LESSORS

Members of aviation sector are trying to survive from crisis of COVID-19 Pandemic. Financers of the industry; leasing companies are acting reasonably against their customers, but what about their lenders against leasing companies? We are focused on technical behavior of Lessors in this article with a small touch of their financial effect on the industry.

Lessors may support airlines by several options in financial perspective such as;

· Sale and lease back support

· Grace period

· Rent stoppage

· Rent reduction

· Seasonal rent

Even Lessors provide above given financial privileges to airlines, there will be still many airlines that cannot survive unless the governments support financially. Well-structured pro-active airlines will continue their operations in 2021. Lessors shall be prepared to get their asset in best highest possible condition. Some of the immediate actions should be as reviewing mid-lease inspections monitoring parking condition of aircraft and evaluating effects of cargo operation.

Primarily, Lessors should realize the importance of mid-lease inspection. Mid-lease inspections provide Lessor to understand essential level of maintenance in case of bankruptcy. Cost estimations and risk assessments should be re-evaluated on top of those inspections. Moreover, well-structured and standardized mid-lease inspections will support to ease the market of the aircraft. As a result of mid-lease inspections, lessors may request airlines to improve their maintenance standards. In this context, if the maintenance standard during the lease term is increased, maintenance reserve related maintenance activities’ costs will be decreased. Despite all these advantages, it is not easy to find mid-lease inspectors due to the flight restriction rules in most of the countries. If Leasing companies do not have mid-lease inspection results yet, they should begin to perform mid-lease inspections immediately.

Secondly, most of the airlines are parking/grounding their fleet. Lessors do not have enough information about the situation that how the aircraft is parked or what the conditions are. Physical conditions of the aircraft and records are more important than ever in order not to take additional risks. The general argument is that “Lessors will check the condition of the aircraft at redelivery” and this action actually aims not to check general condition of the aircraft during the parking period in order to reduce the costs. However, this argument is not applicable in case of bankruptcy of an airline. Lessors will require to take aircraft “as is” and will perform the transaction according to their own cost. If the airlines want to reduce the maintenance costs, they should take all necessary actions before being late. Protecting aircraft against corrosion during parking period is also important since heavy checks are paid under maintenance reserves funds. Well protected aircraft means lower heavy maintenance costs. Active storage is also one of the other options for the airlines. When the airline decides to perform active storage tasks, tasks on the aircraft will not continue to be counted, what will happen to maintenance reserves accounts. Considering those disadvantages, leasing companies should decide immediately if they will take these kinds of risks or not.

In addition, performing cargo operations with passenger aircraft has become popular in the airline industry nowadays. Even it looks like a lifesaver for the airlines, the supply and demand for this process should be calculated properly. Leasing companies should check the possibility of usage their fleets in cargo transaction. Modification clauses in Lease Agreements have slight differences and operators should check the clauses in order not to deliver back a cargo aircraft instead of a passenger aircraft.

Samples of immediate actions that can be taken by the airlines are summarized above for leasing companies. Being ready by simple review of aircraft will be shorten the recovery period of lessor and will provide better physical condition and records of the aircraft, which makes the marketing easier and decreases the physical condition risks.

You can contact with me to perform any kind of inspection on any type of aircraft around the world.