You know what the world really needs right now? Another tran-Atlantic ULCC start-up based in Ireland!

[Ecl!pse]

Yes. Next carrier or sometimes a leasing company will pay for a D-check on a parked airframe just to have it ready to fly, avoiding two months or more for a D-check.

A ULCC strategy might include never paying for a D-check or ONLY paying for a D-check. For leasing companies, getting a plane back up in the air means resumption of a revenue stream. The thinking of the leasing company is they are often better off giving away an older plane and financing the D-check versus never seeing revenue from that plane again, ever.

If we are going to start a ULCC with three 737’s serving SEA-SFO, we only need to find amazing deals and financing on three older planes. The needs of larger non-ULCC carriers can’t be met shopping at yard sales.

This is close, but not exactly how it works.

The current operating airline is always paying for the heavy maintenance they consume throughout the lease (not really referred to as D-checks anymore - 8/10/12Y checks on the 737s and 6/12Y checks on the A320). They either (1) making monthly progress payments for the maintenance time/value they consume on the check during the lease, (2) compensating the leasing company for the value of the check at the end of the lease, if the airline does not perform the check, or (3) performing the check for the leasing company before giving the airplane back. In any event, the leasing company is not taking risk on the maintenance of the aircraft - that gets pushed onto the airlines.

Let's suppose a startup airline wanted to lease a brand new A320neo from a leasing company for a single heavy maintenance interval - 6 years (the "6Y check"). Because they are a startup, with little-to-no credit history, they are going to have to pay what's called "maintenance reserves" on all of the various checks (airframe checks, landing gear, APU, engines - both performance restoration and LLP replacement). This is to protect the leasing company from having maintenance risk during the lease -- they cannot have the airline go bust and have to sink a bunch of money into maintenance to get the aircraft back out on lease to the next airline. On the A320neo, a 6-yr airframe check typically costs ~$850,000. So, in addition to their basic aircraft rent payment (for an A320neo, you can probably expect this to be in the $300,000 - 350,000 range), the leasing company will charge the airline $11,806 per month ($850,000 / 72 months) to reserve the future cost of that 6-yr check. They will do this for all of the heavy maintenance checks referenced above, so with normal utilization, the airline is typically paying ~$150,000 in the monthly maintenance payments alone. At the time the lease ends, the airline can either (1) perform the heavy check themselves, and reclaim the money they paid to the leasing company over the lease, or (2) simply return the aircraft and kiss the cash goodbye. The leasing company then has the funds they need to perform the check before turning the keys over to the next airline.

A carrier like Frontier, however, is no longer a credit risk from the leasing company perspective. So the leasing company will let Frontier off the hook from paying monthly maintenance installments, and instead require that Frontier either (1) pay for the check when the airplane is returned, or (2) pay for the value of the check at the time of return. In either event, Frontier is paying for the heavy check prior to giving the keys back over to the leasing company.

What alt is (normal) is everyone else at?

370 to 410

We've referenced this before, but the A321neo simply doesn't have the wing area to go to higher initial altitudes at MTOW. It needs to burn off gas enroute before it can step climb to higher altitudes. The 777-300ER has the same issue. These two have some of highest MTOW / wing area ratios of any airplane in the industry -- hurting their takeoff performance and their initial cruise altitudes.

 

[Maximilian_Jenius]

This is close, but not exactly how it works.

The current operating airline is always paying for the heavy maintenance they consume throughout the lease (not really referred to as D-checks anymore - 8/10/12Y checks on the 737s and 6/12Y checks on the A320). They either (1) making monthly progress payments for the maintenance time/value they consume on the check during the lease, (2) compensating the leasing company for the value of the check at the end of the lease, if the airline does not perform the check, or (3) performing the check for the leasing company before giving the airplane back. In any event, the leasing company is not taking risk on the maintenance of the aircraft - that gets pushed onto the airlines.

Let's suppose a startup airline wanted to lease a brand new A320neo from a leasing company for a single heavy maintenance interval - 6 years (the "6Y check"). Because they are a startup, with little-to-no credit history, they are going to have to pay what's called "maintenance reserves" on all of the various checks (airframe checks, landing gear, APU, engines - both performance restoration and LLP replacement). This is to protect the leasing company from having maintenance risk during the lease -- they cannot have the airline go bust and have to sink a bunch of money into maintenance to get the aircraft back out on lease to the next airline. On the A320neo, a 6-yr airframe check typically costs ~$850,000. So, in addition to their basic aircraft rent payment (for an A320neo, you can probably expect this to be in the $300,000 - 350,000 range), the leasing company will charge the airline $11,806 per month ($850,000 / 72 months) to reserve the future cost of that 6-yr check. They will do this for all of the heavy maintenance checks referenced above, so with normal utilization, the airline is typically paying ~$150,000 in the monthly maintenance payments alone. At the time the lease ends, the airline can either (1) perform the heavy check themselves, and reclaim the money they paid to the leasing company over the lease, or (2) simply return the aircraft and kiss the cash goodbye. The leasing company then has the funds they need to perform the check before turning the keys over to the next airline.

A carrier like Frontier, however, is no longer a credit risk from the leasing company perspective. So the leasing company will let Frontier off the hook from paying monthly maintenance installments, and instead require that Frontier either (1) pay for the check when the airplane is returned, or (2) pay for the value of the check at the time of return. In either event, Frontier is paying for the heavy check prior to giving the keys back over to the leasing company.






We've referenced this before, but the A321neo simply doesn't have the wing area to go to higher initial altitudes at MTOW. It needs to burn off gas enroute before it can step climb to higher altitudes. The 777-300ER has the same issue. These two have some of highest MTOW / wing area ratios of any airplane in the industry -- hurting their takeoff performance and their initial cruise altitudes.

