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Hourly cost maintenance programs

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Bizjet owners, operators, and maintenance providers encourage pilot input to update airworthiness and asset value management strategies and plans.


By Don Van Dyke
ATP/Helo/CFII, F28, Bell 222 Pro Pilot Canadian Technical Editor

Maintenance expenses for bizjets depend on aircraft age, size, and inspection cycles. Some certified centers offer jet owners priority access to their charter fleet when the owner’s personal aircraft is down for maintenance.
Training and proficiency underlie aviation safety, security, and efficiency. Pilots can contribute their knowledge and experience of advances in aircraft technology, sophistication, and reliability to decision-making, which includes meeting today’s financial, operational, and cultural challenges.

In this way pilots can help to develop a deeper understanding of aircraft maintenance management. Maintenance, repair, and overhaul (MRO) costs are related to aircraft make, model, age, and types of operation.

An airworthiness program reflects 3 main parameters – utilization (flight hours), cycles (landings), and calendar-based events (scheduled maintenance). Over time, aircraft maintenance accounts for as much as 35% of an aircraft’s annual operating budget.

Warranties

Original equipment manufacturers (OEMs) issue limited warranties on new products and components, so that in the event of accident or equipment fault involving these proprietary items within linked periods, related expenses are largely covered.

Airframe and engine OEMs typically issue separate warranties. The primary structure of a production aircraft (eg, fuselage, wings, stabilizers) will have the longest warranty – up to 20 years or 20,000 flight hours.

Warranties on engines and APU often cover 5 years or 3000 flight hours, while avionics are typically warrantied for 3–5 years or 3000–5000 flight hours. Some OEMs offer extensions (eg, 2 years or 500 engine operating hours) to provide warranty-like protection beyond the original warranty period.

Warranties add appreciably to the value of the purchase. According to Conklin & de Decker, labor and parts for new aircraft may cost 15% and 30% less, respectively, during the warranty period. Sellers of aircraft under warranty benefit from covered repairs of faults identified during pre-purchase inspections.

They will also benefit from the higher price buyers are willing to pay for aircraft transferred under this protection.

The MRO aftermarket

The post-warranty period (known as the MRO aftermarket) is active and complex. OEMs continue to monitor reliability data so that maintenance programs prescribed for each aircraft, system, or component can be amended – subject to regulatory approval – to avoid unnecessary upkeep.

Related operational and financial planning must consider the effect of inspections, Airworthiness Directives (ADs), and Service Bulletins (SBs) on the maintenance budget. In addition to airworthiness requirements, provision must be made for future regulatory mandates likely requiring aircraft modifications or upgrades.

In either case, significant liability for maintenance expenditure may adversely affect aircraft value. Unexpected maintenance is inevitable during the lifetime of an aircraft. It’s difficult to predict without qualified opinion based on a database of events involving similar aircraft by make, type, and utilization.

A widely held rule of thumb says that, on delivery, engines represent 20% of the new aircraft value, with the rest of the aircraft representing the remaining 80%. Approaching end of life, the ratios reverse, with engines accounting for 80% of the aircraft’s value, and the remainder of it accounting for 20%.

For this reason, aftermarket maintenance budgeting tends to focus on provisions for engine MRO. Budgeting is multifaceted and complicated by maintenance needs, which become less accurately predictable as an aircraft ages.

Provisioning for unscheduled maintenance may be best developed by an independent broker or trusted consultant, especially for the smaller operator.

Aftermarket MRO providers

Aftermarket MRO tasks may be performed in-house (self-insurance), by the OEM, or by independent 3rd-party contractors meeting requirements for airworthiness suppliers. The main competitive differentiators are their relative effectiveness in meeting airworthiness requirements, containing maintenance costs, and avoiding or minimizing operational interruptions.

Self-insurance. A self-insurance strategy requires the owner to assume total risk and cover related costs. If scheduled and preventative MRO is reliably sustained, and wide maintenance-cost data is available, operating cost forecasts can be compared with fixed-cost maintenance plans.

Even when costs are comparable, self-insured owners may choose to share scoped risk with an outside maintenance plan provider. OEM provider. Factors favoring the OEM provider may include offering comprehensive coverage, plan price, and widespread recognition of brand-name value.

The OEM can often complete a repair more quickly on a component covered under its own plan. Finally, the OEM provider uses new parts in performing repairs and overhauls, particularly on engines it currently produces.

In all cases, only OEM-authorized new parts and service are offered. 3rd-party provider. While OEM providers appear to dominate the aftermarket segment, independent contractors can compete with flexibility (alternatives to comprehensive full-service contracts), mobility (supporting remote needs), and pricing (through utilization of quality used serviceable materials [USM] for both proprietary and non-proprietary designs).

