Operating leases are moving toward covering half of commercial aircraft. Anything that makes this lease market more flexible and efficient is a clear boon to both airlines and aircraft financiers.
Recently, there have been two major steps forward. A new digital platform has been developed to enable aircraft owners and lessors to swap aircraft more easily, while the leasing airline remains the same. And another digital platform is being developed so that the owner-lessor can remain the same, but can transfer aircraft to a new lessee airline more easily. Both innovations promise quicker and less expensive changes in aircraft operating leases, and may save hundreds of thousands of dollars per transaction.
First, mega-lessor SMBC Aviation Capital has completed the world’s first operating leases through the Global Aircraft Trading System, or GATS, with Singapore’s LCC Scoot, and Korea’s Air Busan.
GATS is an electronic trading platform developed by the Aviation Working Group and Ireland’s Fexco to enable greater efficiency in aircraft trading and financing. GATS’s live and searchable electronic ledger displays details of ownership, transfers and security interests in aircraft-owning trusts.
Alison Curtin, SVP of commercial negotiation at SMBC, says GATS will be fully electronic, with e-signatures, e-delivery of documents and a secure electronic ledger to record transactions. It enables transfers of aircraft owned by a U.S., Irish or Singapore trust. “GATS won’t change commercial terms agreed with an airline in leases,” Curtin notes. “Any conditions to a transfer can be integrated into a GATS transaction, which preserves all rights and protects all parties.”
For airlines that own and are selling aircraft, GATS reduces touchpoints and burdens on both the airline and the acquiring company. For airlines that are leasing aircraft, GATS preserves all lease conditions while allowing the transfer of ownership from one lessor to another.
“Selling aircraft is currently a very time-intensive, costly and unnecessarily laborious exercise,” Curtin stresses. “It usually takes anywhere from five to nine months and in some cases even longer to sell an aircraft. GATS will significantly reduce transaction timelines and in turn will create savings on transaction costs, primarily being legal fees.”
Phil Seymour, CEO of the consultancy IBA, agrees, saying GATS will be “a step forward, saving time and legal fees around the aircraft ownership process.” In addition, “The leasing sector thrives on the buy/sell of the leased aircraft commodity, and some novations (assignments of rights and obligations to a new lessor) have taken many months or even a year or more in extreme cases. GATS should help create a more rapid process to suit the traders/lessors to consummate the various deals/trades and re-financings that are critical to lessor success.”
Seymour notes that GATS directly benefits lessors, not airlines. But whatever aircraft lessors can save in money should, in a very competitive market, ultimately be passed on to leasing airlines.
The second innovation is by GE Aviation and ORIX Aviation and is called the Asset Transfer System. ATS deals with a change in lessees, not lessors. It will be tested this month for its digital connection of records and data across the global aviation community.
ATS streamlines and simplifies leased asset documentation between airlines and lessors, allowing operators to organize their records in accordance with industry standards. ATS will help operators harmonize and standardize files, perform collaborative document reviews with lessors and transfer files through an intuitive digital interface. Users can upload electronic documents into ATS to organize, view, search, retrieve, download and transfer documents digitally via a web-based browser.
ATS enables users to upload, store and transfer digital records. If a customer does not have digitized records, GE would use dedicated partners that have the scanning expertise to help ingest and index all required paper technical maintenance records into ATS, explains Gib Bosworth, GE’s global lessor director.
Bosworth says he is seeing a lot of interest in ATS. Falko Regional Aircraft and BBAM Aircraft Leasing & Management signed ATS deals in November, and Avation had done so earlier in 2019. ST Engineering recently signed a deal for its full fleet. Japan Airlines, Copa Airlines and Royal Air Maroc have also expressed interest.
Bosworth says the ATS platform can be used by any lessor, and current market data indicates that 45% of lessors don’t use any major platform. “We are actively engaged with many lessors who use other platforms and are looking to partner GE going forward.”
The benefits appear significant. “A conservative estimate of cost reduction per aircraft is $125,000,” Bosworth says. Furthermore, ATS enables remote collaboration and review of required documents.
IBA’s Seymour is also impressed by ATS’s potential. He has estimated that the average narrowbody redelivery could save $2 million if better managed. “Of that $2 million per aircraft, I estimate approximately $500,000 could be saved on redelivery with a slicker records process, and that seems to be the area that ATS is addressing.”
But Seymour says there would are still practical issues. “Airlines and their tech records systems are not organized around lease redeliveries or transfers. They are set up for safety and airworthiness, and lease contracts tend to impose requirements over and above what an airline does on a day-to-day basis. ATS will help and is a great step forward, but not an answer to all of industry issues.”
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