Engine Leases in the Aviation Sector: Round-up of Legal Issues

Leasing has always been a popular way of operating aircraft, whether you are an airline, a charity or a private individual.  The International Air Transport Association concluded in 2024 that more aircraft were being leased than owned by airlines.

Engine leasing is just as popular. Supply chain disruption and spare part issues have inevitably led to a shift in patterns in this market. There is much more emphasis on trying to maximise the useful life of an engine. That has resulted in an increasingly vibrant market in the used aircraft engine leasing market, particularly for mid-life to end-of-life aircraft.

There is a range of engine leases available from a full-service wet or operating lease, where the engine is provided along with the necessary maintenance support, to a dry lease scenario, with just the engine being provided, and the lessee handling maintenance and insurance.

Legal Issues

• There is no particular format that must be followed for a lease to be valid and enforceable. In English law, there should be at least two contracting parties, an offer and its acceptance, together with some consideration. Leases can be created by oral agreement, although the risks associated with that should never be underestimated.
• The biggest issue for a lessor is that engines are designed to be highly mobile. In practical terms, that will require lessors to monitor the aircraft engines’ location to ensure the terms of the lease are being followed.
• It also means that the lessors must ensure that the contractual operation of the engines is kept within the agreed parameters in the lease.
• The leases need to factor in such issues as title swapping, title tracking and recognition of rights between the engine lessors and the owners of the airframes on which the engines are fitted.
• It can also be more challenging to register or record the ownership of an aircraft engine separately from the temporary mainframe on which it has been installed, particularly in circumstances where there is a financing or mortgage arrangement. Different jurisdictions have different rules.
• The Convention on International Interests in Mobile Equipment and Protocol thereto on matters specific to Aircraft Equipment – the Cape Town Convention (CTC) is intended to enable an international interest to register a mortgage if they comply with the definition of a “leasing agreement”.
• The CTC should, in theory, allow a creditor to register an international interest in the engines being leased, to enforce their rights and obtain relief from their creditors. However, its effectiveness can sometimes be scuppered by national courts and local aviation aircraft registration authorities.
• In the UK, a rather more interesting approach has been taken to the registration of engines by treating the engine as a fixture and fitting.
• The redelivery of an engine is usually one of the most carefully planned events under the terms of a Lease. Problems can occur as a result of issues relating to the location, condition, and status of the aircraft’s mainframe. This can be exacerbated by issues with the technical records of the aircraft and engines, which can bring uncertainties into any redelivery or recovery, if there has been an issue under the lease.
• Whilst many lessors use standard templates for their leasing agreements, the more detailed and bespoke the lease is based upon the intended movements of the airframe and its engine, the less likely it is that problems will arise concerning the redelivery of an engine or enforcement issues.

Need Advice?

LA is one of the few law firms outside of London with an in-depth understanding of aviation law, plus the expertise and experience to offer specialist advice.

For further enquiries, please get in touch with us at online.enquiries@LA-law.com or speak to our Aviation team directly.