistent with a denominator that has stripped out lease effects. A lower multiple relative to peers can suggest the stock is cheap for the operational cash flow it generates; a higher one reflects a growth premium or market optimism.
That internal consistency is what makes EV/EBITDAAL more useful than a simple price-to-earnings ratio for lease-heavy businesses. P/E would compare one carrier burdened by lease expense against another burdened by depreciation and interest on owned aircraft, and the ratio would tell you more about accounting treatment than about business quality.
SEC Rules When a Company Reports EBITDAAL
Because EBITDAAL is not defined under Generally Accepted Accounting Principles, any public company that presents it must comply with SEC Regulation G. The rule requires two things whenever a non-GAAP financial measure is publicly disclosed: a presentation of the most directly comparable GAAP measure, and a quantitative reconciliation showing how the company moved from the GAAP number to the non-GAAP number.3eCFR. 17 CFR Part 244 – Regulation G For EBITDAAL, the comparable GAAP measure is typically net income or operating income.
The SEC also prohibits non-GAAP measures from being misleading. Staff guidance says a measure can cross that line by excluding normal, recurring operating expenses necessary to run the business, by making adjustments inconsistently between periods, or by applying one-sided adjustments that strip out charges while ignoring gains from the same period.4U.S. Securities and Exchange Commission. Non-GAAP Financial Measures Aircraft lease expense is unquestionably a recurring operating cost, so a company presenting EBITDAAL has to be transparent that it is removing a real cash expense rather than dressing it up as something one-time.
The SEC has specifically exempted EBITDA and EBIT from one particular prohibition, the rule that bars non-GAAP liquidity measures from excluding charges that require cash settlement.5Securities and Exchange Commission. Conditions for Use of Non-GAAP Financial Measures That exemption covers base EBITDA. EBITDAAL’s additional lease adjustment pushes the metric further from GAAP and draws closer scrutiny, so the practical bar is clear labeling, consistent period-over-period application, and a reconciliation a non-specialist investor can follow.
Limits of the Metric
Every EBITDA variant, EBITDAAL included, faces one fundamental objection: it adds back real costs the business eventually has to pay. Depreciation reflects aircraft wearing out and needing replacement. Interest reflects the cost of borrowing to fund that replacement. Lease payments are cash leaving the company every month. Add them all back and you get a profitability figure no airline actually keeps. The gap between EBITDAAL and free cash flow can be enormous for capital-intensive carriers.
EBITDAAL also ignores working capital swings. An airline can post strong EBITDAAL while hemorrhaging cash because fuel price spikes forced supplier prepayments or ticket refund obligations drained short-term liquidity. The number says nothing about whether the company can meet next month’s payroll.
And because EBITDAAL is not a GAAP measure, there is no universal definition. One analyst might include all aircraft-related lease expenses; another might limit the adjustment to widebody leases and exclude regional jets. One company’s EBITDAAL reconciliation might begin at net income while a peer begins at operating income with different adjustments along the way. That inconsistency makes cross-company comparisons less reliable than advocates of the metric suggest, and it leaves room for management to pick the version that flatters results. Pair EBITDAAL with free cash flow, leverage ratios, and the GAAP reconciliation to get an honest view.
EBITDAAL vs. Similar Acronyms
The alphabet soup trips people up. The main variants:
- EBITDA. Earnings before interest, taxes, depreciation, and amortization. The base metric. Fine for comparing companies with similar asset ownership structures, weaker when lease costs vary widely between peers.
- EBITDAR. Adds rent on top of EBITDA. The pre-2019 standard for airlines, hotels, and retailers with heavy lease exposure. Still referenced, but less useful since lease accounting reform moved most rent off the income statement for IFRS reporters.
- EBITDAAL (or EBITDA-AL). The post-reform successor to EBITDAR. Adjusts for lease obligations under the new accounting framework, whether that means adding back a surviving operating lease line under US GAAP or confirming that depreciation and interest add-backs already captured the lease effect under IFRS.
- EBITDAL. A different metric. The “L” stands for special losses, not leases. EBITDAL strips out unusual, non-recurring losses to show what earnings would look like in a normal operating year. Do not confuse it with EBITDAAL.
The right metric depends on the industry and the question being asked. For airline peer comparison where fleet financing strategy varies, EBITDAAL is the most informative of the group. For a retailer weighing stores it owns against stores it leases, EBITDAR or a similar lease-adjusted measure may still fit better. In every case the non-GAAP figure is a starting point for analysis, not the final word on a company’s value.