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Aircraft Parts, International Trade

Are Leases Getting Looser?

Everyone in the PMA industry knows about the challenges that arises when selling PMA parts to customers operating leased aircraft. These challenges very often arise from restrictive clauses in lease agreements that prevent the use of PMA on the asset. This can cause particular headaches when the customer is a low cost carrier (LCC) whose business model should make them the ideal PMA customer, but whose largely (or exclusively) leased fleet means that restrictive clauses (either perceived or actual) restrict use of PMA.

The good news is that lessors’ position with respect to use of PMA appears to be loosening as lessees demand the right to use PMA, lessors become more familiar with PMA, and the industry continues its shift toward ever greater PMA acceptance.

The first, and most important, step in greater PMA acceptance on leased aircraft is demand by the operators.  We have already heard at least two air carriers–Delta Air Lines and Copa Airlines–state unequivocally that they will not sign leases with “no PMA” clauses in them.  But at MRO Asia Pacific last week, we heard multiple parties–both LCCs and lessors–state that the use of PMA on leased aircraft was a common occurrence; the lessee (the air carrier) just has to ASK.

Lessors typically enter a lease negotiation with a set of boilerplate terms.  Those terms, however, are subject to change to suit the lessee’s business model and to satisfy the needs of both parties.  Ananta Widjaja from Sriwijaya Air pointed out that a lessor will never give a lessee anything outside of the boilerplate unless the carrier asks for it.  This point was echoed by a number of lessors over the course of the conference, who recognize that use of PMA is a reality in virtually every air carrier’s operation.

This is an important point for PMA manufacturers to take to their customers.  Remind air carriers that most lessors will permit PMA to be used on leased aircraft (with a few exceptions); the carrier just has to demand the right.  As lessors continue to grow more familiar with PMA, and recognize that use of PMA does not in any way devalue their asset, they grow more willing to waive the “no PMA” clauses in their lease agreements.  This is beneficial for the lessee and lessor, as the lessee can continue to realize the savings and reliability improvements provided by PMA, and the lessor opens up more potential customers by allowing the use of PMA.

A number of the LCCs at MRO Asia Pacific pointed out that they especially use PMA during the middle of the lease.  The lessor community explained that the most important part of any lease is the return conditions, because these are the terms that dictate the condition of the aircraft for the next lessee.  Lessees take advantage of this fact by using PMA throughout the term of the lease (as allowed by the lease terms) but if necessary return the aircraft to an “OEM-only” condition (such as exists, which we in the PMA community know is a fiction) during C-check prior to the return of the aircraft.

Lessors are becoming more accepting of PMA for a couple reasons.  The first, which we’ve touched on, is demand by their customers.  Lessors need to have their aircraft leased in order to realize a return on investment, so it makes sense to permit the customer to use PMA if that is what it takes to get the lease signed.

Second, lessors have begun to realize that it is simply not possible for many carriers to operate without any PMA.  PMAs, especially on interiors and air frames, are a reality for a significant number of carriers.  Some carriers simply cannot operate without the use of PMA to control costs and reliability.  Air carriers, LCCs in particular, want to control costs and improve reliability to the greatest extent possible, and this drives use of PMA. (As an aside, if anyone manufactures a PMA lavatory mirror for the lav setup on the A320 family, Tigerair out of Singapore would love to hear from you.)

Lessors recognize this.  Lessors have even started to realize that this is the case with respect to engines.  And though most lessors remain squeamish about PMA in the gas path or life-limited PMA, the simple fact is there are very very few PMA that meet this description.

Finally, lessors are becoming more flexible in allowing PMA because it is impractical not to.  When leasing older aircraft, lessors recognize that it is simply not possible to get “OEM” spares. They also recognize the significant lead times for OEM parts, when PMA parts are available off the shelf.  This makes a big difference in turn time when delivering a leased aircraft to the next customer.  Finally, lessors are beginning to understand that many new aircraft are, in fact, built new using PMA parts! It simply makes no logical (or legal) sense to demand no PMA be used when the aircraft are delivered new with PMA throughout.

There are still many hurdles for PMA in leased aircraft.  Lessors remain nervous about PMAs in engine gas paths, LLP and rotable PMAs, and PMA in high-value components.  The fear is that PMA could devalue these articles and reduce the resale or part-out value.  This means that we as a community must continue to educate the leasing community and the valuation community to allay those concerns, by explaining that PMA meets the exact same standards as TC/PC parts, and must meet or exceed the performance of the OEM part.

Lessors are also concerned about the practices of many OEM repair shops to threaten to void the warrant of an engine if it includes PMA, or pull off PMA parts during maintenance and replace them with OEM parts (and bill for it), thus depleting maintenance reserves required under the lease. These protectionist tactics are something we will continue to fight.

Ultimately, lessors are becoming more and more accepting of PMA in leased aircraft. Air carriers must remember that everything is negotiable, and that if PMA plays and important part of their maintenance and cost saving strategy, they need to demand use of PMA be allowed by the aircraft lease. PMA manufacturers should make it a point to remind their customers that lessors will allow (or at least negotiate) the use of PMA.  But they won’t allow anything if the carrier doesn’t ask.

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