SES estimates that engine requirements, with 16,000 new aircraft, would reach about 38,400 units over the next 20 years. 4,600 or 12% of them should be replacement engines compared to the current rate of 17%. Based on an average engine cost of $6.5 million, this generates a 20-year market worth $30 billion and annual expenditures of approximately $1.5 billion. Heber McMahon, chief executive of SES, outlined the idea at the Aviation Engine Conference meeting in San Diego, California, that airlines would buy or lease a minimum number of engines for their own use, resulting in a “60% confidence level” of immediate availability. Until the emergence of the CLC (see below), the lack of easily identifiable and recognized ownership and security interests on engines (coupled with the uncertainties of securities/title hedging rules around the world) limited the ability of owners to use replacement engines as a credit guarantee. As noted below, this problem has been significantly mitigated in the legal systems of CLC member countries, however, investors and engine financiers must take into account the risk that the engine is in a non-CTC state at the time of the failure, whose national legislation reduces its priority or prevents the immediate exercise of their property rights by making withdrawal unaffordable or impossible, or (ii) in a CTC state that does not fully implement the CLC`s enforcement principles without a local court fully transposing the effect. Willis Lease Finance Corporation leases replacement aircraft, engines, parts and aircraft to commercial companies, aircraft engine manufacturers and maintenance, repair and overhaul suppliers. These leasing activities are integrated into the purchase and resale of used and obsolete civil aircraft engines. Additional risks arise when an engine is in possession of a maintenance, repair and overhaul system (“MRO”).
If an owner/owner tries to regain control of the engine, he must not only determine where the engine is, but also in what condition it is in. MROs will generally have property rights that will arise from a legal issue that allows them to retain possession for unpaid invoices – and, in some cases, not only unpaid invoices for a particular engine, but also all unpaid invoices from the same landlord or lessor. This may not be a greater risk than an owner/renter or lender facing mrIS aircraft. This risk has traditionally been mitigated by the requirement for leases for bonds, cash payments or cash payments, confirmation letters that can be used or used to cover the expected costs of planned or useable maintenance visits. Where security deposits or letters of credit relating to food reserves are not agreed upon, leases generally allow a lessor to pay the MRO itself to release the pledge, and then obtain a right against the purchaser under the indemnification clauses of the lease. The CLC introduces a registered safety interest as an international interest in aircraft engines (note, however, that the CLC does not create ownership rights over the aircraft engines to which it applies). Participation in these engines may be entered in the CLC`s international registry, although the CLC does not apply to an aircraft engine if the only link to the CLC is the registration of the aircraft in the national aviation register of a contracting state. The connection factor, which is in the process of inquiring about the registration of an international interest in an “aircraft engine”, is whether the debtor (owner/tenant) of the engine is located in a contracting state. The CLC establishes a legal system that allows creditors of engines (including financiers and renters) to assert certain remedies against defaulting debtors.
To be eligible, a creditor must register an “international interest” in the engines in accordance with the CLC; and how states leave