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The Economics Of An Engine Retrofit: Tips for preparing for a low-budget engine upgrade - for companies of all sizes.

The longer that aviation’s lackluster post-recession recovery drags on- the older the company’s already-aging airplane gets. The older the already-aging airplane gets- the lower its value becomes. The lower its value becomes- the less attractive selling- and then buying a different aircraft becomes as an option to the owner. From there the cycle continues.

The stark facts of today’s Business Aviation world culminate in one outcome- whichever angle they are viewed from: A buyer’s market remains – at least for medium and smaller jets. Collectively- all of the above circumstances can add up to more obstacles than many small businesses would want to tackle when considering selling their aircraft and buying a newer one with more performance capacity.

Banks and other aircraft-financing operations long ago became considerably more selective- driving harder bargains in lending money for aircraft purchase – and that’s if they choose to lend at all.

This essentially means that what is affordable for smaller companies seeking to maximize their benefits from Business Aviation today may already be beyond the age-bar to qualify for financing with many lenders; and even if financing is available- it may be on terms beyond a small company’s ability to accept.

SO WHAT IS THE SOLUTION?
It may be that the best bargain available to you is your existing aircraft. With the aid of thorough research- upgrade programs may exist within the limits of your budget to better the performance of your existing airplane and - at the very least - ease the wait for more favorable times when the banks gain in their lending confidence- and financing becomes easier to obtain.

While the focus of the following paragraphs is specific to powerplants- you may want to also consider upgrade options available for your avionics (particularly for a Part 23 aircraft); interior refurbishment (even if you can’t currently buy newer- it’d give the fresh look and smell of a newer airplane); and exterior refurbishment.

If you decide that your airframe will undergo a period of down-time for an engine overhaul- it will prove far more time-effective to identify other work that needs to be done at the same time.

Of the four general categories of upgrade listed above- your powerplant retrofit options are the thinnest- being wholly model-specific. Swapping engines also requires more work- and regulatory approval than all the other choices. But with careful selection- budget-driven planning and a progressive schedule- an operator can make-over the existing aircraft for a cost that amounts to only a fraction of buying something new- and is still attractively priced compared to acquiring a pre-owned airplane with its refurbishment work already completed.

Depending on the combination of upgrades you choose to have done- the completed project returns to the owner an airplane that looks- feels and smells new- with new life in systems updated- restored and - in some cases - better-performing.

ENGINE RETROFIT: MAKE A PLAN
Engine upgrades- like any other upgrade- involve dozens of little decisions. Beyond the fundamentals of how to pay for it- when to do it and anticipating where all the little pitfalls could factor that would create pressures and frustrations at the many levels of the project- the creation of a clear plan of action is essential to the process.

Make a project outline of what you want to accomplish. Any worthwhile maintenance shop will be keen to help make that plan if you don’t have something formal when you approach it about undertaking the work.

Bear in mind that the scope of this article is on lower-cost approaches- and hopefully you will find a few worthy ideas for renewing an adequate old airplane for years more profitable use. The range of options for an engine upgrade narrows to relatively few airplanes compared to the universal applicability of the other upgrade areas. However- owners of some of Business Aviation’s more popular models (older Cessna Citations- early Learjets- Falcon 50s- Hawker Beechcraft King Air and Cessna Conquest lines among them) will find programs that cater for them.

All of these airframes enjoy engine-upgrade options with an inventory of demonstrated benefits – but at the highest costs of any of the other improvement areas. That is offset by the fact that- in each case- the engine swap will increase inspection and overhaul intervals- greatly reducing the costs of engine reserves. And in every case examined the aircraft also gained in fuel efficiency- payload - and- typically in climb- cruise and range performance too.

Prices for these upgrades tend to come in the low-seven-figure-sum- but that cost includes new engines with new-engine warranties- new nacelles and related hardware- and (in come cases) carries the option of having the rest of the airplane upgraded at the same time – nose-cone to tailcone- wingtip to wingtip- inside and out- avionics panel included.

As touched on above- whenever you look at combining three of the four upgrade areas outlined- then you are looking at a project that still holds some value superiority to upgrading airplanes.

READY TO START?
There’s no special trick to making as much as possible from what little you have to spend on a project: you make a wish-list- work up cost estimates- and adjust accordingly.

Don’t lock in to unachievable ideas- or lock out of unexpected options. Examine the broadest range of available options recognizing that the upper-end of each spectrum will probably fall outside your budget- while options at the lower-end may come up short of the desired outcome- even if it is within your means. By examining the full range of options you should learn the degree of work and programs available from various vendors- and with varying options applied.

Pay particular attention to technical limits or application lists; there is no point in putting something on your list if it can’t be legally installed for any particular reason.

Finally- approach your banker early regarding the financing for a refurbishment. Ideally you will want to let the airplane itself underwrite the costs- as collateral for the refurbishment-finance package.

Interest rates continue to hover near the bottom of the scale- and by collateralizing the airplane you avoid tapping other resources. Be prepared- however- to cover a share of the work in cash – even if the post-upgrade value is projected to be well above the principal. Neither should you forget to talk early on during your planning with your accountant. A number of tax incentives enacted at the end of 2010 increase the short-term value of the deductions and depreciation levels available for business aircraft.

Many of those incentives expire at year’s end- while others continue into 2012 - so start your planning now.

POST-UPGRADE CONSIDERATIONS
Once you’ve achieved your goals with the upgrade and renewal that you select- consider starting - with immediate effect - a budgeting process for the next time the aircraft needs some attention (for the sake of this discussion- say 1-500 flight hours- or five years hence).

With a little planning and attention to detail- you could have enough money banked for the next cycle to bypass the banker – and saving more should be of interest.


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