IATA Aircraft Lease Guidance

Guidance Material and Best Practices for Aircraft Leases
Section 5—Redelivery
1
Background
2
Pre-delivery
3
Delivery
4
Operations
5
Redelivery
The redelivery process is the final step in the aircraft leasing life-cycle, and the Lessor will have started its
marketing efforts well before the aircraft is redelivered. Consequently, the redelivery date is of great
importance to the Lessor and penalties and other protection mechanisms against late redelivery are included
in the lease agreement. The Lessee should therefore thoroughly prepare for this redelivery process and
prevent any unnecessary delays, which can be extremely costly. Open communication with the Lessor during
this final phase will prevent any unwanted surprises just before the redelivery date.
5.1 Redelivery Conditions
The redelivery conditions are by their nature drawn from the delivery conditions - except in cases where it
concerns a new aircraft, where the redelivery condition should differ significantly from the delivery condition.
It is therefore advisable to the Lessee to match the redelivery conditions as closely as possible to the delivery
conditions during contract negotiations. Any uncertainty or mismatch between the delivery and redelivery
conditions of the lease agreement could lead to the Lessee, at the end of the lease, investing (heavily) in
upgrading the aircraft to a better condition than it was in at delivery.
The Lessee is also advised to pay specific attention to the redelivery conditions and the redelivery timetable,
as noncompliance can result in financial liabilities for the Lessee. Redelivery conditions are agreed before the
lease term commences, usually as early as the LOI. However, even at such an early stage, Lessees must be
wary of even the slightest potential of the Lessor claiming that a specific item would not be in compliance
with the redelivery conditions.
At redelivery, if the Lessor successfully argues noncompliance with the redelivery conditions, not only will the
Lessee have to remedy the defect at its own cost, the Lessee will also continue to be obligated to pay rent on
the aircraft. Often, the rental obligation will be even worse for the Lessee, as the lease agreement may specify
that in the event of a late redelivery, the rent shall increase by a certain percentage. Notably, increases
upwards of one hundred percent are not uncommon, therefore it is advisable that the Lessee makes sure that
any increase in rent after delay of redelivery is as low as possible. It is also advisable to the Lessee to
negotiate a grace period for redelivery of the aircraft, in accordance with the similar concept of the “backstop’’
date in the delivery conditions (see 3.1.5).
While it is common to have precise redelivery wording with regards to certain elements, such as
arrangements for specific hours and cycles with respect to aircraft and engines, some elements are almost
always left vague. The Lessee should not overlook these relatively small items as they soon add up, and can
ultimately result in adverse financial consequences. The wording fair wear and tear is one element that can
lead to disputes during lease return. If this term is used it is preferable that the term is formally defined in the
lease to ensure that both parties clearly understand what this means. Objective standards should be used
when possible e.g. MPD or comparison to other aircrafts in Lessees fleet.
56 4 th Edition 2017