Aircraft engine leasing is a highly effective, economical alternative for most operators. Even large operators who own the majority of their engines have the need for leased engines in times of high UER’s (unscheduled engine removals), LLP shop visits, etc. The flexibility to plan removals, plan for UER’s, warranty issues, etc. relies upon the use of leased assets. In reality, the cost of ownership versus the cost to lease can make a huge financial impact on the operators.
Understanding the Aircraft Engine Leasing Return Process
So understanding that leased aircraft engines is invaluable to the industry, what about when they are ready to be returned? Even though lease engines are widely used, the industry still struggles when it comes time to return them. Operators are aircraft engine leasing not designed nor do they plan for the hassles associated with engine lease returns. This can be a multitude of reasons. Maintenance or quality departments do not get involved with the signing of lease contracts so they are unaware of the contractual requirements for lease return until the engine is ready to come off. Some operators are not set up to perform some of the required functions of the lease return. In any event, regardless of who actually owns the engine, through the guidance of the administrators (FAA, EASA, etc.), the operator is responsible for that leased engine while it is under their maintenance program. Once the engine is off wing, it simply becomes an accessory. Some operators may even use large engine overhaul companies to tend to lease return but this has its own large pitfalls as well. Lease returns can be time consuming and they do not generate the large sales numbers such as engine overhauls and hospital type visits. These larger shops are typically very busy so aircraft engine lease returns get pushed to the end of the line dramatically increasing lease return time. Seems odd considering 70% of the world’s aircraft engines are leased assets.
Depending on the lease company, most lease return requirements are generally universal. Leasing companies are typically not maintenance or engineering departments. They are more like aviation financial institutions so they rely on the operators for this. Since the operator is on the hook for the aircraft engine leasing fees until the lease return requirements are met, the leasing company will wash their hands of this. This is especially true if there are no other customers waiting for this particular aircraft engine asset to lease. We must be careful there; however, as this is a double edged sword meaning that there could be another lease awaiting this aircraft engine or the asset needs to be staged for a potential lease. Not to mention its great customer support for the leaser to try and help get the engine closed out as fast as possible. Some leasing companies will send representatives on site to monitor the process in order to help the operator return the engine and/or monitor the engine itself.
Understanding the Entire Scope of Aircraft Engine Leasing Returns
We must consider the entire scope of the aircraft engine leasing return process to fully understand the difficulties associated with it. So lets start with the records since they are the biggest issue to tend to.For records, operators must provide:
- Maintenance history
- Service reports
- Replaced component trace (most lease companies will not allow PMA parts)
- AD and SB’s that may have been complied with
- Operator or shop issued engineering deviations
- Engine trend monitoring data
- LLP status
- Utilization reports
- Engine shop visit records if accomplished
- Inventory of the engine
- MPA data and/or test cell data if required
- Various other aircraft engine lease company required forms
These typically will require operator QA signoff. The problem here is that operators do not usually have to concern themselves with most of these items all at one time or some of the items may not be in the normal operation of that operator. Their operations are geared towards running an airline while their internal systems and requirements do not have the flexibility to meet the needs of a lease aircraft engine records pack. Adding to this, depending on the term of the lease and what maintenance the engine has undergone during the lease, the records could be quite extensive. This leads us into replacing and repairing engine components.
Some operators are notorious for using PMA parts and either PMA repairs or airline generated repairs through their engineering departments. Again, the supervisors, QA’s and technicians may not know or care that the engine is a leased asset. They are doing exactly what they need to do by keeping their airplanes flying. So as you can imagine, and engine that has been on lease for years will have gone through a number of maintenance activities and quite possibly a shop visit. In most long-term aircraft engine lease agreements and some short-term agreements, the engine must have a certain amount of performance and LLP left at the end of the lease. Imagine the headache the operator faces when tasked with this burden. Lets be honest. 98% of all agreements and contracts executed are by finance folks who may or may not (most likely) have the knowledge and background for the technical portion of the lease return. So when it comes down to it, supervisors, QA’s and technicians have to weed through the barriers to try and get lease return conditions accomplished. It takes them out of their comfort zone of day to day normal operations. Imagine the cost of an aircraft engine at a daily rate of $3000.00 or more and the time to complete a lease return which runs an industry average of 20 days. That is $60,000.00 not including records labor time, maintenance labor time and materials. So in this example, the cost to return an engine could be over $70,000.00 for an asset that is no longer producing any revenue!
What’s the Answer to These Aircraft Engine Leasing Return Difficulties?
The answer? Dedicated aviation industry professionals and cooperation of leasing companies to make turn-key lease solutions. It follows the rental car industry. Rent the car and return it when you are done. If you do not put gas in it or it is damaged in any way, you are liable. Why couldnt’t a similar model apply here? Well my friends, it seems that the leasing industry could be heading down this path.
There are a few companies around the globe that provide these kinds of services, one of them being Jet Engine Solutions located in Coppell, Texas USA. This company was founded for the support of leased aviation assets.
It seems aircraft engine leasing companies are starting to listen and pay attention to the needs of their customers. In light of this, it is my opinion that if leasing companies were to provide this kind of service built into a lease agreement, not only would we see shorter turn around times for lease returns but the added value of that particular lease companies assets. This would benefit all parties involved in the aircraft engine leasing return process.