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RedeliveryManagementandTechnicalAspectsofLeases
OisínMurray- HeadofTechnicalandAssetManagement
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¤ LeaseAgreementTechnicalConsiderations¤ MaintenanceOverview
¤ Maintenance Reserves¤ Maintenance ReservesPortability¤ RedeliveryManagement
¤ TechnicalRecords
Agenda
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LeaseAgreementConsiderationsWhatyouarepayingfor¤ DefineSpecification
¤ DefineConfiguration
Maintenanceprovisions¤ LesseeisapprovedbylocalCAA
¤ LesseeMRO’sareFAA/EASAapproved
¤ NoPMApartsorDERrepairs
¤ Lessorannualinspectionrights
¤ WorkscopesiawOEMrecommendations
¤ Lessorapprovalrequiredformajorrepairs
¤ LessorrepresentationduringrepairsrequiringMRdrawdown
$43MMAircraft$45MMAircraft
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LeaseAgreementConsiderationsRedeliveryConditions¤ FAA/EASAcompliant
¤ DefinedRedeliveryprocess
¤ Enginesubstitutionrights
¤ BridgemaintenancetotoOEMstandardornextlesseerequirements
¤ Minimumconditionforcomponentconditions
¤ LLPBacktoBirth
¤ Detailedlistandformatfortechnicaldocuments
¤ NonIncident/Accidentstatement,PMAandDERrepairstatements
¤ MaintenanceCompensationmechanisms
CurrentRedeliveryConditionsarethenextLessee’sDeliveryConditions
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MaintenanceOverview¤ AircraftMaintenance isheavilyregulatedby
<TheManufacturer<TheManufacturer’sAviationAuthority<TheOperator’sLocalAviationAuthority
¤ ManufacturersproduceMaintenancePlanning Document(MPD)whichadvisesOperatorsandAuthoritiestherecommendedpracticesandintervalswhenmaintaininganaircraft
¤ LocalAviationAuthorityApprovalisrequiredforanOperator’sApprovedMaintenanceProgram(AMP)
¤ OperatorsAMP’scanfollowexactlytheOEM’sMPDorcanbecustomisedtoaccommodatespecificlocalregulatory requirements
¤ RequeststocustomiseanAMPbeyondLocalAuthorityregulatoryrequirementsmustbemadetotheLocalAuthorityandmustbesupportedbysubstantiating reliabilitydata
¤ Maintenancepracticesand intervalshaveevolvedduetotheuseofnewertechnologies,greateravailabilityofreliabilitydata,betteranalysisofthatdataandwithafocusoncostswhileatthesametimeincreasingsafety
¤ LessrequirementforHardTimeinspectionsandmoreOnConditionmonitoringversuspreviouspractice
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LesseeMaintenanceResponsibilities¤ Duringtheleasetermthelessee isresponsibleforallmaintenanceperformedontheaircraft
¤ IncludesAirframeDaily(A)Checks,C-checksandHeavyMaintenance(D)checksandEngine,APUandLGOverhauls
¤ Lessees sourceandcontractwiththeMaintenanceproviders
¤ Lessees ensurethatchosenmaintenanceprovidersaresuitablyqualifiedoftentimewithsuperiorqualificationsneededforLessorreimbursablemaintenanceevents
¤ Commitmenttokeepingtheaircraftairworthyandmaintainingtherecordsi)inEnglishandii)inaccordancewiththeirAviationAuthorityapprovals
¤ Lessee isnotallowedtoundertakeanymodificationsthatwouldmateriallydevaluetheaircraft
¤ Lesseeprovidesmonthlyupdateontheaircraftutilisationandmaintenancestatusandmakestheaircraftavailableforinspectionbythelessoratleastonceayear
¤ RedelivertheaircraftfromitsnextC-checkbridgedtotheOEM’sMPD.AllcomponentscapableofoperatingforatleastaC-check intervalbeforenextmaintenance | 153
