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Airlines Wasting Billions On Extra Lease-Return Costs

Airlines could be overpaying an average of $1.65 million per narrowbody when redelivering aircraft to lessors, according to a new International Bureau of Aviation (IBA) white paper.

LONDON—Airlines could be overpaying an average of $1.65 million per narrowbody when redelivering aircraft to lessors, according to a new International Bureau of Aviation (IBA) white paper. 

 

With 522 single-aisle aircraft returned to lessors last year, this equates to $861.3 million. The expenditure would be higher—up to $2 billion—if widebodies were added, because IBA’s database shows that 895 total lease returns occurred last year. The IBA study pegs a Boeing 777 or Airbus A330 each incurring more than $3 million of additional cost at redelivery.

To get this data, IBA compared manufacturer’s maintenance-planning document (MPD) requirements, and found that lessors’ requirements often go beyond the airworthiness tasks required in the MPD, IBA CEO Phil Seymour said.

Engine maintenance represented the biggest bucket of costs at 35.3%—or an average of $350,000 per aircraft—because IBA says it’s the hardest part to manage. “Proving life remaining for an on-condition part can provoke disagreement given its predictive nature. Many leases are written on the basis of no more time since refurbishment than ‘x000 hours,’ or cycles, since that cannot be argued,” according to IBA.

Components represent 15.3% of the extra costs. Life-limited parts often have to be pulled off early because leasing agreements require ones with more-minimal cycles of hours, Seymour said.

Landing gear, wheels and brakes alone can cost an average of $50,000 per aircraft, because airlines need to remove them early to satisfy lessors’ requirements of having at least one-half of their useful life left.

He says structural repairs are also problematic—typically because airlines must review old repairs and sometimes cannot find the paperwork. “A review of redelivery work packs averages this cost at $150,000 per aircraft” to cover the additional work, Seymour said.

“Airlines need to manage the redelivery process better,” and they should ideally start focusing on the redelivery when they are negotiating the initial lease, Seymour said. Starting to plan the end-of-lease check too late can cause airlines to miss their return delivery and incur months of extra costs.

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