Most Aircraft operating leases provide that the lessee is responsible for maintaining leased aircraft to required industry standards. To ensure flight safety the FAA issues Airworthiness Directives (ADs) and aircraft manufacturers issue Service Bulletins (SBs). ADs are legally enforceable regulations meant to correct unsafe conditions. Airframes, engines, avionics, and other aircraft components (landing gear, auxiliary power units,  hydraulics, electrical, etc.) must be properly maintained to ensure flight safety.

Maintenance reserve payments are a critical part of Lessor/Lessee lease negotiations. These ‘supplemental rents’ are generally calculated on a  flight hour, flight cycle basis and usually paid on a monthly in arrears basis. New equipment OEM warranties do not cover scheduled maintenance or major inspections. A current example is the troubles with new Pratt  & Whitney Geared Turbo Fan (“GTF”) engines which are used in about 40% of Airbus A320neo single-aisle jets. Pratt & Whitney’s parent RTX (formerly Raytheon) Chief Executive Greg Hayes recently made calls to customers[1] (this past July 18th) announcing an investigation had determined that contaminants in a powdered metal used to produce the PW1100 engine’s high-pressure turbine discs (part of the engine core) could lead to premature failure. “Engines delivered between the fourth quarter of 2015 through the third quarter of 2021  will need to be inspected to determine whether repairs are required.” Given time in service, an initial group of  200 engines is scheduled to be checked by mid-September, and up to an additional 1000 engines will need to be removed from service over the next year. Inspection and possible replacement of affected discs requires removing the engine, disassembling, inspecting, and then reassembling; a process that can take up to 60 days for each engine. Air carriers have complained that the GTF engine has had durability issues since introduced.  In May, Bloomberg reported about one in eight A320neos and other aircraft with the GTF was in storage for 30 days or longer awaiting repairs (spare parts shortages continue).

Taking equipment out of service for unplanned maintenance results in reduced capacity and disruption of flight crew and support personnel. As an OEM, Pratt & Whitney will be responsible for compensating customers for these engine inspections and repairs as planes are taken out of service. An initial charge of $500 Million has been taken to cover the cost of inspection, repair, and compensation for the first batch of GTF engines being checked. This adds to the more than 100 GTF-powered Airbus A320neo and A220 that have already been grounded due to earlier engine durability problems which included oil leak and vibrations concerns.  

For rail equipment, the Federal Railway Administration (FRA) and the Association of American Railroads (AAR) published a set of rules and regulations all railroad car owners (whether private or railroad-owned) must subscribe to in order to operate equipment in interchange service. The interchange rules are detailed in two manuals, the “AAR Field Manual” and the “AAR Office Manual[2]. The Manuals provide that Railcar Owners are responsible for repairs to their cars necessitated by ordinary wear and tear and for regulatory safety requirements set by the Association of American Railroads. Railinc is the operating arm of the AAR that is responsible for the publication of rules, regulations, and railcar equipment mechanical status. Each handling road is responsible for the condition of cars operating on their line. Railroads inspect and perform “running repairs” to ensure cars are safe to operate. The handling road has the right to send the car owner a bill for necessary repairs. Private (non-railroad) car shops (with lower labor rates) provide service for specialized car types,  heavy repairs, complete refurbishment, and an alternative to higher-priced railroad running repairs. There are literally hundreds of components and a myriad of reasons for railcar repairs. Proactive management and audit of repair bills are required to ensure the right repair is being made and the right price is being charged. The Manuals also provide for damage settlement occurring resulting from unfair usage or improper protection by the handling road. With a freight car fleet of 1,625,000 cars, imagine the amount of data that is available.  

Looking for answers? Call RESIDCO, a proven Aero and Rail equipment management team.  

Glenn Davis, 312-635-3161

[1] Jet Blue, Spirit, Hawaiian Airlines, Wizz Air, Lufthansa, Mexico’s Volaris, and others.

[2] Association of American Railroads (AAR), Digital Field and Office Manuals.

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