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|Tim Scott, Vice President Technical Services, AVITAS
Digital aircraft and engine lease returns
Author: Tim Scott, Vice President Technical Services, AVITASSubscribe
Tim Scott, Vice President Technical Services, AVITAS asks is digital documentation one answer for smooth aircraft & engine lease returns? What role does the MRO play?
Not having adequate documentation and data ready for an aircraft or engine lease return can cause big problems for airlines and leasing companies alike. MRO maintenance records can have a substantial impact.
Leased assets in the commercial environment
Thirty years ago there weren’t too many leased aircraft. That has changed over time and now about 50% of commercial aircraft are leased. For an airline, there are several advantages to leasing versus owning aircraft, including possible tax benefits, fleet planning flexibility, less capital tied up in assets, etc. The leasing model has been so successful, it has evolved to include engine leasing for short and long term airline operational needs and could even work with components like APUs (auxiliary power units) and landing gear although that structure is not typically utilized.
Monthly rental costs for leasing an aircraft depend on a number of factors such as the aircraft type, vintage, and configuration. For discussion purposes, if we look at newer aircraft currently in production, typical rates could be around $400,000 a month for a single aisle aircraft such as an Airbus A320 or a Boeing 737 while wide-body, dual aisle aircraft like the Airbus A330 or Boeing 777 could cost well over $1m a month. Airlines understand that leasing entails significant monthly rental expenditure throughout the lease period. What is less known is that the airline may also be required to pay a daily rate for an aircraft that is no longer in its operation, or if the aircraft is returned late off lease. These daily rates vary from lease to lease but using the examples above translates to approximately $13,000 for a single aisle and $40,000 for a dual aisle aircraft. This can add up quickly in a delay scenario. Worse still, some leases double the typical rental for a late return as an incentive for on-time returns.
In the case of a typical lease return delay, an aircraft is in the hangar costing the lessee a daily rate while not earning any revenue. It is occupying valuable hangar space that the MRO had not planned for, and its delivery to the next lessee is delayed, affecting that airline’s operations. That means the current lessee is upset because of the extra daily rent being paid, the lessor is upset because his customers are upset, the MRO is upset because they want to efficiently move aircraft through their facility instead of tying up hangar space, and the next lessee is upset because they have already booked seats on the aircraft that is now delayed into operations… in short, everybody is upset.
Streamlining the process with a thorough approach
What can be done to improve the lease return process that will reduce the risk of a late (and costly) return and subsequent delivery? The first thing to remember is that, whether you are taking delivery of or returning an aircraft, it is part of an in-depth process, not just an ‘ad hoc’ event for which you can cobble together a team of people to deal with any problems, although that does happen… and it is painful. It is much better to have a plan and experienced team in place early in the process to minimize delays and their consequences.
When leasing aircraft, one of an airline’s first steps is to define its leasing team, which should include people from multiple areas of the company such as finance, legal, technical, and perhaps marketing. It is best to have all team members identified from the beginning of the initial lease negotiations and who are well versed with aircraft leases, including the delivery/return process. All too often when negotiating initial terms of a lease the deal is viewed only from a financial or fleet planning perspective and the technical member of the team may not be included in the discussions. This is typically to the airline’s detriment as there are dozens of issues that need to be understood from the very beginning of the process. Issues such as configuration differences (flight deck, cabin, systems, engines, etc.), maintenance status, airworthiness directive status, and possible regulatory differences can have a tremendous impact on the airline being able to smoothly assimilate the aircraft into its fleet and operate it effectively. Making configuration changes to the aircraft can come with long lead times and high costs. Knowing about the issues early in the aircraft discussions gives the airline the ability to negotiate with the leasing company in an effort to minimize their impact. The main point here is to get the technical team involved early to understand what changes will be needed in order to standardize the aircraft, or how the airline can accommodate the differences if no changes are planned.
