Aircraft Leasing & Maintenance Reserve Funds

A large amount of the world’s aircraft is leased for operation; this is due to many factors including
costs associated with an outright purchase. If you lease an aircraft out then the cost of that asset you will want to be retained to the highest value so you have a viable asset that you can lease multiple times, convert or sell in the future.
In order to maintain the value of the asset we have a lease agreement and conditions for return and
conditions provided initially.

The lessee will then pay an agreed amount in “rent” while they lease the aircraft.
Aircraft maintenance is mandatory and can also be expensive, to this end we need to consider how
we mitigate risk of exposure to this. What happens if a major check is due after 24 months of
operation and the lessee goes bankrupt 22 months in – this could leave a large check to be
performed with no finding for it.

It is here that we meet something called maintenance reserve funds are commonly known as MRF.
The calculation of Maintenance Reserves is a key negotiation point in every lease and it is basically
the cost of the major check (degradation of components, replacements, scheduled maintenance
tasks for example) divided over a time frame.
The time frames might be a calendar, flight hours, or flight cycles depending on the component and
how its life is measured.

FH = the actual number of hours flown by aircraft over a specified time period from the moment
the aircraft leaves the ground on take-off until the moment the wheels touch the ground on landing.

FC = a take-off and a landing.

This MRF which can be called supplemental rent is paid alongside the lease rent for the aircraft
typically and it builds up over time until the maintenance is due – it can then be released to perform
the maintenance.

By having the money paid in such a manner it means that the lessor has a limited exposure

There are of course many conditions and considerations with MRF; this is a very simple overview of
the function they can provide.

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