IATA Aircraft Lease Guidance
Guidance Material for aircraft leasing Guidance Material for aircraft leasing
Guidance Material and Best Practices for Aircraft Leases●In case the airline prefers a pay per event type of agreement but desires increased cost predictability, aprocess of internal accrual should be adopted, based on the rates and coverage of the maintenanceagreement in place.4.4.2 Entry/Exit Options and Number of Shop VisitsRates that are offered by the OEM are conditional upon specific operating conditions, maintenance practicesand the hardware standard of engines. It is therefore not always possible to just enter additional engines intoan all-inclusive agreement with the OEM. For new engines, this is not a problem, but if the airline wants toadd used engines into the agreement, then it becomes a lot more complicated. If the parameters of theengines to be added are significantly different from the assumed parameters, the airline will need to do aqualifying shop visit on the relevant engines before they are included into the OEM agreement. Suchqualifying shop visits will usually be charged on time and material basis and are usually significantly moreexpensive than the airline is accustomed to.Rates that are offered by the OEM are also conditional upon a certain volume of engines expected to berefurbished and on whether it is the 1st, 2nd, 3rd or subsequent performance restoration shop visit. It istherefore not always possible to remove engines from the agreement at any time. An airline could well end upin a situation whereby they have decided to remove an aircraft from the fleet early but they are still obliged tosend the engines for a performance restoration shop visit under the OEM agreement. On the other hand, alease may have been extended but the OEM agreement for the relevant engines will expire if the maximumnumber of shop visits is reached.Options to address these issues with an OEM maintenance contract:●●●●●The issues explained could potentially be addressed by a tripartite or Lessor controlled agreement withthe OEM. If the Lessor has an agreement with the OEM in place that is not linked to a specific operator,or allows for a set of different types of operations, adding or removing engines from that same Lessorshould be transparent for the airline. Of course this would have to apply to all Lessors the airline isleasing aircraft from, which is very rarely the case.Ideally there should be no limitations on the number of shop visits, or they should be well defined by theairline based on their fleet planning, lease agreements and desired flexibility/coverage. In other words,the airline should advise the OEM what coverage they require over the term of the agreement.The airline should negotiate flexibility into the agreement to cover for unexpected changes in fleetplanning or operational parameters. If no or limited flexibility is achieved, there should be a clearmechanism on how the airline can remove/add engines to the agreement in terms of additionalpayments or extra shop visits as required.If there is a limitation on the number of performance restoration shop visits, the airline needs to reviewtheir fleet planning and budget for any additional shop visits that would be required to meet redeliveryconditions but are not covered by the OEM agreement.OEMs have started providing airlines with tools to minimize the issue of maintenance practices on usedengines being added to the agreement. In doing so OEMs are certifying engines to OEM standards and52 4 th Edition 2017
Operationspractices; for example through the CFM/GE TRUEngine and IAE Pure-V programs. The airline couldconsider only adding certified engines to their fleet so that they are more easily accepted into themaintenance agreement by the OEM. Provided that this hurdle has been overcome, the rates for addingused engines to the agreement could be based upon the existing rates offered by the OEM and the timesince last qualifying shop visit. This will always be better than a time and material shop visit.●The listed OEM programs also guarantee that only OEM parts and repairs have been used on theengines. These programs tend to be popular with Lessors as they help the Lessors ensure their assetsmaintain value.4.4.3 Flexibility in Work ScopeRates that are offered by the OEM are based upon certain work scopes being applied to the engines. Inparticular the performance restoration shop visits require careful work scoping in order to stay below themaximum cost that is being offered (guaranteed) by the OEM. The lower the rates offered by the OEM, thelower the work scopes are likely to be.For leased engines covered by maintenance reserves, this could create issues because the Lessor wants toensure, whenever they release reserves and accept an aircraft back at end of lease, that the engine isrefurbished to a high standard. Such a high standard should allow the asset to be marketed to any operatorin any region without the need for additional Lessor contributions or commitments. However, this is not whatthe OEM wants as their priority is to offer the airline the lowest maintenance cost possible by restoring theengines to a minimum standard sufficient for that specific airline.Options to address these issues with an OEM maintenance contract:●●●These items can be addressed by a tripartite or Lessor controlled agreement with the OEM.Agree the lowest possible rate for certain work scopes with the OEM. Before doing so, agree with therelevant Lessors that the work scopes will qualify for reimbursement, and assess whether they will satisfythe redelivery conditions.If timing does not allow this, for example if the leases are already in place and the OEM agreement isbeing negotiated at a later stage, the airline should verify what work scope definition the OEM uses andcompare it with the qualifying event definitions in the relevant leases. Both should be aligned.In other words, the airline should advise the OEM what work scope they require for which engines, and whenthey require them. This can result in quite complex agreements but this is deemed necessary in order tomaximize flexibility and minimize cost of ownership for the airline.4.4.4 Flexibility in Engine Removal PlanningFlexibility in engine removal planning is probably the most complex item related to all-inclusive maintenanceagreements. When the OEM pricing is offered as a flight hour rate (PBH, PPE, PASV, PAYG), then such flight4 th Edition 2017 53
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Operations
practices; for example through the CFM/GE TRUEngine and IAE Pure-V programs. The airline could
consider only adding certified engines to their fleet so that they are more easily accepted into the
maintenance agreement by the OEM. Provided that this hurdle has been overcome, the rates for adding
used engines to the agreement could be based upon the existing rates offered by the OEM and the time
since last qualifying shop visit. This will always be better than a time and material shop visit.
●
The listed OEM programs also guarantee that only OEM parts and repairs have been used on the
engines. These programs tend to be popular with Lessors as they help the Lessors ensure their assets
maintain value.
4.4.3 Flexibility in Work Scope
Rates that are offered by the OEM are based upon certain work scopes being applied to the engines. In
particular the performance restoration shop visits require careful work scoping in order to stay below the
maximum cost that is being offered (guaranteed) by the OEM. The lower the rates offered by the OEM, the
lower the work scopes are likely to be.
For leased engines covered by maintenance reserves, this could create issues because the Lessor wants to
ensure, whenever they release reserves and accept an aircraft back at end of lease, that the engine is
refurbished to a high standard. Such a high standard should allow the asset to be marketed to any operator
in any region without the need for additional Lessor contributions or commitments. However, this is not what
the OEM wants as their priority is to offer the airline the lowest maintenance cost possible by restoring the
engines to a minimum standard sufficient for that specific airline.
Options to address these issues with an OEM maintenance contract:
●
●
●
These items can be addressed by a tripartite or Lessor controlled agreement with the OEM.
Agree the lowest possible rate for certain work scopes with the OEM. Before doing so, agree with the
relevant Lessors that the work scopes will qualify for reimbursement, and assess whether they will satisfy
the redelivery conditions.
If timing does not allow this, for example if the leases are already in place and the OEM agreement is
being negotiated at a later stage, the airline should verify what work scope definition the OEM uses and
compare it with the qualifying event definitions in the relevant leases. Both should be aligned.
In other words, the airline should advise the OEM what work scope they require for which engines, and when
they require them. This can result in quite complex agreements but this is deemed necessary in order to
maximize flexibility and minimize cost of ownership for the airline.
4.4.4 Flexibility in Engine Removal Planning
Flexibility in engine removal planning is probably the most complex item related to all-inclusive maintenance
agreements. When the OEM pricing is offered as a flight hour rate (PBH, PPE, PASV, PAYG), then such flight
4 th Edition 2017 53
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