Top 5 contract essentials for confident aircraft lease management

As an aircraft lease manager, you will be aware that when your client is an aircraft owner, financier or lessor, they are seeking to secure a return on investment when making their asset available for lease. Lease agreements are carefully structured to support this goal; as a lease manager, your role is pivotal in ensuring that the aircraft is operated in accordance with these contractual requirements, and that risks arising from the operating lease, whether initially envisaged or not, are identified and managed throughout the lease term.

Effective contracting practises are therefore central to the aircraft leasing industry. The operating lease should be legally and commercially sound, and protect the aircraft’s value and the lessor’s return. However, what about your contract as the lease manager with your client? This is just as important to you as the operating lease is to your client.

The following checklist outlines five key points that will help you manage your contractual risk with confidence and precision:

Adopt a risk-literate mindset

Before drafting or reviewing any contract, assess any strategic and operational risks that may arise from the operating lease that relates to the aircraft that you are being asked to manage. Does the aircraft type, operator profile and prevailing market conditions present any specific challenges that need to be addressed in your agreement? A clear understanding of risk will help to shape a contract that protects your interests from the outset.

Understand who’s who

Ensure that you have a clear understanding of the parties involved - owners, lessors, operators, and any intermediaries or advisors - and confirm that your contractual counterparts are correct.

Clear description and delineation of services

If you provide other services such as aviation finance and asset trading, servicing and investment advisory, make sure these are distinctly listed and separated from lease management activities. Each function should have its own regulatory and contractual obligations, and the agreement should delineate these clearly to avoid overlap or ambiguity.

Be precise about liability

Draft liability and indemnity provisions with care and don’t just copy from one contract to another.  For example, most jurisdictions will allow you to limit your liability for consequential financial losses where these do not result from fraudulent or reckless acts; however, you need to (a) specify an amount which is tailored to the nature and value of the contract, and (b) specify a figure that is reasonable so that it is upheld in the relevant jurisdiction. On the subject of which …

Don’t forget the governing law and jurisdiction

Ensure the contract includes a coherent and enforceable dispute resolution framework. The governing law, jurisdiction, and arbitration provisions should align with one another. Where English law governs the contract, any disputes arising from the same should be subject to the exclusive jurisdiction of the English courts, and the arbitration procedure should be seated in London under London Court of International Arbitration (LCIA) rules. This consistency helps avoid unnecessary legal fees arguing about procedural disputes and helps to ensure successful enforcement and awards and judgements.

Always remember; contracts are your first line of defence.  Your insurance cover is there to pick up the things that fall through the terms of your contract, and good contractual practises are an essential component of risk management.