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Maintenance Reserves – a $22bn business, August 2016

The total maintenance reserves business is a $22 billion industry and will grow in the coming decades as the leased fleet is increased and maintenance costs continue to rise at a rate of 3-5% rate per annum, says IBA’s Chief Executive Officer Phil Seymour.

The basic principles of an operating lease agreement are that the lessor expects a lease rental to cover the cost of capital and the financing of its aircraft asset. And, of course, at the end of the lease it is the lessor who is the owner – the airline simply hands back the keys. The lessor carries the residual risk and management of the aircraft and the next placement under its control.

In the event of default, the lessor finds itself in a position where it has no choice but to support the aircraft’s ongoing costs. The associated costs of that liability for just a six-month period will be many hundreds of thousands of dollars to cover storage and insurance and upcoming maintenance tasks. Once the aircraft is placed, the next lessee usually expects to receive some form of contribution to the upcoming tasks.

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