Problems Loom When Lean Operators Take On Leasing Complexities

By Jim Mathews
Source: AWIN First
April 17, 2013
Credit: AirAsia

Many of the airlines most likely to lease equipment lack the expertise and infrastructure needed to avoid unexpected costs and work when it comes time to return the aircraft, a problem likely to grow more acute as leased aircraft account for more of the world’s in-service fleet.

“Keeping lease-return costs down requires planning before the asset even hits your books,” says attorney Morris Little of Taylor/English, who was an aircraft mechanic for 12 years before turning to aviation law and specializing in lease transactions.

Getting it wrong can cost an airline millions of unexpected dollars, and create headaches such as the need for refurbishment, removal of modifications and a scavenger hunt for parts and documentation.

Leased aircraft today account for around 40 percent of the active commercial fleet in service, and orders and deliveries are on a trajectory that could push that to 50 percent within a decade, analysis from Aviation Week’s Fleet and MRO forecasts suggests.

A dozen speakers wrestled with the problem in three panel sessions during the past two days at Aviation Week’s MRO Americas conference in Atlanta. All agreed that homework—before the lease-return and even before making the decision to lease—makes the difference between success and failure.

But after the presentations of prescriptions ranging from electronic documentation, a disciplined and rigorous review process and dedicated resources, discussions during the sessions and on the sidelines of the event revealed that those who might benefit the most may be in the worst position to heed that advice.

One attendee from Boeing Capital noted that in his experience smaller, less-sophisticated lessees can struggle with those reviews and processes: “Many Tier 2 and Tier 3 airlines are too lean” to be able to put the evaluation work in upfront.

Speaking on April 17, Morris agreed, adding that these operators, who are typically charters and smaller cargo operators, often don’t know their fleet needs early enough, and may find themselves needing an aircraft in two months—and that leaves little time for planning.

Planning doesn’t end when the aircraft is in service. Getting ahead of the game before returning the aircraft is crucial. Aviation Independent Consulting’s Managing Partner, Gilles van Hovell Tot Westervlier, delivered the startling recommendation that re-delivery planning should begin as much as a year ahead of time.

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