currently be displayed. Redelivery Management and Technical Aspects of Leases Oisín Murray - Head of Technical and Asset Management
Agenda Lease Agreement Technical Considerations Maintenance Overview Maintenance Reserves Maintenance Reserves Portability Redelivery Management Technical Records
What you are paying for Define Specification Lease Agreement Considerations Define Configuration Maintenance provisions Lessee is approved by local CAA Lessee MRO s are FAA/EASA approved No PMA parts or DER repairs Lessor annual inspection rights $45MM Aircraft $43MM Aircraft Workscopes iaw OEM recommendations Lessor approval required for major repairs Lessor representation during repairs requiring MR drawdown
Redelivery Conditions Lease Agreement Considerations FAA/EASA compliant Defined Redelivery process Engine substitution rights Bridge maintenance to to OEM standard or next lessee requirements Minimum condition for component conditions LLP Back to Birth Detailed list and format for technical documents Non Incident/Accident statement, PMA and DER repair statements Maintenance Compensation mechanisms Current Redelivery Conditions are the next Lessee s Delivery Conditions
Maintenance Overview Aircraft Maintenance is heavily regulated by <The Manufacturer <The Manufacturer s Aviation Authority <The Operator s Local Aviation Authority Manufacturers produce Maintenance Planning Document (MPD) which advises Operators and Authorities the recommended practices and intervals when maintaining an aircraft Local Aviation Authority Approval is required for an Operator s Approved Maintenance Program (AMP) Operators AMP s can follow exactly the OEM s MPD or can be customised to accommodate specific local regulatory requirements Requests to customise an AMP beyond Local Authority regulatory requirements must be made to the Local Authority and must be supported by substantiating reliability data Maintenance practices and intervals have evolved due to the use of newer technologies, greater availability of reliability data, better analysis of that data and with a focus on costs while at the same time increasing safety Less requirement for Hard Time inspections and more On Condition monitoring versus previous practice 152
Lessee Maintenance Responsibilities During the lease term the lessee is responsible for all maintenance performed on the aircraft Includes Airframe Daily (A) Checks, C-checks and Heavy Maintenance (D) checks and Engine, APU and LG Overhauls Lessees source and contract with the Maintenance providers Lessees ensure that chosen maintenance providers are suitably qualified often time with superior qualifications needed for Lessor reimbursable maintenance events Commitment to keeping the aircraft airworthy and maintaining the records i) in English and ii) in accordance with their Aviation Authority approvals Lessee is not allowed to undertake any modifications that would materially devalue the aircraft Lessee provides monthly update on the aircraft utilisation and maintenance status and makes the aircraft available for inspection by the lessor at least once a year Redeliver the aircraft from its next C-check bridged to the OEM s MPD. All components capable of operating for at least a C-check interval before next maintenance 153
During the lease term if the lessee pays the lessor maintenance reserves then the lessor is obliged to reimburse lessee for such qualifying maintenance. The lease agreement clearly identifies < What events a lessee can claim reimbursement for < What as a minimum needs to be performed during each event to qualify for reimbursement < Lessors right in advance to review and approve the workscope being proposed < Lessors right to oversee the maintenance being performed < The maximum amount available to lessee for such maintenance < Lessor contribution amounts above the lessee paid maintenance reserves if applicable < What is not reimbursable during a qualifying maintenance event (FOD, QEC, Transportation, inbound engine tests) Lessor monitors the monthly utilisation reports to < Accurately invoice monthly maintenance reserves < Ensure that aircraft and engines continue to operate and are not grounded for an unknown reason < Better track the maintenance status and forecast upcoming maintenance events Lessors or its agents perform physical and record inspections to < Validate the maintenance status of the aircraft < Ensure records are being kept at a suitable standard < Identify for lessor and lessee potential issues during redelivery process 154 Lessor Maintenance Responsibilities
