IATA Aircraft Lease Guidance

Pre-Delivery
in certain circumstances, typically subject to the conditions precedent (see 2.3) of the finalized lease
agreement.
When drafting the LOI, the Lessee should make sure that the Lessor has identified and detailed any key lease
restrictions or operational limitations which may result from the particular ownership or finance structure
(such as limitations on operation of the aircraft in certain jurisdictions, often associated with leveraged lease
financing structures. It is important that both parties identify and assess these restrictions early on, as some
of them could be deal-breakers (i.e. where the Lessee wants to operate in a severe environment and there is
a financier covenant on the Lessor regarding operational location of the aircraft).
The key terms of an LOI usually deal with at least the following topics:
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Formal description of contracting parties
Aircraft details and Engine details
Scheduled delivery date and lease term including early termination or extension options
Delivery/Redelivery location
Delivery and redelivery conditions (including minimum life requirements, airworthiness compliance,
delivery inspection procedures)
Insurance requirements (including hull agreed values and liability lower limits)
Rent, deposit/commitment fee, and other payments
Maintenance compensation mechanism (monthly reserves, end of lease adjustment, full life, half-life, etc.)
Pre-approved permitted subleases, wet-leasing and charter rights
Maintenance, operations, and records
Airworthiness compliance standards (including any AD cost sharing)
Pre or post-delivery modification (and any cost sharing)
Conditions precedent to the effectiveness of the LOI (i.e. board approvals, preliminary inspection)
Definition of any key terms that will apply in the lease, including the eligible maintenance events for
maintenance reserves reimbursement
Regulatory / registration regime
Governing law
Confidentiality
2.2 Representations and Warranties
Representations and warranties are often grouped together in a lease agreement. Representations are
statements of fact designed to induce a counterpart to enter into the transaction. Warranties are conditions
upon which the contract is to take effect.
4 th Edition 2017 7