In addition to understanding the physical aircraft condition, it is also very important to review the aircraft’s records early in the process and well before signing the lease. Some may wonder why reviewing the records is important but an aircraft with poorly maintained records could have a tremendous loss of value and have difficulty being placed into an airline’s operations. Records from historical engine shop visits, landing gear overhauls, heavy airframe maintenance, repair documentation, life limited parts back-to-birth trace, and airworthiness directive compliance are just a few examples of records that must be well maintained. Not having good quality records may require re-accomplishment of work or replacement of parts. Either is a waste of time and money. So, it is imperative to review the aircraft records and make sure they are of good quality, condition, and completeness. The remainder of this article focuses on the records review/retention process, how to improve it, and how an MRO can play an integral role in that effort.
Records issues that arise during delivery and return of a leased aircraft
There are too many possible records issues to allow for an exhaustive list of them here but there are a few primary issues that occur frequently, generally around information that cannot be located. A very common issue is missing parts data such as 8130-3 forms, the FAA’s Authorized Release Certificate. The lease might require that the lessee keep these forms and, if the form cannot be found, the part in question has to be replaced. Another possible issue is where a repair has been carried out on the airframe and complete documentation for that repair cannot be located. If that data is not readily available, the repair may need to be replaced, costing significant time and money. AD (Airworthiness Directive) records can be another problem area. Are the records buried in a C Check package, are they separated into AD files; will they be easy for the airline and the regulatory authority to find? LLP (life limited part) ‘back-to-birth’ records are often the cause of problems. They may or may not be a requirement from a regulatory perspective but they are definitely a requirement from a value retention perspective in the marketplace. In addition, having back-to-birth trace for LLPs is often a lease requirement. So, if the back-to-birth record is not available for an LLP, the lessee might have to replace it or pay the lessor for the part’s lost value. Either option could be very expensive and replacement might even require an engine shop visit. The same concept would apply for APU or landing gear LLPs.
These are just a few examples of potential problem areas with records. Rather than having to resolve these problems at the time of delivery/return, a well-organized records system will prevent many of them from occurring in the first place and, in the long run, will provide a more efficient delivery/return process for the airline. The point is that any of the issues outlined above, and many more, can cause delays. Reducing the number of issues that arise at lease return will likewise reduce those delays and costly remedies. Can using digital/electronic records help? Yes.
Record keeping technology has changed over the years. Is your airline still stuffing file cabinets full of paper documents that get misplaced or damaged over time, causing future regulatory or lease return problems? As an alternative, if the records were digitized, organized, and archived, many of the problems with misplaced information would be alleviated. This is not only true for records that are electronic from their inception; paper records can easily be scanned into digital formats and be similarly retained.
Looking at this alternative way of retaining records, one might ask what benefits can be gained from going digital with all of those data and records?
One benefit is that digital files are easy to back-up and be kept wherever you need them; on the desk top, on an external hard drive, or on a server away from the office to protect against a catastrophic event like a fire or flood. Similarly, back-ups minimize the risk from a simple inadvertent loss of documents.
Another benefit is that digital records are portable and easy to send to whoever is requesting them. This could be someone in another department, the FAA, a potential aircraft buyer, or a lessor.
In addition to improving the general quality of records retention, digital records also allow for more efficient use of the records themselves. Consider having to search through thousands of paper records looking for an 8130-3 for a particular part or a reference to an AD accomplishment. A keyword search using OCR (optical character recognition) can search those thousands of digital pages in just a few seconds whereas manually searching hard copy records would take hours.
The above operational benefits apply equally to managing a lease, and there are some additional benefits that come into play. For instance, the lessor typically has the right to annually inspect a leased aircraft and its records. Having the lessor’s representative on site at the airline performing an annual records review consumes an airline’s resources. With digital records, it is easy to send most of the package to the lessor so their time on site can be minimized. If there are questions, they can be answered remotely.
Digital records also help with remarketing an aircraft. Whether it is owned or leased by the airline, being able to easily provide data to the next owner, lessor, or lessee will save time and money, plus assisting in remarketing efforts increases goodwill amongst the parties.
