AC Leases 1st Edition

Guidance Material and Best Practices for
Aircraft Leases
Effective 1 February 2014
1st Edition
Guidance Material and Best Practices for

Aircraft Leases
Effective 1 February 2014
International Air Transport Association

MontrealGeneva
1st Edition
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Guidance Material and Best Practices for Aircraft Leases

ISBN 978-92-9252-258-2
2014 International Air Transport Association. All rights reserved.
MontrealGeneva
TABLE OF CONTENTS
ABBREVIATIONS ............................................................................................................................................ 1
SECTION 1.
INTRODUCTION.................................................................................................................... 3
SECTION 2.
BACKGROUND ..................................................................................................................... 5
2.1
INTRODUCTION ............................................................................................................................. 5
2.2
MAINTAINING ASSET VALUE........................................................................................................ 5
2.3
COMMON MISCONCEPTIONS ...................................................................................................... 6
SECTION 3.
3.1
3.2
LEGAL CONSIDERATIONS ............................................................................................................ 9

3.1.1
Introduction........................................................................................................................ 9
3.1.2
Letter of Intent ................................................................................................................... 9
3.1.3
Delivery Conditions ......................................................................................................... 10
3.1.4
Representations and Warranties .................................................................................... 11
3.1.5
Conditions Precedent ...................................................................................................... 11
3.1.6
Redelivery Conditions ..................................................................................................... 12
3.1.7
Insurance......................................................................................................................... 13
3.1.8
Payment and Security ..................................................................................................... 14
TECHNICAL CONSIDERATIONS ................................................................................................. 18

3.2.1
Delivery Conditions ......................................................................................................... 18
3.2.2
Aircraft Acceptance and Audits Process ......................................................................... 19
SECTION 4.
4.1
4.1.1
Cost Sharing Options ...................................................................................................... 23
4.1.2
Maintenance Reserve Claims ......................................................................................... 23

RE-DELIVERY ..................................................................................................................... 25
RE-DELIVERY PROCESS ............................................................................................................ 25

5.1.1
Introduction...................................................................................................................... 25
5.1.2
Initial phase ..................................................................................................................... 26
5.1.3
Pre redelivery phase ....................................................................................................... 26
5.1.4
Redelivery phase ............................................................................................................ 26
SECTION 6.
6.1
OPERATIONS...................................................................................................................... 23
ALTERATIONS IN OBLIGATIONS................................................................................................. 23
SECTION 5.
5.1
PRE-LEASE ........................................................................................................................... 9
CASE-STUDY ...................................................................................................................... 27
CASE STUDY ................................................................................................................................ 27

6.1.1
Situation .......................................................................................................................... 27
6.1.2
Aircraft delivery and export ............................................................................................. 27
6.1.3
Outcome .......................................................................................................................... 28
Guidance material and best practices for aircraft leases

REFERENCES ............................................................................................................................................. 29
ANNEX I
EXAMPLE PHYSICAL INSPECTION .................................................................................. 30
ANNEX II
TYPICAL REDELIVERY RECORDS ................................................................................... 31
ANNEX III
TYPICAL INDEX OF DELIVERY BIBLE.............................................................................. 40
ACKNOWLEDGEMENTS .............................................................................................................................. 42
ii
ABBREVIATIONS
AD
AMOC
APU
BtB
CAA
CMM/IPC
CAA
CofA
CP
CPCP
CSN
DER
EASA
ELT
ETA
ETOPS
FAA
FC
FDR
FDIU
FH
FOD
HIL
HMV
HT
IATA
ICAO
LLP
LOC
LOI
LOPA
MLG
MPD
MRO
NDT
NLG
NRC
OC/CM
OEM
P/N
PMA
RAP
RVSM
S/N
SB
SELCAL
SRM
SSID
STC
TCDS
TSN
Airworthiness Directive
Alternate Means of Compliance
Auxiliary Power Unit
Back to Birth
Civil Aviation Authority
Component Maintenance Manual/ Illustrated Parts Catalogue
Civil Aviation Authority
Certificate of Airworthiness
Condition Precedents
Corrosion Prevention & Control Programs
Cycles Since New
Designated Engineering Representatives
European Aviation Safety Agency
Emergency Locator Transmitter
Estimated Time of Arrival
Extended-Range Twin-Engine Operational Performance Standards
Federal Aviation Administration
Flight Cycle
Flight Data Recorder
Flight Data Interface Unit
Flight Hour
Foreign Object Damage
Hold Item List
Heavy Maintenance Visit
Hard Time
International Civil Aviation Organization
Life Limited Parts
Letter of Credit
Letter of Intent
Layout of Passenger Accommodation
Main Landing Gear
Maintenance Planning Document
Maintenance, Repair, and Overhaul
Non Destructive Testing
Nose Landing Gear
Non-Routine Cards
On Condition/Condition Monitoring
Original Equipment Manufacturer
Part Number
Parts Manufacturer Approval
Repair Assessment Program
Reduced Vertical Separation Minima
Serial Number
Service Bulletin
Selective Calling
Structural Repair Manual
Supplemental Structural Inspections Document
Supplemental Type Certificate
Type Certificate Data Sheet
Time Since New
SECTION 1.
INTRODUCTION
This document provides guidance material and best practices, which may be used by airlines to effectively
manage and optimize the lease process. Whilst this document is written from the airlines perspective, it
also describes the perspective of the lessor and the regulator to provide insight into the different points
of view. With this document, IATA hopes to shed light on the complex process of aircraft leasing between
the lessor and the lessee/operator.
An aircraft lease, with the associated delivery and redelivery process, can be a cumbersome and timeconsuming activity, which very often catches airlines off-guard. Whilst an aircraft lease might seem tedious
and difficult, many issues can be resolved by proper preparation and attention to detail. Airlines need to
consider that the activities performed by the lessor are focused on the purpose of maintaining the asset
value, mitigating risk and maximizing their return on investment. This approach very often differs
significantly from the airlines perspective, which is one of operational efficiency and regulatory compliance.
Preparation for an aircraft delivery or lease return of an aircraft may start many months before the actual
event. Many airlines already have a large workload and are consumed with the burden of resolving
operational challenges. However one of the biggest pitfalls for a delivery or redelivery program for any
airline is insufficient preparation-time or lack of manpower. Freeing up airline staff or hiring in support is
money well spent considering that delays are extremely costly. As well, lease contracts impose significant
penalties ranging from 50% up to 100% on top of the standard rent in the event of a delay in redelivery.
However, it is not only up to thorough preparations. A lease agreement requires input from many different
departments, ranging from legal to financial and maintenance to operations. Leveraging the available
expertise is of equal importance. An initial low lease rate may very easily evaporate against the high cost of
a redelivery as a result of delays, regulatory issues or technical difficulties. Looking at not only the initial
cost, but integrating the cost of the entire leasing life cycle into the negotiation process will create clarity
and aid in determining which issues have a (significant) impact during lease negotiations.
This document consists of six different sections which cover the entire aircraft leasing life-cycle, starting at
the negotiation phase, through to operations and subsequent redelivery.
Figure 1, below illustrates the structure of this document, in which this first Section provides the introduction
and objective. Section 2 describes the background of this document. The leasing life-cycle is described in
Section 3 through to Section 5, from pre-delivery through operations to the re-delivery phase. The last
section provides a practical example and case-study.
Figure 1: Guideline through the Guidance Document
Please provide any relevant comments regarding this document to: alag@iata.org. This is a living
document as conditions change and updates to this document may be required.
SECTION 2.
BACKGROUND
2.1 INTRODUCTION
Aircraft operating leases represented less than 5% of the overall aircraft ownership situation in the 1980s.
However, this percentage has significantly grown since then (Shpall, 2011). It is expected that half of all
aircrafts worldwide will be under either an operating or financing lease in the next decade, as illustrated in
Figure 2. Whilst a lease allows airlines to add an aircraft to its fleet without any ownership risks, thereby
introducing much needed flexibility, it also introduces a series of unique challenges for the airline. Many of
these challenges result from different viewpoints between the lessor and lessee.
Figure 1: Operating Lease % in Worldwide Fleet
2.2 MAINTAINING ASSET VALUE

An aircraft lease gives the airline increased flexibility in fleet expansion. However, it is also the main source
of income for any leasing company. Consequently, the lessor will seek to maintain its asset value by
specifying every aspect of the aircrafts use in a contract and ensuring that this lease agreement is strictly
followed by means of aircraft and records audits. As a result, lease contracts are extremely complex
agreements, spanning many aviation regulatory regimes, legal jurisdictions and incorporating many
protection mechanisms as pre-mitigation for potential adverse events (i.e. airline bankruptcies). All of this is
done with a few basic principles stipulated below.
a)
The asset value depreciation must be in line with other similar aircrafts under similar conditions. This
implies that the aircraft must be operated and maintained in a manner that protects the value of the
asset. Associated aircraft records must be readily available to enable fulfillment of this requirement.

b)
The asset must be freely transferable without any significant burden. Very often this means that the
aircraft will need to meet importation or exportation requirements of a specific aviation jurisdiction,
usually supported by an Export Certificate of Airworthiness (Export CofA). Furthermore, elaborate
or airline specific changes or branding will need to be removed in order to increase the marketability
of the aircraft.
c)
Protection must be in place against events of default. A lessor will implement a number of measures
to ensure that adequate coverage is available for such events. Payment of a deposit, maintenance
reserves and other down-payments will give the lessor additional protection during unforeseen
bankruptcies, Chapter 11 events or other similar situations of financial distress. Inspection rights
during normal operations, heavy maintenance events and other significant maintenance actions will
give the lessor insight into the day-to-day activities and operations. As well, it will assist the lessor in
forming an opinion on any potential issues which may arise.
2.3 COMMON MISCONCEPTIONS

