Take Risks Out Of Lease Returns And Save Money

The International Bureau of Aviation (IBA) surveyed the industry and found that airlines spend $1.65m, on average, on extra costs related to each narrowbody redelivery to lessors.

If I could tell an airline executive how it could add millions of dollars to its bottom line fairly easily, do you think it would listen?

Pay more attention to lease return conditions—and start about two years in advance. Some airlines already do this, but the International Bureau of Aviation (IBA) surveyed the industry and found that airlines spend $1.65m, on average, on extra costs related to each narrowbody redelivery to lessors. Overspend on widebodies can be twice that. 

This news shouldn’t shock you: groups such as the Aviation Working Group--whose members include lessors, financiers and manufacturers--have been working for several years on trying to develop harmonized regulations and procedures to efficiently transfer, certify, import and re-register aircraft in different jurisdictions.

The International Air Transport Association’s (IATA) Aircraft Leasing Advisory Group is working on similar redelivery activities and released the 3rd edition manual “Guidance Material and Best Practices for Aircraft Leases” in February that covers technical issues related to the aircraft leasing cycle—from common misunderstandings to legal conditions.

It also is working with ICAO on acceptance of electronic signatures, as well as surveying the industry to ascertain the feasibility of creating a registry for showing the ownership of life-limited parts, says Chris Markou, IATA assistant director of engineering and environment. LLP traceability and “back to birth” records requirements in leasing agreements can vary widely. 

With so much activity, among others, designed to improve the lease return process, what else can be done?

The IBA survey clearly spells it out. Three clear problems are communication, not understanding what’s required and underestimating the effort. IBA CEO Phil Seymour says more than 80% of lessors believed that their lessees engaged in the lease return process too late more than half of the time, but the survey also uncovered that lessees think they are engaged early enough. 

“Airlines need to understand the commercial agreement,” which usually require conditions that are above that needed for an airline’s operational functions, such as detailed history of life-limited parts, says Seymour.

He points to a redelivery process that cost an operator $8 million of extra charges across five aircraft, primarily due to problems caused by time-zone difference delays and miscommunications. “Creating simple, centralized procedures” at least 15 months in advance of the redelivery would have prevented the delays, says Seymour.

Which areas are most challenging to redeliver on time and budget? The IBA survey found records (52.8%), engines (30.6%), interiors (6.9%) and fuselage (6.9%) to dominate the problems. “A straight-forward means of avoiding a records-related delay is to conduct an audit to analyze the gap between the lease requirements and the current state of the records,” says IBA.

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