Aircraft redelivery: risks that airlines just cannot afford

Over the upcoming ten years, 40-50 percent of the entire global aircraft fleet will be flown under operational leases. Aircraft leasing provides significant flexibility for airlines in terms of adapting their fleet composition and route structures to ever-changing market demand. However, whether it is a short or long-term lease, the lessee is obligated to return the aircraft in the same technical condition as it was initially delivered. But without a proper technical maintenance plan and supervisory system, the redelivery process may render multi-million dollar losses for both the carrier and the lessor.

Unlike a financial lease, ownership of the aircraft with an operating lease remains with the lessor. Typically an aircraft is released to 4 or 5 operators. However with each consecutive lease, asset depreciation risk remains a poignant variable, particularly due to cases of poor aircraft technical maintenance during the leasing period.‘

Today leasing companies own thousands of aircraft around the world. Whether a new aircraft costs 10 million USD or 300 million USD, lessors endeavor to keep the residual value of their assets as high as possible thus maintaining very strict requirements with regard to aircraft technical condition at the end of the lease period. For that reason, aircraft redelivery may pose a real challenge for some operators should they fail to prepare themselves adequately in advance,’ comments Andrius Norkevicius, Deputy Head of Engineering and Planning Dep., FL Technics.

Major actions must start as early as one year ahead of the redelivery date. In order to minimize aircraft downtime, the operator must plan a clear schedule of component overhaul work, including those related to engines, the auxiliary power unit (APU), landing gear, flaps and other critical components. Furthermore, the entire technical documentation must be reviewed and properly updated. A special team designed to manage and oversee the entire redelivery process should also be formed.

‘Proper documentation is essential for a smooth redelivery. With this in mind, reviewing and updating the plethora of information requires a team of several qualified specialists with at least 5-years experience in the specific aircraft engineering area. Unfortunately, not every airline has the luxury of maintaining such a team,’ shares Andrius Norkevicius.

Another critical point comes six months prior to the redelivery, while entails defect rectification, inspection of aircraft repair work and spare part provision. If there were some modifications applied to the aircraft, they should have a proper EASA Part 21J or corresponding FAA approval, otherwise such modifications should be removed or original situation re-installed. Furthermore, in order to restore aircraft performance in accordance with the lease agreement, Heavy Maintenance works are also usually conducted at this stage. Within roughly two weeks before aircraft redelivery, the operator conducts the final supervision of spare parts, and, if necessary, orders additional inventory. Following this is the redelivery check, test flight and the redelivery itself, when the parties sign the handover documentation.

However, poor document management throughout the leasing period, including seldom or non-systematic updates of airworthiness and service bulletins, as well as improper aircraft maintenance or component replacement, are major issues which may be uncovered by the lessor during the redelivery check and end up costing the operator an arm and a leg due to several month long additional lease time and fines for delays.

‘Improving technical documentation, conducting additional maintenance and repair work, ordering extra parts – any of these factors may delay the final aircraft redelivery for several months and cost the airline even millions of dollars in worst case scenario, including  additional lease payments and unforeseen expenses for MRO work. Considering the aforementioned, airlines, many of which are still suffering the effects of a stagnant marketplace, simply cannot afford any large unforeseen expenses during the redelivery process. Unless airlines maintain the capacity to deploy their own team of CAMO-specialists to oversee and manage the process, operators tend to outsource such services to third-party MRO companies, holding comprehensive experience in managing aircraft redelivery for either airlines or lessors. But whether the process is managed in-house or not, proper planning well ahead of the redelivery date is the key to minimizing any unpleasant situations,’ concluded the Deputy Head of FL Technics Engineering and Planning Dep. Andrius Norkevicius.