Turbine Technology Feature: Asset Management

Operators no longer need to own expensive spare parts

SH: I prefer to classify component leases into two categories — short-term operating leases and long-term finance leases. Short-term operating leases have a term of one to 12 months and provide flexible, cost-effective spares support during the repair/overhaul of the operator’s component, or the lease may be required to supplement existing spares during fleet expansion. The lease rate is typically made up of daily rent and a maintenance reserve. The daily rent portion is a fixed dollar amount paid per day and the maintenance reserve is most often a fixed amount per hour and/or cycle of operation.

Long-term leases of one to 10+ years are otherwise known as finance or capital leases. The long-term lease is an alternative to outright ownership and is a way to finance or lease an asset over the long term. In most leases, the asset is returned to the lessor at the end of the lease term. Some leases allow the operator to buy the asset at a predetermined price at the end of the lease term. The lease rate is made up of monthly rent. Most long-term leases do not collect maintenance reserves but instead include specific return conditions for part condition, configuration, and remaining life requirements. Often times there is a buy-out provision which allows the end user to pay for any return conditions not met.

AMT: What are the different kinds of exchanges?

SH: Flat rate exchanges are offered to operators and service centers for a flat fee, with limitations. Included in the exchange fee is access to the ‘ready-to-install’ spare and it pays for the ‘standard overhaul cost’ of the operator’s removed core, excluding charges for work considered ‘over and above’ a normal overhaul workscope. A flat rate exchange is relatively simple for the operator or service center to manage logistically because they’re not required to deal directly with the shop. They provide predictable exchange/overhaul cost structure for budgeting and forecasting purposes and are favored by customers that prefer a simple repair management process.

Cost plus exchanges charge an exchange fee plus the actual cost of the overhaul of the customer’s asset. This method provides the customer a less predictable exchange/overhaul cost structure for budgeting and forecasting purposes — but the customer reserves the right to dispute any charges that do not seem fair and reasonable. Cost plus exchanges are the actual cost of the overhaul and are preferred by customers with a hands-on approach to reviewing overhaul invoices.

AMT: What are the major parts of a lease and exchange agreement?

SH: Although these agreements are written for many different types of transactions, the three major parts are: business/operations, legal, and risk management. The business/operations portion of a contract covers items such as: contract term (start/end dates): exchange/lease fees, payment terms, delivery and redelivery terms, shipping and storage requirements, and maintenance, repair, and records requirements. The legal section addresses liability and indemnification, warranties and representations, legal jurisdiction, exportation, taxation, contract termination, notices, and dispute resolution. Risk management deals with property, public liability, product liability, completed products, and war risk insurance coverage. It’s important for maintenance departments to be involved in the details of the business/operations portion of the agreement.

AMT: What are the key aspects maintenance personnel need to be aware of regarding lease and exchange parts?

SH: Whether you are purchasing, leasing, or exchanging a component, your plans for use of that part remain the same — to install it on wing and return the aircraft to service.

First, ensure that the component part number and description you are leasing or exchanging is the component you actually need. Careful review of the part and its airworthiness records are essential to ensuring that it is airworthy and in the correct configuration for your operation. Such records include the current return to service EASA Form One, TCCA Form 1, or FAA 8130-3, SB/AD status, configuration or modification status, PMA parts status, LLP or CLP status, requested trace to birth documents, and test cell/MPA run data, etc. Reliance is put on the top level airworthiness tag — and rightly so. But that shouldn’t substitute a careful review of the records beyond that certificate. Another point is the facility that approved the return to service paperwork. Are they required to be added to your organization’s approved vendor list? If you don’t recognize the shop take the time to verify the status of the repair station certification and capabilities.

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