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¤ Duringtheleasetermifthelesseepaysthelessormaintenance reservesthenthelessorisobligedtoreimburselesseeforsuchqualifyingmaintenance. Theleaseagreement clearlyidentifies<Whateventsalesseecanclaimreimbursementfor<Whatasaminimumneedstobeperformedduringeacheventtoqualifyforreimbursement< Lessorsrightinadvancetoreviewandapprovetheworkscopebeingproposed< Lessorsrighttooverseethemaintenancebeingperformed< Themaximumamountavailabletolesseeforsuchmaintenance< Lessorcontributionamountsabovethelesseepaidmaintenance reservesifapplicable<Whatisnotreimbursableduringaqualifyingmaintenanceevent(FOD,QEC,Transportation,inboundenginetests)
¤ Lessormonitorsthemonthlyutilisationreportsto< Accuratelyinvoicemonthlymaintenancereserves< Ensurethataircraftandenginescontinuetooperateandarenotgroundedforanunknownreason
< Bettertrackthemaintenancestatusandforecastupcomingmaintenanceevents
¤ Lessorsoritsagentsperformphysicalandrecordinspectionsto< Validatethemaintenance statusoftheaircraft< Ensurerecordsarebeingkeptatasuitablestandard< Identifyforlessorandlesseepotentialissuesduringredeliveryprocess | 154
LessorMaintenanceResponsibilities
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MaintenanceReserves¤ MaintenanceReservesarepaymentsbasedontheutilisationoftheaircraftmadebythelesseetothelessortoprovisionforthecostofsignificantfutureaircraftmaintenanceevents.
¤ Theyarenormallypaidmonthlyinarrearsandarecomponentspecificcovering<AirframeHeavyChecks<EngineOverhaul<APUOverhaul<LandingGearOverhaul
¤ WhycollectMaintenanceReserves<Securitytoprotectassetvalueandmaintainlessorexposure<Meanstomonitorlesseecontractcompliance<Positivelyinfluencemaintenanceworkscope
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MaintenanceReserves¤ MaintenanceReserveAlternatives
<CashMaintenanceReserves<LetterofCredit<Leaseendadjustments<Halflifeadjustments
¤ MaintenanceReserveratesarecalculatedbydividingthepredictedeventcostbytheeventinterval.Wecustomiseforvariationsin<Flightprofiles<Operatingenvironment<Aircraftage
¤ AnnualEscalation<Normalrange2.5%- 3.5%forAirframe,LandingGearandAPU<EngineOverhaulandLLPshouldbehigher(OEMannualescalation)
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A330 MaintenanceIntervals(Months) B787-8MaintenanceIntervals(Months)
MaintenanceEventIntervals
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0
20
40
60
80
100
120
140
160
3Y 12Y EngPR EngLLP LGOH APUOH
A320MaintenanceIntervals(Months) B737MaintenanceIntervals(Months)
0
20
40
60
80
100
120
140
160
8Y 10Y 12Y EngPR EngLLP LGOH APUOH
0
20
40
60
80
100
120
140
160
6Y 12Y EngPR EngLLP LGOH APUOH
0
20
40
60
80
100
120
140
160
6Y 12Y EngPR EngLLP LGOH APUOH
¤ AircraftMaintenanceIntervalsvarylittlebetweenNarrowBodyandWideBodyaircraft
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A330 MaintenanceCosts (US$K) B787-8MaintenanceCosts (US$K)
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0100020003000400050006000700080009000
3Y 12Y EngPR EngLLP LGOH APUOH
A320MaintenanceCosts (US$K) B737MaintenanceCosts (US$K)
0
500
1,000
1,500
2,000
2,500
3,000
8Y 10Y 12Y EngPR EngLLP LGOH APUOH
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
6Y 12Y EngPR EngLLP LGOH APUOH
¤ AircraftMaintenanceCostsvarysignificantlybetweenNarrowBodyandWideBody
MaintenanceEventCosts
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A330 MonthlyMaintenanceReserves(US$)
MaintenanceReserveMonthlyCashFlows
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A320MonthlyMaintenanceReserves(US$) ¤ Costsarevalidatedby< Reviewofclaimslessorhashadtodate< CrosscheckwithOEMadvisories< Reviewofreservesrateswhenlookingat
leaseportfoliopurchases
¤ Ratesaresubjecttoannualreviewandescalation
¤ EngineOverhaulandLLPgenerallycountforbetween75%and80%ofmonthlyMaintenanceReserves
¤ OEMFlightHourAgreementseliminatetheEngineOverhaulcashcomponentfrommonthlymaintenancereservecashflowscollectedbylessor
¤ LesseeMaintenanceReserveclaimsnormallytrailcompletionoftheworkbetweenthreetosixmonthsasMRO’sareslowtoissuecompletefinalinvoices
MaintenanceEvents Intervallimit EventCost Rate MonthlyAirframeStructuralInspections 72months 900,000.00$ 12,500.00$ $12,500.00AirframeStructuralInspections 144months 900,000.00$ 6,250.00$ $6,250.00
LandingGearOverhaul 120months 350,000.00$ 2,916.67$ $2,916.67APUOverhaul 8,000hours 350,000.00$ 43.75$ $10,937.50EngineOverhaul 18,000hours 2,300,000.00$ 127.78$ $63,888.89
EngineLLPReplacement 20,000cycles 2,500,000.00$ 125.00$ $62,500.00
Total $158,993.06
MaintenanceEvents Intervallimit EventCost Rate MonthlyAirframe6Y 72months 1,800,000.00$ 25,000.00$ 25,000.00$Airframe12Y 144months 1,650,000.00$ 11,458.33$ 11,458.33$
LandingGearOverhaul 120months 1,000,000.00$ 8,333.33$ 8,333.33$APUOverhaul 15,000hours 750,000.00$ 50.00$ 16,666.67$EngineOverhaul 20000hours 7,000,000.00$ 350.00$ 233,333.33$
EngineLLPReplacement 15000cycles 6,883,950.00$ 458.93$ 61,190.67$
Total 355,982.33$
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A330 Maintenance ReservesCashFlows(US$)
A330MaintenanceReserveCashFlows
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¤ MaintenanceReservebalancesforWideBodyaircraftcanbewellabove$25MM
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ManagingMaintenanceReservesBestPractices¤ Clearlydefinequalifyingmaintenance¤ Lessorapprovalforreimbursableworkscopes¤ Modularapproachtoenginereimbursement¤ Lessorattendanceatrepairfacilitiesduringmaintenance¤ Goodcommunicationtoforecasttimingofmaintenance andreimbursement¤ Annualreviewofrates¤ Aircraftspecificaccountsandcomponentspecificsub-accounts¤ Noco-minglingevenacrosssamelesseefleet¤ Annualreviewofaccountswithreconciliationasneeded
Endoflifeassets¤ RetainMaintenanceReserves inlieuofReturnConditions.¤ EngineandComponentexchanges¤ Flytoexpiration
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OEMMaintenanceAgreementsOEM’shaveenteredmaintenancemarketaggressively.Theseagreementsoffer:¤ Fixedpricemaintenance¤ Longtermagreement¤ Peaceofmind¤ Residualvalueprotections
Agreementscanbe¤ Termbased¤ Eventbased¤ Cradletograve¤ Paidmonthly¤ Paidatmaintenanceevent
OEMagreementsinclude¤ GE/CFMI:OnPoint¤ Honeywell:MCA¤ RollsRoyce– TotalCare/OPERA¤ IAE:FlightHourAgreement(FHA)
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MaintenanceReservePortability¤ Lessorpreferenceistocollectcash:
• Influencemaintenanceworkscope• Usetooffsetoutstandingdebts• Maintainlessorexposureatdealoriginationlevels• Easilyassignreservesfornextlessee
¤ Complexitywhere“PowerbytheHour”Agreementsareineffect:• Qualifyingmaintenancedefinitionandratesmaydiffertolease• Increaseinlessorexposure• Inabilitytooffsetdelinquency• CreditaccruedtendstobeengineandMROspecific• Administrativeburdenwhenassigningcreditduetomultipleparties• NotallPBHagreementsareequal
