Aircraft Repossession- Mitigating major...

NOTE:

Thisreporthighlightssomekeyissuesfacedduringaircraftrepossessionandassesses,throughtheauthor’slensofrepossessionexperience,thestepswhichcanbetakenbyanownerormanagertohelpminimizetherepossessioncostandanyfutureexposure.Repossessionhasahabitofprovingtobeaveryexpensiveaffairifnotmanagedproperlyandifdecisionsarenottakenpromptly.Thepurposeofthisreportistohelpthereaderappreciateandcomprehendtheimplicationsofcasesofrepossessionwhichtheindustryfacesandhighlightthepreventativeactionwhichcanbesuccessfullydeployedsoastomitigatethecostinsuchscenarios.Examplesaregivenasameanstoillustratehowcostreductionscouldbeachievedcoupledwithgoodassetmanagementpracticeoveraleaseterm.Althoughthefieldofrepossessionisavastandfarreachingtopicinvolvingmanyvariedscenariosinamultitudeofjurisdictions,thispaperfocusesinonsomeimportantandcommontraitsthatcanbeaddressedasaresultofproactiveassetmanagementprinciples.Wewelcomefeedback,questionsandconcernsonthisreport.

AircraftRepossessionsMitigatingcostsAmitTyagi,Feburary2018

©2017AcumenAviation.Allrightsreserved 2www.acumenaviation.ie

AmitTyagi ChiefIntelligenceOfficer

AmitjoinedAcumenin2009.HisresponsibilityasChiefIntelligenceOfficeristoensure thatallvaluationprojectsareexecuteddiligentlyandallaircraftsunderAcumen management are managed exceeding client’s expectations. Beforejoining Acumen, Amit worked in various Engineering roles in HindustanAeronautics Ltd,AirDeccan, SpiceJet and Indigo.He isanAssociateMember ofAeronauticalSocietyof India.HehascompletedAMAeSIExamsand isholdingaB.E. Aeronautical (Avionics) Degree. He holds a Bachelordegree inScience andBasicLicenceofAMEincludingElectrical,Instruments&RadioNavigation.AmitisalsoanISTATCertifiedAppraiser.


Background:

Repossessionisthelastactivityanylessorwouldwishtoundertakeandyetitislikelytobeattheforefrontofeverylessor’smindwhendeliveringanyaircrafttoalessee/operator.

DictionaryDefinition:Noun

• Theactionofretakingpossessionofsomething,inparticularwhenabuyerdefaultsonpayments.

Onetendstointerpretrepossessionasanegativeresponsetoacurrentundesirablesituation.Itisthereforeimportant to clarify that the activity of repossession can be experienced as either friendly or forceful,depending on the circumstances. During a friendly repossession, sometimes referred to as an early

termination, the lesseeand lessorcooperatefullyandthisallowsthe lessortotakecontrolofaircraftandassociatedrecordsandthelesseeaidesthelessor’saccomplishmentofthecommongoal.However,inmostcasesthelesseecanbecomehostileandactuallyopposelessorinvolvementinretrievingtheaircraftandits

records. This can negatively charge the situation and is why lessors must assess, prior to the point ofdelivery, the levelofprobabilityof repossessionoccurringwithin the lease term.Criticalpoints/areas thatneedtobeconsideredinclude:

1) Countryofaircraftregistration,operationandwhetheritisapartytoCapetownconvention

2) Lesseecreditworthiness3) Leasecontractmustcoverallpossiblerisks,especiallyforlesscreditworthylessees4) Contacts with Aviation Attorneys with a local know how in country of aircraft registration and

aircraftoperation5) Technicalandoperationalstandardsmaintained

Whilerepossessionplanningisbeingcarriedoutitisvitalforanylessortoknowthefinancialsituationofanairline and payment status to its vendors and authorities e.g. airport operator for landing and parking

charges,payment status to fuel vendors,MRO’s formaintenance, salarypayment statusof its staff i.e.asmuchaspossiblefinancialinformationpossibletobecollectedonsite.Thisistoestablishaholisticviewandsituational analysis to assess an airline’s health and longevity and predict at what point a decision to

repossesswouldpossiblyneedtobetaken.

Asmentionedearlier in thisarticleaircraft repossession isavery toughdecision forany lessor tohave totake. Oneneedstostrikethecorrectbalanceregardingthe lessor/ lesseerelationshipandtheamountofexposureanticipatedforthelessorduringandpostrepossession.Oncerepossessiveactionhasbeentaken

and the lessee has been advised of the lessor’s intentions it is highly desirable to mobilise quickly to


minimize the risk of increased exposure. In case of amicable repossession taking over the aircraft andrecordswillbeeasier;theoperatorwillco-operateandwillsupportorarrangerequiredvendorstomaintaintheaircraftandtomakeitreadyandflyittomutuallyagreeddestination.

