Airlines could collectively be spending an extra $2 billion on lease return costs by failing to scrutinize redelivery conditions and processes, according to a new International Bureau of Aviation (IBA) white paper on redelivery expenditures.
IBA analyzed manufacturer’s maintenance planning document (MPD) requirements and found that lessors’ requirements often go beyond the airworthiness tasks called for in the MPD, said CEO Phil Seymour, on the sidelines of MRO Europe Oct. 14.
Some of the additional heavy maintenance and engine costs could be paid for via maintenance reserves, depending on what the airline negotiated. (Many large airlines typically do not pay maintenance reserves, in which case they would pay redelivery charges outright.)
A typical narrowbody aircraft such as a Boeing 737 or Airbus A320 on a six-year lease averages $1.65 million in additional costs per airplane, says Seymour. Given that 522 single-aisle aircraft were returned to lessors last year, this equates to $861.3 million last year.
For widebody airliners, the IBA study pegs the additional cost at $3 million for aircraft such as an Airbus A380 or Boeing 777.
Turboprops and regional jets incur an average overpayment of $500,000 per redelivery, according to the IBA survey.
The consulting company’s most recent survey broke out redelivery expenses into major categories covering engines, components, interiors, landing gear, corrosion and more.
Engine maintenance accounts for the largest portion of extra cost—at 35.3%—or an average of $350,000 per narrowbody aircraft on a six-year lease, because, IBA says, it is the hardest 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 x-amount of hours, or cycles, since that cannot be argued,” the consulting firm states.
Components represent 15.3% of the extra costs for narrowbody aircraft redeliveries. Life-limited parts often have to be pulled off prematurely because leasing agreements require ones with more minimal cycles of hours, says Seymour.
Landing gear, wheels and brakes alone can cost an average of $50,000 per narrowbody jet because airlines need to remove these elements early to satisfy lessor’s mandates that they have at least half of their useful life left.
Seymour says structural repairs are also problematic—typically because airlines must review old repairs, often without benefit of the original paperwork. “A review of redelivery work packs averages this cost at $150,000 per aircraft” to cover the additional repair, says Seymour.
“Airlines need to manage the redelivery process better,” and they should ideally start focusing on redelivery when they are negotiating the initial lease, he says. Planning for an end-of-lease check too late can cause airlines to miss their return delivery and incur months of extra costs.
Given that airlines don’t generate high-profit margins, this really is wasted money.