Hourly Cost Maintenance Programs: What You Need To Know Before Enrolling! By Jason Zilberbrand, ASA, CAA, ISA AM, AOA AM, MRAeS and Ken DuFour, ASA, MAM, ATP, CFI.
Back in the good old days of Corporate Aviation, when there were only a handful of manufacturers, and each one produced one model, power by the hour was created. In the late 1970s through the mid-1980s, the first business jet salesman, and dozens of corporations, entertainers, and a handful of prominent people began their operations of what is known today as the classic business jet. While the first use of the term Power by The Hour was used and trademarked by Rolls-Royce and their Viper Engine, it was Garrett AiResearch and the Garrett "Grenade" that introduced engine maintenance programs to the masses.
Garrett started off making aircraft parts in the late 1930s and participated in numerous programs, including the B-29 bomber, and their intercoolers made their way to the Lockheed P-80. By the end of the '40s, Garrett was listed on the NY Stock Exchange and providing turbochargers and other aviation-related systems to McDonnell Douglas as well a NASA. Believe it or not, the first turbocharger was not made for an aircraft, but a tractor in the mid-'50s. It was this application that started Garrett's successful path and led to their installing the very fist turbocharger on a production car. Some of you may be old enough to remember popping the hood on your Saab or early Mercedes and seeing a Garrett AirReasrch Turbocharger. By the late 1970s, every go-fast car whose owners had money to burn was installing these turbos. In 1979, Garrett AiReasrch became Garrett Turbine, and by 1985 AlliedSignal had taken over the company. Today, it is owned and operated by Honeywell Aerospace.
In 1972, Garrett introduced what many agree was the significant fist development in engine technology. The TFE 731 family of engines was introduced, and the 731-2 went into production. By the end of 1972, Dassault and Learjet were using the -2 engines on their Falcon 10 and Lear 35 series. IN 1975, the 731 engine was named product of the year, and the engine is still used today in modern aircraft. What many people don't know is that the first generation engines, the "Grenade" was so unreliable that it would suffer a catastrophic loss on start. Imagine you are the world's first aircraft salesman, and you fly the Falcon 10 to a potential buyer. That buyer is anxiously waiting to see what must have been one of the most incredible sights of the time, a modern private jet. Can you imagine the horror on his face when that brand new aircraft blows up on the ramp right in front of him? Well, it didn't take long for the folks at Dassault and Learjet to bombard Garrett with some reasonably nasty letters. The conversations probably went a little like this, "How are we supposed to sell these planes when the engines blow up on start in front of the buyer?", "What about insurance?"
Engine Maintenance Programs were a way for manufacturers to provide some assurances to prospective buyers. No matter what happens to that engine, it will be repaired. Keep in mind, engines are by far the most expensive components to an aircraft, and the further back you go in history, the more expensive they were to maintain. MSP was created to provide insurance like a product without the headaches of actual insurance premiums. It worked like this, the operator wold enroll the aircraft on MSP at delivery. Every hour the plane flew, the owner would mail in a check at the end of the month. When something breaks, you tell MSP, and they repair it. Programs today work the same way, except the engines are no longer grenades, and instead of the significant coverage being catastrophic loss, it is added value to the asset. I want to stress that while older first-generation engines were unreliable and often broke, today, that is not the case.
Let's look at how this occurs and the numerous programs offered.
An HCMP (Hourly Cost Maintenance Program) has many different benefits depending on the owner/operator's needs. In all cases, an HCMP for the airframe and powerplant remains one of the more smart investments that help flatline a budget when confronting major maintenance events throughout an ownership period. An HCMP removes maintenance costs for routine, regular, and preventative maintenance requirements that all owner/operators may have by collecting an hourly rate for every hour the plane is flown. There are various HCMPs to consider; this should be the minimum coverage to consider.
- Hourly Cost Maintenance Program overhaul inspections (scheduled and unscheduled)
- Routine maintenance needs ( including scheduled service, oil changes, lubricants, and any other rotatable items)
- Periodic engine washes (if approved for the powerplant)
- Removal and replacement costs (should the engine have to come off-mount), usually an upgraded called GOLD.
- Loner/rental engine(s) while a covered engine is off the aircraft for service (if available) Turbine Only!
- Overhaul at the prescribed time (Time Between Overhaul), critical for Piston engines.
- Transferable coverage (making the program itself an asset that adds value to the aircraft at the time of a sale or trade)
- Renewable to the maximum extent possible
- AD and SB coverage is typically available.