All of the specific technical, operational and legal requirements will have been included in an all
encompassing lease agreement, which has been perfected by the lessor over the course of numerous
transactions. The complexity of such a lease agreement often results in a number of challenges for the
airline. Even though many lease agreements are extensive and detailed, no agreement can be 100% water
tight or completely clear, thus resulting in misunderstandings at times. These misconceptions are frequently
the result of different mindsets or diverging interests, and may eventually result in difficulties which are
costly or time-consuming to resolve. A lessor will look at the entire aircraft life cycle, which usually consists
of several leases to a number of different airlines, or at the very minimum will look beyond the redelivery of
the aircraft. However, the airline will only look at its own operation and lease term as the aircraft is only
used for a pre-determined period. As a result, perceptions and interpretations of specific requirements quite
often differ. This is illustrated in Figure 3 and described below.
Stakeholders
Regulator
Interest of Lessor during lease
Compliance in Regulatory
Environment 1
Compliance in Regulatory
Environment n
Risk Mitigation
Asset Value Depriciation
Lessor
Transferability
Lessee
Lessee 1
Interest of Lessee 1
Lessee 2
Interest of Lessee 2
Lessee n
Interest of Lessee n
Lease duration
Figure 3: Interest of stakeholders causing unique challenges
Background
a) Back to Birth Traceability
Of the many issues which may occur, one of the items most commonly misunderstood is how to prove
Back to Birth Traceability (BtB) for Life Limited Parts.
Life Limited Parts (LLP) exist in a number of aircraft components, such as Engines, APUs, Landing
Gears and Airframe parts. Failure of an LLP may result in unsafe conditions or safety hazards. Major
regulatory agencies such as the Federal Aviation Administration (FAA) and European Aviation
Safety Agency (EASA) state that an operator must have an approved system in place that effectively
controls and records the total operational life of the part. Although a seemingly simply process, the
airline and the lessor will both have a different approach. While the airline will record the total time of
each LLP with the use of their maintenance software, the lessor often requires a much more detailed
approach. The lessor will want proof of each and every step in the LLPs life by means of a dirty
fingerprint coupled with the consumed time (flight hours and flight cycles). The reason for this is
threefold:
The lessor will want 100% certainty that there are no errors in the total time consumed by the part
and will want documentation to substantiate this.
o The provided paperwork must be of the highest standard to maintain the asset value (assuming
that there are two identical parts available for sale, the part with the best quality paperwork will
obviously be more desirable and hence provide a higher value).
o The lessor will want to protect itself against more stringent requirements of future operators or
regulatory agencies, thereby ensuring maximum marketability for the asset.
Although providing a summary sheet will often not be sufficient to meet this requirement, it is however
sufficient for the regulatory authorities. It must be noted that most regulatory authorities will also require
the most recent authorized release certificates (i.e. EASA Form 1 or FAA Form 8130) for each part
where details on the status of SBs, ADs, any applicable task and remaining life is clearly stated.
o
The problem of incomplete back to birth paperwork is specifically apparent in the case of landing gear
LLPs. Landing gears, with their 10 year overhaul interval, are quite frequently exchanged (including the
individual subassemblies) and new LLPs have been introduced over the years. In addition, landing
gear overhaul shops dont always supply paperwork that meets the requirements of the lease
agreement. Therefore, the question remains: What is needed to prove the full back to birth traceability
and how is this requirement properly defined? The best way to mitigate this risk is to include a detailed
and very specific description of all documentation required in the lease agreement.
b) Repairs
Repair documentation and certification is another area of misunderstanding. When the lease
agreement requires an airline to deliver dirty fingerprints certification of repairs, what exactly needs to
be included? Does a lessor require each blend on the aircraft to be recorded (no matter how small)?
Does this requirement apply to both internal and external repairs? In many cases, the lessor will require
that the repair file and the linked damage tolerance analysis for any inspection requirements in the
future are comprehensive and detailed enough to satisfy any regulatory agency or future operator.
Some lessors also request any external repair to be a flush repair, which is not always allowed by the
repair manual and, subsequently, could lead to the aircraft skin needing to be replaced. Other lessors
may require repairs to be permanent, whilst the OEM only provides a solution with a repeat inspection.
As with back to birth traceability, the lessee needs to ensure that the requirements for repairs are
achievable and match with the capabilities of the maintenance organization.

c) Records presentation
Records presentation and consolidation are another area of difficulty. An aircraft will receive many A, C
and type D-checks in its life, during which many mandatory inspections, modifications and repairs will
be performed. If a lessor requires the airline to present documentation of repairs, modifications,
Airworthiness Directives (ADs) or other inspections task cards in a consolidated manner, it will be
extremely time-consuming. Sometimes, it is an impossible task to retrieve all documentation and build
a watertight file if the lessee has not made provisions for this from the start of the operation and has left
all the task cards in the individual check packs.
Whatever the cause may be, these lead to delays and delays in are costly.
SECTION 3.
PRE-LEASE
3.1 LEGAL CONSIDERATIONS

3.1.1
Introduction
In an increasingly volatile industry, it has virtually become standard industry practice for lessees, as well as
lessors, to create documentation which will provide sufficient remedies for both parties in the event that
problems arise. As the leasing of aircrafts is a lessors core expertise, the lessee often finds itself in a more
disadvantageous position than its counterpart. This is especially the case when a multinational leasing
company is contracting with a relatively small airline, which is a regular occurrence within the industry.
The purpose of the legal considerations analyzed in this guidance document is to examine a selection
of the most relevant legal issues with regards to an aircraft lease. Therefore, it provides only an overview,
which is by no means comprehensive. A comprehensive legal assessment would entail a much
more voluminous and in-depth document, which is outside the scope of this guidance document. For this
reason, certain legal considerations, such as tax implications, will not be addressed here.
3.1.2
Letter of Intent
A letter of intent (LOI) typically precedes any aircraft lease agreement as a first contractual step, and
outlines the broad terms of agreement between the parties. The LOI simply clarifies the key points, and
provides safeguards in the event that further negotiations do not succeed. This document is also commonly
referred to as heads of terms, memorandums of understanding, or term sheets.
It is important to note that whilst there is always a significant amount of work to move from an LOI to a
definitive lease agreement, the LOI does already set out most of the key terms, thus forming the basis for
further negotiations. In fact, these key terms are sometimes simply replicated into the definitive lease
agreement. The lessee should therefore treat the LOI with the same attention and care as the definitive
lease agreement, if not more.
The LOI is usually legally binding in that following its signature by both parties, the lessee must pay a
deposit and/or commitment fee to the lessor, as consideration for the lessor to remove the aircraft from the
market. Such a security deposit is refundable only in certain circumstances, typically subject to the
conditions precedent (see Section 3.1.5) of the finalized lease agreement.
When drafting the LOI, the lessee should make sure that the lessor has identified and detailed its lease
restrictions. These specific lease restrictions are usually associated with the typical financier covenants
found in any leveraged lease structure. It is important that both parties identify and assess these
restrictions early on, as some of them could be deal-breakers (i.e. where the lessee wants to operate in
a severe environment, and there is a financier covenant on the lessor regarding operational location of
the aircraft).

The key terms of an LOI usually deal with, at least, the following topics, some of which are examined in
greater detail later in this document:
Formal description of contracting parties

Aircraft details
Delivery date and lease term including early termination options (Section 3.1.3)
Delivery and redelivery conditions (Section 3.1.3 and 3.1.6)
Insurance requirements (Section 3.1.7)
Rent, Deposit/Commitment Fee, and other payments (Section 3.1.8)
Pre-approved permitted subleases
Maintenance, Operations and Records
Conditions Precedent
3.1.3
Delivery Conditions
The delivery conditions specify when, how, and in what condition the aircraft will be delivered to the lesseeprovided that the conditions precedent have been complied with, as discussed in Section 3.1.4.
The parties should ideally agree to a delivery period instead of any firm date, in case of a delay with the
delivery of aircraft. The lease agreement will often refer to delivery on or around a specific date, as well
as a back-stop date, which serves as the final date for acceptance, after which the parties would have to
agree to a new delivery date. Failing delivery by the back-stop date or equivalent, the relationship
between the parties would terminate in accordance with the lease agreement.
The lease agreement will almost always be drafted in such a way that the lessor shall not be liable for any
damages or losses incurred by the lessee due to a delay in delivery of the aircraft. This is a common
industry standard and the rationale behind it is that the lessor should not be responsible for delays caused
by late redelivery of the previous lessee of the aircraft, as this is out of the lessors control. However, delay
can also be caused directly by the lessor. Therefore, it is advisable to the lessee to negotiate this carve out
of liability, in that the lessor should at least be responsible for any damage caused by delays which are
within the lessors reasonable control.
A lessor will sometimes insist on distinguishing between major and minor defects with regards to delivery of
the aircraft, with minor defects consisting of easily resolvable issues which will not have an impact on the
normal operation of the aircraft by the lessee. The rationale behind this is to avoid any delay with regards to
delivery. Therefore, minor defects should not delay the aircraft and should be transferred into delivery
exceptions and potentially conditions subsequent, as discussed in Section 3.1.5. Of course, major defects
need to be repaired by the lessor before the lessee accepts delivery of the aircraft.
The lease agreement will almost always specify that the lessee will accept the aircraft in an as is, where is
condition. This essentially means that the lessee must take the aircraft in the condition it presently exists or
as found on inspection immediately prior to purchase or lease, even if damaged or defective, without
modification and without any express or implied warranties. This term is an indication of the Caveat Emptor
concept (buyer beware) in that the buyer (or equivalent) is taking a risk on the quality of the goods. If any
hidden defects are discovered after purchase (or after delivery in case of an operational lease), the buyer
generally has no recourse against the seller. The buyer is regarded as having inspected and accepted
goods in their current state. As such, all burden is placed on the buyer to ensure discovery of any defects.
Therefore it is important to note here that the only protection the lessee has with regards to the as is,
where is concept is to thoroughly inspect the aircraft and associated records before delivery, and to make
sure that the aircraft is not accepted in the case where it does not meet the specified delivery conditions.
10
Pre-Lease
3.1.4
Representations and Warranties
Whilst representations and warranties are often grouped together in a lease agreement, they are in fact
quite different. Representations are statements of facts designed in order to induce a counterpart into
becoming party to a transaction. Whereas warranties are conditions upon which the contract is to take
effect. Whilst a lessee should always be aware of this distinction, in practice both representations and
warranties are considered in the same provisions.
Representations are always made concerning the past and present only. The equivalent of future
representations is typically caught in the form of events of default in the definitive lease agreement.
However, the lessee should be especially aware of any concept of repetition of representations. Such
repeating representations must be assessed and renegotiated, or if included, subsequently monitored
during the lease term when necessary. This is especially relevant where a representation is partly or wholly
out of the lessees control, such as where a representation is subject to a change in national law (i.e. tax
related). The worst of possibilities, for the lessee, with this type of concept, are representations that repeat
automatically throughout the term of the lease. The lessee must ensure in this case that the potential risks
of such automatically repeating representations are carefully considered. Certain representations may be
outside of the lessees control. Therefore, the lessee must consider its own potential breach where it is not
even at fault. In the event of a breach, it is then possible that the lessor would have the right to terminate
the lease.
The representations and warranties in a lease agreement typically consist of, at least, the following:
No default has occurred and is continuing

Corporate status of lessee
Power and authority to enter into lease
Valid execution of lease
Legal validity and enforceability of lessees obligations
Non conflict of lessee obligations with its other obligations (i.e. lessee creditor agreements permitting
a charge over the lease aircraft).
All necessary lessee authorisations, consents, and registrations in order to fulfil its obligations under
the lease
No lessee immunity with respect to obligations
Financial accuracy of statements
Choice of governing jurisdiction and submission to it by lessee is valid and binding
All necessary tax returns and filings have been made
No material adverse change in the financial condition of lessee
No default in fees due by lessee to any authority (i.e. EUROCONTROL charges)
Non conflict with other lessee obligations
Lease obligations Pari Passu with lessee unsecured charges
3.1.5
Conditions Precedent
The conditions precedent (CP) of a lease agreement sets out the conditions which must be complied with
for the lease agreement to become effective. Unlike other industries, with aircraft leases, the entry into
force of the obligations of the lease agreement almost always depends on compliance with the conditions
precedent by both parties (keeping in mind that certain terms will survive in the event the obligations under
the lease agreement do not arise, such as non-disclosure, liability waiver provisions, and representations
and warranties). In the event of failure to comply with the conditions precedent, the lessor is no longer
obligated to deliver the aircraft to the lessee, or alternatively the lessee is no longer obligated to accept
delivery of the aircraft by the lessor.
11

At delivery, it is common practice to waive certain CPs in order to facilitate the transfer process and
avoid delay. The lessee can propose to convert these CPs into lessee covenants (to be complied within
a mutually agreed time limit). However, there is usually a zero tolerance policy applied to the following
CPs, although this can sometimes even be narrowed down to receipt of payments and insurance
certificates only:
Payments (security deposits, commitment fee, first rent, etc.)

