A complete and concise set of service records, properly identifying all required maintenance and modification events, is the indication of an aircraft's condition and the quality of its continuing airworthiness management. It clearly demonstrates the aircraft's compliance with all appropriate safety and lease requirements and its suitability for flight. Service records are essential if the aircraft is to be sold at its maintenance adjusted value or placed on lease with a new lessee.
Most financiers and leasing companies arrange for mid-lease inspections as they are an essential facet of effective asset management: they establish an asset's condition and its compliance with all relevant lease requirements.
The airframe's current maintenance status and the status of the engines and components including LLPs (life limited parts), HTCs (hard time components) and OCCMs (on condition, condition monitored components)
The asset's modification status and Airworthiness Directive compliance
The asset's current utilisation compared with its utilisation reports
The location of titled engines and auxiliary power units (APUs)
Whilst mid-lease inspections are a valuable tool to capture the status of an asset, they can only provide a snapshot at a given point in time. The financier and lessor will only be furnished with a full complement of their asset's records at its lease end and the absence of comprehensive records poses a significant risk.
A full and detailed collection of maintenance records is crucial to maximise the value of the aircraft and its engines. In an ideal scenario, such an up to date, thorough suite of records will always accompany an asset on its return to a lessor. However, in fact, research conducted by IBA confirms that back to birth (BTB) traceability and efficient management of records and documents present significant challenges for airlines and lessors. Read the IBA redeliveries report here.
Documenting every change or maintenance procedure performed on every aircraft within a fleet is a complex time and resource-consuming process. Due to the intricacies involved, numerous airlines and operators have now signed up to and use digitised record management platforms to secure all records in 'real time' data rooms. Many have also implemented policies to scan maintenance documentation every time and soon after each maintenance action has taken place. In both cases, this is good news for the lessor.
Despite the welcome enhancements to the digitised record management solutions available on the market and their widespread adoption by airlines, there are still some examples of airlines and operators whose record keeping can be ineffective, and in some cases below industry standards.
The ramifications of imperfect asset records become most stark in the context of airline or operator failure, an unfortunate feature of recent times. The collapse of several airlines and many others in severe financial difficulties as a result of Covid-19 travel restrictions, further underlines the significance entire records have for asset values. Unfortunately, incomplete or partially lost records could result in distressed values.
There can often be complications around obtaining records during a repossession or unscheduled redelivery and these vary depending on the scenario, for example:
No access to the operator's technical office
Limited or no support staff resource such as technical records staff
An administrator may employ critical support staff to assist lessors. However, this will take time and some staff may leave to pursue other offers of employment
The airline's servers could be offline making it impossible to download current maintenance statuses
Non-payment of technical records platform subscriptions, blocking access to data
Limited or no scanning of records by the operator, making the collation of hard copy records vital
No access to archives
Lost or partial records
All of the above scenarios have the potential to generate huge costs for the lessor in terms of labour expense incurred to retrieve a complete set of records. In extreme cases, the pursuit may well be futile and full documentation recovery very difficult to achieve following an airline failure.
In a distressed situation or imminent bankruptcy of an airline/operator, a Lessor or Bank may decide to request a 'friendly hand back' of assets. In these scenarios, cooperation from the airline/operator in providing the asset's technical records is maintained as support staff are in place to provide access.
It is only as a last resort that a Lessor or Bank will choose to 'repossess' its assets. In addition to the challenges of accessing records, in a repossession scenario, the Lessor or Bank now has to action the following:
Arrange for assets to be insured
Retrieve the asset from the country of operation, it is important to consider where the asset is currently registered and any potential hurdles in deregistering the asset
Identify and find suitable locations to park and store the aircraft
The asset will need to be kept in a controlled environment under the management of a CAMO and have maintenance tasks performed by a qualified MRO, all at cost to the Lessor or Bank.
If record retrieval is unattainable, reconstruction of the aircraft records will be necessary which will involve heavy cost implications.
Consider the following:
Missing evidence of an asset's current inspection status and the up to date status of LLPs, absent dirty finger prints (engineer sign off paperwork) and Form 1s or FAA 8130-3 certificates can all pose difficulties.
Some records will be simpler to re-establish than others but for many components, the unnecessary replacement of the relevant component can mean considerable cost to the Lessor.
Inability to confirm the current status of applicable Airworthiness Directives (ADs) and Service Bulletins (SBs) can also present a formidable problem which may require a detailed inspection by maintenance personnel to establish complianc This could entail considerable time and expense and in some instances may require re-compliance with the AD or SB.
Non-substantiated structural repairs would necessitate removal of the repair and its reperformance with documented correct specification materials in accordance with the latest approved repair scheme, again with a heavy price tag.
The above scenarios are well observed and understood in the aviation lessor community. However, despite being subject to due diligence, it's a fact that some airlines and operators do not always adhere to industry best practices concerning the satisfactory and complete storage and retention of records.