Maintenance Reserves Maintenance Reserves are payments based on the utilisation of the aircraft made by the lessee to the lessor to provision for the cost of significant future aircraft maintenance events. They are normally paid monthly in arrears and are component specific covering <Airframe Heavy Checks <Engine Overhaul <APU Overhaul <Landing Gear Overhaul Why collect Maintenance Reserves <Security to protect asset value and maintain lessor exposure <Means to monitor lessee contract compliance <Positively influence maintenance workscope 155
Maintenance Reserves Maintenance Reserve Alternatives <Cash Maintenance Reserves <Letter of Credit <Lease end adjustments <Half life adjustments Maintenance Reserve rates are calculated by dividing the predicted event cost by the event interval. We customise for variations in <Flight profiles <Operating environment <Aircraft age Annual Escalation <Normal range 2.5% - 3.5% for Airframe, Landing Gear and APU <Engine Overhaul and LLP should be higher (OEM annual escalation) 156
Maintenance Event Intervals Aircraft Maintenance Intervals vary little between Narrow Body and Wide Body aircraft A320 Maintenance Intervals (Months) 160 140 120 100 80 60 40 20 0 6Y 12Y Eng PR Eng LLP LG OH APU OH A330 Maintenance Intervals (Months) B737 Maintenance Intervals (Months) 160 140 120 100 80 60 40 20 0 8Y 10Y 12Y Eng PR Eng LLP LG OH APU OH B787-8 Maintenance Intervals (Months) 160 160 140 140 120 100 80 60 40 20 0 6Y 12Y Eng PR Eng LLP LG OH APU OH 120 100 80 60 40 20 0 3Y 12Y Eng PR Eng LLP LG OH APU OH 157
Maintenance Event Costs Aircraft Maintenance Costs vary significantly between Narrow Body and Wide Body A320 Maintenance Costs (US$ K) B737 Maintenance Costs (US$ K) 3,000 2,500 2,000 1,500 1,000 500 0 8Y 10Y 12Y Eng PR Eng LLP LG OH APU OH A330 Maintenance Costs (US$ K) B787-8 Maintenance Costs (US$ K) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 6Y 12Y Eng PR Eng LLP LG OH APU OH 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 3Y 12Y Eng PR Eng LLP LG OH APU OH 158
Maintenance Reserve Monthly Cash Flows A320 Monthly Maintenance Reserves (US$) Costs are validated by Maintenance Events Interval limit Event Cost Rate Monthly Airframe Structural Inspections 72 months $ 900,000.00 $ 12,500.00 $ 12,500.00 Airframe Structural Inspections 144 months $ 900,000.00 $ 6,250.00 $ 6,250.00 Landing Gear Overhaul 120 months $ 350,000.00 $ 2,916.67 $ 2,916.67 APU Overhaul 8,000 hours $ 350,000.00 $ 43.75 $ 10,937.50 Engine Overhaul 18,000 hours $ 2,300,000.00 $ 127.78 $ 63,888.89 Engine LLP Replacement 20,000 cycles $ 2,500,000.00 $ 125.00 $ 62,500.00 A330 Monthly Maintenance Reserves (US$) Total $ 158,993.06 Maintenance Events Interval limit Event Cost Rate Monthly Airframe 6Y 72 months $ 1,800,000.00 $ 25,000.00 $ 25,000.00 Airframe 12Y 144 months $ 1,650,000.00 $ 11,458.33 $ 11,458.33 Landing Gear Overhaul 120 months $ 1,000,000.00 $ 8,333.33 $ 8,333.33 APU Overhaul 15,000 hours $ 750,000.00 $ 50.00 $ 16,666.67 Engine Overhaul 20000 hours $ 7,000,000.00 $ 350.00 $ 233,333.33 Engine LLP Replacement 15000 cycles $ 6,883,950.00 $ 458.93 $ 61,190.67 Total $ 355,982.33 < Review of claims lessor has had to date < Cross check with OEM advisories < Review of reserves rates when looking at lease portfolio purchases Rates are subject to annual review and escalation Engine Overhaul and LLP generally count for between 75% and 80% of monthly Maintenance Reserves OEM Flight Hour Agreements eliminate the Engine Overhaul cash component from monthly maintenance reserve cash flows collected by lessor Lessee Maintenance Reserve claims normally trail completion of the work between three to six months as MRO s are slow to issue complete final invoices 159
A330 Maintenance Reserve Cash Flows Maintenance Reserve balances for Wide Body aircraft can be well above $25MM A330 Maintenance Reserves Cash Flows (US$) 160
Managing Maintenance Reserves Best Practices Clearly define qualifying maintenance Lessor approval for reimbursable workscopes Modular approach to engine reimbursement Lessor attendance at repair facilities during maintenance Good communication to forecast timing of maintenance and reimbursement Annual review of rates Aircraft specific accounts and component specific sub-accounts No co-mingling even across same lessee fleet Annual review of accounts with reconciliation as needed End of life assets Retain Maintenance Reserves in lieu of Return Conditions. Engine and Component exchanges Fly to expiration 161
