IBA Insights


IBA’s Webinar – Maintaining and Protecting Asset Values, March 2020

Following further restrictions on travel, airlines across the globe are cutting capacity, reducing utilisation and parking aircraft, as well as laying off staff in a bid to reduce costs and weather the repercussions of Covid-19.

IBA’s Asset Management and Technical team share some best practice, and provide guidance that can help to protect aircraft and engine values and ensure that early or unscheduled redeliveries are carefully managed.

In the current climate this session is a must for financiers and leasing companies looking to further mitigate investment risk and preserve asset values.

In this short and punchy ‘how to’ session, Phil Seymour, IBA’s President, and Ross Armour, IBA’s Technical Manager, share best practice, flag watch outs and share war stories.

The webinar can be viewed here on our YouTube Channel and the slide deck is also available to download. If you have further questions, please contact: Philseymour@iba.aero.

 

Webinar Synopsis – Maintaining & Protecting Asset Values

We can reflect on the lessons learned from previous downturns such as the first Gulf War, 9/11, SARS and the global financial crisis but the coronavirus emergency differs in its scale and likely duration. Its consequences, constantly evolving and as yet fully unknown, will be unprecedented. What does link them all is market overcapacity.

With global air travel severely restricted and no certainty over probable recovery timescales, correct storage procedures are crucial. The requirements will differ by airline and aircraft type and in all cases precise notice must be taken of specific maintenance manuals. However, what in general does effective storage look like? What benefits do proper storage measures create and what risks result from failure to comply? Consider the following:

Aircraft Storage:

Benefits & Threats:

  • Aviation is a heavily regulated industry. Compliance with regulatory requirements is as important when aircraft are stored as when they’re in operation. Some equipment may be more difficult to maintain off- rather than on-wing and record-keeping complications can arise when assets are stored in numerous different locations globally
  • Adherence to correct storage procedures has two benefits, the first of which is paramount:

 

  1. Aircraft values will be maintained. Inadequate storage procedures or gaps in maintenance records can cost millions of dollars to rectify. Aircraft lessors and owners need to avoid unnecessary and costly recertification liabilities, especially during a crisis
  2. The aircraft will be ready for re-entry into service swiftly, essential when cash conservation is a priority and delays would prevent income generation

Where? How long? Infrastructure? Personnel?

Planning for storage: 

  • Procedures necessary for regulatory compliance will be determined by the aircraft manufacture for the period of storage
  • Regional airfields will have fewer support facilities than main airport bases where formal maintenance and storage programs are more common.
  • Some tasks, draining fuel and disposing of water and waste for example, can be difficult away from main bases
  • Airlines may have reduced employees’ working hours or imposed unpaid leave. Fewer technical staff, planners, maintenance crews and record keepers may be available. Outsourced crews may have been laid off.
  • Third party maintenance providers might not be paid, will their active storage management end
  • Severe weather can be a detrimental factor in some parts of the world, excess humidity or strong winds for example

 

Pre-storage checks:

  •  Assets must be thoroughly examined before entering storage to confirm current condition and ensure values are conserved
  • General visual inspections and servicing of oxygen, hydraulic, oil and fuel systems will be executed
  • Lubrication of flights controls and other parts is required and engines must be preserved
  • Future maintenance issues can arise if essential parts like covers for open intakes, probes and ports can’t be sourced
  • In some cases, cabin safety equipment like fire extinguishers can be removed and safely stored. Therefore, appropriate space to stow them is required

 

In-storage checks:

  • A comprehensive, structured system of checks is crucial, its timetable and frequency determined by what’s being inspected and why
  • Leaks, corrosion, tyre pressures, landing gear and flight controls are all examples of the inspections carried out
  • Some deferred defects have calendar due dates for rectification which could expire and need attention during storage

 

Pre re-entry to service checks:

  •  Assets must be fully prepared and comply with all regulations and airworthiness directives before their recommissioning
  • Every action taken to ensure proper storage requires checking
  • Specially preserved systems such as engines and fuel tanks must be depreserved, a complex procedure for equipment stored long-term
  • Airworthiness directives issued whilst aircraft have been stored will require compliance before re-entry to service

 

Repossessions:

Repossessions are complex under any circumstances but in the midst of a crisis involve additional complications, especially where movement is curtailed and countries are in lockdown. Proactivity and planning are key to protecting the assets.

Legal, technical, operational and financial crisis teams should be assembled and communication established or resurrected with the lessee, engineering and maintenance departments, fleet planners and senior management.

Technical:

  • Get a team on the ground quickly to inspect the aircraft and obtain its records. The current pandemic will make this difficult or even impossible in some places. India, for example, takes 60 days to issue access passes for non-nationals

 

Legal:

  •  Review contractual documents such as loans, leases, security assignments
  • Assess liens: navigation and landing charges, ground handling costs, MROs
  • Conduct alternate scenario planning for repossession, including pilots, routes, fuel, storage locations

 

If repossession is the best option:

  1. Check notice provisions
  2. Fleet monitoring – Survey the routes. Where is the aircraft?
  3. Where and when will a default be triggered? Will offices and courts be open?

 

Banks and Financiers: 

Vulnerability of Collateral Assets to Loss of Value

Banks and financiers’ security assets are more vulnerable to loss of value than lessors’ aircraft. Why?

  • The financial instruments involved are complex and opaque
  • Banks and lenders are slower to react to a default
  • Aircraft can be in poor condition, their parts robbed or removed and sizeable liens accumulated
  • Records can be lost or incomplete

 

Swift, decisive action is paramount. If you’re a lender to a lessor, check what measures they are carrying out. If they’re insolvent or their actions are unsatisfactory, assume control.

If you’re a lender to an airline, act immediately to secure the aircraft and its records and exact thorough inspections.

IBA recognises the effects produced by Covid-19 are unique; we’re experiencing a once-in-a-generation situation. Although without exact precedence, however, it features circumstances we have experienced before and we can mine 33 years’ of valuable data for insights, helping us and our clients to assess risk and protect assets.

Our Maintaining & Protecting Assets Webinar can be viewed here on our YouTube Channel and the slide deck is also available to download here. If you have further questions, please contact: Philseymour@iba.aero.


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