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21/03/2017

Best industry practice for aircraft lease transitions in Aircraft Commerce, March 2017

The International Air Transport Association (IATA) says that about 40% of the global commercial aircraft fleet is under operating lease, and that trends indicate this percentage will increase. It emphasises the challenges that can arise when the lessee and lessor look at a lease from different perspectives.

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One such challenge is how to optimise a lease transition. This is the process under which an aircraft is removed from service with one lessee, and returned to the lessor in a previously agreed condition, before being prepared for operation with the next lessee. If a lessee fails to meet the lessor's required return conditions and/or deadline it may face significant compensation costs.

 

IBA estimates that in a 12-month period from 2014 to 2015, there were 895 aircraft lease returns. With this number of annual transitions taking place, lessors and lessees would benefit from optimising the transition process. Some of the usual requirements associated with the lease transition process are identified here. The analysis includes a summary of the potential pitfalls and recommended practices that operators should consider.

 

Operating lease

 

An aircraft on an operating lease is owned by the lessor and operated by the lessee. The lessor grants the lessee exclusive use of its aircraft for an agreed period of time, known as the lease term. For new aircraft this term is often eight to 12 years for a narrowbody, and up to 12 years for a widebody. Subsequent lease terms often decrease in length as the aircraft ages. The operator is charged a monthly lease rental fee for the duration of the lease term. It may also be required to pay supplemental rent, known as maintenance reserves.

 

Click here to read IBA's recommendations on best practice for aircraft lease transitions.

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