Provision/creation of letters of guarantee, credit or other credit enhancement instruments in place
Receipt of the insurance certificate and brokers letter of undertaking
Receipt of certain key documents (i.e. deregistration Power of Attorney, proof of legal capacity to enter
into the lease with supporting legal opinion, board approval resolutions)
A lease agreement typically also includes at least the following conditions precedent:
No total loss of aircraft

Lessee satisfactory inspection of aircraft and documentation by an agreed date
Aircraft being in agreed delivery condition
Receipt of payments
Certificate of Registration
Approvals by each partys board
No material adverse change in lessees financial or operating condition
3.1.6
Redelivery Conditions
The redelivery conditions are, by their nature, drawn from the delivery conditions. It is therefore advisable
to the lessee to aim to match the redelivery conditions as closely as possible to the delivery conditions
during contract negotiations. Any uncertainty or mismatch in the delivery and redelivery conditions of the
lease agreement could lead to the lessee investing (heavily) in putting the aircraft in a better condition at
the end of the lease than it was in at delivery.
It is advisable to the lessee to pay specific attention to the redelivery conditions and the redelivery timetable
as the consequences of non-compliance can result in financial liabilities for the lessee. Redelivery
conditions are agreed before the lease term commences, usually as early as the LOI. However, even at
such an early stage, lessees must be wary of even the slightest potential of the lessor claiming that a
specific item would not be in compliance with the redelivery conditions.
If at redelivery the lessor successfully argues non-compliance with the redelivery conditions, not only will
the lessee have to remedy the defect at its own cost, but the lessee will continue to be obligated to pay rent
on the aircraft. Often, the rental obligation will be even worse for the lessee, as the lease agreement may
specify that in the event of a late redelivery, the rent shall increase by a certain percentage. Notably,
increases upwards of one hundred percent are not uncommon. Therefore it is advisable that the lessee
makes sure that any increase in rent after delay of redelivery is as low as possible. It is also advisable to
the lessee to negotiate a grace period for redelivery of the aircraft, in accordance with the similar concept of
the back stop date as discussed in the delivery conditions (see Section 3.1.3).
While it is common to have precise redelivery wording with regards to certain elements, such as
arrangements for specific hours and cycles with respect to aircraft and engines, some elements are almost
always left vague. The lessee should not overlook these relatively small items as they soon add up, and
can ultimately result in adverse financial consequences.
12
Pre-Lease
A specific example of one of these smaller items to look out for is the redelivery location. Lease
agreements typically provide for a redelivery location either as designated by the lessor, or by mutual
agreement of both parties. It is advisable to the lessee never to accept wording to the effect that the
redelivery location shall be determined by the lessor. At the very least, the redelivery location should be
designated by the mutual agreement of both parties. Ideally, a firm redelivery location will be agreed in the
lease, however sometimes practicalities do not allow for a specific location to be designated (i.e. where
there is uncertainty with a long term lease). By leaving the seemingly unimportant choice of redelivery
location to the lessor, the lessee will not be able to control the ferry flight cost, which could be substantial.
3.1.7
Insurance
As described in Section 3.1.5 (Conditions Precedent), the requirement of insurances tends to be one of the
most important requirements from a lessor perspective, as it protects the value of the lessors asset. For
this reason, lessors typically start negotiating at the high end of the insurance level spectrum. In
accordance with the concept of almost all risk of operation of the aircraft passing to the lessee, it is wholly
the lessees responsibility to provide insurance coverage for the aircraft.
The two broad types of insurance commonly required by an aircraft lease agreement are: Hull insurance
and Liability insurance.
a) Hull Insurance
It is always advisable to determine the exact definition of a type of insurance coverage by referring to
the actual policy and/or requirements attached to such coverage. Hull insurances may vary in certain
elements, such as for total loss of the aircraft, as well as distinguishing between hull insurance for
aircrafts in motion and not in motion. However, a typical hull insurance may be defined as the policy
covering damage or loss to the aircraft. This relates to physical damage to the aircraft, in which case
the insurance policy will cover restoration of the aircraft to the condition it was in before the damage
occurred. Should there be damage to the aircraft such that the aircraft is no longer reparable (a total
loss has been incurred), then the hull insurance will typically provide for a fixed payment in accordance
with the agreed hull value.
The agreed hull value may be subject to certain lessor restrictions, which would keep the agreed hull
value above the actual market value of the aircraft for the duration of the lease. An example of such a
restriction is found in a leveraged lease structure, whereby the lessor may have an obligation to its
financier to keep the aircraft insured at a certain value for a defined time period. This may result in an
unreasonable obligation of the lessee to insure the aircraft at a value above what it is really worth.
In this case, it is advisable to the lessee to renegotiate these levels down as close as possible to the
actual market value through alternative methods. This may mean that the lessor would have to
contribute to a portion of the insurance premium. Furthermore, lease agreements typically provide for a
reduction in the agreed hull value by a certain percentage each year, and thus the associated
premiums for the lessee would also decrease. The insurance premiums will of course also be subject
to the level of deductibles agreed (amount of damage which must be borne by the lessee, with anything
above that being covered by the hull insurance policy).
b) Liability Insurance
Liability insurance is typically the coverage for damage to third parties. Specifically, liability insurance
provides coverage to protect and indemnify the insured for potential exposure to passenger, cargo or
baggage claims and to third party liability claims including property damage, bodily injury or death
caused by, or arising from the insureds operations.
13

Whilst hull insurance is determined on a commercial basis only, liability insurance is actually obligatory
in accordance with specific legislation.
Article 50 of the Montreal Convention 19991 requires that state parties shall require their carriers to
maintain adequate insurance covering their liability there under, and may be required by the state
party into which it operates to furnish evidence. However, it is clear that the insurance levels required
and deemed adequate are not specified any further by the Montreal Convention. Therefore, it is up to
each Montreal Convention contracting state to determine what levels of insurance are adequate
under its national law.
Many states have actually defined their minimum requirements as to liability insurance. However, these
requirements vary greatly across the globe, with developed countries typically requiring higher levels of
insurance.
The minimum insurance requirements under national law are usually well below the level of liability
required by the lessor. The lessee can typically expect the required level of liability insurance to be in
the region of $750,000,000 (i.e. for a narrow body aircraft). It is advisable to the lessee to always try to
negotiate this level down, but they should not expect to be able to negotiate to lower than the
$600,000,000 mark. The reason for this is that many national legal regimes of developed countries
require a minimum level of insurance in between the $500,000,000 and $600,000,000 mark.
Furthermore, the insurance levels required under national law are based on a calculation mainly taking
into account the maximum take-off weight of the aircraft, the number of passengers carried, and finally
a definitive level of Special Drawing Rights2. The number of passengers carried is then multiplied by
the Special Drawing Rights amount, which results in the minimum level of liability insurance considered
mandatory by national law.
3.1.8
Payment and Security
Aircraft lease agreements are typically structured as net leases. The net lease concept means that the
lessee will also be paying for, in addition to the rental fee, the usual costs associated with ownership of the
aircraft (expenses associated with operation and maintenance).
The net lease concept means that, in addition to the rental fee, the lessee will also be paying fort the usual
costs associated with ownership of the aircraft (expenses associated with operation and maintenance).
14
The Montreal Convention 1999, formerly known as the Convention for the Unification of Certain Rules for International Carriage
by Air, followed the Warsaw Convention by developing the legal regime for rules relating to international carriage of passengers,
baggage and cargo. The Montreal Convention 1999 is applicable to the majority of ICAO member states, including most of the
developed aviation countries. See the following ICAO link for full membership
details:http://www2.icao.int/en/leb/List%20of%20Parties/Mtl99_EN.pdf
Special Drawing Rights are supplementary foreign exchange reserve assets defined and maintained by the International Monetary
Fund. Special Drawing Rights are not a currency, but are instead a claim to a currency.
Pre-Lease
The main elements to be considered when dealing with payment and security are the deposit (which may
be accompanied by a commitment fee or similar fee), the rental payment and the supplemental/additional
rent (i.e. maintenance reserve payments). These payment and security elements are considered in further
detail as follows:
a) Security deposit
As mentioned in Section 3.1.1., the security deposit is paid by the lessee as consideration of the lessor
to take the aircraft off market. However, the security deposit also fulfils the typical role of being a
protection for any non-payment under the lease agreement. Whilst this is typically targeting
non-payment of the rent, the security deposit can also be used by the lessor to offset other
non-payments (i.e. maintenance reserves, failure to meet delivery conditions etc). Therefore, it is usual
that the security deposit consists of an amount equal to two to three times the monthly rental fee.
However the lessee is advised to consider the level of the security deposit carefully in conjunction with
any other payments, such as the commitment fee discussed further on in this section. As a balance
must be achieved, it is advisable that the lessee should commence from a basis of a total payment of
up to three months of the rental fee and no existence of a commitment fee. Nevertheless, the levels of
security deposit are very much subject to a commercial negotiation, as is the beneficiary of interest
accrued on such a security deposit (although this is typically for the benefit of the lessor).
b) Commitment Fee
It is often a concern to the lessor that the security deposit may be subject to a lessee claw back in the
event of lessee bankruptcy. Of course this claw back would be in addition to the potential unsecured
creditor status of the lessor in respect of the rest of the payments under the lease agreement.
Therefore, in an effort to circumvent this potential bankruptcy claw back risk, lessors often term part, if
not all, of the security deposit as a commitment fee. This allows the lessor to retain the commitment fee
as an absolute property of the lessor, in that it is given as consideration for taking the aircraft off market
only. Consequently, this commitment fee would not form part of the lessees estate in bankruptcy.
It is advisable that the lessee takes an active interest in detailing out the criteria for return of the
commitment fee, at the end of the lease term. Furthermore, whilst we have considered what may
happen in the event of lessee bankruptcy, as well as the methods of circumvention proposed by the
lessor, we have not considered lessor bankruptcy. In an increasingly volatile aircraft leasing industry,
lessees will also be at risk of losing their security deposit and/or their commitment fee should the lessor
go bankrupt. Therefore, whilst it is purely a commercial negotiation, it is advisable that the lessee
requests that the security deposit and/or commitment fee, be placed in a pledged account.
c) Rent
The rental fee is the consideration given by the lessee to the lessor for use of the lessor aircraft. The
rental fee is most commonly paid monthly in advance and can be structured in a variety of ways,
although a fixed fee is typical (as opposed to a floating rate). This element of the payment and security
structure can be considered as the most valuable and therefore is always subject to the hell or high
water clause as described above.
15

d) Supplemental rent or maintenance reserves
Maintenance reserves are a securitization for the lessor against the decreasing maintenance value
of the aircraft during its operation. Maintenance reserves are an amount accumulated by Flight
Hour, Flight Cycle or Time to cover future Maintenance Events. The goal is to cover the cost of labor
and material used for the selected Maintenance Events. There are various types of Maintenance
Reserve events:
o
o
o
o
Fixed interval
Flexible interval
Fixed cost
Flexible cost
An overview of the different Maintenance Reserve events, in combination with the different types, is
provided in table 1.
Fixed Interval
Fixed Cost
Engine Life Limited Parts
Flexible Cost
Airframe Heavy Maintenance Checks

