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European Airline - V2500 Engines Maintenance Cost per Hour (MCPH) Contract Review

The challenge

Nyras worked for a European airline to review their long-term maintenance cost per hour contract (MCPH) with IAE V2500 engine type. We identified a material exposure for the airline, and then worked with top management to advise on their position with regard to renegotiating the contract in order to avoid the exposure.

The solution

Nyras carefully reviewed all the obligations under the MCPH agreement, alongside the overhaul status of every engine covered. The airline had entered a MCPH contract that required two performance restorations during the contract term, and did not terminate until the second performance restoration had been completed. Due to the excellent wing performance of the engine type, the term of the engine contract was greater than the term of the leases. As the airline had already committed to replacing the aircraft, the MCPH contract caused a material exposure to the airline.

Nyras analysed possible outcomes and developed negotiating strategies to help the airline secure the best outcome. We assisted the Technical and Asset Management teams as they explained their position to the board and top management as well as to the MCPH provider. In addition, we developed a detailed legal and technical position for the airline, which was agreed with the board, and allowed for the airline and MCPH provider to agree mutually acceptable commercial outcomes, aligned with committed end of lease dates for each aircraft.

The results

Nyras analysis and recommendations were adopted by the airline, which the airline management assessed as enabling them to avoid a potential $400m exposure.

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