Having organized digital records adds up to reducing the likelihood of delays at return. Remember the penalties earlier in the article; who wants to pay $80,000 a day while they search for records on an aircraft that cannot be used?
These same issues also arise when taking delivery of an aircraft and getting it into operations. Timely satisfying of stakeholders, like quality control or the local regulatory authority, that the aircraft is ready for service is critical. While late delivery penalties are not applicable, in most cases, the aircraft is likely scheduled to enter service soon after delivery. Every day that it is late entering service means cancelled flights with all that entails.
Tie-in to MRO
So how does all of this affect the MRO? When maintenance is being performed, all of the data mentioned above comes through the MRO. The MRO is the hub of information during checks and the hub for all of the lease/sale transition activity including inspections, repairs, modifications, parts changes, paint, etc. In this position, the MRO can present the maintenance check process and data package, not just the aircraft itself, to customers as part of the product. Well organized processes and data have value to the customer by minimizing waste of time and money, and instill confidence in the MRO’s capability to deliver a quality product (aircraft and records).
MRO role in lease delivery and return
Implementing digital data processes offers the opportunity to streamline the transition of aircraft with capabilities and features such as the ability to utilize hyperlinks in electronic data packages to connect task cards to NRs (non-routines), repair data, inspection results, pictures, etc., making material easy to access for those who need to see it. Another possible streamlining capability is being able to generate online visibility for current aircraft status such as manpower assigned to the aircraft or NR task card approval requests (from lessor or airline) that are instantly available to minimize the amount of time the MRO is waiting for authority to undertake the NR work. Visibility to the number of open/closed task cards is also valuable information for the MRO, airline, and leasing company. This digital data feeds into Gant Charts, schedule dates, and critical path analyses so that actual and planned activities during the check are clearly understood as part of a process in which people can have confidence.
A digital system in practice
Even if an MRO utilizes an electronic scheduling system, it will still need to manage reams of paper. Parts from external sources, EOs (engineering orders), STCs (supplemental type certificates), all come with paperwork. The way to implement digital data here is OCR scan the hardcopy to file it in the system like any other digital data.
Managing electronic records is part of the basic service an MRO can provide. A less often considered value-added digital service is the dent/repair map for an aircraft. An imprecise dent/repair map can leave a user scratching his head when trying to correlate the map to the actual aircraft. With a digital solution there could be a high quality, CAD (computer aided design) based dent/repair map linked to the damage/repairs that carries information such as a dent’s dimensions and a link to the SRM (structural repair manual) showing that the dent measurements are within acceptable limits. All of that can be presented in CAD with dimensions, location on aircraft, all relevant repair and approval documentation, pictures, and even communications with the manufacturer; in fact, anything that might be useful. Having that documentation readily available avoids the risk of improperly recorded repairs having to be replaced in the future due to poor documentation.
The bigger picture
These are just a few points to consider but there will be many other benefits from going digital just by having better control over data and processes. Also, this digital process applies to more than just lease deliveries and returns. It improves all maintenance checks by streamlining maintenance activity, improving work-flow, and shortening aircraft hangar time. It helps an aircraft return to service, making room for another aircraft in the hangar to generate revenue for the MRO.
The key for an MRO is to have an all-inclusive product for the customer, including a well maintained aircraft, smooth maintenance event processes, and an excellent data package. All of these add value.
Tim has 24 years of technical aircraft management experience and has held various positions in airlines, engineering, and aircraft management. At AVITAS he is responsible for a group of technical specialists who perform aircraft inspections and aircraft maintenance audits as well as aircraft redeliveries and repossessions. His group also engages in tailored asset management programs for the financial industry.
AVITAS was founded in 1985 and has advised in over 500 Aircraft restructurings. Also, more than 50,000 aircraft have been inspected / appraised and over 600 aircraft have been managed for financial clients. Senior staff includes people with industry experience from OEMs, financiers / lessors, airlines, and MROs. AVITAS’s main practice areas include valuation, consulting, technical expertise and asset management.