IATA Aircraft Lease Guidance

Section 4—Operations
1
Background
2
Pre-delivery
3
Delivery
4
Operations
5
Redelivery
While the previous chapters have provided guidance on issues to consider before committing to a lease
agreement, this chapter will explain what to focus on during the lease period. In this period, most issues will
be maintenance-related.
The Lessor will seek collateral for the cost of planned maintenance events by having the Lessee pay
additional funds into the maintenance reserves (if applicable). The Lessor must receive the payment for
maintenance reserves in time. The Lessee should avoid defaulting on these payments, because in the worst
case scenario, default can lead to termination of the lease. However, because the Lessee pays the Lessor in
advance, the Lessee has to carefully consider when to claim maintenance reserves, if a certain maintenance
event is due to occur.
Costs covering modifications mandated by ADs are difficult to calculate beforehand. Therefore, cost sharing
formulas are provided to help the Lessor and Lessee come to an agreement regarding unknown maintenance
costs. This will avoid discussion between both parties during operation of the aircraft by the Lessee.
4.1 Alterations in Obligations
4.1.1 Cost Sharing Options
Cost allocation becomes an issue once costs are made by a specific operator and depreciation is required
over a certain timeframe, during which multiple operators make use of the aircraft. This would not cause any
complications if the time of accomplishment of such an event in the future is known, as for example for
landing gear replacements or specific maintenance events. Complications arise for events that are unknown
at the start of the lease, such as is the case for ADs.
Whenever there is an unsafe event, the airworthiness authorities may prescribe an AD. This document often
requires performance of a mandatory modification or repetitive inspection, in order to maintain continued
airworthiness of the aircraft.
Without cost sharing formulas, the cost of this modification is for the Lessee, while it cannot fully enjoy the
benefits of such a modification as this safety improvement is applicable to the entire life of the aircraft, while
the Lessee may only operate the aircraft for a limited period (this is specifically apparent with short term
leases). The Lessor will often argue that Lessee should cover the cost related to local regulatory mandated
modifications, in particular if these regulations are not applicable to any other jurisdictions. From a Lessee
4 th Edition 2017 43