Landing Gear Overhaul
Flexible Interval
Engine Performance Restoration and

Overhaul
APU Overhaul
Table 1: Different Types of Maintenance Reserves
Maintenance Reserves accumulate in order to be used once the intended event takes place. By doing so,
the cost of such an event will be distributed pro rata over the interval to the various users. As well, the risk
of insufficient funds to cover the maintenance event in case of any airline bankruptcy will be minimized.
As detailed in the example below the Heavy Maintenance Visit (HMV) for an Airbus A320 has an interval
of 6 years. If the first lessee operates the aircraft for a period of four years, maintenance reserves will have
accumulated for this same period of time. The remaining two years of maintenance reserves are
accumulated by the second lessee who operates the aircraft for an additional 10 years as explained in
Figure 4. From a lessor perspective, the maintenance reserves are equivalent to an insurance to reduce
exposure in an event of default.
Figure 4: Maintenance Reserves accumulation over various operators
16
Pre-Lease
A lessor will only pay a contribution towards an agreed and scheduled maintenance event if this event
meets the strict requirements as detailed in the lease agreement. Payment for any work outside of this
scope falls under the responsibility of the lessee (i.e. accidents, incidents, modifications, shipping etc).
It is part of the commercial negotiation between the lessor and lessee to agree a fair rate for the various
event types. The lessor will obviously want to ensure that each maintenance event is adequately covered
(thereby providing protection in case of default), while the lessee will want to reduce cash-out as much as
possible. Whatever the case may be, the lessee should ensure that the maintenance reserve mechanism
and the subsequent payments by the lessor are in balance with the amounts paid by the lessee.
The accumulated maintenance reserves over time commonly have a saw-tooth pattern depending on the
typical interval of the maintenance events and their related costs. Figure 5 indicates a typical saw-tooth
shaped maintenance reserve depreciation curve, in which the depreciation of the maintenance reserves
occurs over time.
Figure 5: Accumulated Maintenance Reserves versus time-frame showing the typical saw-tooth shape,
with the respective maintenance events
There is a number of alternatives for the lessor to reduce the risk associated with the fluctuations of the
aircraft maintenance value, and for a lessee to prevent payment of maintenance reserves and the
associated cash-out. The various solutions are highly dependent on the creditability of the lessee, but
common solutions are:
Maintenance reserve deposit

A maintenance reserve deposit is an initial maintenance reserve payment to an (escrow) account, to
cover the average maintenance exposure over a specific period. This amount is an average over a
certain period and may not always cover the lessors exposure fully. This is therefore very much
subject to commercial negotiations. The lessee may negotiate additional benefits such as
reimbursement of interest.
End of lease compensation

Compensation will be executed based on the Flight Hours, Flight Cycles, or Calendar Time since the
last Maintenance Event or since new, as well as the agreed cost of such Maintenance Event. This
compensation can be agreed to be on half life or full life conditions depending on the lease agreement.
Letter of Credit (LOC)

Subject to the approval of the lessor, operators may issue a LOC for the value of the projected cost of
maintenance over a period of time, which normally consists of 12 months. Such LOC will be renewed at
the end of its period reflecting another projection of maintenance cost for the coming period and also
reflecting the occurrence of major maintenance activity. Banks and financial institutions generally
charge a fee for this, therefore the LOC cost should be offset against other solutions.
17

Additionally the lessee should not forget to determine what amount is sufficient to cover previously
consumed maintenance intervals (i.e. maintenance reserve top up). Various mechanisms exist to
determine what amount should be available, but in any case the lessee should be diligent and inspect the
actual condition of the airframe, engines and other parts (based on both physical condition as well as the
available maintenance records) in order to accurately determine this amount.
3.2 TECHNICAL CONSIDERATIONS

3.2.1
Delivery Conditions
There are different objectives for both the lessor and lessee during the delivery of the aircraft and pre-lease
phase. The lessor would prefer to keep the costs related to the delivery as low as possible as any
additional work may result in out-of-pocket cost. For this reason, the status in which the aircraft is delivered
to the new lessee depends largely on the commercial negotiations and is often highly dependent on the
delivery conditions of the previous lessee (i.e. the redelivery conditions of the previous lessee are mirrored
with the delivery conditions of the next lessee). The main objective for the lessee is to have the aircraft
ready for operation at the right time, as various routes have been scheduled accordingly. Additionally, the
lessee will want an aircraft delivered in a configuration which is in line with the standards of the rest of the
lessees fleet. It can be very beneficial to determine the configuration differences prior to making a LOI as
configuration changes can be beyond what is considered economically reasonable. Commonality across
the fleet saves costs on spares provisioning, staff training, maintenance processes, and operators often
prefer to fly in a standard configuration as part of their branding. It is also common to expect a certain
amount of clearance for airframe, engine and component maintenance. In general, distinction can be made
between two different forms of delivery conditions. The first is a typical delivery consisting of general and
common industry terms, while the second one is more basic and typically associated with end-of-life leases
or distressed leases.
a) Typical delivery conditions
It should be the goal for the operator to have the aircraft delivered in the same standard as the rest of
the fleet. Although maintenance programs for modern aircraft types typically do not define C-checks,
the terminology is still widely used. In this case, the former C-Check interval is defined by a specific
number of flight hours, flight cycles or/and calendar time, and it is advisable to ensure that this specific
period matches the requirements of the operator. The remainder of the maintenance items, such as
hard time components, emergency equipment and landing gears, are usually cleared for a similar
period. Engines are generally treated separately and, with the exception of LLPs, operational
assurances are usually based on softer terms. It is therefore more difficult to determine if these
conditions are met at delivery. An example of a typical delivery conditions is provided in Annex III.
Other items usually have specific delivery requirements and are negotiated separately, such as wheels
and brakes, auxiliary power unit, modifications, repairs and paint;
o
18
Wheels and brakes: While seemingly unimportant, wheels and brakes are subject to wear. With the
redelivery of an aircraft in sight, previous lessees are usually less inclined to replace worn wheels
or brakes. These replacements can be costly and establishing a clear delivery requirement, which
mandates the need to have at least 50% life remaining or be in a new condition, will save costs and
prevent logistical challenges.
Pre-Lease
o
o
o
APU: Determining the remaining life of the APU can sometimes be challenging. Performing a
borescope and reviewing previous shop visit documentation will aid the lessee in determining the
remaining life. However, these soft requirements are subject to individual interpretation and very
often lead to discussions. The lessee could consider a simple hard time whereby the APU may
not have more than a certain amount of hours since its last shop visit. Whilst the lessee will then
also see this requirement in the return conditions, it will at the very least provide the lessee with
some form of an additional guarantee at delivery.
Service bulletins: Free of charge manufacturers service bulletins are expected to be performed on
the aircraft. Otherwise, these free of charge kits should be delivered along with the aircraft as these
are usually issued against a tail number.
Repairs: There are a number of items that the lessee should take into consideration for repairs and
the associated repair documentation (as described in paragraph 2.3). Firstly, the lessee should
clearly define which repairs are acceptable. Very often requirements such as flush or permanent
are inserted. Remembering that what is delivered will also be mirrored at redelivery, the lessee
could insert wording that allows alleviation in case flush or permanent repairs are prohibitively
expensive or otherwise impractical. Secondly, the lessee should consider a clear definition of
which repairs should be included (i.e. blends, patches, etc) as this may lead to discussions either at
delivery or redelivery.
Paint: The paint condition and paint scheme may be separately agreed between lessor and lessee.
In most cases, the aircraft is delivered with a freshly painted white fuselage. However, agreeing
to deliver the aircraft in the lessees color scheme (with compensation to the lessor) will save
valuable downtime.
Besides the aforementioned requirements, several additional aspects could be mentioned in the
delivery conditions, such as the export Certificate of Airworthiness and regulatory conditions, AD
compliance, etc. All of these should be carefully considered by the lessee.
b) Minimum delivery conditions
In certain cases, aircraft are offered with only the minimum of delivery conditions. This category of
delivery is common in the event where the previous operator ceased operations. It is also common for
older aircrafts where the lessor and previous operator commercially agreed to buy-off the redelivery
conditions. Therefore, the new lessee will effectively inherit the minimum delivery conditions but at a
lower lease rate. In most cases, the aircraft is delivered in an airworthy condition, without any
outstanding maintenance and/or deferred defects, but without any additional maintenance clearance.
This would imply that applicable aircraft records should still be available in order to comply with local
aviation authorities regulations. However, depending on the age and/or circumstances surrounding the
previous operators termination, the lessee is advised to be cautious and take care in reviewing the
records and aircraft in order to clearly describe the state of the aircraft and documents in the lease
agreement. This should include the condition of interior, fuselage, windows, doors, interior, cockpit,
landing gears and landing gear bays.
3.2.2
Aircraft Acceptance and Audits Process
The lessee should actively get involved in the delivery process as early as possible in order to ensure that
the aircraft meets the delivery conditions. This will concern both a physical and records inspection and the
lessee should realize that in almost all cases the aircraft will be accepted in an as-is-where-is condition.
Additionally, it is the lessees obligation to detect any issues or shortfalls with the aircraft or records (as
described in Section 3.1.3). It is therefore advised to involve all relevant parties within the organization as
early as possible in order to detect issues early on and prevent unnecessary delays. Both the physical
inspection and the records review are outlined below.
19

