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Wringing The Waste Out of Lease Return Costs

IATA moves to shave paper costs, IBA sees waste in excess MRO too.

Paper documents can add up to a half-million dollars to lease transitions, according to Frost & Sullivan. IATA, among other organizations, is working to reduce this and other burdens of paper documents, according to Chris Markou, the association’s head of operational cost management.

IARA’s vision is that by 2020, all new aircraft will be delivered with digital documents that can go directly into the management information systems of airlines. These e-docs would be in formats such as XML, not paper or PDFs or Excel spreadsheets, as have been used in the past.

For older aircraft, IATA sees paper docs still going into heavy maintenance checks, but eventually, when aircraft come out of heavy visits, all certificates and work records should be in digital form for automated entry to the operator’s management information system. This procedure would put an additional burden on heavy-check providers, and Markou acknowledges it will be a long transition to the new methods. “It’s like e-ticketing, except more complex and with more stakeholders.”

Meanwhile, if a national civil aviation authority tells a lessor that electronic records are not acceptable, the IATA exec says the authority should be informed that ICAO, the international regulators’ club, says digital records are acceptable.

But paper documents are not the only time- and money-waster in lease transitions, and these transitions are becoming more and more significant.

Peter Walter, director of asset management at IBA Group, projects that up to half of the world’s airline aircraft will be under operating leases by 2020. His colleague, head of aircraft transactions Guljar Lehri, estimates that airlines still spend about $2 million more than they need to in returning leased narrowbodies and a whopping $4.5 million unnecessarily on widebody returns.

One big reason for waste: without a well-managed MRO plan throughout the lease, carriers spend more on maintenance than the lease terms require. For example, a lease may require redelivery with only a half-life engine, but the returning operator gets a full engine overhaul for the equivalent of a brand-new engine before return. Overall, Lehri estimates, airlines overspend by about $1.2 billion a year on getting aircraft ready for lease transitions.

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