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Redelivery Considerations in Aircraftt Operating Leases _ V1

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Redilivery of Aircraft after Operating Lease
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    By: Shannon Ackert  Abstract  A commercial aircraft operating lease sets forth processes for redelivery of the aircraft upon lease expiry in an effort to ease transferability of the asset to a new lessee. These processes consist of inspecting the aircraft and related documentation to confirm that the lessee has fulfilled its obligation to return the aircraft to the lessor in accordance with the redelivery conditions set forth in the lease. Upon satisfactory completion, the lessor executes a redelivery certificate confirming that the aircraft and related documentation complies with such redelivery conditions. Matters relating to the redelivery of the aircraft can be a cumbersome and time-consuming ordeal. A well-organized process is vital to ensuring that both lessors and lessees effectively address the range of issues associated with redelivering an aircraft. This report examines guidelines and best practices applied by lessors to effectively manage the redelivery process of their aircraft assets. Key considerations are given to ensure technical integrity of the asset in an effort maximize aircraft remarketability. Redelivery Considerations in  Aircraft Operating Leases   Copyright © 2014 Aircraft Monitor. All rights reserved. Guidelines and Best Practices to Ease Transferability of Aircraft    1   Version 1.0 / October 2014 | Aircraft Monitor Redelivery   Considerations   in   Aircraft   Operating   Leases   TABLE OF CONTENTS 1. INTRODUCTION ………………………………………………………………………………..…………………… 2  2. REDELIVERY CONSIDERATIONS ………………………………………………..………….....………………. 3  2.1. Pre-redelivery Considerations ……………………………………………………………………………… 3 2.1.1. Pre-redelivery Meeting …………………………………………………………………….……….…. 4 2.1.2. Records Review ……………………………………………………………………………………….. 5 2.1.3. Aircraft Physical Inspection …………………………………………………………………………… 10 2.1.3.1. Airframe Physical Inspection …………………………………………………………..…….. 10 2.1.3.2. Cabin Physical Inspection …..………………………………………….……….......……… 11 2.2. Return Condition Considerations………………………………………………….……..………….…… 12 2.2.1. Condition of Aircraft at Return ………………………………………………………………………… 12 2.2.2. Certificate of Airworthiness Matters……………………………………………….………………….. 17 2.2.3. Checks & Part Lives ………………………………………………………………………….………… 18 2.2.4. Aircraft Documentation ………………………………………………………………………………... 24  APPENDIX A – AIRCRAFT DOCUMENTATION AND STANDARDS ….……….…………….………………..…. 25  APPENDIX B – EXAMPLE PHYSICAL INSPECTION REPORT ….……….…….……………………………….… 33  APPENDIX C – APPROVED VERSUS ACCEPTABLE REPAIR DATA ….……………………....…….……….… 34  APPENDIX D – EXAMPLE LOPA & EMERGENCY EQUIPMENT DRAWING …………………………………… 37 REFERENCES …………………………………………………………………………………….……………….……. 38     Aircraft Monitor | Version 1.0 / October 2014 2 Redelivery   Considerations   in   Aircraft   Operating   Leases   1.   INTRODUCTION  Aircraft lease agreements specify redelivery conditions in an effort to ease transferability of the asset to a follow-on lessee. A common requirement at redelivery is for an aircraft to be capable of flying without major maintenance for a period of time generally consistent with a full C-Check interval. The technical points addressed in the lease agreement, such as the physical elements of the aircraft and the condition of the records, often form a large part of the discussion because they have financial significance for both the airline and lessor. Most lease agreements contain “the usual suspects” of clauses that address the need to return the aircraft meeting certain technical redelivery   requirements . Omissions or delays in addressing compliance with any of these requirements will affect the lessor in terms of effectively redeploying their asset. As illustrated in Figure1 , these requirements can be grouped into four categories consisting of: 1. Physical requirements , the focus being on effective assessment of the physical condition of the principal airframe units, its components, systems, and cabin interior, 2. Records requirements , the focus being on satisfactory audit of all aircraft records to ensure they comply with terms and conditions set forth by the lease and the regulatory authorities, 3. Performance requirements , the focus being demonstrating to lessor that the satisfactory operation of the aircraft and all systems   are in compliance with the terms and conditions of the lease, and 4. Certification requirements , the focus being to ensure compliance with local regulatory authority requirements and, where cross-border transfers are concerned, compliance with the next lessee’s regulatory requirements.   