Millions of dollars can be wasted on each aircraft lease return if not appropriately planned, and leasing companies and lessors have very different perceptions about late redeliveries.
Based on an International Bureau of Aviation (IBA) study on closing the perception gap between lessors and lessees, obtained exclusively by Aviation Week, more than 80% of lessors believed that their lessees engaged in the lease return process too late more than half of the time.
On the flip side, IBA CEO Phil Seymour says the survey also found that lessees think they are engaged early enough so it’s a complete mismatch. “Lessors know the process and do this every day,” whereas many airlines do not have dedicated aircraft or engine redelivery teams and the personnel managing the process also have their day-to-day technical airline responsibilities, says Seymour.
One thing is paramount: with 44.4% of the late redelivery reasons being underestimated effort, “Airlines need to understand the commercial agreement,” he says. Lease agreements usually require conditions that are above that needed for an airline’s operational functions, such as detailed history of life limited parts.
IBA plans lease returns two years out, with several steps—from analyzing redelivery conditions to preliminary engine and APU borescope inspections to aircraft records review--15 months before delivery.
Following underestimating efforts, the second reason for late redeliveries, according to the survey, is unscheduled repairs and borescopes, at 27.8%. One point complicating this is that some OEM total care agreements do not account for the leasing borescope inspection requirement outside of the normal program, so this is done as an extra cost if not detailed in the OEM agreement.
On a related note, the IBA study found that the two most challenging parts of the aircraft to redeliver on time and on budget are records (52.8%) and the engine (30.6%). Most records issues were related to engines.
Seymour says a typical lease return overspend is $1.65 million, with $600,000, or 36%, being attributed to engines, according to Seymour.