Tuscar's Knowledge Series: Lessor Engagement
With the obvious exception of the Lease negotiation and Aircraft delivery phase, engagement between the Lessor and Lessee is limited through the Lease period.
Normally the Lessee is required to provide monthly utilisation reports, advise of pending Engine shop-visit events and accommodate the Lessor’s inspection team during mid-term inspections. The frequency of such inspections will depend on the relationship between the Lessor and Lessee.
Whilst the Lease Agreement contains a “Quiet Enjoyment” clause it’s important that the Lessee’s maintains an open line of communication to the Lessor. This is especially important for new Operators or those in emerging markets where the Lessee will be deemed “high risk” and as such the Lessor will insist on more frequent inspection entitlements and more stringent reporting criteria.
By adhering to the reporting obligations and keeping the Lessor appraised of events such as; Engine Shop Visits, C checks, Fleet Modification, etc. will offer the Lessor a greater level of comfort and ultimately result in a more relaxed approach to future Leases.
One area where the majority of Lessee’s fail to engage with the Lessor in a timely manner – between 12-18 months prior to Redelivery is the Redelivery “Kick Off” meeting. This importance of this meeting cannot be underestimated and can be the difference in a successful or an unsuccessful Redelivery. With the latter exposing the Lessee to Hundreds of Thousands of Dollars or even Millions of Dollars (for a wide-body Aircraft) in late penalty fees and non-compliance compensation at Lease end.
In an earlier article “The Lease Agreement”, I referred to the fact the Lessee’s team responsible for managing the Aircraft Redelivery will most likely not be the same team which negotiated the lease at the front end.
The “Kick Off” meeting allows both the Lessee and Lessor “refamiliarize” themselves with the Lease Agreement, clarify any ambiguities and understand each parties expectations with respect to the Redelivery.
The Lessor’s expectations may have changed from when the Aircraft was first delivered all those years ago. Variables such as the Aircraft’s age, model, marketability, or the Lessor strategy to sell the Aircraft may result in an opportunity for the Lessee to renegotiate the Redelivery terms. In the case of mid-end life Aircraft the Lessor may decide to Part Out the Aircraft following the current lease and so may be open to the Lessee returning the Aircraft with “minimum return conditions” and compensating the Lessor in-lieu of performing the Redelivery Check, repainting the Aircraft, even shopping the Engines.
In most Leases there will be a section relating to “Additional Lessor’s works” or similar wording. The Lessor retains the right to have some additional work carried out during the Redelivery Check at the Lessor’s cost providing that this work does not impact the Redelivery program. This option in the lease is to facilitate any additional requests that the Lessor may have agreed with the next Lessee to be embodied during the check. These could be interior Reconfigurations, Modifications, SB embodiment, Livery, etc.
It’s important that these requests are identified during the “Kick Off” meeting to ensure that the Lessee is aware of what is required to be added to the Redelivery Workscope. It’s also important that the Lessor agrees to provides by a certain date all the associate EO’s, Mod Kits, Paint, Seats, etc. to the Lessee so as not to impact the Redelivery schedule.
The Lessee should use this time to agree logistics surrounding the Redelivery Location, agreeing the Maintenance facility which will perform the Redelivery Check. Also discussions need to be had regarding when the Lessor’s team will arrive on-site (earlier the better) how the next Lessee’s representatives will be accommodated and how all parties will communicate, mange the OIL (Open Items List), etc. during the Redelivery.
Officially the Lessee is returning the Aircraft to the Lessor, unofficially the Lessee is returning the Aircraft to the next Lessee.
This “Kick Off” meeting not only allows both parties to establish expectations, define time-lines and enables the Lessee to develop its Redelivery timeline, generate a Redelivery budget and examine resource requirements.
One final important note: “Record and Document” what was agreed during the Redelivery Kick Off Meeting.
Our next instalment will focus on the area of Resource Allocation. We welcome your thoughts and experiences of various Lessor Engagements and should you wish to discuss further please do not hesitate to reach out to Tuscar’s industry experts.