IATA Aircraft Lease Guidance

Guidance Material and Best Practices for Aircraft Leases
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Whilst the aircraft under a Sale/leaseback will usually be delivered on a strictly “as-is” basis without
detailed delivery conditions, the lease will normally contain a detailed set of redelivery conditions aimed
at preserving the asset value and remarket ability for the Lessor at lease end. The airline will need to
ensure that it will be able to comply with these redelivery conditions at lease end.
The Lease will also impose new compliance obligations and operational limitations during the term of the
lease which previously may not have existed, such as restrictions on sub-leasing, replacement of parts,
maintenance and certification standards, geographic limitations on operation, financial and technical
reporting, etc. It is important for the airline to understand communicate internally the implications of the
change of status when an aircraft changes status from “airline owned” to “leased”.
It is not uncommon for airlines to make a profit on a sale-and-leaseback transaction. The process can be
applied to both new aircraft (yet to be delivered) and aircraft which have operated for the airline for a number
of years.
4.4 Engine Power by the Hour Maintenance Agreements
Over the last 15-20 years, engine OEMs have been steadily increasing their presence in the MRO market.
Whereas before most engines were being maintained by airline or 3rd party shops, now OEMs cover more
than half of the engine MRO business. OEMs have taken over airline shops as more airlines wanted to focus
on their core business or reduce overhead, or OEMs have set up joint ventures with airline and 3rd party
shops that have now in effect become OEM shops. As airlines try to shift more of the related financial risk
towards the MRO and as they focus more on new aircraft to reduce fuel cost and achieve higher on-wing
times, it becomes more difficult for independent MROs to compete with OEMs.
There are some advantages and disadvantages related to an increasing OEM influence in the MRO market. It
must be noted that most of the listed complexities around all-inclusive agreements are also relevant to non-
OEM all-inclusive agreements, and are more relevant to leased aircraft. Nevertheless, most all-inclusive
agreements are with OEMs, and similar principles apply to airline-owned assets at the point when they need
to be sold and if the airline wants to maintain asset value, as the Lessors want.
Advantages
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Airlines with limited internal resources and technical expertise can outsource the technical management
of their engines to the OEM
Risks associated with new engine designs can be mitigated; lower than expected reliability and high cost
design issues can be mitigated as well
Costs are predictable with scheduled shop visits only as long as the MRO agreement and fleet planning
are aligned and no penalties or additional shop visits apply at fleet exit
Disadvantages
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Complexities around double cash out (reserves and OEM payments) and status of funds at fleet exit
Complexities in entering/exiting engines
50 4 th Edition 2017