Page 26 - 207680_March19T

Engine Maintenance Programs: Are They Worth It?
by Rich Pickett
If you want to start a lively discussion with turbine and turboprop aircraft owners, ask their opinion about engine maintenance programs. Some owners consider them cost-effective, while others believe it is financially advantageous to pay directly for repairs and inspections as required. I own turbine-
powered airplanes as well as assist owners with acquiring or selling their aircraft, and this is always a topic of discussion. One question is how do the engine programs affect the value of an aircraft?
Turbine engine maintenance pro- grams or service contracts (sometimes called “power by the hour”) provide parts and inspection coverage on engines to owners in exchange for a set fee per hour. Providers of these programs include the engine manufacturers, aircraft manu- facturers and independent companies such as JSSI and Aviall. Similar to insur- ance, these plans are a way to mitigate financial risk.
Each provider offers a variety of main- tenance packages. Some include the most common components used during the typical life of an engine while oth- ers include time-limited parts such as rotor disks and varying levels of labor coverage. While usual wear and tear is covered under most programs, corrosion and damage from Foreign Object Debris (FOD) are only included with some plans. This can be a significant differentiator when evaluating maintenance programs since potential corrosion, and FOD dam- age can easily double, or triple, the cost of a maintenance event. With multiple options, it can be a challenge to evaluate the numerous program offerings.
For owners who decide not to partici- pate in a program, the assumption is they can obtain a higher rate of return by in- vesting the money rather than paying a provider a set fee per hour of operation. In essence, their view is the programs are a bad investment in comparison to other options. Whereas, owners with programs have determined that partici- pation provides them with a capitalized cost to operate the engines with a known maintenance expense per hour.
Scenarios
Let’s look at two scenarios: purchasing a new turbine aircraft and purchasing a used jet. The jet in our analyses is a composite of multiple business aircraft currently flying with a per engine main- tenance program average cost of $150 per hour over the life of the program. Let’s assume the jet engines have a TBO of 4,000 hours, with a hot section inspection (HSI) due at mid-life of 2,000 hours. Using a composite analysis for this engine, the HSI would cost $100,000 and the overhaul $500,000. Our examples reflect the costs for a single engine with simplified alterna- tive investment assumptions.
Purchasing a New Turbine Aircraft
Our first scenario is the purchase of a new jet. For this analysis, let’s assume the aircraft operates 200 hours per year, which is slightly higher than many owner- operators and less than corporate-owned aircraft (and certainly less than charter operators). It would take 10 years to reach HSI and 20 years for engine overhaul at this usage rate.
Over the 4,000 hours, the owners of this aircraft would have incurred $600,000 in scheduled maintenance for each engine. Since these programs also cover unsched- uled, as well as scheduled, events we will assume the engine would consume $30,000 to $50,000 in additional covered maintenance during its overhaul interval. This brings the total cost of maintaining each engine on this airplane to $650,000 after 4,000 hours of operation. If the opera- tor had elected to participate in the engine programs under this scenario, they would pay about $2,500 per month for an average usage of 16.7 hours and benefit from an 8 percent return on their expenditures at the end of the 20-year period.
24 • TWIN & TURBINE
March 2019