- 04 Sep 2019
- Chris Kjelgaard
- Engines - BizAv
Jet Maintenance Programs: Are They Value for Money?
What's the real added value of an aircraft maintenance program (both direct and indirect), and how might engine programs be perceived as different to airframe or avionics programs? Rebecca Applegarth asks Asset Insight's Tony Kioussis.
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Rebecca Applegarth
Rebecca Applegarth has been brought up around Aviation for as long as she can remember. As a current...
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What is the value of an aircraft maintenance program? What’s the actual worth to the operator, and the advantage realized on the aircraft resale market? Rebecca Applegarth asks Asset Insight’s Tony Kioussis…
It’s well known that there are many advantages to enrolling an aircraft on an hourly maintenance program – particularly if the program is transferrable to the aircraft’s new owner following resale. But just how much advantage can operators hope to see when the time comes to sell the aircraft?
Broadly speaking, that can depend on aircraft category, according to Tony Kioussis, president and CEO, Asset Insight. Each aircraft group’s value behaves differently. “Aircraft make/models perform differently, too,” he explains.
“If a very small percentage of a make/model’s fleet is enrolled on maintenance programs, the value of the program to that aircraft [at resale] will be minimal. Conversely, if a larger percentage of the fleet is enrolled, the value is greater.”
Where most of a make/model fleet is enrolled, “the aircraft that’s not covered could experience a price reduction as the buyer is likely to feel compelled to enrol the aircraft in order to maintain its value,” Kioussis adds. However, market dynamics can also play a role.
“If there is limited inventory available, a buyer may not be able to convince sellers to accept a price reduction – even if the majority of the make/model fleet is covered by an hourly maintenance program.”
Eventually, most transactions will follow the value set by previous transactions and the current state of the market, Kioussis suggests. “When the market tanked in 2008, most buyers would not consider an aircraft that wasn’t enrolled on a program. They could get a great deal on a program-covered aircraft.”
A significant factor in today’s market revealed by Asset Insight’s analytics is that an aircraft will take longer to sell without program coverage – meaning exposure for the owner to a substantial loss in value, since aircraft are depreciating assets.
“Ultimately, each aircraft financing entity has its own way of valuing maintenance programs, so determining the exact value that any one financier may place on the coverage is difficult,” Kioussis highlights. “However, the savings differential over the term of a loan or lease could be substantial.
What Direct Advantages do Maintenance Programs Offer?
According to Kioussis, enrolling aircraft on maintenance programs is less about guaranteeing lower maintenance costs and more about ensuring the cost of maintenance will be the cost of the program, thus eliminating nasty aircraft maintenance-related surprises during ownership.
Nevertheless, “some operators believe they can cover unscheduled maintenance risks and would rather manage that by investing and managing funds they would have paid into a program,” he notes.
“What those operators are not considering is the additional and direct value that maintenance programs offer them, over and above the value to their aircraft. These include, for example, additional coverage while the aircraft is under warranty.
“Though a warranty is valuable, its coverage can be limited to the cost of repairing the affected component.” However, a maintenance program could additionally include shipping affected components to the maintenance facility; shipping rental components to the aircraft; installation; cost of rental components; removal of rental parts; return shipping for the rental/original components; and logistical support.
But with different levels of maintenance coverage available, is there a right level of coverage for operators to consider?
“The primary differentiator for many programs tends to come down to whether or not they cover Life Limited Parts (LLP),” Kioussis argues, noting some operators forego Life Limited Parts coverage because they “won’t need replacing for years, and rarely fail”.
This short-term view overlooks the fact that LLPs will have to be replaced eventually, and a lack of coverage may negatively impact the aircraft’s value in the long-term. Moreover, LLPs do fail and the unexpected cost of replacing
them could exceed what it would have cost to cover them through a maintenance program.
them could exceed what it would have cost to cover them through a maintenance program.
Lastly, not all LLP limits are the same on an aircraft, with some requiring replacement far sooner than others.
Beyond the Engine Maintenance Programs…
With high engine maintenance costs commanding the operator's attention, it can be easy to overlook other areas of coverage that can either be incorporated into a tip-to-tail program or covered by avionics-, APU, or airframe-specific programs.
“Like engine coverage, avionic, airframe and other coverage can be very useful in guaranteeing an operator’s maintenance costs, especially since they cover the unknown, unpredictable cost of unscheduled maintenance events,” Kioussis explains.
“The other maintenance program types generally add little to the value of an aircraft upon resale, though,” he adds. “Avionics program pricing to the buyer is usually the same whether an aircraft sells ready-enrolled on a program or is enrolled by the aircraft’s new owner.
“Airframe programs are generally structured to address the specific utilization pattern expected by an operator and the aircraft’s anticipated maintenance events. So pricing is likely to change when aircraft ownership changes.”
This is why, Kioussis says, less value has traditionally been placed on airframe maintenance programs over the years; a view that he describes as illogical.
“Some unscheduled airframe maintenance events can be costly. A short-term view means that some operators only examine the scheduled maintenance they anticipate they’ll experience. That can result in a substantially higher operating cost figure.”
And that microcosm of thinking summarizes the world of maintenance programs generally: Essentially, it is the more risk-averse owners, those that accept the very real danger of unexpected, high-cost maintenance events, that are more likely to enrol on a program.
Those willing to gamble, or who are simply uncertain about their asset’s potential exposure, are less likely to. What’s certain is that betting against an unscheduled maintenance issue comes with very high stakes...
More information from www.assetinsight.com
- Read more about Jet Maintenance
- Visit our Engine Maintenance Hub
- Find an Aircraft Maintenance Program
- Read more on Business Aircraft MRO on our new hub.
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