IBA Outlines Impact Of Delayed Lease Ends To Redelivery Market

15th November 2023 – In its Redelivery webinar, IBA, the leading aviation market intelligence and consultancy company, stressed the need for cohesive planning across the aviation industry to address the future impact of an increased number of lease extensions since 2019.

IBA Insight revealed that since 2012 there has been an average of around 600 narrowbody lease ends a year. Previously, IBA was expecting a bow wave of around 1400 narrowbody lease ends in 2019 and a continuation of high lease ends for the following eight years. However, the actual lease ends were only around 750 in 2019 due to the grounding of the 737 MAX and the global pandemic. This resulted in narrowbody lease ends being pushed back.

A similar situation is true for widebody lease ends. A significant jump was originally predicted for 2019 with over 300 estimated lease ends. Whereas in reality this was only around 175 in 2019 and has continued to remain well below IBA’s predicted levels with leases being extended due to 787 engine issues and the Covid-19 pandemic.

With the above trend continuing between 2019 and 2023, coupled with supply chain issues, IBA sees the market struggling to redeliver the backlog of aircraft. There are already struggles with the quality of production, and in-service issues are likely to continue according to IBA. The increasing pent-up demand only exacerbates the issue. As load factors are increasing, airlines want to keep their assets and are further extending leases, causing a backlog for the redelivery market.

IBA’s webinar discussed the issues arising in the industry from delaying lease ends and how to overcome the challenges posed by lease end redeliveries. The first topic discussed was the correlation between cost and time. Guest speaker Johnny Champion, Managing Associate from Stephenson Harwood LLP acknowledged that leases often require holdover rent in the event of late redelivery, and that it is not uncommon for lessees to be obliged to pay for holdover rent at 150% or higher and continue to pay for ongoing insurance, parking, and maintenance costs until the aircraft meets redelivery conditions. This potentially exposes lessees to additional costs of redelivery overruns when the aircraft is taken out of service and not generating any revenue.

Denis Brailsford, Head of Asset Management at IBA, added that the timing of completing the comprehensive set of tasks is challenging. For instance, the final group of tasks during a redelivery are the demonstration flight and detailed engine borescope inspections. Any failure during such tasks can be difficult to resolve in the short amount of time available and these often cause redeliveries to be delayed as issues are flagged. This was supported by results in IBA’s 2023 Redelivery Survey, as 23% of participants attributed the primary reason for a late redelivery to unscheduled repairs, failed borescopes, and maintenance. Interestingly, it was noted that lessees were more likely to attribute this factor to late redeliveries. The next highest category was lack of planning at 13% which was largely noted by lessors. In previous surveys, 22% of participants felt it was a lack of planning and 17% felt it was an underestimation of effort, illustrating a regular planning issue within the industry. IBA recommends starting planning 24 months out to avoid these issues.

Next, aircraft records were discussed. These were noted as being one of the most challenging aspects of a redelivery. Both Denis and Johnny stressed that airworthiness compliance is not the same as lease compliance when it comes to redelivery and that discrepancies must be addressed otherwise, they are likely to cause issues and lead to disputes.

Turning to airframe issues, the element which is thought to be the most challenging is physical inspection findings and defect resolution which was marked by 38% of survey participants whilst modification status was marked by just 4%. Phil Seymour, President at IBA, stated that cabin interiors are a significant area for disputes in inspections particularly for widebody aircraft. Johnny added that this is often due to the wording of the contracts with phrases such as ‘clean’ and ‘good condition’ being subjective and open to differing interpretations. To overcome this, IBA advises working with lessors as early as possible to understand how they interpret the contract.

Specifically looking at engines, previously the element participants of the Redelivery Survey believed was the most challenging was mixed with 29% attributing borescope inspections and 28% saying Back to Birth (BTB) traceability on life-limited parts. In 2023, 24% of participants felt it was engine shop visit turnaround times with borescope inspections the next highest at 19%. IBA concurs with this, acknowledging that the main issue currently is the time it takes an engine to get through a shop visit. This impacts, and ultimately delays, a return to the overall aircraft.

Overall, IBA advises that the timeline for redelivery needs to be realistic and vigorously planned. IBA highlights the need for early engagement and dialogue from all parties in order to find practical and workable solutions. This includes having earlier interventions for both preparation and planning.