How to minimize the pain of lease transitions
Portable maintenance can significantly reduce the risks, costs and complexities of lease transitions for both lessors and lessees. Engaging engine experts as partners can speed up and smoothen the redelivery process, resulting in a win-win all round.
10.2017 | Text: Victoria Nicholls
Victoria Nicholls is a specialist for aftermarket topics such as engine MRO, leasing and asset management, as well as international market trends. The British-born editor lives in Berlin and works for MTU’s corporate communications in Hannover and Ludwigsfelde.
Ouch. According to a 2015 study by the International Bureau of Aviation (IBA), airlines spend an average of USD 1.65 million on extra costs related to each narrowbody redelivery to lessors, and overspend on widebodies can be twice that. The study also highlighted that engines were the largest single cost component, with costs close to USD 600k attributed to the difference between agreed redelivery conditions and the actual state of the engine.
One reason for this is the current complexity of lease returns. This stems from the fact that engine lease transitions involve three principle stakeholders: the lessor, the current lessee and the next lessee. All parties want to achieve a smooth transition in a cost-effective way – one that does not leave them exposed afterwards. Furthermore, there are multiple elements to be considered: contractual agreements and obligations, costs, planning, timing, and regulatory requirements. When incorrectly aligned, these elements can lead to exacerbated and uncontrolled costs, and unnecessary maintenance being performed.
However, costs can be significantly reduced across the lifecycle through portable maintenance concepts, as offered by MTU Maintenance. Portability is about accurate engine assessment and appropriately performed maintenance being taken “as is” by the next lessee and carried forward. In turn, doing away with multiple boroscope re-inspections during transitions or life-limited parts being exchanged despite adequate green-time for further usage, for instance.
While cost-savings are a no-brainer for the operators, the issue of risk and exposure still remains. Lessors are concerned about the status of their asset and, more importantly, they want to know that any findings during transitions can be rectified without causing additional cost to them. The lessees, particularly those receiving the engine next, also don’t want to be burdened with costs arising from previous usage. In such cases, correct contractual coverage is important. In this respect, MTU Maintenance also offers unexpected engine removal coverage which includes dealing with corrective action required by findings during an end-of-lease check, something not always guaranteed by other parties. Additionally, MTU Maintenance protects residual value at all times.
Furthermore, the scope for misunderstanding and miscommunication between parties is huge. Because an engine’s history can be complex, and different people with different languages, technical experience and expectations are involved – not just regarding the three parties directly involved, but also authorities and regulators. Project timing can also be a cost-intensive issue, especially when the various steps in a transition aren’t activated at the right time. In fact, the IBA study also reported that 44.4 percent of late aircraft redelivery was down to underestimation of efforts required in redelivery processes.
Having a competent partner, like MTU Maintenance, on board to manage these transitions can improve the speed and smoothness of the redelivery process and provide peace of mind to all parties involved.