Dan Arellano
ADD Aviation Intelligence
Alvaro Serrano
ADD Aviation Intelligence

Is Leasing the Future of Aircraft?

Fri, 12/01/2017 - 12:52

As new car owners soon find out, buying a automobile can be a bad bet as its value wanes rapidly and it is difficult to change it for a new one. This is the same case with aircraft. And as with a car, leasing the aircraft instead of owning it is the easiest way to tackle both issues.

Airlines often lease aircraft from large financial entities, such as GE Capital Aviation Services (GECAS) and Nordic Aviation Capital (NAC), and must prepare it to comply with their leasing agreement in terms of components and maintenance upon returning the aircraft. They hire ADD Aviation Intelligence to make sure the leased aircraft complies with all regulations once it is recovered. “We are an engineering center that works with aircraft lessors and lessees on delivery and redelivery processes and design maintenance programs for aircraft and analysis for aircraft maintenance,” says Dan Arellano, CEO of ADD Aviation Intelligence.

Acquiring an aircraft entails a large investment, even for airlines. Sometimes it just makes more financial sense to lease than to buy. And, just like with that 1967 Mustang, providing an aircraft maintenance and keeping it in good shape are paramount to ensuring that value is maintained and performance remains smooth. According to Alvaro Serrano, Engineering and Operations Principal at ADD Aviation services, “An aircraft is an asset that loses value over time. Our role is to maintain the craft’s value for our customers by ensuring it is returned in good condition.” ADD Aviation Intelligence works closely with operators to ensure compliance with all the maintenance documents that ensure the aircraft’s air worthiness and its adherence to national and international regulations, including DGAC’s

The company works closely with the top carriers in the country, including Aeroméxico, Volaris, Viva Aerobus and Interjet, says Arellano. ADD Aviation Intelligence is delivering aircraft to Aeroméxico and preparing aircraft for delivery to Interjet in 2018 while also working with NAC and preparing an aircraft to be returned to a lessor in India. Serrano is confident that with the exponential growth of aviation both globally and in Mexico, more companies will recognize the advantage of buying aircraft and leasing it in emerging markets such as Mexico. “Our goal is for leasing companies to continue looking to Mexico as a business opportunity,” he says.

Just as with a new car, new aircraft fully comply with the manufacturer’s guarantee conditions. But a pre-owned aircraft might have technical issues that require repairs, with fissures in the fuselage being the most common, according to Serrano. “Used aircraft also require more inspections and maintenance because there will likely be more failures,” he says, “This usually translates to more manpower, materials and a larger maintenance budget.” The lease price of a pre-owned aircraft is lower, so the name of the game is finding a balance between price and expected maintenance costs and looking for minimal defects. “Commercial airlines’ business is not in old aircraft, which require much more maintenance that makes them less competitive.” says Serrano, “Older aircraft now are mostly used for cargo.”

Serrano finds that changes in technology also incentivize airlines to renew aircraft relatively frequently to ensure topof-the-line systems are installed in aircraft. “For instance, a 20-year-old aircraft lacks a system that automatically informs flight and ground crews of a failure while a newer plane does.”

There are many opportunities to be taken advantage of in the leasing business model. According to Arellano, only 37 percent of aircraft is leased worldwide while the rest is owned by airlines. “But shifting toward leasing is a growing trend because of the growing desire to improve technologically,” he says. “After six to eight years, the average length of aircraft leasing agreements, airlines can return the leased aircraft and lease a different one with more modern technology.”