Mobilisingquicklyandeffectively canbeeasier said thandone,which iswhy it is important for lessors to

engage robust asset management techniques and systems so as to bring to bear the latest processesenhanced through technology to assist in achieving a swift, time efficient and cost effective repossessionsolution.

Some key ticket items in a given repossession scenario that would significantly reduce time and cost if

knownaheadoftimewouldinclude:

1) Reviewofaircrafttechnicalstatus(HT,AD,LDND,LLP)2) Anyrepatriationrequirementofmajorassembliesincludingnegotiationwithotherlessors3) Decide the location / MRO where aircraft should be placed in storage, check based on future

requirementsandMROcostsrelatedtosuchplanned/expectedexpenses4) Aircraftmaintenancecostandensuringairworthinessofaircrafttoquicklymovetheaircraftassoon

asopportunityarises.

5) ValidCofAandexportCofA/ferrypermitcost6) Assetmanager/technicalrepresentatives/onsiteexpenses7) Customsclearance

8) Legalcost9) Anylienenforcedontheaircraftbyvendors(fuel,MROetc.),airportauthorities,airportoperator10) Aircraftferrycost(Includingexpensesforcrew,fuelandrelatedrouteclearance)

As soonas theneed fora repossession is sensedby the lessor / assetmanager it isessential toestablish

contact with airlines and to obtain agreement to the placement of technical representatives on-sitepromptly.Thenumberofrepresentativesrequired isdependentuponthesituationofairlinesustainabilityand the number of aircraft to be repossessed. For this to happen smoothly a competent assetmanager

focuses attention so tomaintain ahealthy relationshipwith all lesseedepartmentheadsbasedonup-to-datecontactrecordswhichareverifiedduringeachmid-termaudit.Oncethecontacthasbeenestablishedthefirstpriorityistoestablishtheaircrafttechnicalandflyingstatusandensurethattheaircraftinquestion

possessavalidCofA.

Technologyenhancedprocessescanplayasignificantroleinreducingthetimeittakestoanswerthestatusofagivenaircraft.Completeaircraftrecords,bothhistoricandcurrent,canbeorganised,storedandmadeavailableforreviewatthetouchofabutton.


Fig.1ScreenshotshowingfilestructureexampleinADEPT®recordsmanagementsystem

As isshowninfig.1above,recordscanbeclearlystructuredandmanagedbytheassetmanager,withthepotentialtogiveexcellentvisibilityofthestatusoftheassetatanypointintime.Managingrecordsinthis

way and highlighting known existing records discrepancies in advance as part of an asset managementprogram reduces the level of effort required at the point of repossession. The lessor is able to quicklyquantify the information that is required and surgically coordinate efforts to focus on the specific

documentationneeded fromthe lessee. Even incaseswhere the lessee is lessco-operative the lessor isaware of the level of exposurewhich exists. For a lessor to be able to know and scale the task in handpositivelyinfluencesthetimeandcostrequiredtocompletetherepossession.

Inadditiontothemanagementoftherecordsthemselves,itisalsopossibletoholdalldetailsofauditsand

majorconcernsincludingissuesthatmayberelatedtoavailablerecordsaswellascompletefindinglistsofavailable records. Some systems, such as SPARTA®, fig 2 below, provide asset managers with additionpertinentinformationsuchaslesseeratingsbasedonprevioustechnicalassessmentsreportedbyauditors

duringaudit/repossession/redeliveryprograms. Againthis informationassiststhe lessor inquantifyingtheanticipatedscaleoftheprojectandtheeffortrequiredtoaccomplishasuccessfulrepossession.


Fig.2ScreenshotshowingSPARTA®reviewpanel

Oneareaofsignificantexposureisrelatedtomainengineswhichcangreatlyimpedealessor’sbesteffortstobringarepossessiontoapromptconclusion.Asanaircraftagesitsvalueliesprogressivelyinitsengines.Therefore it is essential for the lessor to know their exact status and calibrate any predicted exposure.

Conventionally this has been difficult to achieve quickly given the sheer number of variables in play thatneed to be considered. However, this area too is benefiting from applied technology. There is now theemergence of engine management platforms capable of assessing engine life expectancy, predicting

maintenancecyclesandforecastingrepaircostsandMRrates,asshowninfig.3below.Thespeedatwhichassessments can nowbemade, added to the fact that the analysis being carried out is independent andhelpsgreatly inprotectingthe lessor/ lesseerelationship. The independenceofdatasignificantlyreduces

thepossibilityofconflictduetodisagreementrelatedtolocalisedlifeandcostprojections.