F IGURE   1 ‐   A IRCRAFT   T ECHNICAL   R EDELIVERY   R EQUIREMENTS    3   Version 1.0 / October 2014 | Aircraft Monitor Redelivery   Considerations   in   Aircraft   Operating   Leases   2.   REDELIVERY CONSIDERATIONS  A commercial aircraft operating lease contains a host of clauses addressing the standards for redelivery condition of an aircraft at lease expiry. These clauses establish contractual considerations that an airline operator will need to comply with. The scope of these contractual redelivery considerations are illustrated in Figure 2 , and categorized into: a.) Pre-redelivery  and, b.) Return Condition Considerations . 2.1   Pre-redelivery Considerations  A series of planned meetings should be established to address redelivery technical challenges (e.g. redelivery conditions, physical inspections, status of records, operator capability, etc.) with the objective to comprehensively assess and document the airplane status against lease return conditions. During these meetings the lessor and lessee should develop and agree on detailed plans outlining processes and key milestones. It’s also important to address any exceptions to these plans ahead of time in order to avoid lapses in timing and budgets.   If applicable, these meetings should also include a detail analysis of compliance requirements associated with the new regulatory jurisdiction the aircraft will be operating in. F IGURE   2 ‐   S COPE   OF   R EDELIVERY   C ONSIDERATIONS   Operational Compliance Perspective An   aircraft   is   not   allowed   to   fly   for   commercial   operations   unless   approved   equipment   mandated   by   the   regulatory   authorities   is   installed.   The   minimum   set   of    equipment   is   prescribed   by   ICAO,   but   the   equipment   also   needs   to   meet   the   operation   standards   of    the   state   of    import.   Some   states   have   established   additional   requirements   which   do   not   fit   into   the   standard   transfer   processes.   Examples:   Age   Limits  ‐ some   states   have   introduced   hard   age   limits   for   importing   aircraft,   and   typically   vary   between   ten   to   twenty   years.   Local   language   placards   and   markings  ‐ many   states   require   placards   and   markings   in   the   aircraft,   which   are   aimed   at   passengers,   crew,   and   ground   staff,   to   be   in   the   local   language.   Units   of    Measurement  ‐ ICAO   has   published   units   of    measurement   to   prevent   miscommunications.   However,   aviation   industry   standard   shows   most   states   use   a   system   that   differs   from   what   has   been   internationally   agreed.   Operational Compliance Perspective An   aircraft   is   not   allowed   to   fly   for   commercial   operations   unless   approved   equipment   mandated   by   the   regulatory   authorities   is   installed.   The   minimum   set   of    equipment   is   prescribed   by   ICAO,   but   the   equipment   also   needs   to   meet   the   operation   standards   of    the   state   of    import.   Some   states   have   established   additional   requirements   which   do   not   fit   into   the   standard   transfer   processes.   Examples:   Age   Limits  ‐ some   states   have   introduced   hard   age   limits   for   importing   aircraft,   and   typically   vary   between   ten   to   twenty   years.   Local   language   placards   and   markings  ‐ many   states   require   placards   and   markings   in   the   aircraft,   which   are   aimed   at   passengers,   crew,   and   ground   staff,   to   be   in   the   local   language.   Units   of    Measurement  ‐ ICAO   has   published   units   of    measurement   to   prevent   miscommunications.   However,   aviation   industry   standard   shows   most   states   use   a   system   that   differs   from   what   has   been   internationally   agreed.  
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