The Definition of “Engine Basic Shop Visit”

I used to joke with a friend that “I’ll be 70 years old and still negotiating the definition of ‘Engine Basic Shop Visit’ on a daily basis.”

That was at least 15 years ago and while “on a daily basis” was an exaggeration, that term (some lessors use “Engine Performance Restoration” or similar terms) is still the most important defined term in most aircraft lease agreements and it is (no doubt about it) the defined term that the lessor’s lawyers and tech officers will look at most often after delivery (and usually while under stress–“oh, please let it say what I need it to say”).

The term should be used sparingly in a lease agreement.  In a previous post I have noted that the term should not be used in return conditions–because the definition usually sets a high standard for the restoration workscope and the main point of the relevant return condition should be on-wing time remaining to the next performance restoration (of any sort)–not on-wing time remaining until the next full performance restoration.  The same logic applies to the delivery conditions, though using the defined term in the delivery conditions would benefit the lessor–unless the delivery conditions uses a “time since” standard for the engine delivery condition.

In lease agreements that I draft the term will usually appear only in the provisions related to maintenance reserves and/or return compensation.  In the maintenance reserve provisions the defined term will be the trigger for when the lessor reimburses reserves.  In the return compensation provisions it will be the trigger for when the hourly return compensation payment from the lessee starts to accrue.  In both cases the lessor will benefit from a high standard.

The definition of ” Engine Basic Shop Visit'” that I use has four components:

1. Workscope. The threshold question in drafting the definition is whether the maintenance reserve/return compensation trigger will be the overhaul of any listed engine module or an overhaul of a set (or all) of modules required.  This issue is usually addressed by the tech and financial officers of the lessor and the resolution will be driven by the expected condition of the engine at delivery and the performance restoration reserve balance for the engine.  (If the “modular approach” is used, then the reserve/return compensation/lessor contribution provisions will need to be drafted to allocate the relevant amounts (usually on a percentage basis) among the modules.)

2. Engine Manufacturer Manuals and Guidelines. The performance restoration should be performed in accordance with the relevant engine manufacturer manuals and guidelines.  The lessor’s tech officers should provide (or at least review) the description of the relevant engine manufacturer manuals and guidelines.

3. Performance Standard. Here is a requirement that I often do not see in lessor’s lease agreements.  The workscope has been agreed with the lessor and the performance restoration has been carried out in accordance with the agreed engine manufacturer manuals and guidelines, but the EGT margin from the test cell after the performance restoration is the same as before the performance restoration.  Should the completion of the performance restoration be a sufficient trigger for purposes of a maintenance reserve reimbursement or return compensation reset?  No, it shouldn’t.

So, I suggest adding a performance standard that requires the performance restoration :

fully restores [the Engine’s/such module’s] performance and service life using the workscope defined in the Engine Manufacturer’s [Engine Management Program and the Engine Manufacturer’s Engine Manual] and so that the EGT margin is (a) at least the average EGT margin that is expected in the industry for an engine of the same model as the Engine fresh from performance restoration (determined on the basis of the Engine Manufacturer prescribed test cell conditions and procedures prevailing at the time of such shop visit) and (b) such that such Engine can reasonably be expected (as determined by the Engine Manufacturer if Lessor and Lessee fail to agree) to run for the average meantime between performance restorations (based on Engine Manufacturer data) for engines of the same model as the Engine

4. LLP Build Standard. The definition should require a minimum LLP build standard, the minimum to be based on the expected run-time between overhauls.  In other words, you don’t want the run-time requirements discussed in 3 above to be undercut by the engine being driven off-wing for an LLP replacement before the next anticipated performance restoration.

Some lessors may argue that 3 and 4 above are unnecessary so long as the lessor has a consent right over the planned workscope.  I don’t think that is right.  A consent right give you no protection over a failed performance restoration and a consent right will likely lead to a negotiation where the lessee will ask for additional (outside of the contract) contributions for what the lessee’s will describe as enhancements to the workscope not required by the lease agreement.  (Nonetheless, somewhere in the lease agreement the lessor should be given consent rights over each performance restoration workscope.)

Random notes:

1. For references to performance restoration where a high standard is not required, I suggest just using “performance restoration” (not defined) or using “Performance Restoration” as a defined term and defining it as follows: “means the off-wing maintenance of an Engine where, as a result of an overhaul or performance restoration, useable life is restored to the engine.”  As always, when using defined terms the drafter and reviewer each needs to be cognizant of both the definition and how it is used–when in doubt, search for the defined term throughout the document and make sure it is being used consistently–and, in each case, to your client’s advantage.

2. In two-way return compensation provisions, you will also need to provide for the “time since” calculation at delivery. As mentioned in a previous post, my preference is (where possible) to specify the date of the last relevant maintenance visit–rather than rely on a definition or description of the prior visit.