In the latest edition of Low Cost & Regional, Keith Mwanalushi speaks to Auvinash Narayen, Head of Acquisitions & Leasing at AerFin about end of life management and the solutions available for aviation assets.
Managing an aircraft fleet can be a complex undertaking. Anything from a handful to several hundred aircraft requires specialist knowledge of asset management. But as the fleet reaches maturity, airlines and aircraft owners need to make carefully strategic decisions that will maximise the resale value of their assets.
“The first thing to consider is the ownership structure of the fleet,” tells Auvinash Narayen, Head of Acquisitions & Leasing at AerFin. “. If the fleet is leased, then considerations will be pursuant to the contractual status of the lease agreement between the lessor and the asset owner. In this situation, asset owners will often in advance, go to a competitive tender on the market, with end-of-life solution providers such as AerFin then offering exit solutions for the lessor.”
If the asset is owned by the operator, Narayen explains that the operator will typically review various operations such as consigning the asset, sale-and-leaseback as well as an outright sale. “Typically, if it’s a larger fleet phase-out, an operator would prefer to work in partnership with a single end-of-solutions entity due to the airline having limited resources, along with the ease of working a single provider.”
AerFin has also found this to be a successful strategy, namely on recent fleet phase-out agreements with 15 Embraer E170 aircraft acquired from Saudi Arabian Airlines.
“Aircraft retirements are highly cyclical and dependent on several economic variables, such as; passenger demand, fleet age, competition, and fuel price." Narayen reminds that the price of fuel has historically had a significant impact on the economic life of an aircraft. “Oil pricing I still low, and this had a causal effect on aircraft retirement rates, with older aircraft’s economical life being extended by up to 24 months.
For the oldest Embraer E-Jets still in service, they currently represent an interesting aftermarket proposition: “The level of aftermarket expenditure is highly related to how and where the aircraft has been operated,’ Narayen says: Aircraft that have a higher average utilisation or a lower Flight-Hours: Flight-Cycle ratio, will have a higher maintenance expense due to LLP limits on major assets and engine components.”
Secondly, he observes that aircraft operated in harsher operational environments such as China and India will also be typically exposed to higher maintenance expenditure due to the wear that these adverse conditions have the components.
Another consideration is factors such as the aircraft’s ownership structure and condition. Narayen says if an airline is looking to prolong the operation of the aircraft, then significant investment will be required in AD/SB component modifications. In addition, if the aircraft is owned by the lessor, the lease return conditions will also have an impact on aftermarket expenditure. “For instance, after the lease has expired, the lessor may wish to save the maintenance reserves and sell down the asset to an end-of-life solutions specialist such as AerFin, who will harvest the high demand components from the asset, re-certify and re-issue the components into the supply chain.”
In with the new
In relation to transition to newer aircraft, Narayen from AerFin explains that the first consideration that operators have is ensuring that available seat capacity (ASK) is aligned with their fleet and growth strategy. “The airline, therefore, must ensure that newly introduced aircraft have been successfully integrated and are operationally sound before phasing-out older aircraft. We are frequently witnessing issues of next-generation aircraft having significant entry-into-service (EIS) issues, which has left airlines short on capacity.”
The second consideration Narayen mentions is that most airlines have limited in-house resources and experience cost and operationally efficient fleet phase-out procedures. “This is why it is important that operators are rigorous in selecting an end-of-life solution partner that meets their operational and financial requirements.”
Typically, he says this will be a solution provider with a highly adept technical division, experience of working with the respective aircraft product type as well as a significant financial backing. “All of these mentioned factors played a critical in AerFin’s successful fleet phase-out partnerships with various airlines, including the phase-out of fifteen E170-LR aircraft from Saudi Arabian Airlines.”
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