a) Physical acceptance
During the physical inspection the lessee should ensure that both the physical condition, as well as the
actual aircraft state in relation to the records (i.e. installed components, aircraft configuration, etc), are
acceptable. The physical inspection should ideally cover a full survey of the aircraft and it is advised to
make photographs of all relevant sections as reference material during the lease and for lease return.
The contents of a physical inspection will be different for each aircraft type, but a generic template is
included in Annex I.
In addition to the physical inspection of the airframe, a full borescope inspection should be performed
on the engines and APU. If this borescope inspection is performed by an independent party chosen by
the lessor, the lessee is advised to attend these inspections with their own specialist to avoid any future
discussions.
A full borescope is generally understood to be a complete video borescope inspection of the
compressor, combustion and turbine section in accordance with the procedures of the relevant
manufacturers manual. This borescope inspection should assure that each engine meets the limits
established for the engine by the manufacturer and as defined under the lease agreement. Each
engine should not reveal any condition which would cause the engine to be unserviceable, serviceable
with an increased frequency inspection or otherwise not meet the operational requirements as defined
in the lease agreement.
As a final part of the acceptance, a test flight and full power engine run are performed. Using the
lessees own test flight procedures may work best, but alternatively procedures supplied by the aircraft
manufacturer can also be used.
b) Records acceptance
Depending on the age of the aircraft, review of the aircraft records can be a labour intensive activity.
The records review should ideally be performed by experienced airworthiness staff in order to ensure
records are of the level as internally accepted and as agreed in the lease agreement. This records
compliance check is similar to the check list for redelivery and a generic list can be found in Annex II.
During the records review and acceptance there are various items which require additional attention;
20
Maintenance program compliance review: Verify the status of each maintenance task to:
Determine that no task is overdue and the aircraft falls within the agreed maintenance
clearance period.
Verify the status of the sampling program.
Confirm that repeat inspections of repairs and additional tasks linked to modifications
(Instructions for Continued Airworthiness (ICAW)) are included.
In particular, the lessee should be aware of recently included maintenance tasks and their related
grace period, which are the result of new MPD or MRBR revisions. Additionally the lessee should
also verify that the status and findings resulting from the Corrosion Protection and Control Program
are readily available (i.e. level, follow up etc).
Review of the AD-note dirty fingerprints for correct compliance including review of any Alternate
Means of Compliances (AMOC), to verify transferability. AMOCs are not (always) transferable
between operators and should therefore be avoided. In this case, transferable means that in order
for the AMOC to be valid, there is no company specific tool or procedure required which is not
available to next lessee.
Pre-Lease
Some AD notes are applicable to a specific part number or serial number (range). Specific attention
should be paid to these AD-notes as very often these parts may have been replaced and/or the
AD-note may not accurately reflect the inspected part.
o
Modifications and alterations: A review of the dirty fingerprints and engineering data for all major
and minor modifications. Of particular importance are major modifications, such as Supplemental
Type Certificates (STCs). Ensuring that all STC data are available, including the relevant manual
supplements, is of the utmost importance. The data-package should include a Right to use letter,
the engineering drawings and certification basis (local, Pre-EASA, EASA, FAA, other) as well as
any dirty fingerprints to see if any in-situ changes were applied. Specific attention should be paid to
the associated manual supplements (i.e. correct integration into the AMM, IPC, WDM, etc) to
ensure correct implementation of any additional inspection requirements into the maintenance
program.
Repair file: Review of the dirty fingerprints and certifications of each individual repair including a
mapping of the aircraft should be performed. Compliance data should include correct reference to
the Structural Repair Manual (SRM) used, NDT task-cards, communication with manufacturer and
engineering data such as drawings, damage overviews and thickness specifications. Of particular
importance is the SRM revision as the continuous development and subsequent issue of newer
SRM revisions may introduce new and more stringent repair procedures.
Hard Time (HT) components and On Condition/Condition Monitoring (OCCM) components: The
lessee should verify availability of the correct release certificate, as well as compliance with the
maintenance clearance period. Items such as emergency slides should be carefully inspected as
these have sub-assemblies (e.g. batteries, squibs, etc.) which are required to be listed separately
on the release certificate.
Regulatory certificates: Lessee should perform a review of the different certificates and statements,
such as Certificate of Airworthiness (CofA), Certificate of Registration (CofR), Certificate of
Insurance, Noise Certificate, non incident statement, etc.
Logbooks: Verify that all logbooks are available, updated and closed. It is important to note that not
all authorities require the use of hardcopy logbooks. Should such a requirement be applicable to a
lessee, it is of vital importance to verify that logbooks are available for the entire life of the aircraft.
Should this not be the case, that dispensation is arranged with the authorities prior to importation.
Engines: As engines are high value components and individual maintenance events are extremely
costly, special attention should be paid to the documentation associated with engines. During the
review of the engine records, the lessee should ensure that all documentation required to
determine the engines remaining life and expected operational limitations are available (shop visit
reports, trend data, borescope reports etc). Subsequently the back to birth documentation for Life
Limited Parts should be carefully reviewed.
Interior burn certification: Lessee should verify that burn certification is available for cabin, flight
attendant, flight crew seat covers, cushions, sidewalls and also for carpets, curtains. This
requirement can be satisfied by either confirming an official test-report and approval is available or
that these components are listed in the IPC. Subsequently, the lessee should perform a physical
check to determine if the correct parts numbers are installed.
21

c) Certificate of acceptance
The certificate of acceptance is the final step in the delivery process and after mutual signature the
lessee can commence operation with the aircraft. However, the document is also used to officially
record the aircrafts condition at delivery and lessees often underestimate its significance. Whilst it is
obvious that any non-compliance and their subsequent compensation is listed, the document should
also be used to accurately describe what records were supplied and which other minor conditions or
defects exist on the aircraft or in the records (even though no compensation was awarded). Accurately
describing in what way the aircraft was delivered (and more importantly what was delivered) will
prevent discussions at redelivery.
22
SECTION 4.
OPERATIONS
4.1 ALTERATIONS IN OBLIGATIONS

4.1.1
Cost Sharing Options
Cost allocation becomes an issue once costs are made by a specific operator. Depreciation, which will only
affect the lessor's statements, is required over a certain timeframe during which multiple operators will
make use of the aircraft. This would not cause any complications if the time of accomplishment of such an
event in the future is known, for example, for landing gear replacements of specific maintenance events.
Complications arise for events that are unknown at start of lease; such is the case for ADs.
Whenever there is an unsafe event, the airworthiness authorities may prescribe an Airworthiness Directive
(AD-note). This document often requires performance of a mandatory modification or repetitive inspection
in order to maintain continued airworthiness of the aircraft.
Without cost sharing formulas, the cost of this modification is for the lessee, while it cannot fully enjoy the
benefits of such a modification as this safety improvement is applicable to the entire life of the aircraft and
the lessee will only operate the aircraft for a limited period (this is specifically apparent with short term
leases). The lessors will often argue that lessees should cover the cost related to local regulatory
mandated modifications; in particular if these regulations are not applicable to any other jurisdictions. From
a lessee perspective, one can argue that the cost of ADs is fully the lessors risks because if the aircraft
was not on lease, the associated cost would have been for the account of the lessor.
Cost sharing formulas in leases are common and the lessee should evaluate the benefit of such formulas
carefully. Usually these cost sharing mechanisms include a threshold for the sharing formula to be
applicable and only ADs over this threshold will be reimbursed. It is obviously in the lessees interest to
keep this threshold as low as possible. Additionally, the lessee should also carefully review existing ADs
which might fall due during the lease term as there are several known ADs which are applicable to certain
older aircraft (or applicable to aircraft over a certain flight-hour or flight-cycle threshold) and performance of
these are expensive. This cost sharing is usually limited to ADs issued by the civil aviation authorities only
and excludes other mandatory changes, such as navigation upgrades or noise related modifications, as
they are often linked to the operational area of the aircraft and not to the technical status.
4.1.2
Maintenance Reserve Claims
At the start of the lease, the lessor will establish an account for each of the, by the lease identified,
maintenance events. Maintenance reserves can be constructed in various ways, but often it is not possible
to transfer amounts between the different accounts during the lease. The maximum claimable amount will
therefore always be the amount accumulated in the specific account.
For maintenance reserve claims, efficient communication with the maintenance provider and lessor is
essential to speed up the release of maintenance reserves and will minimize possible delays. More often
than not, an event is not treated as a qualifying event because an incorrect workscope has been performed
(or only partially been performed). Agreeing on the workscope prior to commencement of the maintenance
activities will prevent unwanted delays or claim rejections.
23

It is advisable to review the maintenance reserve rates after each event to determine if the rates are
still sufficient to cover the cost of such an event in the future. Economic conditions and maintenance
best practices often change during the term of a lease agreement and consequently, so do the cost of such
an event.
The various maintenance reserve areas are discussed separately.
a) Airframe
The claimable amount is based on the check including all lower-level tasks (e.g. an Airbus A320,
4C/6YR would also include all 1C, 2C-Check and all other lower interval tasks). The claimable amount
also includes all non-routine work, material used and components replaced or repaired. ADs,
modifications and painting are often not included in the claimable amount. The final invoice from
the maintenance provider should ideally differentiate between the various sections of the check in
order to quickly and efficiently complete the claim. It is also advisable to notify the Lessor before the
check starts.
Dirty fingerprints of all work performed together with the final invoice substantiated into the relevant
sections are delivered to the lessor once the check is finished.
b) Engines
Similarly to airframe maintenance checks, it is also advisable to agree on the workscope before the
engine is sent for a performance restoration or overhaul. Quite often reserves are accumulated per
module and separately for LLPs and by doing so a drawdown of the separate accounts should be
calculated. If a fixed rate is agreed with the maintenance facility, the lessee should take the specific
conditions of the lease into account for invoicing purposes. In addition, there is often a minimum build
life mentioned in the lease agreement. For engine shop visit planning purposes, one should take into
account the return conditions to keep any future exposures to a minimum.
During the shop visit, special conditions of the lease should be taken into account, such as the use of
PMA parts and DER repairs.
c) Landing gear
The workscope for a landing gear overhaul is far less complicated than the workscope of an engine
overhaul or heavy maintenance check. However, as indicated earlier on in this document the landing
gear and individual sub assemblies are often exchanged to keep the turnaround time to a minimum.
This means that individual parts (and subsequently LLPs) may not always meet the requirements of
LLP back to birth traceability. Additionally, aircraft leases sometimes have requirements that installed
parts may not be older than the airframe (in terms of flight hours and flight cycles). This means that the
lessee should agree with the overhaul shop which parts may be installed before work commences.
24
SECTION 5.
RE-DELIVERY
5.1 RE-DELIVERY PROCESS

5.1.1
Introduction
The redelivery process is the final step in the aircraft leasing life cycle and the lessor will have started its
marketing efforts well before the aircraft is redelivered. Consequently, the redelivery date is of great
importance to the lessor as penalties and other protection mechanisms against late redelivery have been
included in the lease agreement. The lessee should therefore thoroughly prepare for this redelivery process
and prevent any unnecessary delays, which are extremely costly. Open communication with the lessor
during this final phase, will prevent any unwanted surprises just before the redelivery date.
Whatever the circumstances surrounding a redelivery may be, the amount of effort and time required for a
redelivery process depends largely on how well the individual requirements from the lease have been
implemented by the lessee at the start of the lease. The redelivery process can be divided into three
separate phases.
Initial phase: this initial phase or planning phase should be used to review the redelivery requirements
from the lease, create a baseline plan and assign relevant manpower. This phase could start as early
as 12 months before the redelivery depending on the length and complexity of the lease.
Pre-redelivery phase: this phase usually starts immediately after the initial phase and is focused on
planning and preparing for the significant maintenance events, such as required engine shop visits and
airframe checks. Ideally the lessee should also make arrangements to meet with the lessor in order to
align expectations and discuss the redelivery process.
Redelivery phase: during this final phase, the aircraft will undergo a redelivery C-check and records
specialists will start compiling the redelivery binders and work alongside inspectors from the lessor.
An overview of the different phases and their timing can be found in Figure 4 below.
Figure 4: Typical Re-Delivery Planning
25

