Dry Lease - Maintenace
 

Hello,

I'm trying to understand the full definition of Dry Lease. My current understanding is that the leesee supplies the aircraft for an agreed amount and the leesor covers pretty much everything else - Maintenance, Insurance, operating costs and crew, hangarage etc.

It's the maintenance part that I don't currently have a full understanding of. I get that the leesor would pay for all scheduled maintenance, but who is responsible for unscheduled maintenance or when a component fails? If it is within a guarentee, I suppose the component manufacturer would be responsible, but if it isn't?

Example: During Scheduled maintenance, it is discovered that a turbine blade has cracked or is damaged. The engine is only say, 1000hrs old and there is no evidence of neglect or malice.

The above is completely hypothetical and is used only to help me understand the definitions of Dry Lease.

Any help in educating me is much appreciated!

First off, a small but important correction. The Lessor is the owner of the aircraft and the Lessee is the party taking custody of the aircraft for a defined period at an agreed rental per month. Any lease is mutually agreed between the two parties and within legal constraints can be constructed any way the two parties mutually agree. A large lessor such as ILFC will have way more leverage to impose its own terms on a small lessee than the other way around, but it can also be a function of market demand.

In general terms, in most dry leases the Lessee will be responsible for all unscheduled maintenance plus any bridging work required to move the aircraft from one maintenance program or authority to another. For the short-cycle scheduled maintenance that occurs during the period of the lease, the lessee will also pick up the tab. For expensive long-cycle scheduled maintenance eg D check or engine overhaul that may or may not fall during the period of the lease, one of two methodologies will be followed:

• A betterment/detriment schedule is agreed at the commencement of the lease. This takes a snapshot of the airframe and component status at the start of lease for all time/cycle controlled checks on airframe or component and agrees an hourly or per cycle fee for each item. At the end of lease a reconciliation is done against for the ending status of the same items A cash adjustment equal to the sum of the deltas times unit cost is then payable to whichever party stands to lose out (a lower time component may have been fitted by the lessee during the lease or a major check performed leading to the lessee receiving the balance or time may simply have been run off the existing components leading to the lessor receiving the balance).

• Maintenance Reserves are paid by the lessee in addition to the monthly rental. This will normally be more than the worst case expected by the lessor to protect itself in the event of default. If the lessor happens to perform and fund the said long cycle task during its period of custody it should be entitled to drawn down against these reserves. This however is dependent on the lessor agreeing to the actual cost and some less scrupulous lessors will see this as an additional revenue stream.

In addition to this you will have return conditions which will look at the on-condition items, mainly airframe structure and cabin trim for condition against fair wear & tear. Again the shrewder lessor will see this as a revenue opportunity (similar to insurance loss adjusters) and so it is vital to engage experts in subject to do acceptance and return inspections.

In the case of your example its down to lessees luck unless mitigated by warranties (ensure assigned by lessor) if applicable or covered under Power-By-Hour schemes you may elect to take out.

Non-Driver

Thanks for your response, particularly your correction of my understanding of Lessor and Lessee!!

I assume then, that it would be standard practice on the part of the Lessee to have the aircraft independantly inspected to confirm it's condition prior to the lease?? Otherwise, they could be liable for replaceing or repairing parts that were perhaps not in great condition prior to the lease.

I'm not sure if it makes any difference, but I'm not talking large aircraft here, more the type that an Average Joe or small business might use at a flying club or for commuting.

Absolutely, like buying a car - get everything done you can before you take possession (or like renting a car - make sure its not damaged when you sign on the dotted line). Type experts (and I'm not touting for business) may seem like an expense you can do without but it could work out way more expensive in the long run if you're not didligent and have a wily Lessor. I'm in the Rotary business not the Big Jet game any more and believe me we still need to be vigilant.

Good Luck with your quest.

Thanks again for your advice. Only fact finding, but interesting all the same.