Considering the Value of Aircraft Technical Records in an Aviation Lease

SofemaOnline takes a look at the importance of Aircraft Technical Records within the context of Aircraft Leasing

Introduction

When an aircraft has significant disconnects in the integrity of the records the value of the aircraft can be substantially affected. (Any lapses in maintenance documentation can be used as financial leverage). Airlines routinely spend up to $2000,000 USD related to narrow body returns and the majority of lease return costs relate to disconnects in the aircraft technical records.

The Value of an Aircraft equal is Technical Records?

Well, when you consider that without the Technical Records which support the aircraft it will not be able to fly then it is effectively a true statement!

This connection between the aircraft value and the integrity of the aircraft records has been genially understood for many years however in the context of aircraft lease legal obligations both the integrity and accuracy of the documentation are of critical importance. (Currently, almost half of the world's fleet of aircraft is currently leased.)

Lease Agreement Considerations

Leasing agreements are very detailed legal and technical documents and it is possible for misunderstandings to occur concerning technical obligations and pure regulatory compliance is seldom enough with many lease clauses being more restrictive in terms of obligations and covenants placed on the lessee.

Who has a stake in the technical success of a Commercial Aircraft Lease?

a) The Financing Stakeholder

An aircraft may be collateralized by multiple financial institutions which therefore have risk considerations related to the leasing company’s ability to meet its debt obligations.

The Financial Stakeholder, therefore, has a vested interest in both the current and residual values, inferior technical records can have a significant negative effect on current value and may also potentially affect the residual value.

b) The Lessor

The lessor’s primary objective is ensuring the value of their assets. Additionally, to ensure the ongoing marketability and potential transferability of the asset. (The leasing company strives to ensure that, at the termination of the current lease that the aircraft can quickly available for the next customer.)

The leasing company has its eye on the need to align with the highest global standards so that aircraft is not limited to a single geographic region.

c) The Aircraft Operator

Requires the aircraft to be available, reliable and fully able to support the business objective (Obligated to ensure continuing regulatory approval) – Not focused on the Asset Value (But the Lessor is focused on Asset value).

Ensuring Viable Aircraft Technical Records

Lease Returns involve multiple steps and involve in-depth records checks with typical lease agreements obliging operators to ensure adherence to the principles of back-to-birth and back-to-overhaul traceability.

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