5.1.2
Initial phase
The redelivery process starts many months before the actual redelivery event. A proper project plan based
on a thorough evaluation of all lease requirements, the actual state of the aircraft and records will prevent
unpleasant surprises. The start and duration of this planning phase are dependent on the complexity and
length of the aircraft lease. Considering that engines usually require shop visits to meet the redelivery
conditions and the need to obtain additional information from third parties (such as shop reports), it may not
be uncommon to start this process 6 to 12 months before redelivery or even longer.
5.1.3
Pre redelivery phase
Following the initial planning phase, the lessee can start with the creation of the relevant maintenance
work-scopes. Ideally, this should be done in conjunction with the aircraft lessor to prevent any discussions
close to the redelivery. Many lessors will already send over an inspector to perform a pre-redelivery
inspection in order to determine the condition of the aircraft and records. This may be a good opportunity to
discuss the expectations of the lessor and the redelivery planning. Generally this phase will include the
following elements.
Pre-redelivery audit by lessor of the aircraft and records;

Creation of an engine work-scope and approval by lessor;
Selection of engine shop and allocation of slot to ensure timely return of the engine;
Creation of airframe work-scope and selection of MRO;
Initial discussions with the lessor on planning, records standard and other requirements;
5.1.4
Redelivery phase
The final phase will focus on the performance of the aircraft redelivery check and the preparation of the
aircraft records. Commonly, the aircraft lease will describe the exact records requirements. This usually
includes the so-called redelivery bible, which contains all relevant and latest summary sheets (an index of
a typical redelivery bible can be found in Annex II).This phase is also the most labor intensive phase and
lessees records staff will work side by side with the lessors team of inspectors.
26
SECTION 6.
CASE-STUDY
6.1 CASE STUDY

The importation of an Airbus A300-600 freighter in a fleet of non-Airbus aircraft.
6.1.1
Situation
A rapidly growing airline plans to add several Airbus freighters to its fleet as part of its fleet expansion
plans. Their current fleet consists of several airframe types of various manufacturers, but did not include
any Airbus airframes. The aircraft was originally delivered and operated in the United States, but stopped
operation about one year before it was accepted by the new lessee. The aircraft will be exported from the
United States and subsequently imported into a new jurisdiction after a cargo conversion.
6.1.2
Aircraft delivery and export
As the operator was under significant time pressure, a full records due diligence was not performed prior to
acceptance and only limited portions of the records were reviewed. During the cargo conversion, the
operator started with the importation and registration proceedings and only then discovered a number of
anomalies not previously known to the operator;
a) Operator Maintenance Program
A new aircraft maintenance program needed to be developed and the aircraft needed to be bridged
into this program. This required verification of all maintenance tasks and their last performance data.
The review revealed that the maintenance program of the previous operator was highly customized and
that a significant amount of work was required to bring the aircraft closer to the Airbus MPD.
Additionally, it was found that the previous maintenance program was based on a previous (older)
version of the MPD.
b) Hard Time components and OC/CM components
The internal procedures in place with the previous operator only required maintenance records to be
stored for a period of 2 years. Records were then subsequently scanned and destroyed. Unfortunately,
the scanned copies were of poor quality. Part number and serial number information were sometimes
hard to read, requiring the component to be removed and recertified; a very costly and time
consuming procedure.
c) Modifications
Many of the modifications installed on the aircraft were designed and approved by the previous
operators own engineering department. Engineering data for the modifications was often unavailable
as this was stored in a central location (rather than with the aircraft documentation) making it extremely
difficult and time consuming for the operator to have these changes approved by their local authority.
27

d) Repairs
The previous operator did not provide one consolidated repair file. Repairs were either performed
during a regular maintenance check or on the line and repair documentation was subsequently stored
in the individual check packages. This meant that historical check packages had to be researched to
retrieve some of the repair documentation. As a result of the aircrafts age, this was not always
successful and resulted in a number of repairs which had to be reworked or redone.
6.1.3
Outcome
Several major and minor issues were discovered after the aircraft was accepted by the lessee. Although
the records were acceptable to the FAA, the Civil Aviation Authority of lessee required a significant amount
of changes to the aircraft and records prior to importation. Given the fact that the aircraft was accepted by
the lessee in an as-is-where-is condition, almost all additional costs were for the lessees account. The
many component changes, repair recertification, records rebuilding and other work, were not only
extremely costly but also resulted in a significant delay in the operational start of the aircraft.
28
REFERENCES
Ascend, 2012, Ascend Online Fleet Database, Ascend Advisory, London (United Kingdom). Available
from: http://www.ascendworldwide.com/ [Accessed 1 November 2012].
Shpall, J., 2011, Tracking Global Airline and Aircraft Leasing Trends, TCW Group Inc, Los Angeles
(United States of America),November 2011.
Aviation Working Group, August 2004. AWG Position on Eurocontrol and Air Navigation Route Charges.
Bunker D.H., 2002. Aircraft Wet Leasing: the Perils and the Benefits, Annals of Air and Space Law,
Volume XXVII.
Chrystal P., 1999. The Aviation and Reinsurance Markets Defying the Odds, Handbook of Airline
Finance, 1st Edition, Aviation Week: McGraw-Hill.
Crans B., 2004, How to Make Sure Your Aircraft Lease Agreement Covers (Almost) Everything. Air and
Space Law, Vol. XXIX/1.
European Civil Aviation Conference, July 1997. Recommendation on Leasing of Aircraft, Recommendation
ECAC/21-1.
French D., July 2008. Legal considerations for aircraft engine financiers. Airfinance Journal.
Hanley D. P., 2012. Aircraft Operating Leasing, A Legal and Practical Analysis in the Context of Public and
Private International Air Law. Alphen aan den Rijn: Kluwer Law International.
Hamilton J.S., 2005. Practical Aviation Law. 4th Edition. Blackwell.
Hanley D.P., 2011. Contractual and Property Rights in Leased Aircraft Engines, Air and Space Law:
Contemporary Issues and Future Challenges, Air and Space books.
Kuiperi H.E., 2008. Aircraft leasing in the context of the AF-KL merger. International Institute of Air and
Space Law.
Shupe J.D. and Buhler G. W., 2004. Commercial Aircraft Transactions: Liability of Owners, Lessors and
Finance Parties. Air and Space Law, Vol. XXIX/6.
SGI Aviation, 2012. Internal Database and Centre for Knowledge Excellence, SGI Aviation, Amsterdam
(The Netherlands).
29
ANNEX I
Avionics
Cargo
LDG
APU
Engines
External
Area
30
EXAMPLE PHYSICAL INSPECTION

No.
Item
Description
General Overview
complete aircraft, wings, stabilizer, registration
Area below Door #1 LH
To show possible Airstair door installation
Each external repair/dent/scratch (record totals

and location)
Paint condition
Rear Pressure Bulkhead
Flat or Conical, Repairs installed, Condition of

CIC.
Refueling panel (if not readable in cockpit)
To confirm Metric or Imperial indications
Wings lower and upper surface
Flight Controls and Winglets
ID plate
Owners plate (if available)
Thrust reverser (C duct) id plate
Cowlings
Detailed picture in case of paint cracking/flaking
Intake
To show general condition fan blades and intake
Exhaust and Sleeve
overview to show general condition
ID plate
General overview
Details of one main wheels and nose wheel tyre
Each LDG data plate showing P/NS/N
Details of Brake Part number
General condition wheel wells
General condition of wheels and brakes
Details of Cargo Loading placards
General overview of Cargo bay(s)
General overview of cargo door and surrounding
Cargo Loading System
Details of Cargo smoke and/or extinguishers

outlets
Determine smoke/fire FAR class qualifications
Details of each computer data plate installed

where possible
For example; FMGC, FAC, VHF, SFCC, ELAC,

SEC, FCDC, CFDIU, FWC, QAR, TCAS, ADIRU,
EGPWS, RAD ALT, WEATHER RADAR, ILS,
VOR, MMR, ADF AND ATC TRANSPONDER, or
equivalent
General overview of avionics bay, including any

evidence of airstairs
Including condition of CIC and blankets
Show thrust and serial number
Showing MPH/Ply/PN
Show if brake cooling fans and shimmy damper

installed and wear of tyre thread and brakes
(brake wear pin)
Annex
ANNEX II
TYPICAL REDELIVERY RECORDS
For delivery and redelivery a certain number of documents and related substantiation records are required.
This Annex provides a best practice of the various documents and their description of what is required.
Every lease agreement and associated delivery and redelivery will be different and consequently the list of
documentation will be different as such items can be added and or removed from this list.
CERTIFICATES
Current C of A as provided by the CAA of the country of

registration.
Export Certificate of Airworthiness at

Manufacture
Export C of A provided at manufacture by the CAA of the state

of final assembly of the Aircraft.
Export Certificate of Airworthiness at

Lease Expiry
Current Export C of A as provided by the CAA of the country

of registration at Lease Expiry.
Certificate of Registration as provided by the CAA of the

country of registration.
Noise Limitation Certificate
Noise Limitation Certificate as provided by the CAA of the

country of registration.
Radio Station Licence
Radio Station Licence as provided by the CAA of the country

of registration.
Flight Manual Approval
Flight Manual Approval as provided by the CAA of the country

of registration.
Certificate of Sanitary Construction
In case operating under FAA Conditions, as provided by the

Manufacturer.
STATEMENTS
Non Accident/Incident Statement
Statement from the Quality Assurance Manager of the Lessee

identifying the serial number of the Aircraft and the serial
number of its installed Engines and APU confirming that they
have not been involved in any accident or incident while in the
possession of the Lessee.
or
A list of all incidents and accidents including reference to
resulting special inspections carried out on the aircraft and
Engines or APU (e.g. FOD, In-Flight Shutdowns, Hard
Landings, etc.) should be available.
RVSM Compliance Statement
A certified statement identifying that the aircraft is in

compliance and can operate in an RVSM environment.
APU Hours to Flight Hours Ratio
A certified statement identifying the Lessees average number

of APU Hours consumed per Aircraft Flight Hour.
Engine Maintenance Program

Compliance Statement
A statement that during the Lease the Engine has been

maintained on- and/or off- wing in accordance with an
approved Engine Maintenance Program
31

AD compliance statement
A statement from the Quality Assurance Manager of the

Lessee should be provided showing that the aircraft is in full
compliance, at delivery, with all effective ADs for this aircraft.
Sampling statement

Lessee indicating that the aircraft is not included in any
sampling programs.
On watch statement

