Repossession is the last activity any lessor would wish to undertake and yet it is likely to be at the forefront of every lessor’s mind when delivering any aircraft to a lessee/operator.
One tends to interpret repossession as a negative response to a current undesirable situation. It is therefore important 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 lessee and lessor cooperate fully and this allows the lessor to take control of aircraft and associated records and the lessee aides the lessor’s accomplishment of the common goal. However, in most cases the lessee can become hostile and actually oppose lessor involvement in retrieving the aircraft and its records. This can negatively charge the situation and is why lessors must assess, prior to the point of delivery, the level of probability of repossession occurring within the lease term. Critical points/areas that need to be considered include:
- Country of aircraft registration, operation and whether it is a party to Cape town convention
- Lessee creditworthiness
- Lease contract must cover all possible risks, especially for less creditworthy lessees
- Contacts with Aviation Attorneys with a local know how in country of aircraft registration and
aircraft operation - Technical and operational standards maintained
While repossession planning is being carried out it is vital for any lessor to know the financial situation of an airline and payment status to its vendors and authorities e.g. airport operator for landing and parking charges, payment status to fuel vendors, MRO’s for maintenance, salary payment status of its staff i.e. as much as possible financial information possible to be collected onsite. This is to establish a holistic view and situational analysis to assess an airline’s health and longevity and predict at what point a decision to repossess would possibly need to be taken.
As mentioned earlier in this article aircraft repossession is a very tough decision for any lessor to have to take. One needs to strike the correct balance regarding the lessor/ lessee relationship and the amount of exposure anticipated for the lessor during and post repossession. Once repossessive action has been taken 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 and records will be easier; the operator will co-operate and will support or arrange required vendors to maintain the aircraft and to make it ready and fly it to mutually agreed destination.
Mobilising quickly and effectively can be easier said than done, which is why it is important for lessors to engage robust asset management techniques and systems so as to bring to bear the latest processes enhanced through technology to assist in achieving a swift, time efficient and cost effective repossession solution.
Some key ticket items in a given repossession scenario that would significantly reduce time and cost if known ahead of time would include:
- Review of aircraft technical status (HT, AD, LDND , LLP)
- Any repatriation requirement of major assemblies including negotiation with other lessors
- Decide the location / MRO where aircraft should be placed in storage, check based on future
requirements and MRO costs related to such planned / expected expenses - Aircraft maintenance cost and ensuring airworthiness of aircraft to quickly move the aircraft as soon
as opportunity arises. - Valid C of A and export C of A / ferry permit cost
- Asset manager/ technical representatives / onsite expenses
- Customs clearance
- Legal cost
- Any lien enforced on the aircraft by vendors (fuel, MRO etc.) , airport authorities, airport operator
- Aircraft ferry cost (Including expenses for crew , fuel and related route clearance)
As soon as the need for a repossession is sensed by the lessor / asset manager it is essential to establish contact with airlines and to obtain agreement to the placement of technical representatives on-site promptly. The number of representatives required is dependent upon the situation of airline sustainability and the number of aircraft to be repossessed. For this to happen smoothly a competent asset manager focuses attention so to maintain a healthy relationship with all lessee department heads based on up-to- date contact records which are verified during each mid-term audit. Once the contact has been established the first priority is to establish the aircraft technical and flying status and ensure that the aircraft in question possess a valid C of A.
Technology enhanced processes can play a significant role in reducing the time it takes to answer the status of a given aircraft. Complete aircraft records, both historic and current, can be organised, stored and made available for review at the touch of a button.
More: http://acumen.typepad.com/files/aircraft-repossessions_white-paper-feb2018.pdf