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Maintaining asset value

Asset managers play a key role between the owner and operator of a leased aircraft, particularly in ensuring that the asset is airworthy, as Bernie Baldwin reports
To simply say that an asset manager’s role in an aircraft lease is wide and varied arguably underestimates the task. Of course, some elements are straightforward, but when you have to constantly monitor just about every action that affects the aircraft in question, being an asset manager carries considerable responsibility.
Keeping tabs on the physical upkeep of the asset is a vital part of asset management. In their oversight role on aircraft and their condition, asset managers ensure that the aircraft is getting the correct maintenance so that its residual value keeps up with at least what the market suggests.
That doesn’t mean to say the asset manager is forever chasing the operator regarding every little detail. A lease will provide the authority for the lessor (or representative such as the asset manager) to have certain information, but will also allow the lessee what is known as ‘quiet enjoyment’. In their 2009 Bloomberg Law Reports article, ‘Protecting the Aircraft Lessee’s Quiet Possession Right under the Cape Town Convention’, Raymond G. Wells and John T.
Curry, III, of Debevoise & Plimpton, define ‘quiet enjoyment’ as the ‘right of the lessee to possess, use and operate the aircraft without any interference from the lessor or the creditors of the lessor – so long as the lessee has not defaulted on its obligations’. The authors believe that the preservation of a lessee’s ‘quiet enjoyment’ rights is “one of the most critical issues faced by an aircraft lessee in structuring and negotiating an aircraft lease”.
Asset managers thus endeavour to work with airlines to ensure that maintenance of an asset in their charge is both efficient and cost-effective. Under a well-structured lease agreement, maintenance events can be managed with a level of flexibility which ensures that all parties are aware of their own role in protecting the aircraft’s value, and they are equally aware of why it is beneficial for their team to work toward this goal.
Designing the maintenance schedule involves a range of elements to be approved, whether the work is to be carried out by an independent MRO provider or the carrier’s own maintenance department.
Peter Walter, Director of Asset Management for IBA Group, explains the process. “Airlines do not design maintenance schedules with the asset manager per se. The AMP (Approved Maintenance Programme) is designed by the airline/operator in conjunction with the local airworthiness authority which then approves the programme,” he comments. “The AMP will include the requirements and stipulations set out in the MPD (Maintenance Planning Document) issued by the original equipment manufacturer (OEM).
“The benefits to an owner/lessor of having a good asset manager include working to address any problems that arise because the operators’ AMP doesn’t tie up neatly with the requirements of a lease,” adds Walter. “For instance, at redelivery, the AMP will have been designed for the efficient operation of an entire airline’s fleet for an asset type, rather than an individual leased aircraft.”
The asset manager is not merely paid for their expertise in overseeing the asset; they can add value in the contract negotiations too. “An asset manager’s involvement – and indeed value – comes ahead of maintenance oversight. Since the lease sets out the terms for both the lessee and the lessor, it is most important that a suitable qualified and experienced asset manager oversees the technical provisions of the aircraft lease.
There are numerous areas where poorly drafted language can give rise to different interpretations and leave airlines and lessors out of pocket. These include maintenance obligations, work scope approvals, AD (airworthiness directive) cost-sharing, modification approvals, maintenance reserve payments and escalations, reserve claims, and return procedures, plus – of course – minimum return or redelivery conditions,” Walter elaborates. 
“Turning to the maintenance events, an asset manager can both preserve value, and save unnecessary expenditure – though this may not necessarily enhance the aircraft value, particularly where a lease contains provisions for maintenance reserve to be claimed from the lessor,” he continues. “It is most important that the proposed work scope is understood and appropriate. The relationship between the asset manager and owner/lessor is critical to maximising value. The maintenance and shop visit work scopes need to be planned carefully, as these will change depending on the owners’ needs and future plans for the aircraft and engines.”
As noted, one of the main aims for an asset manager is to carry out its oversight properly. So what kind of difference in the residual value of the aircraft might the asset manager deliver, compared with one where oversight was poor and maintenance not carried out well?
“The difference that an asset manager can make is significant and can also be measured beyond just the aircraft’s residual value at lease-end. The benefit is far wider, and extends to the total economic value,” Walter declares. 
“A good asset manager is hugely beneficial to both owner/lessor and indeed the lessee/airline. Their role will include proactive management of maintenance events, maintenance reserve management, AOG downtime and efficiency. This all starts with supporting the negotiations and properly documenting the lease; interpreting technical implications for the lessor, as well as assisting the proper engagement and understanding between lessee and owner/lessor through the lease term and – in particular – at maintenance events, lease extensions and redeliveries. 
Consider the situation of an aircraft coming back off lease, where the owner has a new lessee wanting to take the aircraft,” he adds. “However, a poorly documented lease results in the airline’s redelivery work scope – which from their view adequately meets the redelivery conditions – receiving a quite different interpretation from the lessor. This situation is unfortunately not uncommon and leads to delays, frustration on behalf of both parties, and often results in legal disputes.
“It also often means the scheduled aircraft redelivery date is missed, the airline has to pay penal rent, the redelivery costs escalate, the lessor’s new lessee may not be willing to wait, and the follow-lease opportunity is lost. An asset manager’s involvement early on in the redelivery planning can assist in working through issues and planning a redelivery to meet mutually agreed requirements and on time,” Walter comments. >>

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