As we have highlighted, rectifying records' omissions can be a financial and time burden for lessors. The records themselves are integral to the asset's value and IBA can provide expert advice to help lessors minimise their risk. It is important from inception of a lease agreement that precise, unambiguous provisions are included to cover the lessor's inspection rights. Ideally, agreement should be sought that all records will be scanned annually during mid-lease inspections.
IBA works in partnership with banks and leasing companies to make sure processes are in place for good record management. We offer mid-lease inspections and the option of a pre-lease records scan at the beginning of a lease term and at each annual inspection thereafter. By capturing the last 12 months' records, this negates the costly possibility of there ever being more than 11 months' of records inaccessible to a Lessor and Bank.
Due to our large team of in-country Technical Inspectors, IBA can offer support in most locations worldwide during the COVID-19 travel restrictions. Our in depth Commercial and Technical expertise and years of knowledge of successfully recovering assets in varied distressed scenarios has seen us become a 'go to' independent data and aviation advisory company.
Subject to Covid 19 restrictions, IBA can perform physical inspections of aircraft, log books, critical records and locate titled engines.
Assess if high value parts or engines may have been removed and help to establish their current whereabouts.
Liaise with Administrators to verify areas such as insurance, storage, OEM approved maintenance and any modifications made.
Assist owners and legal counsel on negotiations for revised financial terms.
Provide a contingency plan to be implemented should full scale repossession be required.
Take all reasonable steps to protect the asset value and integrity, and the owner's financial position.
Provide adjusted market valuations.
Assist or act as Technical Adviser in discussions for refinance, re-launch or other such matters.
IBA is an award winning and leading independent aviation consultancy advising a broad mix of lessors, operators, financiers and investors. Operating globally, we inform decision making and support operations across the aviation spectrum. Supporting strategic investments, managing aircraft, advising on expansion, or driving efficiency improvements, our mix of intelligence gathering, analysis, proprietary data, technical expertise and decades of aviation experience delivers value across aviation opportunities and challenges.
To help reduce the impact from limited resources, technical representation and access difficulties, IBA provide an unmissable webinar session that will offer our best practice advice on how to approach transitions in the current market conditions. 2020 has been an unprecedented year for the aviation industry. For the first time in history aircraft lease ends will exceed lease starts. High levels of lease ends, fleet exits, and the challenges of the global pandemic requires more planning and earlier engagement around transitions. Our senior Asset Management team share their unrivalled expertise on the following areas: Current market trends in fleet divestiture, aircraft supply and lease ends How to approach lease re-negotiations and current market rates Managing the 737 MAX return to service Working through redeliveries in 'the new norm' and reviewing best practice The impact on shop visit forecasts and MRO demand This session is a must for Financiers, Lessors and Airlines. The slide deck is available to download here. If you have further questions please get in touch via our contact form.
In this hour long session, the panel offered guidance and advice to help financiers prepare for unscheduled returns and defaults, outlined how to secure aircraft and engines whilst maintaining asset value and how to navigate both the legal requirements and the practical/pragmatic considerations. Phil Seymour, IBA's Company President and ISTAT Senior Appraiser Fellow, and Oliver Hipperson, Partner at Clifford Chance, were joined by a panel of experts to share and provide insight, best practise and guidance to the finance community on managing unscheduled early redeliveries. The slide deck is available to download here. If you have further questions please contact: Peter Walter
Using IBA.iQ Fleets, at the time of Flybe's collapse, the carrier's fleet was comprised of a combination of De Havilland DHC8-400Q and Embraer E-Jet aircraft, totalling 68. The majority of the Flybe fleet consisted of DHC8 aircraft. With 54 such aircraft, Flybe was the largest active operator of the DHC8-400, accounting for almost 10% of the world in-service fleet. The parked and stored fleet of DHC8-400s has more than doubled as a result of the collapse of Flybe.
Why were commercial passenger aircraft ever invented, built, bought and sold or operated? The clue's in the name: the passenger. Many if not most travellers spare scant thought to the feats of engineering behind an aircraft's take-off and landing, not to mention keeping it airborne in between. What they will notice and expect when flying, however, is how the aircraft looks inside and whether it is clean, tidy and comfortable. So, having interiors in the best condition throughout the life of an aircraft is paramount for most operators.
For CFMI, it would appear that the impact of the 737 MAX grounding has not been detrimental to the LEAP-1B. There remains a strong market outlook for this engine and looking at the Base Value, Half Life, it is performing well and is on par with competing engines in the market. As illustrated in the chart below, there has been no impact on values.
Poorly managed redeliveries are a staggering waste of money. Every narrowbody and widebody whose redelivery is inefficiently handled can cost $USD 2 million and $USD 4.5 million respectively. Putting that into context, the unnecessary expenditure would be enough to fund six to eight months' lease rental for each aircraft, a Heavy C Check, or even an engine shop visit.