Aircraft Pre-Lease Considerations

Process Review by Steve Bentley CEO of Sofema Group

Forthcoming Training Notification

Managing Aircraft Lease Agreements and Maintenance Reserves – 3 Days – Bangkok, Thailand

9 am to 5 pm from November 25th to November 27th 2019.

Aircraft typically change hands several times in their lifetime so the process of transfer from one owner to the next is a common activity. However it is not usually a sale of an asset from one owner to another, rather a controlled transfer with the lessor sitting in the middle of the story focused on minimizing their exposure and maximising the Return on Investment (ROI)

Introduction Lessee versus Lessor

Whilst both the Lessee and Lessor have a similar short term goal (to transfer an aircraft) Longer term there are specific differences.

The lessee is focused on achieving for a reliable product with minimum unscheduled maintenance and if they are experienced, will (read should – must) carry out the most intensive pre-delivery inspection – no stone should be left unturned to find any and all issues/discrepancies.

Note – lack of attention to detail by the lessor will come back and bite – sometimes hard!

The lessor is focused on ensuring consistent payments and maintaining asset value – once the lease is signed and the aircraft accepted the lessor is not any longer responsible for maintenance-related findings.

Leveraging the Lease Agreement

Understand that naturally, the motivation of the Lessor is to transfer the aircraft as quickly as possible from one Lessee to another to maximise the cash flow – the worst possible situation is for an aircraft to be “sitting” on the ground and not only drawing no income but creating a “maintenance” requirement.

Understand that until you as the lessee sign the agreement then you have a measured amount of control – do not abuse this but for sure make sure that you take full note of this fact.

Paying Attention to “Conditions”

Make sure that for every specific requirement that is included in your “delivery specification” that you fully understand the potential exposure, in this way to ensure you are able to meet the return conditions in a financially acceptable way.

Note – Reality Check – As strong as you are pre-lease the lessor will be times stronger during the return – (This is the waters the lessors swim in!)

Take special care with conditions which cannot be met – for example “No part will be older than the Airframe in hours, cycles or calendar time,” – simple reality is in an EASA or FAA jurisdiction, we do not always know the age (only Life Limited Parts -LLP) have back to birth records.

Use Clear and Unambiguous Terminology

Make sure that you fully understand the terms, conditions & obligations and that the understanding is transparent & mutual.

Use of maintenance intervals, for example, hours/cycle/months remaining should be understood and referenced against agreed criteria as changes in the maintenance program can easily create issues.

Concerning Pre-delivery Modifications

Several options exist including the possibility of a “rent-free” period whilst the lessee configures the aircraft. Also possible is for the previous owner to perform as part of the end of lease maintenance check so look at the options and choose which one works best for you.

Note – Typically, the lessor will prefer the option where the new lessee takes full responsibility for material, engineering and manpower and if the modification program runs into difficulty is it the lessee or lessor than shoulders the burden.

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