- Access to Tech Services or Troubleshooting
Many companies offer maintenance plans that cover powerplants, including virtually all the major engine manufacturers, airframe builders, often in concert with the engine maker, and several independent firms. Independent firms highlight their abilities to tailor coverage to clients and their abilities to provide proven service around the globe. An independent program provider like PistonPower or JSSI (Jet Suppport Services Inc) may be a benefit if you are operating multiple engines or aircraft types.
Engine makers stress their knowledge, expertise, and experience servicing engines they made and their networks of approved service providers, in-house and out. At the end of the day, however, what best works for any individual operator must hinge on what best fits their operations, their needs, and (the main point of it all) their finances.
Here we’ll examine examples of plans available through an airframe OEM, an engine OEM, and through an independent third party plan provider.
Today, you can literally pick from over a dozen turbine programs, and decide what key features are important for you.
To mention just a few HCMPs would include;
- Rolls-Royce Corporate Care
- Honeywell Maintenance Service Plan (MSP)
- Bombardier Aerospace Smart Parts
- Jet Support Services, Inc. (JSSI)
- Pratt & Whitney Eagle Service Plan (ESP)
- General Electric (GE On-Point)
- PistonPower (Unscheduled and Airframe)
- Williams International Total Assurance Plus (TAP)
- Engine Assurance Providers (EAP)
- Diamond (PistonPower)
- Tecnam (PistonPower)
- Mooney (PistonPower)
- Cirrus (PistonPower)
- Piper (PistonPower)
- Cessna (PistonPower)
- Astro Engine (PistonPower)
Aircraft brokers/dealers proclaim that an aircraft on an HCMP will sell quicker and at a higher price than a plane, not on these programs. Many financial institutions mandate aircraft to be enrolled before lending.
VREF provides a substantial increase in value for all aircraft enrolled on a 100% engine maintenance program. These aircraft are considered to have ZERO time engines as long as the plans are in good standing and up to date financially. Keep in mind, 100% coverage is just that. So if you have a program that either does not accrue funds for Life Limited Parts (LLPs) or if the coverage is termed to expire, then you do not have 100% coverage.
CAUTION: There are several variations to each of these programs, which may result in lower coverage. For example, on some programs, certain cycle limited parts may not be covered. Also, some programs allow deferred payment. Check the contract carefully for each engine. Please refer to VREF Online for more information on one or all of these programs and, if in doubt, contact Jason Zilberbrand for help with Engine Maintenance Programs.
Additionally, VREF suggests the same methodology for PistonPower Programs for all applicable reciprocating engines.
So, how can these guaranteed maintenance programs help your company? First, it makes budgeting and cash flow management much more manageable. If you are concerned about maintenance, surprised, or unplanned unscheduled, or if you just don't want to deal with the nightmare, then a program is a silly easy decision. Plus, you get loaner engines and a dedicated technical support team to help with just about every issue you can face.
So what the downside? Well, there is always fine print. For the most part, these programs are all managed similarly. There are minimums hour requirements on every contract, these minimums apply whether you fly or not. I can assure you unless the world is coming to an end, you will not be able to get out of paying them. The second issue, if there was one, is once you are enrolled, you have no exit strategy except to sell the plane with the program or continue on the program until the scheduled events are completed. But, you won't pull a fast one on most of the programs as they will ask for renewal before paying for that maintenance. If you have engines that are problematic, or if you might face unknown AD expenses, then enroll, you will come out ahead every time.
Since the programs all require trend monitoring and soap testing, you can pretty much guarantee that if you break it due to abuse, misuse, or some other negligent way that you are going to be without coverage. So bottom line, don't operate the aircraft differently; after all, you are still paying for the maintenance, just a little bit at a time.
Owner/Operators will have different requirements for their specific operations.
These are some of the benefits of an Airframe or Engine Maintenance Program;
- Offers predictable operational costs, budgeting, and financial forecasting
- Stabilizes aircraft maintenance costs
- Lessens out of pocket expenses for significant engine maintenance costs
- Enhances aircraft resale value and protects your investment
- Minimizes aircraft on ground (AOG) and maximizes aircraft dispatch ability
- Increases the ability to sell the aircraft as buyers are often interested in HCM programs, and it enhances the Pedigree!
- Provides access to 24/7 global support saving time and money
- Offers prospective buyers peace of mind with transferrable contracts when the aircraft is sold, transferred or leased.
For additional information about engine maintenance plans, questions, or if we can assist you with valuing your engine maintenance plan or aircraft, contact VREF Aircraft Value Reference.
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