Lessee indicating that none of the engines and the APU are
on watch or have any aircraft specific inspection requirements.
STATUS LISTS
Certified Current Time in Service
TSN and CSN for Airframe, Engines, APU and Landing Gear
of the equipment to be redelivered.
Certified Aircraft Flight Time and Flight

Cycle Summary
A record of the Flight Hours and Flight Cycles (including Total

Flight Hours and Total Flight Cycles) for each day of operation
since new.
Certified Airworthiness Directive Status
A list of all the ADs generally applicable to the Aircraft type

showing for each AD; method of compliance, interval, last
done, next due (TSN, CSN, Date). The status should be
broken down by individual task of the AD. If the AD is not
applicable, then the reason must be shown. The list should be
separated in; Airframe, Engine, APU and Appliance ADs
Certified CPCP Status
A list of all the CPCP task cards showing, threshold, interval,

last done and next due (date) for each task card.
Certified SSID Status
A list of all the SSID task cards showing, threshold, interval,

type of inspection accomplished, last done and next due (TSN,
CSN, date) for each task card.
Certified Maintenance Check Status
A summary showing the TSN, CSN and date of last

accomplishment of each letter check.
Certified Structural Inspection Status
A list of all the Manufacturers Structural Inspection Tasks

showing, threshold, interval, TSN, CSN and date of last
accomplishment for each task.
Certified Maintenance Status
A list of all maintenance tasks contained in the operators

maintenance program showing last performed (TSN, CSN and
date) and next due (TSN, CSN and date) for each task.
Certified Service Bulletin Status
A list of all Manufacturers Service Bulletins issued for the

Aircraft type showing the following for each SB; whether or not
incorporated, interval, last done and next due (TSN, CSN,
date). The list should be separated in; Airframe, Engine and
APU SBs.
Certified Operator Modification Status
A summary of all modifications accomplished on the Aircraft

which are not accomplished in accordance with a service
bulletin issued by the Manufacturer. The list should be
separated in; Airframe, Engine and APU SBs. If the
modification is accomplished under an STC, this should also
be indicated.
32
Annex
Certified Supplemental Type Certificate
Status
A summary of all STCs which are applicable to this aircraft

complete with reference to regulatory and engineering
documentation.
Certified Engine Life Limited Parts Status
A current list for each engine showing all the LLPs installed in
the engine by P/N and S/N. Furthermore the list should show
the Life Limit of the part for each thrust setting, the hours and
cycles accumulated at each thrust setting, and the hours and
cycles remaining at each thrust setting.
Certified Landing Gear Life Limited Parts

Status
A current list for each landing gear assembly showing all the
LLPs installed on the assembly by P/N and S/N, showing the
Life Limit for the part for each aircraft type to which it can be
fitted, the Cycles accumulated on each aircraft type, and the
Cycles remaining for each aircraft type.
Certified Hard Time Component Status
A current list of the components which require replacement or

maintenance at time intervals specified in the Operators
Approved Maintenance Program. The list should show by P/N
and S/N the type of maintenance, the hard time limit (hours,
cycles or calendar time, as appropriate), the time since last
accomplishment and the time until next maintenance.
Certified On Condition/ Condition

Monitored Component Status (Fit list)
A current list of the components which do not require

replacement or maintenance at regular time intervals, but
which do have a serial number. The list should show by P/N
and S/N and the time since installation, time since new and
the time since shop visit.
Certified Repair Status
A current list of all repairs accomplished on the Aircraft,

showing for each repair, the location, the nature of the defect,
the repair accomplished, the date accomplished, and the
TSN and CSN of the aircraft at accomplishment. A cross
reference should be made to a drawing of the Aircraft showing
the location of repairs. For each repair, a reference to the
Repair Order and certifying Documents (SRM, Manufacturers
Approval Sheets, NRC/task cards, etc) must be made
available.
Certified Dent and Buckle list
A current list of all dents on the Aircraft, which are within

manufacturer limits. A cross reference should be made to a
drawing of the Aircraft showing the location of each dent. For
each dent, a reference to the Repair Order and certifying
Documents (SRM, Manufacturers Approval Sheets, NRC/task
cards, etc) must be made available.
Certified Repair Assessment Program

Status
The inspection programme status for all repairs applicable to

the RAP (if applicable).
Certified ETOPS Compliance Report
A certified report demonstrating compliance with the required

ETOPS configuration for the Aircraft.
Certified Deferred Defects Status
A status showing no Deferred defects are outstanding or an

overview of all Deferred Defects which the Lessor has agreed
to accept upon redelivery of the aircraft including interval,
limitations etc.
33

Certified Loose Equipment Inventory
A list of installed emergency equipment, special tools or other

loose equipment. The list should include the number of units,
description and preferably a drawing showing the location.
Certified Software Status
A certified list of all installed (loaded) software programs in the

navigational, flight management and other operational
computers. The list should include software part number,
software version, supplier or manufacturer.
RECORDS
Airframe Log Book
All official logbook containing the airframe flight hours and

flight cycles, maintenance checks, modifications, ADs, etc.
Airframe Checks
Work Packs for all maintenance accomplished in compliance

with the MPD / Approved Maintenance Programme. At the
very minimum this should contain the last accomplishment of
each task which would have fallen due since manufacture and
their Release to Service statements.
Aircraft Technical Log
All official logbook containing all the pilot reports and line
maintenance reports (i.e. in service defect reports for the
aircraft and cabin) of the last 5 years.
Engine Log Books
An official logbook of the engine hours and cycles, shop visits,

modifications, ADs, airframes to which fitted (Serial Numbers
or Registrations), Installation data (Date, TSN, CSN), Removal
data (Date, TSN, CSN), Thrust Ratings, etc.
Engine Shop Visit Records
Shop visit reports, including dirty fingerprints, for all Engines

and module shop visits. At a minimum the records should
include the following; Release to Service Certificate, AD
Status, SB Status, LLP Status, Engine Configuration Status,
Incoming Inspection Report, Summary Report of Work
Accomplished, Test Cell Report, After Test Cell Borescope
Report, Fan Blade Plotting.
Engine LLP Traceability Records
Certified records showing the accumulation of Time and

Cycles Since New for each Life Limited Part installed on an
engine. The records for each LLP must show the serial
number of the engine into which the LLP was installed when
new, the TSN & CSN of the engine at time of installation of the
LLP and the TSN & CSN of the engine at time of removal of
the LLP. Subsequently the record must then show the serial
number of each engine into which the LLP was then installed
etc. This should include the TSN & CSN of the engine at time
of installation of the LLP and the TSN & CSN of the engine at
time of removal of the LLP. A removal and installation record
should also be provided to substantiate the accumulated TSN
& CSN of the engine and LLP. In addition to this the original
Engine Data Submittals or the original FAA or EASA Form one
must be presented for each and every part to show where the
part originated from.
34
Annex
Engine Condition Monitoring Report
A certified copy of the latest trend data for each engine which
must show no obvious deterioration in the on-wing
performance of the engine. The trend data should be provided
for to the last 6 months.
Last Engine Borescope Report & Video
Latest borescope report and/or video (this is not the same as

the borescope which is performed at redelivery).
Last On-Wing Engine Ground Run Report
Latest engine ground run report (this is not the same as the
ground run which is performed at redelivery).
APU Log Book
All official logbooks containing APU operational hours, Shop

Visits, Modifications, ADs, Airframes to which fitted, fitted
(Serial Numbers or Registrations), Installation data (Date,
TSN, CSN), Removal data (Date, TSN, CSN), etc.
APU Shop Visit Records
Shop visit reports for all APU shop visits. At a minimum the
records should include the following; Release to Service
Certificate, AD Status, SB Status, LLP Status (if applicable),
Incoming Inspection Report, Summary Report of Work
Accomplished, and Test Cell Report.
APU LLP Traceability Records

Cycles Since New for each Life Limited Part installed on an
APU. The records for each LLP must show the serial number
of the APU into which the LLP was installed when new, the
TSN & CSN of the APU at time of installation of the LLP and
the TSN & CSN of the APU at time of removal of the LLP.
Subsequently the record must then show the serial number of
each APU into which the LLP was then installed etc. This
should include the TSN & CSN of the APU at time of
installation of the LLP and the TSN & CSN of the APU at time
of removal of the LLP. A removal and installation record
should also be provided to substantiate the accumulated TSN
& CSN of the APU and LLP. In addition to this the original
APU Logbook (with LLP sheets) or the original FAA or EASA
Form one must be presented for each and every part to show
where the part originated from.
Last APU Borescope Report & Video
Latest borescope report and/or video (this is not the same as

the borescope which is performed at redelivery).
Last On-Wing APU Health Check Report
Latest APU health check or operational check report (this is

not the same as the health check which is performed at
redelivery).
AD Records
The originally Dirty Fingerprints, as recorded by an aircraft

technician of the most recent accomplishment of each task for
each AD requirement that would have fallen due since delivery
from the manufacturer. The records should be organized to
have the Dirty Fingerprints of each task grouped per AD so
that all tasks are grouped with each AD.
Modification Records
Original records showing the accomplishment of each

modification to the Aircraft since delivery from the
Manufacturer. The records should include the basis for
certification (SB, STC, 8110-3 etc).
35

Special Inspection Records
Certified records of any special inspections which have been

accomplished.
CPCP Records
Certified accomplishment of each CPCP task card.
SSID Records
Certified accomplishment of each SSID Task Card.
Structural Inspection Records
Certified accomplishment of each Structural Inspection task

listed in the Manufacturers MPD.
Landing Gear Records
Release to Service Certificate from new or last maintenance

activity for each serialised part of the assembly, and Release
to Service Certificate for last overhaul for each serialised part
of the assembly and release to service record for installation
on the Aircraft. Parts installed on the Aircraft since the Aircraft
was new, and which have never been removed from the
Aircraft, may be evidenced by delivery documentation
provided at manufacture by the Aircraft Manufacturer.
Landing Gear LLP Traceability Records

Cycles Since New for each Life Limited Part installed on a
landing gear. The records for each LLP must show the serial
number (or registration) of the aircraft on to which the LLP was
installed when new, the TSN & CSN of the aircraft at time of
installation of the LLP and the TSN & CSN of the aircraft at
time of removal of the LLP. Subsequently the record must then
show the serial number of each aircraft into which the LLP was
then installed etc. This should include the TSN & CSN of the
aircraft at time of installation of the LLP and the TSN & CSN of
the aircraft at time of removal of the LLP. A removal and
installation record should also be provided to substantiate the
accumulated TSN & CSN of the aircraft and LLP. In addition to
this the original manufacturer documents or the original FAA
or EASA Form one must be presented for each and every part
to show where the part originated from.
Hard Time Component Records
Release to Service Certificate (FAA 8130-3 or EASA Form 1)

for the last maintenance activity, the last Hard Time
maintenance action and the release to service record for
installation on the Aircraft. Or if otherwise agreed, certification
basis for other regulatority.
O/C & C/M Serialised Component

Records
Release to Service Certificate (FAA 8130-3 or EASA Form 1)

for the last maintenance activity and the release to service
record for installation on the Aircraft.
Repair Records
Certified records showing accomplishment of repairs to the

