Jetrader - Autumn 2015 - 46

Legal

Sign,
Consign

Interest in older assets and "end of life"
solutions has been surging. New companies
are entering the market, established companies are starting new business lines and others, including funds, are establishing joint
ventures. Aircraft are unique in that as they
age, their value in pieces can be greater
than the whole. Selling a whole aircraft is
relatively simple. Breaking it down for sale
as parts is much more involved and is therefore commonly handled by consignment.
An aircraft can be consigned whole or in
pieces. Which path is taken depends largely
on how involved the owner wants to be in
the process. Operators are typically better staffed to manage a tear down than a
lender. But if resources are constrained and
"core competencies" are considered, experienced consignees can more efficiently
handle the process from start to finish,
maximizing returns in the process.
The first step is deciding what role the
consignee will take. Will they be the general contractor and manage all aspects from
tear down to disposition, or will they take
a smaller role and handle discrete parts
or product lines? Operators may prefer a
more hands-on approach not just because

By Don Mitchell, Partner, Smith, Gambrell & Russell, LLP

of experience, but also because they may
want to consume material for their own
operations. The second step is deciding what the goal of the consignment is:
straight disposition or disposition with revenue generation through leases, exchanges
and rotable pools. Equipment type and
condition play a big role in this decision.
Consigning a 737NG with a stable worldwide
operator base can have more dependable
revenue generating opportunities than a
737 Classic with a shrinking operator base.
The third step is determining the financial
stability and capabilities of the consignee.
Are they sufficiently capitalized in order
to fund their obligations? What is their
geographic reach, location and experience with the equipment type being torn
down? Time is money. The closer and more
experienced the consignee is to and with
the market, the better able they will be to
move the consigned material. The fourth
step is developing the agreement for the
consignment program.
The framework for a consignment program can be broken down into five distinct
parts: delivery, tear down, disposition,
measurement and wind-up.

46 The official publication of the International Society of Transport Aircraft Trading

Delivery: In order to best protect the
interests of each of the consignor and
consignee, the parties should perform a
fulsome delivery process-not unlike delivering equipment under lease. The equipment should be confirmed, the records
reviewed and inventoried, and the condition documented. The parties need to
ensure a good record of what is being
delivered, particularly as the consignee's
performance will be measured against it
and in order to memorialize a condition
baseline for risk and repair purposes, particularly for major components.
Tear Down: If the consignee will be
managing the tear down, then the parties
should agree where the equipment will be
dismantled. The certifications and capabilities of the tear-down facility and the ease
in which parts may be moved should be
considered. Adequate, qualified staffing
should be confirmed so that the equipment
may be dismantled quickly and efficiently.
Finally, the financial soundness of the facility should be confirmed. Tear downs are
labor-intensive, and the parties should be
satisfied that the tear down will be completed once started.

Jetrader - Autumn 2015

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