An increasing proportion of commercial aircraft are leased rather than owned by airlines that operate them. This reliance on leasing has brought carriers major benefits, including more flexibility in fleet planning—especially in economic downturns—and better financial ratios. It is thus highly desirable that leasing be made as economic as possible, avoiding unnecessary cost and delays.
But that is not happening today, particularly at lease-end. When it is time for an airline to return equipment to the lessor and to prepare it for the next operator, the process—one that should take a couple of months—can stretch out to several times that period. And costs mount as time passes.
There are many reasons why end-of-lease processes are so expensive. Some originate in the highly varied regulations that affect aircraft in the many jurisdictions where they operate. These and other challenges are worsened because some airline lessees do not take lease-end obligations seriously enough, early enough.
“The biggest problem is failure to plan, which is really planning to fail,” summarizes Patrick Ryan, senior vice president and chief technology officer for Aviation Capital Group. “Aircraft owners and airlines and maintenance shops are not on the same page on their contractual obligations. Then things spiral out of control.”
Airlines’ record-keeping staff often lack the time or expertise to meet the high and possibly different standards of documentation required for lease return. Ryan suggests hiring an outside company six months ahead of lease return to assemble required documentation.
Airline maintenance managers may view the lease-return check as another C check, with deferral of some items. But lease-return checks must be done to higher standards than ordinary Cs. Even simple things like carpet cleaning must be done thoroughly. When simple things are missed, Ryan says, complex obligations will surely cause problems.
Such obligations sometimes spring from different regulatory regimes around the world. Regulators differ as to records required, the transferability of engineering changes and in different equipment required in some jurisdictions.
EASA and FAA require Form 1 or 8130 for on-condition parts for two or three years. Other regulators may require these documents for every part over a longer period. “I need it for all parts because the aircraft may go anywhere in the world,” Ryan emphasizes. If the form is missing or lost, a wasteful component overhaul is required.
Lack of standardized, digitized records creates problems. Paper documents on older aircraft fill 50 to 60 boxes, and handling them is expensive. EASA and FAA have some provisions for digital records, but digital record formats are far from universal.
EASA requires equipage for Sesar’s air traffic management and navigation, while North America and Asia do not. Transferring between regions therefore mandates this modification as part of the lease transfer.
Ryan says even the same national regulatory agency sometimes applies different inspection standards to different airlines, being stricter with smaller carriers than with long-established majors.
Even with proper documents, components may have to be overhauled before they are due. Leases generally require that all components on an aircraft have at least 6,000 hr., 4,000 cycles and 24 months left on them. Equivalent to a C check interval, these minimums assure the next operator that a component does not need to be removed before the aircraft goes into the hangar for a heavy check. “It’s pretty standard; the next guy gets it new like you did,” Ryan notes.
Engines, APUs and landing gear may have to be removed for overhaul, depending on aircraft age. Landing gear are overhauled based on calendar time, APUs based on condition revealed in borescope inspection and engines according to usage.
Airlines generally plan well for engine overhauls, as these are costly. But when an engine comes off-wing for overhaul, it takes 60 to 90 days. Aircraft and original engines must generally be reunited before moving on to the next operator. Ryan estimates that major systems like engines have to be removed from the aircraft about 40% percent of the time.
GE and CFM Services tailor long-term engine support agreements to make it easier for carriers to enter or exit when an aircraft changes operators. And CFM has introduced Portable Maintenance for Leasing (PML) for continuously leased aircraft. PMLs allow small and mid-sized operators to pay maintenance reserves once, not twice, to obtain the protection of OEM hourly support. GECAS and one carrier have signed up so far, and five other airlines are interested.
Ryan says PML may help operators financially, but it does not affect treatment of engines at lease return. As with APUs, landing gear and other components, the next operator must be given fresh equipment with plenty of life left in it.