Aircraft since delivery from the Manufacturer. Repairs not
accomplished in accordance with the Manufacturers
documentation must show evidence of approval of the repair
data from the State of Design of the Aircraft and approval from
the CAA of the State of Registration. A No Technical
Objection is not sufficient.
Major repairs must have an FAA Form 337 or EASA
equivalent approving the actual accomplishment.
36
Annex
Last Weighing Report including Schedule
Comparison with the last weighing report accomplished prior

to the lease and with the weighing report issued at
manufacture should show no unaccounted changes in weight.
Compass Swing Report
Certified accomplishment and recordings of the last compass

swing.
Burn Test Certificates
Certification of compliance with Fire Blocking requirements

of JAR 25 or FAR 25. Certificates are required for:
Seat Bottom Foam (FAR/JAR 25.853 Appendix F Part I)
Seat Back Foam (FAR/JAR 25.853 Appendix F Part I)
Seat Dress Fabric FAR/JAR 25.853 Appendix F Part I
Seat Bottom Cushion Assembly (FAR/JAR 25.853
Appendix F Part II)
Seat Back Cushion Assembly (FAR/JAR 25.853
Appendix F Part II)
Curtains (FAR/JAR 25.853 Appendix F Part I)
Carpets (FAR/JAR 25.853 Appendix F Part I)
Galley Flooring (FAR/JAR 25.853 Appendix F Part I).
Last Test Flight Report
Latest test flight report (this is not the same as the test flight
which is performed at redelivery!).
Last FDR Report & Corrections
The last report showing the status of all parameters recorded

by the FDR.
Hold Item List Items and List of deferred

Maintenance
Current Log of HIL items or deferred Maintenance.
Paint history
An overview of the complete paint history including all task

cards.
MANUFACTURER DELIVERY DOCUMENTS

Certificates
Certificates issued by the Manufacturer (Certificate of

Airworthiness for Export, Certificate of Non-Registration,
Production A/C Test Completion Certificate, Standby
Compass Data, Anemometric Records, Production Aircraft
Test Report, Identification List for Chemical Oxygen
Generators, Landing Gear List of identified parts to the
Assembly, APU Identification Plate, Ground Test Instructions).
Airworthiness Directives Compliance list
The official report issued by the Manufacturer showing the AD

compliance at manufacture.
Modifications List
The official report issued by the Manufacturer detailing

the post type certification modifications accomplished
during manufacture.
Aircraft Inspection Report
The official report issued by the Manufacturer containing the

Acceptance Sheet, Table of Contents, List of Constituent
Assemblies, List of Equipment identifying the serialised
components fitted to the Aircraft at manufacture, Conformity
to the design standard requirement, Recordable Concessions,
Concessions for Customer information.
37

Weighing Report
The official report issued by the Manufacturer showing the

Manufacturers Empty Weight at manufacture.
Aircraft Logbook
The official logbooks issued by the Manufacturer identifying

the Engine types and serial numbers, document references
and certificate of airworthiness data at manufacture.
Engine Log Book
The official logbooks or reports issued by the Manufacturer

containing: Table of contents, acceptance sheet, running time,
EASA Form 1, Export C of A, Bench Test Results, Engine
LRUs, SB Compliance, etc, for each engine.
APU Log Book
The logbook issued by the Manufacturer containing: APU

Data, APU Service Record, ADs, SBs and Ultimate Life Parts
Chard for the APU.
Aircraft Battery Log Books
The report issued by the Manufacturer containing: Aircraft

Battery Data for each Battery.
Aircraft Detailed Specification
The official report issued by the Manufacturer Identifying the

specification to which the Aircraft was built.
Electrical Load Analysis Document
The report issued by the Manufacturer Identifying the

Electrical Load analysis and distribution at Aircraft
Manufacture.
MANUALS
Airplane Flight Manual
Latest revision
Aircraft Operating Manual
Latest revision
Flight Crew Operations Manual
Latest revision
Minimum Equipment List and MEL

Procedures Manual
Latest revision
Quick Reference Handbook
Latest revision
Fuel Measuring Stick Manual
Latest revision
Weight and Balance Manual
Latest revision
Power plant built up manual
Latest revision
Airplane Maintenance Manual
Latest revision. The manual should be updated to include all

incorporated Manufacturer Service Bulletins. Any Lessee
specific modifications (STCs) should be included as a
supplement.
Task Cards
Latest revision
Illustrated Parts Catalogue

supplement.
Aircraft Wiring Diagram Manual

supplement.
38
Annex
Aircraft Schematic Manual

supplement.
Structural Repair Manual
Latest revision
Trouble Shooting Manual
Latest revision
Overhaul Manual
Latest revision
NDT Manual
Latest revision
Engine Shop Manual
Latest revision
Airplane Recovery Manual
Latest revision
Corrosion Prevention Manual
Latest revision
Passenger Seat Manuals (CMM/IPC)
Latest revision
NLG Wheel Assembly Component

Maintenance Manual
Latest revision
MLG Wheel Assembly Component

Maintenance Manual
Latest revision
Operator Maintenance Program
Latest revision of the Lessees Maintenance Programme

including the approval of the Lessees Civil Aviation Authority.
Operator Maintenance Program cross

reference to MPD
A cross reference of the Lessees maintenance program

to the manufacturers MPD.
FMS Bite Manual
Latest revision
Galley Manuals (CMM/IPC)
Latest revision
Lavatory Assembly Manuals (CMM/IPC)
Latest revision
LOPA
A certified copy of the latest LOPA.
MISCELLANEOUS
List of Oils and Fluids used on Aircraft
A list of all oils, greases and fluids which are used on the
aircraft.
Hydraulic Fluid Sample
At redelivery
Fuel Sample
At redelivery
Free of Charge Mod-Kits
A list of all no-charge mod-kits ordered at the manufacturer

or
A statement indicating that no kits were supplied or all have
been incorporated on the aircraft.
39
ANNEX III TYPICAL INDEX OF DELIVERY BIBLE

AIRFRAME
1.
Type Certificate Data Sheet (TCDS)
2.
Original Export Certificate of Airworthiness
3.
Certificate of Airworthiness (Export)
4.
5.
Aircraft De-Registration Confirmation
6.
Noise Certificate
7.
Radio Station License / RVSM Letter
8.
Certified maintenance status of the Aircraft (Check History)
9.
Certificate Release to Service Last performed Major Check
10. Certified list of deferred maintenance items

11. Certified Statement of Time in Services (Utilization).
12. Certified Statement of Aircraft Accident/Incidents
13. Certified Statement of Lubrication and Grease types used
14. Certified status of Airworthiness Directives (ADs).
15. Certified Status of all Modifications.
16. Certified Status of all Structural repairs and damages
17. Certified Inventory of Hard Time (HT) Components.
18. Certified Inventory of On Condition (OC)/ Condition Monitoring (CM) Components
19. Certified Inventory of Landing Gear
20. Certified Aircraft Maintenance Program
21. Certified Last Performance Aircraft Maintenance Program
22. Statement Maintenance Clock setting
23. Airframe Logbook
24. Lay-Out Passenger Arrangement /
25. Emergency Equipment Layout / Loose Equipment Inventory
26. Last Paint Report
27. Last Weighing Report
28. Last Standby Compass Adjustment Test
29. Last Radio Navigation System Functions Check
30. 24 bit ICAO / SELCAL / ELT /FDUI Code
31. Historical Records Box Inventory
40
Annex
ENGINES
1.
Minipack
2.
AD-status
3.
SB-status
4.
Repairs
5.
LLP
6.
Modules
7.
Repetitive inspections
8.
Engine trend monitoring
9.
Logbook
10. Borescope
11. Accident/Incident Statement
12. Data Submittal
41
ACKNOWLEDGEMENTS
SGI:
Joost Groenenboom
Remko Bruinsma
Marc Beechcroft-Kay
IATA:
Chris Markou
Geraldine Cros
Others:
Thanos Pascalis
42
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+1 (514) 874 9659
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Printed in Canada
ISBN 978-92-9252-258-2

AC Leases 1st Edition

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AC Leases 1st Edition

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Guidance Material and Best Practices for

Guidance Material and Best Practices for

International Air Transport Association

Guidance Material and Best Practices for Aircraft Leases

MAINTAINING ASSET VALUE........................................................................................................ 5

COMMON MISCONCEPTIONS ...................................................................................................... 6

LEGAL CONSIDERATIONS ............................................................................................................ 9

Letter of Intent ................................................................................................................... 9

Delivery Conditions ......................................................................................................... 10

Representations and Warranties .................................................................................... 11

Conditions Precedent ...................................................................................................... 11

Redelivery Conditions ..................................................................................................... 12

Payment and Security ..................................................................................................... 14

TECHNICAL CONSIDERATIONS ................................................................................................. 18

Delivery Conditions ......................................................................................................... 18

Aircraft Acceptance and Audits Process ......................................................................... 19

Cost Sharing Options ...................................................................................................... 23

Maintenance Reserve Claims ......................................................................................... 23

RE-DELIVERY PROCESS ............................................................................................................ 25

Initial phase ..................................................................................................................... 26

Pre redelivery phase ....................................................................................................... 26

Redelivery phase ............................................................................................................ 26

CASE STUDY ................................................................................................................................ 27

Aircraft delivery and export ............................................................................................. 27

Guidance material and best practices for aircraft leases

EXAMPLE PHYSICAL INSPECTION .................................................................................. 30

TYPICAL REDELIVERY RECORDS ................................................................................... 31

TYPICAL INDEX OF DELIVERY BIBLE.............................................................................. 40

Guidance material and best practices for aircraft leases

Figure 1: Guideline through the Guidance Document

Guidance material and best practices for aircraft leases

Figure 1: Operating Lease % in Worldwide Fleet

2.2 MAINTAINING ASSET VALUE

Guidance material and best practices for aircraft leases

2.3 COMMON MISCONCEPTIONS

Interest of Lessor during lease

Figure 3: Interest of stakeholders causing unique challenges

Guidance material and best practices for aircraft leases

3.1 LEGAL CONSIDERATIONS

Guidance material and best practices for aircraft leases

Formal description of contracting parties

Representations and Warranties

No default has occurred and is continuing

Guidance material and best practices for aircraft leases

Payments (security deposits, commitment fee, first rent, etc.)

No total loss of aircraft

Guidance material and best practices for aircraft leases

Payment and Security

Guidance material and best practices for aircraft leases

Engine Life Limited Parts

Airframe Heavy Maintenance Checks

Engine Performance Restoration and

Table 1: Different Types of Maintenance Reserves

Figure 4: Maintenance Reserves accumulation over various operators

Maintenance reserve deposit

End of lease compensation

Letter of Credit (LOC)

Guidance material and best practices for aircraft leases

3.2 TECHNICAL CONSIDERATIONS

Aircraft Acceptance and Audits Process

Guidance material and best practices for aircraft leases

Guidance material and best practices for aircraft leases

4.1 ALTERATIONS IN OBLIGATIONS

Cost Sharing Options