IATA Aircraft Lease Guidance

Pre-Delivery
limit, however it will always be a matter for the other party whether to enforce or waive any CP requirement.
Certain CPs are by their nature non-negotiable although this can sometimes even be narrowed down to
receipt of payments and insurance certificates only:
●
●
●
●
Payments (security deposits, commitment fee, first rent, etc.)
Provision/creation of letters of guarantee, credit or other credit enhancement instruments in place
Receipt of the insurance certificate and broker’s letter of undertaking
Receipt of certain key documents (e.g. deregistration, Power of Attorney, proof of legal capacity to enter
into the lease with supporting legal opinion, board approval resolutions)
A lease agreement typically also includes at least the following conditions precedent:
●
●
●
No total loss of aircraft
Lessee satisfactory inspection of aircraft and documentation within an agreed timeframe
Aircraft being in agreed delivery condition
2.4 Insurance
The requirement for the Lessee to procure and maintain hull and liability insurance is one of the most
important requirements from a Lessor perspective; consistent with the principle that Lessee assumes all risk
associated with the operation and us of the aircraft during the lease period. Hull insurances provide coverage
for the value of the Lessor’s asset in the event of physical damage to or loss of the aircraft (including records
and any removed engines or parts). Liability insurances provide coverage for general legal liability, including
Third Party, Passenger and baggage legal liability, with the Lessor and any parties.
The two broad types of insurance commonly required by an aircraft lease agreement are hull insurance and
liability insurance.
2.4.1 Hull Insurance
Typical hull insurance may be defined as the policy covering damage or loss to the aircraft. In the event of
physical damage to the aircraft, in which case the insurance policy will cover restoration of the aircraft to the
condition it was in before the damage occurred. Should the damage to the aircraft be irreparable (a total loss
has been incurred), then the hull insurance will typically provide a fixed payment in accordance with the
agreed hull value.
The insured hull value will typically seek to match the higher of market value or “agreed value”, the latter
usually reflecting a premium over Lessor’s book value during the lease period. Upstream financing
requirements may also impact the agreed hull value required to be specified for insurance purposes during
the lease term and in some instances may result in an inflated insurance value relative to market.
In this case, it is advisable to the Lessee to negotiate these levels down, until they are as close as possible to
the actual market value or to seek a contribution from the Lessor would to a portion of the insurance
4 th Edition 2017 9