¤ Endoflife• Abilitytoconvertcredittocash
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RedeliveryandTransitionManagement
CommenceFinalRecords
review
Aircraftexitsserviceand
startsRedeliveryCheck
RedeliveryTechnicalAcceptance
PreliminaryLesseemeetingandBudgetPreparation
DeregisterandExport
Aircrafttonewlessee’sjurisdiction
PreliminaryAircraft
PhysicalandRecords
inspection
Review ofkeyredelivery
documentsandidentifying
potentialissuesFinalPhysicalreviewcommences,next
lesseemodificationsincorporatedifapplicable
¤ LeaseReturnsandTransitionsareacrossfunctionandresourceintensiveprocess.TheTransactionManagementDepartmentandtheTechnicalDepartmentsaremostinvolved
Review ofLease returnrequirementsandforecastupcoming
maintenance
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Leaseterminateswithlessee
Leasecommenceswithnextlessee
12months 9months 60Days 30Days 0Days +0Days
DeliveryTechnicalAcceptance
+0Days
WorkwithAviationAuthoritiesforboththeExportingand
Importingjurisdictions
Review ofkeyredelivery
documentsandidentifying
potentialissues
NextlesseeAuthorityandCAMOrepson
site
10Days
Nextoperatorsauthorityandlessor
airworthinessrepresentativereviewaircraftconditionandrecordstofacilitateimporttonextjurisdiction
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AircraftInspectionandDocumentReview¤ DuringRedeliveryLessorhastherightto
< Physicallyinspecttheaircraft< Physicallyinspecttechnicaldocuments< Observetheongoingredeliverymaintenancebeingperformed
¤ AircraftPhysicalInspection< PerformNosetoTailinspection, internallyandexternallylookingforphysicaldamageorexcessivewear< Ensureaircrafthasataminimuminstalledallcontractedequipment< Participateinredeliverydemonstrationflight< PerformEngineandAPUborescopeinspections< Confirmaircraftisphysicallyairworthyandmeetsspecifiedleasereturnconditions
¤ AircraftRecordsInspection< Confirmaircraftspecificationmatchesthecontractualspecification(Thrust,MTOW)< Reviewmaintenancehistoricalrecordstoconfirmlevelsofpreviously performedwork< Crosscheckaircraftphysicalconditionwithdocumentedphysicalcondition< Confirmaircraftconformstoregulatoryandairworthinessrequirements< Ensuredocumentspackagehasallthatisneededandispresentedinamannertofacilitateaircrafttransfertoforeign
jurisdiction
RedeliveryRisksaremanybutrigorousPhysicalandRecordsInspections shouldhelpminimisiepotentialissues.Oftentimesthebiggestimpedimenttotimelytransitioncanbeinexperiencedcounterparties
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Redelivery Cost Management¤ LeaseEndCoststendtohaveapredictablefixedcostelementassociatedwitheffectingtheredeliveryandavariablecost
associatedwithtransitioningtheaircrafttothenextuser
¤ RedeliverycostsareusuallyafunctionofthesizeoftheaircraftwithWideBodyaircraftcostingmorethanNarrowBodyaircraft,estimatedcostsare:< NarrowBody- $225K< WideBody- $300K
¤ TransitionCostsvarydependingon< Sizeoftheaircraft< Ageoftheaircraft< Aircraftconfiguration< NextLesseejurisdiction< NextLesseemodificationrequirements< LocationofMROperformingmodifications< Timebetweenredeliveryfromreturninglesseeanddeliverytonextlessee< Storageperiodduringtransition
¤ TransitionCostswithnomodificationsrequired< NarrowBody- $100K< WideBody- $150K
¤ Transitionwithlargeamountofmodificationsrequiredcanhaveverysignificantcosts
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