IATA Aircraft Lease Guidance

Guidance Material and Best Practices for Aircraft Leases
the security deposit would only occur well after lease expiry. It is preferable that the parties agree a limited
timeframe for return of a deposit, between 5 to 30 days following lease expiry, provided all actual payment
obligations have been satisfied by Lessee and no event of default has occurred or is continuing.
While most of the “credit” focus will be on the creditworthiness of the Lessee, it is important for Lessee’s to
consider the financial capacity of the Lessor, particularly where the Lessor entity is holding significant deposit
or maintenance reserve amounts which will need to be repaid to Lessee at lease expiry. The Lessee should
look to verify Lessor’s net worth at lease commencement by way of representations and evidence by way of
financial accounts, and the lease should outline, amongst other Lessee protections, a minimum net worth
requirement, agreed between the parties, which must be satisfied by any new Lessor (or guarantor) in the
context of any Lessor transfers, assignment or novation during the lease period.
The lease can also be structured so that the Lessee pays higher rent at the beginning of the lease, e.g. double
rent for 3 months, and then zero towards the end of the lease e.g. last 3 months rent free. All these structures
will vary between different Lessors and Lessees.
2.5.3 Rent
The rental fee (“Rent”) is the consideration given by the Lessee to the Lessor for use of the Lessor’s aircraft.
The rental fee is most commonly paid monthly, in advance, and can be structured in a variety of ways
depending on factors including the creditworthiness of the Lessee and the financing arrangements in place
for the aircraft. While a fixed Rent paid monthly in advance through the lease period is most common, Rent
may also be variable on a monthly, quarterly, annual or other basis, in advance or in arrears, based on agreed
reference indices and adjustment factors. Ultimately this is a commercial matter to be agreed between the
parties.
2.5.4 Supplemental Rent or Maintenance Reserves (if applicable)
The underlying principle governing the operating leasing approach to aircraft maintenance costs is “user
pays”. The Lessee will be responsible for all day to day maintenance costs incurred during the lease period,
and will also be required to contribute to future maintenance events on a basis proportionate to the Lessee’s
utilization of the aircraft within any applicable maintenance interval leading to a significant maintenance or
replacement event. Maintenance reserves constitute security held by the Lessor against the decreasing
maintenance value of the aircraft, and the corresponding increasing maintenance cost exposure during the
lease period. Maintenance reserve amounts are calculated by reference to flight hours, flight cycles or
calendar time consumed (whichever is the relevant factor for the particular item of equipment) and as a
proportion of the estimated cost of (future) specified maintenance events. The objective of both parties in
agreeing provisions relating to maintenance reserves is to adequately cover the anticipated cost of labor and
material used for the specified maintenance event. There are various types of maintenance reserve events:
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Fixed interval
Flexible interval
12 4 th Edition 2017