Fig.3ScreenshotshowingEMpower®mobileappresults

Thecombinationofanairworthyaircraftandawillinglesseeislikelytofacilitateapromptferryflightoftheaircraftoutofcountrytotherequireddeliverydestination.Thisismuchlesslikelyincaseswherethelessee

isnotsupportiveofthisactionandinsuchcircumstancesthelessormayneedtocompletethederegisteringandregisteringoftheaircraftonanothercountryregister(e.g.IOM,Ireland)soastoassistinexpeditingtheaircrafttransfer.

Onceregistrationiscompleteitisessentialtocheckthattheaircraftisairworthy.Thiscanbeadifficulttask

tomaintaintheaircraftinaconditionofairworthinessundertheadverseconditionswhichgenerallyexistinany repossession scenario. Nevertheless, it is important to ensure that aircraft can be flown as soon asrequired.Thisneedattentiontoplanningfromtheassetmanagerandbackedupbysuitablerepresentation

ongroundtoensurethatthisobjectiveisachieved,andaircraftissecuredandairworthy,andthatthereisnounauthorisedcomponentremovaloronboarddocumentremovalwhichareessentialtoflytheaircraft.

InadditionitwillbenecessarytocontractasuitableMRO/individualwithrelevantapprovalsinhandforthetype of aircraft and check to be accomplished until such point as the aircraft is taken to a suitableMRO

locationdependingonrequirementoflessor.


Once a valid C of R and export C of A are acquired for the aircraft and custom clearance is given,

arrangementsshouldbemadefortheaircrafttobeflownoutofthecountrytoasafedestinationpromptlywheretheimposingoflienisnotpossible;suchlocationsaregenerallydecidedbylessorinadvance.Thisis

importantbecauselessee’svendorcanattempttoplacealienontheaircraftoritscomponentsorattemptto keep records hostage against their lien until payment is mademaking it more difficult to extract theaircraft.

DecidingMROor storage locationsmay not always be based on cost basis but also on convenience how

quicklyaircraftcanbedeliveredtonext lesseee.g.howeasilynextplannedlesseemayhaveaccesstoseeaircraftandreviewrecordstoaccepttheaircraftandhowquicklyaselectedMROcanaccomplishrequiredpre-delivery/bridgingcheck.Averywellthought-outplanconsideringallanglesisimportant.Failureforan

assetmanagertotakesuchelementsintoaccountcanresultinhighadditionalcostsforthelessortopay.

Sometimes abovementioned simple stepswork but if this does not then the lessor has no choice but toadopt a legal position in order to deregister the aircraft through IDERA (Irrevocable Deregistration andExportRequestAuthorisation)orgetCourtPermissionlegallytoderegistertheaircraftifaviationauthority

ofcountrywhereaircraft isregistereddoesnotsupportthederegistrationoftheaircraft. ThosecountrieswhichfollowsCapetownconventioninpropermannerwillderegistertheaircraftassoonasIDREArequestis sent to local aviation authority. Post verification that it is genuine case local airworthiness authority

shouldderegistertheaircraft.

Aircraftferrycostgenerallyincludescostoffuel,gettingallroutespermissionsandapprovals,costofcrewandrelatedexpenses.Itisalsoessentialtoensure/clearairportchargesforparking,landingetcinadvancebasedonthetimewhenaircraftisscheduledtoflyoutofcountryunlesslesseeissupportivetoclearthese.

This isnecessary toensure thataircraft canbe flownoutas scheduledaseachextradayonsite for crew,aircraftstoragechargesetc.canbelotmoreexpensiveifnottackledandplannedproperly.

Conclusion:

1. Decisionsregardingrepossessionarecarefullyconsideredaheadoftime.2. Oncearepossessiondecisionistakenitisimperativethatthenecessarystepsaretakenquicklysoas

tominimisefurtherexposures.3. Deployeffectiveprocessesandsoftwaresolutionstoassistinrecordskeepingandprovideaprompt

assetoverviewasandwhenrequiredtohelpreducetherepossessioncostsandtimeassociatedwith

datagatheringandaircraftassessments.

[email protected],amit.tyagi@acumenaviation.ieifyouwouldliketogetintouchtodiscussmoreaboutthetopicorforanyotherservicesyoumayneed.

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