An engine shop visit (SV) is typically when an engine is sent to an overhaul shop for a form of
maintenance which can be scheduled or non-scheduled depending on the situation. In some cases
repairs or works can occur on wing or at a local facility such as borescope blending of blades or top
case repairs when internal access to the engine can be achieved locally.
The maintenance reserve funds we have considered to date and seen how they can help the lessor protect the asset; we have also reviewed some of the considerations that they will be aimed at covering.
Of course, the fund is to perform maintenance and once the maintenance is performed then the fund can release money for this. Essentially the fund is an insurance policy for the lessor of sorts; but the money ultimately is for maintenance, once it is performed then the fund can be in part drawn down for this based on the accomplished maintenance.
Last week we looked at what maintenance reserve funds were as a concept and how they help to
protect asset value and maintain limited exposure for the lessor in the event of an early hand back
or repossession taking place.
The maintenance reserve fund we have seen in the prior posts is a benefit to the lessor in that it
affords them financial security and reduces their financial exposure to an asset.
The maintenance reserve fund is an agreed sum of money paid alongside the lease cost for “renting”
the aircraft based on the future maintenance costs during your operation period.
It can mean that you are now paying a lease cost for the rent of the aircraft and a maintenance
reserve fund alongside this, which can be called supplemental rent. While you can claim back the
money paid into a reserve fund based on maintenance carried out, there is a lot of finance tied up in
such an operation.
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.