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MRO Costs May Differ Substantially For Leased Versus Owned Aircraft

Airlines and lessors need strong contracts and constant communication.

Troubles at the end of an aircraft lease often stem from the different perspectives lessors and airlines have toward the leased aircraft. These differences can lead to differences in maintenance spending on aircraft an airline owns, versus the ones it just leases.

“It is not easy to quantify the maintenance-cost difference between leased and owned aircraft, but in some cases the difference can be substantial,” explains Tiymor Kalimat, manager of aircraft contracts at Jazz Aviation. One reason for difficulty is that leases vary considerably between operators and may vary considerably within an operator for different aircraft. And MRO costs for leased aircraft depend on the specific contract between airline and lessor.

Nevertheless, some general considerations apply. In setting maintenance policy for leased aircraft, an airline’s main priority is achieving a certain maintenance status of an aircraft toward the end of the lease term. The airline also wants to reduce maintenance costs while complying with regulations.

In contrast, lessors aims to control and protect the value of aircraft throughout their lifespans and facilitate transferability of aircraft from one operator to another. “Maintenance is the main element they have to achieve this,” Kalimat notes.

These conceptual differences can create spending differences between leased and owned aircraft. “Airlines look at leased aircraft as commodities, and their main goals are operations and reducing investment,” Kalimat says. “Lessors consider aircraft assets, and their main goal is value and return on their investment.”

Airlines may take the same attitude as lessors toward their owned aircraft, maximizing asset value, but not toward leased aircraft. To ensure this asset-preservation approach is applied to leased aircraft, lessors need to specify value-preserving maintenance policies in lease contracts.

And then both sides, lessor and airline, need to make sure these policies are followed. The Jazz manager says this means setting up an interactive channel of communication between the lessor and the airline’s technical division as well as other concerned divisions. “Establishing communication as early as during initial lease negotiations and continuing until aircraft redelivery will ensure that all departments are aware of lessor expectations and what is required to meet lessor goals.” This ongoing communication between airline and lessor during lease term is essential to clarify any ambiguities in lease terms and conditions well before the end of the lease term.

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