Management of Aviation Lease Considerations
Discussion Document Steve Bentley CEO Sofema Aviation Services www.sassofia.com
Introduction
Are you an Aviation Lease Driver or a Passenger? Unfortunately, many airlines fail to engage effectively with their Aircraft leases and often suffer a painful financial penalty when it is time to return the aircraft.
A Narrow Body Aircraft A320 / B737 can cost up to 2 million USD to return…Why?
Essentially it is due to how the operator manages and maintains the aircraft without taking into due considerations the “Redelivery Conditions” imposed by Lessor
Note – Redelivery Conditions are not necessarily focused only on compliance with FAA or EASA, in fact, it may be considered that regulatory compliance is a step on the journey and not the destination.
Reality Check concerning the “Redelivery”
The Redelivery process is typically Disruptive, Emotive, Manpower Intensive & Expensive
The first comment is that the Lease Agreement is the waters that the Lessor swims in – It is, without doubt, the “Lessors Domain”
The second comment is that no one enjoys the transfer/redelivery process (neither the Lessee nor the Lessor)
General Considerations related to Maintenance Reserves
Do all stakeholders understand the role and importance of Maintenance Reserves.
Is their sufficient knowledge regarding the implications of Maintenance Reserve “Qualifying Events”
Concerning the CAMO “Engine” Management knowledge of specific obligations related to powerplant (Airline v Lessor) – Engine Shop Visit (ESV) Status – Relationship of ESV to Redelivery
The Devil is in the Detail!
The big question concerns awareness by the Operators Leadership Team of the lease return conditions (Redelivery) and the need to ensure that all necessary steps are taken within a managed timeline.
To drill down a little and ask if the leadership team is fully aware of both the potential costs and challenges associated with Re-deliveries?
Additionally to consider who is managing the Redelivery, often it is the Continuing Airworthiness Management Organisation (CAMO) Continuing Airworthiness Manager (CAM) additional responsibility – on top of all the designated activities, one more very important and very exposed task.
Reality check – the return of a single aircraft could potentially pay the Salary of the CAM for 20 years – why to cut corners “penny wise – pound foolish” (idiomatic) Prudent and thrifty with small amounts of money, but wasteful and profligate with large amounts.
How to fix the exposure?
Is there appropriate visibility of the lease?
The concern is the “essential departments from an asset protection point of view” for example the CAMO department are even oblivious to the Lease. (Note that many leases are buried away in the Commercial & Legal Department)
Consider the importance of the exposure – Is it a priority for the Airline? (Hopefully, it should be)
How to bring some focus to the issue – where is the leadership team in this story? – How to ensure ownership and responsibility!
How to Ensure a Successful Redelivery
- Step 1 has to be adequate Lease Awareness
- Step 2 to nominate a Lease Return “Owner”
- Step 3 to evaluate the impact of the lease driven responsibilities and to understand how it impacts the ongoing departmental duties
- Step 4 Conduct a preliminary return meeting.
Proposed Preliminary Meeting between Lessor & Lessee
Ensure that any agreements which are conducted during the meeting are documented and accepted by both sides (formally)
The ideal meeting should be arranged some 18 months in advance of the redelivery
Very important that all Stakeholders (Key personnel) should attend this meeting
Ensure a detailed familiarity with lease obligations to understand fully all expectations related to the return conditions.
Are there any options worth to consider (for example to “buy out” the lease)?
Is there a cost-effective & viable plan to return the aircraft considering also the Engines, APU and Landing Gear.
Will there be any additional works (If so what are they and how will they impact the operation during the wind-down period)
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