Tuscar's Knowledge Series: Redelivery Planning & Budget Development
Numerous Industry articles have been published on the subject of aircraft redeliveries with the average cost associated with a narrow-body redelivery in the region of $1.5M USD. From personal experience as a former Lessing Executive, I have witnessed redeliveries costing substantially more.
It is incredibly surprising that Airlines/Lessees find themselves financially exposed to such amounts. I suspect however, that very little (if any) post redelivery analysis is performed to determine the true cost of a redelivery. Most Airlines are undoubtedly glad to see the Aircraft redelivered and the staff return to their day jobs.
Over the years when the subject of redelivery costs has been discussed, I have heard Lessee’s blame the Lessor, argue that the Lease Agreement was biased in favour of the Lessor or claim that the person who signed the Lease on behalf of the Airline was no longer with the Airline.
Various reasons were used internally within the Airline to justify the cost and disruption but when you consider that the majority of Aircraft are on lease for at least 6 years (narrow-body) and 12 years (wide-body) it’s reasonable to assume that very limited Redelivery Planning was performed by the Lessee.
Understandably Airlines operate in the “present” and if an Aircraft goes “tech” with 160 Pax onboard in some holiday destination or inclement weather conditions disrupt operations then that’s todays problem. Unless you have a dedicated team focusing on a redelivery, scheduled to occur 12 months from now, then is the furthest thing on any Airlines/Lessee’s mind.
Following the “Kick Off” meeting, the Lessee should better understand the Lessor’s expectations and what needs to be achieved to return the Aircraft compliant. With this information the Lessee should be able to commence building a “Redelivery Workscope” factoring in elements such as Engine Shop Visits, Aircraft Painting, LOPA Reconfiguration, Maintenance Check, Component replacements, AD/SB embodiments, Records, etc.
As a general rule Lessees tend to focus primarily on the Maintenance Check and Aircraft Painting and whilst the Lease requires the Aircraft to be returned fresh “C Check” or equivalent, it is a Redelivery Check, NOT a C Check. The additional maintenance that needs to be performed during this maintenance input is regularly underestimated by the Lessee.
For example the Lease has criteria with respect to Components installed, that they must not exceed 110% or have Minimum time remaining until next scheduled removal, etc. Even if these “boxes are ticked” one usually finds a paper trace issue associated with these Components necessitating the Lessee to find alternatives. In certain cases, to expedite the redelivery process, I have witnessed Lessee’s install New Components (although not contractually obligated) and thereby adding to the Lessee’s Redelivery cost.
Aircraft damage assessment can also be a contentious issue - occasionally a Dent recorded on the Dent & Buckle Chart inspected during the bare mental inspection (during Aircraft painting) transpires to be outside limits necessitating a Repair to be performed.
In other cases temporary Repairs need to be replaced with permanent or in some Lease Agreement the Lessee needs to compensate the Lessor a Dollar amount for any “Non-Flush” repairs present at Redelivery based on their dimensions.
Records tend to be one of the main pacing items on a Redelivery and the Lessee should be in a position to commence preparing the “Redelivery Bibles” months in advance, particularly with respect to Back to Birth (BTB) records for Life Limited Components.
If as an example, an Engine or Landing Gear had it’s ESV or O/H performed a few years prior to Redelivery and is not scheduled to undergo another, then no reason exists why the BTB Trace, ESV’s, On/Off Logs, AD DFP’s, etc. should not be prepared months in advance only requiring minor updating at EOL.
Whilst the Maintenance input and painting will be major items in the budget, the Lessee needs to look at Resources to support the project and whether or not external 3rd party resources need to be utilised during the Redelivery check.
Depending on the Airline’s size it may prove counterproductive to task the complete Redelivery to the Airline’s staff as focus is taken off their “day job” which may impact productivity or operational activities.
In many cases new Airlines experiencing their 1st Redeliveries may have limited in-house experience of returning aircraft.
It may prove more cost effective to outsource the “Project Management” function to experienced consultants who in addition to expediting the Redelivery process can simultaneously mentor the Airlines staff throughout the process.
As with any Redelivery the final cost can escalate due to unexpected findings. However, with a knowledge of the Lease Agreement, Lessors expectations and adequate planning, the Lessee can mitigate substantially its financial exposure.
Ultimately the higher the Redelivery cost the more it erodes the Lessee’s profits and whilst Airlines strive to increase profits through exploring various revenue streams one area they can influence is Cost.
Putting the $1.5M redelivery cost into perspective:
I. Based on an IATA report (June 2019) Asian Carriers achieve $3.51 profit per Pax.
II. Ryanair given its extensive revenue streams expect to achieve $8.00 profit per Pax.
So if we take an Industry average of $6 profit per Pax
assume a load factor of 83% on a Boeing 737-800 (189Y class)
Every flight = 157 Pax onboard
It would require 1592 Flights to generate $1.5M