JSSI gives financiers power to monitor their aircraft
JSSI has launched a new product to help business jet financiers track aircraft they have financed.
JSSI’s Asset Monitoring Platform allows financiers to track how much aircraft are flying, the status of the maintenance programmes, and upcoming maintenance. They can also access digital copies of all maintenance records.
“This is a really, really useful product for aircraft financiers,” says Greg Holst, head of aircraft finance at 1st Source Bank, an extremely active aircraft finance bank and a Beta tester for the Asset Monitoring Platform.
An aircraft’s maintenance condition has a big impact on its value. When an aircraft or engine is enrolled on a maintenance programme, financiers know that it is covered for both scheduled and unscheduled maintenance. However, there have been rare cases where owners have stopped paying for programmes.
“Historically many financiers had a laisse faire approach to programmes, they liked them but did not insist on them,” says Susan Marr, executive vice president and general counsel at JSSI, “but now among the finance community there is a good understanding of the benefits – especially when financiers have had aircraft returned with significant maintenance pending.”
Financiers now typically sign a three way agreement with the borrower and the maintenance programme provider when they provide finance. Under the agreement, the borrower agrees to make sure that maintenance programme payments are made and the maintenance programme provider agrees to tell the financier if the borrower terminates the programme or fails to make payments.
“We have always entered into three party assignment and consent agreement,” says Marr. “So this is no different. The customer is aware of this from the get-go.”
Since the downturn many financial institutions insist that at least engines are enrolled in hourly maintenance programmes. Some financiers insist on engine, APU and airframe programmes – like JSSI’s Tip-to-Tail programme to reduce as much risk as possible. Many owners are also happy to enroll aircraft on maintenance programmes as they help them manage cashflows and also make it easier to sell aircraft.
“Three way default notification agreements with engine program providers have become common,” says Holst. “But they are only valuable when actively monitored by someone and irregularities are identified and reported promptly. This new platform automates status reporting with much more detail reducing human monitoring error with live data that can be verified at any time.”
Owners pay depending on how many hours the aircraft have flown (they also have minimum flight requirements).
“Lenders can set alerts based on their own unique risk threshold,” says James Appel, director of JSSI’s Asset Monitoring Platform. “It allows them to spot from an early stage if someone is beginning to get into financial difficulties and not flying or not meeting their JSSI obligations.
Buyers who are short of cash typically stop flying. Since 2008 financiers have become increasingly concerned about aircraft being underutilised. When aircraft fly moisture is burnt off and aircraft that
are parked are more likely to suffer from corrosion and other problems. These problems can range between water in the engine, bacteria that live in aviation fuel which corrode fuel tanks and problems when avionics systems are restarted. Aircraft that are parked for long periods also need to be stored according to manufacturer guidelines.
“A lot of people are concerned about aircraft being flown too much,” says Holst, “but we are much more concerned about airplanes not flying. If an aircraft has not flown for 90 days – and is not undergoing maintenance – that is a clear red flag.”
“An aircraft that is being used a lot is clearly needed and is an important asset that a company wants to keep,” says Holst. “If it is sitting on the ground you wonder why someone has tied up seven or eight figures in something they do not use.”
JSSI allows aircraft owners to add aircraft to maintenance programmes without fully buying them in (this is referred to as a pro-rata). Because some owners may be doing this, the Asset Monitoring Platform allows financiersto see what exposure is covered by the programme and what is covered by the client.
“Depending on the type of aircraft and the event – such as an overhaul – the bank can see in advance what could be a significant expenditure that the client is responsible for and when it is likely to be due,” says Appel.
Most aircraft owners return aircraft when they are unable to meet payments so hostile repossessions are rare. However, in rare cases (such as shown on Airplane Repo) banks often have problems getting aircraft records back. This is a problem as it is almost impossible to sell an aircraft without records.
“Financiers know that getting original records is crucial,” says Kevin Thomas, senior vice president, business development and strategic planning. “Having an online backup – which all JSSI customers have – is a great way to mitigate risk.”
Holst stresses that banks are never looking to repossess aircraft. “Banks never profit from selling an aircraft they have to take back due to default. Whenever we can work cooperatively to protect and maintain an engine program we facilitate the client’s ability to sell their plane in an orderly fashion and fully clear their loan and perhaps recover equity,” says Holst. “Unfortunately, in times of crisis it is easy for engines and their maintenance program to be neglected by an owner and the program cancelled, destroying hundreds of thousands of dollars in value in many cases.”
Marr adds: “The whole platform goes right back to the early days of JSSI. We have always had strong relationships with lenders, but now we find more lenders are not only encouraging borrowers to be on our programmes but requiring them to be on JSSI.”
“It is a hard job being an aircraft financier – you are financing a complicated and valuable asset that is constantly moving around,” says Marr. “At JSSI we want to make life easier for financiers. This also makes life easier for our clients and their buyers.”