Aviation Leadership - Considering the Role of Modification within the Aircraft Lease Transition Process

Sofema Online (SOL) www.sofemaonline.com considers the essential aspects of modification activity during lease acceptance, transition & return.

Multiple options are on the table related to:

» What work will be performed (Returning Lessee or New Lessee or Outsourced)?
» Who will perform the work?
» Who will pay for the work or is a rental offset appropriate?

Modification Work Performed by New Lessee

If the new lessee is prepared to perform the required modifications work after taking delivery will this result in either a rent holiday (typical) or another form of offset (physical payment).

» Typically, this is the best option from the lessor’s point of view.
» The new lessee takes responsibility for

o   Ordering the parts.

o   Providing Engineering & Manpower.

o   Ensuring regulatory approval for the modifications. 

Note - Any delay will be at the risk of the new lessee (lessors rent holiday usually subject to a cap).

Modification Work Performed by Returning Lessee

If the returning lessee performs the required work how will this be covered financially and will it fit within the proposed delivery plan?

Note - Acceptance of the Maintenance / Modification Process on behalf of the new Lessee, performed by the returning Lessee will depend on the agreement of the new Lessee:

» Factors to consider include understanding as to whether the modifications can be accommodated within the scheduled return maintenance window.
» If additional time would be required then the expectation may be that the new Lessor is expected to take ownership including the need for registration and insurance as well as the responsibility for ensuring modification certification.

Note - There is a downside from the perspective of the Lessor for this option to this option as whilst the lessor has taken redelivery from the returning lessee (means no recourse to the returning Lessee):

» The Lessee is exposed because it no longer has any recourse to the returning lessee and when (or if) the new lessee finds a problem with the aircraft that breaks the delivery conditions.
» Additionally, during the performance of the modifications, the lessor has all the risks associated with the possession of the aircraft–risk or damage as well as the risk of mechanical failure.
» Could require new export C of A, registration and insurance as an added complexity?

Lessor Takes full Ownership and takes responsibility for the Modification Process

This is often seen as the least satisfactory solution for the lessor (but not necessarily the lessee) is where the lessor takes delivery of the aircraft, performs the required modification and then delivers the aircraft to the new lessee.

» In this option, the lessor will likely be required to order parts as well as arrange the required engineering.

Next Steps

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