Aircraft Leasing and Installation of Loan or 3rd Party Components. 

If you lease an aircraft, then you are making a legal agreement with the lessor, and they of course will want to maintain their asset and always have financial security of the asset. It means that the aircraft leasing agreement will have conditions for the installation of loan or 3rd Party components. 

This can be a challenge in certain circumstances such as a leased aircraft for example where the title engine needs to be overhauled and the aircraft needs to continue in operation. For this to occur it means the engine must be removed (the title engine that came with the lease) and another engine must be installed. This engine being installed may well be a loan engine or a pool engine for example, meaning it does not belong to the lessee and it might also not be owned by the lessor of the aircraft. 

It means that the asset is now partially compromised regarding the financial security for the aircraft lessor – if they have to repossess for example then they will be not only ceasing their aircraft, but also an engine that might not be theirs. 

This scenario is not rare and so it is covered in the lease agreements, and we have taken some example statements (edited to reduce size and only repeated to illustrate the point): 

Lessee shall be permitted to install any Engine or Part on an aircraft, or in the case of a Part, an engine: 

(i) owned and operated by Lessee or a Leasing Affiliate free from Security Interests; 

(ii) leased or hired to Lessee or a Leasing Affiliate pursuant to a lease or conditional sale agreement and on terms whereby Lessee has full operational control of that aircraft or engine; or 

(iii) acquired by Lessee or a Leasing Affiliate and/or financed or refinanced, and operated by Lessee or any Leasing Affiliate, on terms that ownership of that aircraft or engine, as the case may be, pursuant to a lease or conditional sale agreement, or a Security Interest therein, is vested in or held by any other Person, provided that, in the case of (ii) and (iii) above: 

  1. the terms of any such lease, conditional sale agreement or Security Interest will not have the effect of prejudicing the title and interest of Lessor and Owner to and in that Engine or Part or the interests of the Relevant Parties in respect thereof. 

Now this is only a small sample of some conditions, and the lease is much more comprehensive. 

The example of course puts a lot of emphasis on the phrase “Leasing Affiliate” which would be defined in a contract along the lines of: 

““Leasing Affiliate” means any of: 

(a) a Subsidiary of Lessee; 

(b) an Affiliate of Lessee; 

(c) any other person controlled by Lessee, 

in each case that is, if the relevant person is the operator, or proposed operator of the Aircraft, a commercial air carrier possessing at all relevant times whilst the Aircraft is operated by such person, all necessary authorisations, consents and licences.” 

In summary you can see how the lease is considered to the asset protection and limits exposure by the lessor for eventualities and circumstantial occasions where loan and pool items are used. 

Follow us on LinkedIn and for more and why not consider one of our courses such as the Aircraft Technical Records Course