In the “Mid-Lease” or “Mid-Term” Inspections as we looked at in a prior post we have to consider certain areas of the aircraft for the lessor.
This information and data is used to market the aircraft as it is part way into the lease and can be used to get new customers lined up for the aircraft when it will be available at the end of the lease period.
During the asset Life-Cycle the lessor has a duty to carry out aircraft due diligence on a periodic basis at a frequency agreed in the Aircraft Lease Agreement, this due diligence is commonly referred to as the “Mid-Lease” or “Mid-Term” Inspections.
In advance of the mid-lease inspection if representing a lessor or owner then it is important to define the required scope of what data needs to be collected.
The requirements have changed significantly over the years and in particular the volume of Technical Records required has increased.
The checklist is broken down into several areas and we will consider these over a series of posts.
First of all we can consider an agreement commonly referred to as the Cape Town Convention 2001.
The Cape Town Convention (2001) is often referred to during an Aircraft Repossession and has circa 80 countries as members. Within this we can consider the “Matters Specific to Aircraft Equipment” and the aim of the Protocol is to protect the title and security interests in the aircraft and engines.
The Protocol brings speed, certainty, and cost savings to the process of repossessing aircraft and engines on an insolvency or other default, particularly where these assets are in a country whose legal system would otherwise give cause for concern in such matters.
When you lease an asset such as an aircraft, the value is large and as such constant oversight and many financial considerations are required.
For example, you can insure the asset against loss of value, you can mitigate the risk of unpaid maintenance through the use of maintenance reserve funds (MRF) – this means along side the monthly lease costs for the aircraft a second charge often referred to as supplemental rent is paid which is a breakdown of the expected costs of maintenance as per the usage of the aircraft.
While maintenance reserve funds are used in a cycle – lessee pay to lessor and then when maintenance is carried out the lessor releases money to lessee in a very simple overview it is not enough to compensate for all risks.
