No Paper...No Plane!

When an airline leases aircraft, the documentation is as significant as the equipment. Financial and maintenance records tell the complete story of an aircraft’s condition, airworthiness, history and more. As an aircraft changes hands, the documentation must follow. Without this documentation, a plane is grounded.

In Spring 2009, on behalf of a client, The Aircraft Group delivered two leased aircraft to SkyEurope Airlines, based in Slovakia. SkyEurope was building its fleet to open more routes and expand its operations. The airline went on to lease several more aircraft from other financial institutions. The planes were to be flown throughout Europe for this commercial carrier but a few months later it was obvious that SkyEurope was in financial trouble. In September 2009, the airline declared bankruptcy and ceased operations. All the planes were grounded.

Although The Aircraft Group couldn’t predict the future when it delivered the aircraft to SkyEurope, the firm knew from its years of experience that keeping all aircraft documentation on a centralized server would ensure document integrity and offer more flexibility for transferring the aircraft in the future, if necessary. In the case with SkyEurope, repossession of the two aircraft that The Aircraft Group supplied was as easy as arranging for a crew to fly the aircraft out of the country. Unfortunately, the other aircraft Lessors were not as fortunate.

Several others of SkyEurope’s Lessors are now burdened with the additional task of researching and recreating the necessary documentation history. Without SkyEurope’s staff on hand, the costly task is left for a hired team to go onsite and reassemble the documentation. Oftentimes there are 200,000 to 400,000 documents per aircraft making research and recreation a herculean effort. Making matters worse, the aircraft are sitting idle and incurring storage fees while not producing any revenue.

The Aircraft Group created the optimum system for SkyEurope by supplying the planes and providing secure access to all necessary documentation. This allowed SkyEurope personnel to operate maintenance checks, airworthiness records, flight histories and more while the original hard copy documents remained with the Lessor. Not only was this convenient during operations giving instantaneous access to any document, it allowed for immediate removal of the aircraft when SkyEurope became insolvent, saving everyone time, money and aggravation.

“Technology now offers us incredible flexibility and convenience while still providing security. Unfortunately, many companies do not take advantage of automation on the front-end and end up paying dearly for it on the back-end. We see this scenario time and time again and are hoping that in the future online recordkeeping will be as commonplace as it is in other industries,” commented Walter Andrushenko, president of The Aircraft Group.

Good Recordkeeping Makes a Strong Case

In November 2009 the courts resolved a return condition dispute between U.S. Bank National Association and Southwest Airlines. At the center of this dispute was the provision of the lease that permitted the lessee to substitute engines and parts with those of “equivalent value and utility,” a common clause in agreements in the ‘80s and ‘90s. At question were three Boeing aircraft leased to Southwest Airlines by U.S. Bank National Association. The argument centered on the interpretation of ‘value and utility’ and whether the modifications to the aircraft were inferior and ultimately devalued the aircraft upon return. Key to the case was the aircraft records as well as an overall knowledge of aircraft maintenance and operations. The Aircraft Group was able to assist in both these areas.

The Aircraft Group had the original records on the Boeing aircraft and was able to supply accurate and detailed documentation on the condition of the plane from the beginning of the lease to its return. These records were important to determine if the replacement parts were inferior to their originals. In addition, The Aircraft Group personnel were brought in as expert witnesses due to their extensive knowledge in aircraft operations and maintenance. Their knowledge of what is customary and what is not was significant to the case. Ultimately, the court found in favor of U.S. Bank National Association.

This case proved pivotal in how lessors and lessees interpret aircraft maintenance clauses going forward. Quality recordkeeping is necessary in ensuring that the equipment is maintained properly and replacement parts are appropriate throughout the life of the aircraft.

If you’d like to learn more about this case you’ll find a comprehensive article at http://www.vedderprice.com/docs/pub/23fcc1e6-b861-4462-b70f-fd60a505ccb1_document.pdf