A holistic approach to preserving the value of aviation assets
Over the past decades, aviation has evolved into a mature, stable, and predictable investment asset class—finding its place within the portfolios of major asset managers, private equity firms, and international banks worldwide.
A single narrowbody commercial aircraft can be worth more than $50 million, making a portfolio of aircraft easily exceed $1 billion. Given the significant value of these assets, aircraft asset management to safeguard investment value is critical. As with any investment, there is always a delicate balance between risk mitigation and maximizing returns.
Yet aviation assets are uniquely complex to manage. Over the course of the economic life of the aircraft, the operator performs a mix of regulatory-driven as well as optional maintenance activities and changes to the aircraft. These range from implementation of mandatory Airworthiness Directives and scheduled maintenance activities—such as engine overhauls, landing gear overhauls, and airframe heavy checks—to non-mandatory activities such as cabin modifications or inflight entertainment upgrades.
All maintenance activities are subject to a set of complex technical and regulatory requirements. These must be recorded in detail in the technical records (i.e., the “dirty fingerprints”), which are required to stay with the aircraft for its entire operational life. Poorly executed maintenance activities or missing (or incorrectly filled out) paperwork have a significant adverse effect on the asset’s overall value and re-marketability.
The support of a service partner—one with both in-house technical expertise, in the form of subject-matter experts with a high degree of technical skill and a deep understanding of the aviation market—is therefore necessary.
Although technical knowledge of aircraft assets is crucial, individuals with solely technical expertise may not have the skill set to determine which commercial aspects are most relevant to an investor.
Here, we look at the principles and practices that guide effective aviation asset value preservation:
Navigating the complexities of aviation investment
The aviation industry is characterized by evolving market dynamics, growing environmental pressures, challenging social attitudes to flying, and ever-changing geopolitical considerations. It is an intricate ecosystem. And the challenge is to ensure that aircraft assets retain their value over time, despite these factors. Addressing this challenge demands a holistic approach—and the help of highly skilled management teams who blend technical experience with proficiency, collaboration, and an overarching strategic vision.
A holistic approach ensures effective aviation asset preservation by combining technical proficiency with a nuanced understanding of industry dynamics. Ingredients for success include providing bespoke insights and solutions, precisely tailored to meet the unique needs of clients; safeguarding clients' investments by identifying risks early; developing mitigation strategies; and enhancing the value of aircraft assets. This tailored approach, which we use with our clients, is designed to protect and optimize investors' returns while fostering sustained growth and resilience of their portfolios.
Preserving asset value in practice
What does taking an effective and holistic approach to preserving the value of aviation assets look like in practice in the real world?
One example of combining a broad range of technical expertise with an understanding of the differing needs of stakeholders is our work on the repossession of regional turboprop aircraft from the now ceased Kingfisher Airlines in India. This was a high-profile and complex project that required focus on planning and execution to reach an outcome that satisfied all stakeholders involved. By leveraging our technical expertise and an understanding of the complex legal frameworks involved in the situation, as well as local cultural nuances, we were able to support aircraft repossession, ferry flights, and storage. This effectively ensured and safeguarded the interests of our client and their investment.
Similarly, our role in supporting the government of Namibia in negotiating with lessors and Original Equipment Manufacturers (OEMs) during the liquidation of Air Namibia illustrates how it is possible to preserve asset value during a time of operational uncertainty. Through strategic negotiations of lease and tripartite engine agreements and a thorough understanding of both the asset and the aviation market, the parties achieved mutually beneficial outcomes that protected their interests. The final outcome also substantially reduced the cost and burden on public funds.
Our five-year agreement with the Export-Import Bank of the United States (EXIM) is an example of providing technical services for the aviation assets held by international banks. We provided both scheduled and unscheduled aircraft and operator on-site inspection services worldwide on behalf of EXIM. These inspections are important to ascertain whether the assets are maintained in accordance with industry standards. They are also a chance to check that any value depreciation is in line with expectations. A key element of this work was providing expert recommendations to the bank and its borrowers to help limit EXIM’s exposure to any conditions that could affect the value of its portfolio. Today, we continue to support EXIM with their annual aircraft inspection and records reviews for their airline clients around the world.
Taking a collaborative approach to long-term asset management
Managing aircraft throughout their economic life entails expenses, regardless of the aircraft size. These expenses become even more pronounced for aircraft owners with extensive portfolios. That makes it even more important to take a methodical and collaborative approach to managing maintenance of assets.
This holistic approach hinges on effective internal and external collaboration and partnership. Working collaboratively underscores the importance of cultivating trusted relationships across the landscape of aviation asset management and acknowledges that each client may have a unique solution best suited to their individual strategic investment profiles. To bring such innovative thinking to fruition, we must adopt a holistic, multi-disciplinary approach that actively values and nurtures creativity.
The future of aviation asset preservation
The global aviation market is set to become more complex, volatile, and interconnected—and will require fresh thinking if it is to be sustainable. In this dynamically changing commercial environment, the need to find new ways to preserve the value of aviation investments for investors will be more important than ever.
Addressing this challenge requires a service provider that remains at the forefront of aviation industry trends, actively collaborating with clients to anticipate and navigate future developments. Adopting a thought leadership approach to sharing best practices with clients, and consistently refining processes to align the evolving needs of clients is essential.
Practical suggestions for what a holistic approach might encompass include:
- Meticulously forecasting aircraft maintenance events
- Ensure adherence to best practices in aircraft maintenance standards
- Establishing comprehensive oversight and mitigation clauses in the finance documentation
Leveraging proprietary tools for maintenance forecasting, clients gain detailed visibility into all aircraft maintenance events. Engaging with operators well in advance of major events provides oversight when these events occur. This proactive approach ensures that aircraft are well-maintained according to industry standards, thereby preserving their value at any given point in the aircraft’s economic life.
Establish aircraft maintenance best practices through regular knowledge-sharing initiatives with major airlines worldwide. These best practices are communicated to client airlines, safeguarding investors’ aircraft investments and retaining value. Taking proactive measures and supporting airlines in implementing necessary corrections helps maintain high standards of maintenance and operational efficiency.
Investors can leverage a service provider’s extensive expertise in aviation mergers and acquisitions, privatizations, and aircraft lease and financing negotiations. This is of particular value during the negotiation process by enhancing financing documentation and establishing robust oversight and mitigation clauses, ensuring their investments are protected and their rights safeguarded in line with industry standards.
Effective aviation asset preservation is not simply about having a team of technically proficient experts. It is a collective effort that requires a nuanced understanding of industry dynamics and the ability to deliver results by fostering open communication, transparency, trust, and accountability.
A holistic approach leverages emerging technologies, adapts to regulatory changes, and fosters innovative solutions within a collaborative environment. This approach not only ensures the long-term viability of aviation investments but also fosters sustainable growth and resilience in a complex market.