Failure to plan for all these requirements leads to inadequate records or insufficient maintenance, and the deficiencies must be remedied. Ryan reckons a well-planned lease return should take only six to eight weeks and cost his own company only 120 person-days of effort. But ill-planned returns can take six months to a year, and can be very costly for the lessee. “At $300,000 per month, that’s up to $3.6 million, on top of the maintenance,” Ryan notes.
Enda Clarke, chief technical officer at Santos Dumont, strongly agrees with Ryan. “The first major issue is planning.” Clarke says planning should ideally start when the lease begins, but must start at least a year before return.
“They have to look in detail at the redelivery conditions, what maintenance has to occur and what qualifying maintenance events are,” Clarke stresses. The first object of solid return planning is to meet minimum redelivery conditions. Carriers also can seek to meet somewhat higher standards by drawing on their maintenance reserves; that is, they deposit MRO reserves with the lessor, and are allowed to draw some of them back if they meet certain above-minimum conditions. “Go to the lessor, be open and honest,” Clarke urges. “There are cost savings to be had.”
Some operators start planning for return three months out, thinking it requires an ordinary C check. Clarke says there is much more to be done. Additional work may include removal of engines, APUs and landing gear. Engines are generally reunited with aircraft. APUs and landing gear may not have to be, but it is desirable.
Engines require at least borescope inspection, maximum power assurance (MPA) runs and tests of exhaust gas temperature (EGT). Return checks on airframes can include re-inspection of structural repairs, cosmetic fixes, overhauling seating and repainting. “These things can take an extra week, or $100,000,” Clarke notes. “Planning for them is critical.”
Components generally need to have 24 months left to overhaul, and certification tags. “If you lost the tag, you must overhaul or replace the component,” Clarke says.
Clarke sees programs like CFM’s PML as increasingly prevalent, noting that Rolls-Royce offers a similar product. He hopes for benefits. “It sounds good in principle, but it’s new, only three or four years old.” And PML does not change redelivery conditions. “Engines should still have 4,000 flight hours left and pass their borescope and EGT tests.”
Clarke says the global regulatory environment also makes lease return more difficult. “Europe has air traffic control equipage requirements, others don’t. China requires head-up displays. These are high-cost modifications.” Owners pay for these modifications, but they are most efficiently done during redelivery checks, another reason for collaborative planning by lessor and lessee.
Different aviation authorities seek different documents and follow different procedures. “Some let aircraft come into their country on a temporary registration, then do a full inspection when it arrives,” Clarke says. “Others come in and do a week of inspection in the exporting country, which causes headaches.” Like Ryan, Clarke sees different inspection approaches used even by staff within the same country.
Clarke believes globally accepted digital documentation would help “hugely” in easing burdens. European carriers are moving ahead with digitized records, but China and Southeast Asia, the fastest-growing aviation markets, lag behind. “We are running a hybrid system of paper and digital records now and not saving money. But we must standardize first, then digitize.” Santos Dumont is working with IATA on standardization and digitization, but Clarke is not sure things will change much in the next 5-10 years.
Tony Diaz, president of CIT Commercial Air, cites different national regulatory requirements for maintenance, technical status and records as a major cost driver. Just reviewing new national requirements before transfer takes time and money and makes transitions more difficult. Uniform regulation would ease transfers, he argues.
EASA and FAA are more closely aligned than authorities elsewhere, “but even these are not perfectly synchronized,” Diaz notes. Different document needs flow from different requirements or enforcement methods. Aligning requirements and enforcement would thus remove this problem.
Diaz says it is unfortunate there is still no standardized, digitized record template. “It’s on the way and overdue. This area cries out for standardization.” Lacking standard templates, all parties require documenting everything to avoid risks when moving assets.
Diaz urges the industry to move toward clearly defined international regulations—one template for documents and one standard for parts. But he expects the path will be a long one.
To see our guide to major airframe and engine leasing companies go to AviationWeek.com/Leasing
A version of this article appears in the November 3/10 issue of Aviation Week & Space Technology.