MAY 31ST, 2016

Improved focus on financial implications and proper resource planning will avoid vast overspend on lease return aircraft, says IBA

May 2016, LONDON: IBA (International Bureau of Aviation), a leading aviation consultancy, says that a determined strategy to optimise fleet planning, reduce direct maintenance costs, leverage warranties and transitions, as well as securing expert redelivery resources will save airlines millions of dollars annually.

In a recent webinar on Airlines’ Costs Management, IBA highlighted four key factors that contribute to current overspending by airlines. Firstly, the selection of optimum aircraft across age and type continues to challenge operators that do not have sufficient access to independent performance or maintenance data.

Secondly, under-claiming for warranties is also a growing problem, especially with a glut of new aircraft entering service. Here, IBA cautions that the differing priorities of operators’ finance and technical teams can often contribute to claims being missed.

Thirdly, IBA demonstrated that maintenance costs rarely match OEM data and that more can be done by airlines to avoid overspends by better blending the Maintenance Planning Document with both the Aircraft Maintenance Schedule and with leasing obligations, especially in the last 18 months of a lease.

Finally, as redelivery spend continues to rise IBA emphasises the importance of parties engaging many months in advance, and ensuring the technical staff have sufficient resources to both redeliver aircraft, and maintain the remaining fleet.

Analysis by IBA indicates that CFOs can be surprised by the level of potential savings. Assuming a fleet of 76 narrow body aircraft, IBA demonstrated that a total of $300m in savings was possible through careful management of costs across the four areas.

Phil Seymour, IBA’s CEO, says: “Enhanced decision making by airline management relies on market intelligence, data, and possession of the true facts and figures. For example, a whole host of factors contribute to transition challenges, including poor contract drafting around redelivery conditions, lack of lessee planning engagement with the lessor, and underestimation of the total workload.

Airlines can and should be putting steps into place two years prior to returning a leased aircraft to ensure that overspend is avoided. We advise that 24 months before, operators should assess replacement options, at 20 months reconfirm the lease return, at 13 months assess the engine condition, then assess the interior and configuration 9 months before and carry out modifications and repairs with 6 months to go. Planning ahead will reap financial benefits and avoid headaches for CFOs who are often faced with hefty bills accompanying lease return aircraft which can be avoided.”

The materials from the webinar can be accessed here: