1. Technical Aspects of Lease Agreements
Oisín Murray - Head of Technical

2. Agenda Lease Agreement Technical Considerations Maintenance Reserves
Maintenance Reserves Portability
Technical Records

3. Lease Agreement Technical Considerations
What you are paying for
Define Specification
Define Configuration
Maintenance provisions
Lessee is approved by local CAA
Lessee MRO’s are FAA/EASA approved
No PMA parts or DER repairs
Lessor annual inspection rights
Workscopes iaw OEM recommendations
Lessor approval required for major repairs
Lessor representation during repairs requiring MR drawdown
$45MM Aircraft
$43MM Aircraft

4. Lease Agreement Technical Considerations
Redelivery Conditions
FAA/EASA compliant
Defined Redelivery process
Engine substitution rights
Bridge maintenance to to OEM standard or next lessee requirements
Minimum condition for component conditions
LLP Back to Birth
Detailed list and format for technical documents
Non Incident/Accident statement, PMA and DER repair statements
Maintenance Compensation mechanisms
Current Redelivery Conditions are the next Lessee’s Delivery Conditions

5. Lease Agreement Technical Considerations
Next Lessee
Representative site access during redelivery workscope
Configuration changes for next lessee
Incorporate next lessee livery
Attend demonstration flight including cockpit access
Engine and APU borescope observation
Allow for delays at redelivery

6. Maintenance Reserves
Maintenance Reserves are payments made by the lessee to the lessor based on the utilisation of the aircraft to provision for the cost of significant aircraft maintenance events.
Why collect Supplemental Rent
Security to protect asset value and maintain lessor exposure
Influence maintenance workscope
Means to monitor lessee contract compliance
Promote financial discipline
Supplemental Rent Options:
Cash Maintenance Reserves
Letter of Credit
Lease end adjustments
Half life adjustments

7. Calculating Maintenance Reserve Rates
Predicted event cost divided by the event interval. Customize for variations in
Flight profiles
Operating environment
Aircraft age
Annual Escalation
Normal range 2.5% - 3.5%
Engines should be higher (OEM escalation)
LLP lease end adjustment

8. A320 Maintenance Reserve Cash Flows for a 12 year lease

9. Managing Maintenance Reserves
Best Practices
Clearly define qualifying maintenance
Lessor approval for reimbursable workscopes
Modular approach to engine reimbursement
Lessor attendance at repair facilities during maintenance
Good communication to forecast timing of maintenance and reimbursement
Annual review of rates
Aircraft specific accounts and component specific sub-accounts
No co-mingling even across same lessee fleet
Annual review of accounts with reconciliation as needed
End of life assets
Retain Maintenance Reserves in lieu of Return Conditions.
Engine and Component exchanges
Fly to expiration

10. OEM Maintenance Agreements
OEM’s have entered maintenance market aggressively. These agreements offer:
Fixed price maintenance
Long term agreement
Peace of mind
Residual value protections
Agreements can be
Term based
Event based
Cradle to grave
Paid monthly
Paid at maintenance event
OEM agreements include
GE / CFMI: OnPoint
Honeywell: MCA
Rolls Royce – Total Care / OPERA
IAE: Flight Hour Agreement (FHA)
Boeing GoldCare

11. Maintenance Reserve Portability
Lessor preference is to collect cash:
Influence maintenance workscope
Use to offset outstanding debts
Maintain lessor exposure at deal origination levels
Easily assign reserves for next lessee
Complexity where “Power by the Hour” Agreements are in effect:
Qualifying maintenance definition and rates may differ to lease
Increase in lessor exposure
Inability to offset delinquency
Credit accrued tends to be engine and MRO specific
Administrative burden when assigning credit due to multiple parties
Not all PBH agreements are equal
End of life
Ability to convert credit to cash

12. Technical Records Records Operator required by law to maintain records
Law is enforced by local Aviation Authority
Records show Airworthiness via compliance with regulations
Protect owner operator warranties
Regulations becoming more stringent
Leased fleet 50% by 2020
Increasing number of aircraft transitions
Local regulations are inadequate for cross border transfers
Lessor standards more demanding than regulatory requirements
Disconnect between lessor and operator

13. Operator and Lessor standards are far apart
Records Quality
Aircraft values
Appraisers assume satisfactory records
Leases signed on the basis of fulfilling records requirements
Direct correlation between aircraft records and aircraft value
Inadequate records
Delay redelivery acceptance
Postpone or prevent onward delivery or sale
Reduce aircraft value
Operator and Lessor standards are far apart

14. Records Harmonisation
The Future is Digital
Industry working groups cooperating to harmonise standards and meet challenge of the future.
Recent progress with addition of Technical Documentation definition to ICAO Airworthiness manuals
Electronic copies with search functionality
Daily back up
Secure on line access
Regular access and inspection by lessor
Support from Airlines and the Aviation Authorities required.

15. Technical Records IT Systems
Primary function
Collect
Index
Centralise
Search
Share
Secure
Providers
AERDATA/ STREAM
FlyDocs

16. QUESTIONS?

17. Oisín Murray Head of Technical 技术总监 Hong Kong Aviation Capital Suite , 65/F, The Center, 99 Queen’s Road, Central, HONG KONG Tel: Fax: Mob: