New lease of life for engines helps control costs

It may sound obvious, but one of the ways that successful airlines around the world have been weathering the global financial storm is through expediently trimming their costs. Many shrewd airline financial directors have been looking at innovative ways of maintaining service quality and reliability while reducing the amount of capital tied-up in spares – including engines.

Based in Shannon, Ireland, Engine Lease Finance Corporation (ELF) is the world’s leading independent spare engine financing and leasing company and – according to its UK-based senior VP sales and marketing for Europe, the Middle East, India and Africa, Julian Jordan – the Middle East is growing in importance for ELF as the region’s airlines endeavour to keep their costs in check.

He explains that while airlines need to have ready access to spare engines to prevent unforeseen ‘aircraft on ground’ (AOG) situations, with today’s high reliability levels it no longer makes financial sense to buy spares and then keep them in a maintenance facility ‘just in case’. New engines cost from around $10-million each – a considerable sum to have tied-up and sitting around in a maintenance shop.

According to Jordan, some forward-looking airlines have been selling their spare engines to ELF and then leasing them back, thus freeing-up capital for other purposes and improving cash-flow. Airlines have also found that lease deals mean that they no longer have to worry about the future value of engines (residual value), which can fall over the life of an engine/airframe combination.

“With our lease deals,” said Jordan, “our airline clients are encouraged to use our leased engines as if they own them. Engines usually represent a high proportion of the value of an aircraft/engine combination and we always calculate our lease deals on the basis of thrust rating, operating environment (including average sector length) and the reliability history of each engine type. We often know more about a particular engine type than the potential operator, so we’re able to help our clients to make their final airframe/engine choice.

“And, if circumstance means that one of ‘our’ airlines has a short-term AOG problem, we always try to help as unscheduled engine removals in a small fleet can be devastating.”

For seven consecutive years, ELF has earned the title of Global Engine Leasing Company at the annual awards organised by the Institute of Transport Management – an accolade resulting from an extensive survey among the institute’s members.

Two decades ago ELF began operations with a single Pratt & Whitney JT9D-7J for the ubiquitous Boeing 747 jumbo jet – and the lessor subsequently wrote 12 engine lease deals in its first year. It now has around 200 engines – worth more than US$1.6-billion – the majority of which are modern ‘stage 3’ power-plants from OEMs like CFM, IAE, P&W, Rolls-Royce and GE. Most of the engines are for today’s narrow-body fleets and there are no turboprops.

Owned by BTMU Capital Corporation of Boston, USA, ELF is a wholly-owned subsidiary of The Bank of Tokyo Mitsubishi UFJ, one of the world’s largest financial institutions. As well as some of the world’s most established airlines, its client base includes engine and airframe overhaul service providers, aircraft leasing companies and even OEMs.

The company is independent of any engine OEM, enabling it to provide spare engine support either from its own portfolio – or to source new or used engines.

ELF’s activities also extend to asset management and engine marketing. The former includes lease placement and management for other engine owners; maximisation of assets; engine package syndication; technical consulting; sales representation; and venture partner portfolio management. In the field of engine marketing, ELF can call on its global connections and deep market knowledge to facilitate trading, buying and selling. With around 40 employees worldwide, in addition to its Shannon, Ireland, HQ, ELF has personnel based in Massachusetts and Oklahoma, USA, Dublin, the UK, Spain, Singapore and Hong Kong.