Gas?

 

[ASpilot2be]

Gas?

Yes, gas.

 

[Pilot Fighter]

In any event, the leasing company is not taking risk on the maintenance of the aircraft - that gets pushed onto the airlines.

First, although no longer accurate, almost everybody still calls them D-checks, including internal and external trade publications. You know this.

Regarding your point about depot maintenance always getting pushed to the airline, this is absolutely no longer the case. That was the point of my post.

You have accurately described conventional leasing terms. These days, there are more options on the table.

Leasing companies, recognizing that many aging airframes will NEVER see another D-Check, sometimes take the D-Check out of the equation. This is only possible for a small segment of a leasing company’s fleet as it’s commonly a one-way street, the plane will likely never fly again once it reaches D-Check limits. Once again, this only happens with old airframes with declining demand.

Forget about the aviation industry, we see this dynamic often in capital leasing where the asset is determined to have no residual value. Assigning no residual value to an aircraft requires a keen understanding of the market.

If a leasing company creates a scenario where an aircraft has no residual value at the end of a lease it can still benefit from virtually giving the plane away and profiting from financing the D-Check. Or, park it or scrap it, it’s reached the end of its life.

Your post helps explains why larger established carriers subsidize small carriers. Large carriers, as they use conventional leasing terms, create excess capacity in airframes with declining demand. Nothing a small startup loves more than a plane with a fresh D-Check that nobody wants.

 

[Baronman]

We've referenced this before, but the A321neo simply doesn't have the wing area to go to higher initial altitudes at MTOW. It needs to burn off gas enroute before it can step climb to higher altitudes. The 777-300ER has the same issue. These two have some of highest MTOW / wing area ratios of any airplane in the industry -- hurting their takeoff performance and their initial cruise altitudes.

While it would be nice to have the option to go higher, it doesn’t matter. The plane can travel the marketed distances it needs in the low- mis 30’s.

 

[Ecl!pse]

First, although no longer accurate, almost everybody still calls them D-checks, including internal and external trade publications. You know this.

Regarding your point about depot maintenance always getting pushed to the airline, this is absolutely no longer the case. That was the point of my post.

You have accurately described conventional leasing terms. These days, there are more options on the table.

Leasing companies, recognizing that many aging airframes will NEVER see another D-Check, sometimes take the D-Check out of the equation. This is only possible for a small segment of a leasing company’s fleet as it’s commonly a one-way street, the plane will likely never fly again once it reaches D-Check limits. Once again, this only happens with old airframes with declining demand.

Forget about the aviation industry, we see this dynamic often in capital leasing where the asset is determined to have no residual value. Assigning no residual value to an aircraft requires a keen understanding of the market.

If a leasing company creates a scenario where an aircraft has no residual value at the end of a lease it can still benefit from virtually giving the plane away and profiting from financing the D-Check. Or, park it or scrap it, it’s reached the end of its life.

Your post helps explains why larger established carriers subsidize small carriers. Large carriers, as they use conventional leasing terms, create excess capacity in airframes with declining demand. Nothing a small startup loves more than a plane with a fresh D-Check that nobody wants.

I agree with this - however, this is the only scenario where the heavy check isn't paid for/reserved for - the absolute end-of-life stub lease where the airframe is going to part-out. That is a tiny, tiny fraction of the global fleet and really only applicable to carriers in third-world countries. No US 121 carrier is in that ballgame with respect to leases - if they are in the end-of-life game, they typically own the airplanes outright (e.g., Delta, Allegiant).

 

[Pilot Fighter]

I agree with this - however, this is the only scenario where the heavy check isn't paid for/reserved for - the absolute end-of-life stub lease where the airframe is going to part-out. That is a tiny, tiny fraction of the global fleet and really only applicable to carriers in third-world countries. No US 121 carrier is in that ballgame with respect to leases - if they are in the end-of-life game, they typically own the airplanes outright (e.g., Delta, Allegiant).

I believe Allegiant got some sweetheart leasing deals on some of their MD-80.

What a difference a year makes. Leasing companies were cutting crazy deals 1-1.5 years ago. Now, there’s a bit of a shortage of nicer ready-to-fly airframes.

 

[Ecl!pse]

While it would be nice to have the option to go higher, it doesn’t matter. The plane can travel the marketed distances it needs in the low- mis 30’s.

No doubt - plenty of range on these airplanes. Just addressing why they don't cruise higher.

 

[Ecl!pse]

Except it does work quite often.

I brought Icelandair into two airports - TPA and RDU. TPA already had a somewhat low cost product in Lufthansa's CItyline A340 flights (think regional airline operating long haul, widebody international). Icelandair did pretty well until I also brought Norwegian in, who took a lot of their London traffic with them.

I brought Icelandair into RDU last year (flights started this past summer) and it's their top performing new launch market. With AA LHR and DL CDG the only traditional options, Icelandair can still charge a premium over some of their other markets and come in under those two. I've looked myself and Icelandair isn't that cheap - mostly because their flights are full. So full that they keep extending their season.

It's important to note that most U.S. airports give these carriers two years of fee waivers and a bunch of marketing support. So for the first two years, they're operating free of destination airport charges, with free marketing as well. After two years the route is either profitable and it stays, or it isn't and it goes.

Just missed you at RDU (and TPA for that matter)!

 

[Murdoughnut]

Just missed you at RDU (and TPA for that matter)!

I still live near RDU and belong to a flying club there.. In fact I'm on a RDU-AUS flight right now.