IATA Aircraft Lease Guidance

Guidance Material and Best Practices for Aircraft Leases
perspective one can argue that the cost of ADs is fully the Lessor’s risk, because if the aircraft were not on
lease, the associated cost would have been for the account of the Lessor.
Cost sharing formulas in leases are common and the Lessee should evaluate the benefit of such a formula
carefully. Usually, cost sharing mechanisms include a threshold for the sharing formula to be applicable, so
that only ADs over this threshold will be reimbursed. Clearly, it is in the Lessee’s interest to keep this
threshold as low as possible. The Lessee should also carefully review existing ADs which might fall due
during the lease term, as there are several known ADs which are applicable to certain older aircraft (or
applicable to aircraft over a certain flight-hour or flight-cycle threshold), and the required actions to fulfill
these ADs are expensive. This cost sharing is usually limited to ADs issued by the civil aviation authorities
only, and excludes other mandatory changes such as navigation upgrades or noise related modifications, as
they are often linked to the operational area of the aircraft and not to the technical status.
4.1.2 Maintenance Reserves: Payment and Claims
The Lessor and Lessee prepare for the cost of planned maintenance events by agreeing which maintenance
events qualify for reimbursement of maintenance reserves or Lessor contribution (or end of lease
maintenance adjustment where applicable). Where it has been agreed that maintenance reserves are
payable during the lease term, these amounts are regarded as a form of supplemental rent and it is therefore
critical that these amounts are calculated and paid on a timely basis to avoid payment default. The monthly
maintenance reserve amount will vary depending on actual hours and cycles flown each month, and to
enable calculation of the monthly reserves amount payable, the Lessor will usually rely upon the receipt from
Lessee of a utilization report within the first few days of the calendar month, in respect of the preceding
calendar month.
Maintenance reserves will be available for reimbursement against the cost of prescribed events, and
reimbursement will be subject to certain exclusions agreed in the lease. The exclusions usually relate to items
which are not directly related to the time or materials cost of the eligible maintenance or replacement part
(for example shipping, operator modifications, insurable damage, premium labor rates etc.) and which were
not factored into the cost assumption for the relevant event. It is always advisable for the Lessee to
communicate with the Lessor in advance in relation to any planned maintenance for which reimbursement
from maintenance reserves is expected. This can help to ensure that work scopes are agreed ahead of time
and minimize the risk of disputes arising.
Costs covering modifications mandated by ADs are difficult to calculate beforehand. In many leases the
Lessor will agree (as a commercial point) to contribute to the performance of airworthiness directives, and
cost sharing formulas will be set out in the lease to help the Lessor and Lessee come to an agreement
regarding unknown maintenance costs.
At the start of the lease, the Lessor will establish an account for each of the maintenance events identified in
the lease agreement. Maintenance reserves can be constructed in various ways, however, it is often not
possible to transfer amounts between the different accounts during the lease. The maximum claimable
amount will always be the amount accumulated in the dedicated account.
44 4 th Edition 2017