OEM Maintenance Agreements OEM s have entered maintenance market aggressively. These agreements offer: Fixed price maintenance Long term agreement Peace of mind Residual value protections Agreements can be Term based Event based Cradle to grave Paid monthly Paid at maintenance event OEM agreements include GE / CFMI: OnPoint Honeywell: MCA Rolls Royce Total Care / OPERA IAE: Flight Hour Agreement (FHA) 162
Maintenance Reserve Portability Lessor preference is to collect cash: Influence maintenance workscope Use to offset outstanding debts Maintain lessor exposure at deal origination levels Easily assign reserves for next lessee Complexity where Power by the Hour Agreements are in effect: Qualifying maintenance definition and rates may differ to lease Increase in lessor exposure Inability to offset delinquency Credit accrued tends to be engine and MRO specific Administrative burden when assigning credit due to multiple parties Not all PBH agreements are equal End of life Ability to convert credit to cash
Redelivery and Transition Management Lease Returns and Transitions are a cross function and resource intensive process. The Transaction Management Department and the Technical Departments are most involved 12 months 9 months 60 Days 30 Days 10 Days 0 Days +0 Days +0 Days Preliminary Lessee meeting and Budget Preparation Preliminary Aircraft Physical and Records inspection Commence Final Records review Aircraft exits service and starts Redelivery Check Next lessee Authority and CAMO reps on site Redelivery Technical Acceptance Deregister and Export Aircraft to new lessee s jurisdiction Delivery Technical Acceptance Review of Lease return requirements and forecast upcoming maintenance Review of key redelivery documents and identifying potential issues Review of key redelivery documents and identifying potential issues Final Physical review commences, next lessee modifications incorporated if applicable Next operators authority and lessor airworthiness representative review aircraft condition and records to facilitate import to next jurisdiction Lease terminates with lessee Work with Aviation Authorities for both the Exporting and Importing jurisdictions Lease commences with next lessee 164
Aircraft Inspection and Document Review During Redelivery Lessor has the right to < Physically inspect the aircraft < Physically inspect technical documents < Observe the ongoing redelivery maintenance being performed Aircraft Physical Inspection < Perform Nose to Tail inspection, internally and externally looking for physical damage or excessive wear < Ensure aircraft has at a minimum installed all contracted equipment < Participate in redelivery demonstration flight < Perform Engine and APU borescope inspections < Confirm aircraft is physically airworthy and meets specified lease return conditions Aircraft Records Inspection < Confirm aircraft specification matches the contractual specification (Thrust, MTOW) < Review maintenance historical records to confirm levels of previously performed work < Cross check aircraft physical condition with documented physical condition < Confirm aircraft conforms to regulatory and airworthiness requirements < Ensure documents package has all that is needed and is presented in a manner to facilitate aircraft transfer to foreign jurisdiction Redelivery Risks are many but rigorous Physical and Records Inspections should help minimisie potential issues. Oftentimes the biggest impediment to timely transition can be inexperienced counterparties 165
Redelivery Cost Management Lease End Costs tend to have a predictable fixed cost element associated with effecting the redelivery and a variable cost associated with transitioning the aircraft to the next user Redelivery costs are usually a function of the size of the aircraft with Wide Body aircraft costing more than Narrow Body aircraft, estimated costs are: < Narrow Body - $225K < Wide Body - $300K Transition Costs vary depending on < Size of the aircraft < Age of the aircraft < Aircraft configuration < Next Lessee jurisdiction < Next Lessee modification requirements < Location of MRO performing modifications < Time between redelivery from returning lessee and delivery to next lessee < Storage period during transition Transition Costs with no modifications required < Narrow Body - $100K < Wide Body - $150K Transition with large amount of modifications required can have very significant costs 166
Oisín Murray Head of Technical and Asset Management 技术总监 CDB Aviation Lease Finance Oisin.murray@cdbalf.com Tel: + 852 3796 2673 Mob: + 852 9229 0920