Aircraft Leasing & Transitions – Risk, Airline Operations Concerns and Repossession Deliverables.
Most Aircraft Lessors will have a Risk Department as part of the “deal team” that perform due diligence on the airline before the aircraft goes on lease.
The Technical team will have responsibility for performing the Mid-Lease Inspections during the lease period and remember that the MRF department will be monitoring utilisations (hours/cycles) submitted by the airline each month.
The Risk Department will perform due diligence and assessment of the following.
Ø Credit rating of airline.
Ø Existing fleet, age, renewals, orders.
Ø Evidence of late or non-payment of rent or maintenance reserves.
Ø Failure to pay suppliers or MRO.
Ø Management issues.
Ø Relationships with lessors, look at return history (on-time?)
Ø Country risk, stable, any recent political, economic, or regulatory changes.
Ø Cape Town Convention ratified?
Ø Recent route changes or cancellations.
Ø Recent changes in management. During the operation of the lease a lessor will maintain frequent and regular communication with the airline in order to manage the relationship in a professional manner but also to “stay close to their asset”.
The lessor will look at the following as a potential reason for concern.
Ø Communication from airline slows down or stops.
Ø Routes start to be cancelled or changed at short notice.
Ø Financial reports indicating evidence of cash flow issues and/or results not performing.
Ø Maintenance issues or payment issues to MRO providers.
Ø Flight Crew blogs indicating “unease”.
Ø Utilisation reports being received less frequent
Ø Access for physical or records inspections being denied.
Ø Changes of senior management.
Ø Geo-political stability of countries that airline flies into.
It is important to note that repossessions are a complex, unpredictable, and costly event for a Lessor.
The repossession event requires dedicated pre-planning with potential involvement of lawyers in multiple jurisdictions and requirements for court applications.
The Lessor will set out a set of “Deliverables” for a successful Repossession of the aircraft that would include.
Ø Recovery of aircraft, engines, and technical records in a timely manner.
Ø The event should follow a defined plan that comes in or under budget.
Ø There should be little or no liability.
Ø Third party liens should be avoided.
Ø Legal costs should be avoided/mitigated.
Ø Asset value should be preserved for onward lease, sale or part-out.
At IALTA we hope that these events are rare, but our Technical Records Training Programme will ensure that you retrieve all the required paperwork and allow you perform a review to determine the gaps that need to be closed for the aircraft to deliver on to a new lessee. Check us out at https://ialta.aero/aviation-courses/technical-lease-training-programme and follow us on LinkedIn