Hourly cost mx programs

Rolls-Royce invented and announced its trademarked Power-by-the-Hour maintenance management framework in 1962 to support the Viper engine on the Hawker Siddeley HS.125 business jet.

Confident of its predicted maintenance costs, complete engine and accessory replacement service was offered on a fixed-cost-per-flying-hour basis. This aligned the interests of the OEM and the operator, who only paid for engines that performed reliably.

Other OEMs quickly followed suit with a range of additional features and benefits, making the concept more attractive. This evolved into the hourly cost maintenance programs (HCMPs) concept. Although originally perceived as insurance, they are more closely allied with pay-forward savings accounts, which materially help to sustain operational efficiency, improve financial stability, and secure asset value.

HCMP goals include avoiding unplanned maintenance, downtime, and organizational stress; preserving service availability and operating flexibility; stabilizing costs to improve budgeting; protecting leasing and financing terms; enhancing aircraft resale residual value; and reducing administrative burden by consolidating billing annually.

Given current industry volatility and vulnerability, well-founded forecasts of onward MRO requirements are as needed as they are difficult to formulate. HCMPs remove cost uncertainty by providing predictability for scheduled maintenance budgeting, while concurrently mitigating the consequences of unexpected repair costs.

Although offered under different names, applications, and terms, HCMPs are available from all major airframe, engine, APU, and avionics OEMs, plus one non-OEM – Jet Support Service, Inc (JSSI). Their shared objective is to improve safety and efficiency by optimizing asset reliability, longevity, and durability, while making related costs and maintenance events predictable.

Table 1 identifies coverage usually offered under HCMPs and associated features, as well as plan benefits and common exclusions. HCMP providers achieve economies of scale by aggregating MRO services and offering the savings to clients to buffer the cost of aircraft ownership.

These programs raise an expense based on disclosed or estimated aircraft utilization for defined major components (eg, engines, avionics, APU), virtually up to the entire aircraft. HCMP enrollment of a used aircraft with no accompanying HCMP may require a substantial buy-in fee. HCMP providers may offer different levels of coverage that are tailored to customer requirements.

Pratt & Whitney Canada (P&WC) offers up 5 differently-priced levels of its Eagle Service Plan (ESP) coverage of certain turbofan engines. JSSI makes available options that cover different aspects of the overall engine maintenance requirement, thus allowing owner/operators to avoid paying for unwanted services.

HCMP coverage can help to stabilize maintenance-related financial exposure, particularly for those owners or operators without significant internal resources to support their aircraft maintenance needs.

The backlog on certain engine programs and the normal lag time of aftermarket activity has allowed some independent shops to remain open, particularly in North America, as many business aircraft operators are choosing to use the current downturn to complete inspections or book their assets for early maintenance and upgrades.

Retained value. A well-structured and managed HCMP can also help to retain asset value by providing a secure, verifiable database of related maintenance activity. This avoids issues in technical documentation and records, which can otherwise significantly reduce retained asset values or even render them worthless.

Aging aircraft operated under an HCMP are thus made marketable for resale, often with shorter resale times. Importantly, this encourages viewing the aircraft – from at least one perspective – as a financial instrument.

Other HCMPs

The benefits of connectivity on business aviation are profound, and the avionics industry is at the forefront of connected aerospace. Maintenance plans are customized to cover avionics equipage and requirements of both the flightdeck and passenger cabin, including entertainment, communications, and information technology (IT).

HCMPs tailored to avionics are available from several OEMs, commonly offering provisions for 24/7 aircraft on ground (AOG) emergency service, obsolescence, no-charge loaners, large fleet and high aircraft utilization discounts, and other benefits that may be either included or at rates limited by US Government economic indices.

OEM support provided is identical to the original factory warranty. Customized coverage for APUs is another important HCMP variant. Extended coverage, often available for a small hourly fee, includes many of the additional charges associated with APU repairs, such as labor for APU and LRU removal and reinstallation, freight-in and freight-out expenses, and allowances for lengthy troubleshooting, among other common expenses.

HCMPs for avionics and APU are both typically fully transferable without fees to the new owner. A more recent HCMP variant regards nacelles, which traditionally have not been included under engine maintenance programs, falling into the coverage gap between airframer and engine OEM.

At NBAA 2018, Rolls-Royce announced that its CorporateCare program would include nacelles on engines for which it has a direct procurement relationship with the nacelle provider. This announcement benefits aircraft including Bombardier Global 5000, 5500, 6000, and 6500, and Gulfstream G500, G550, and G650.

Conclusion

Return on investment (ROI) in an HCMP will reflect the value of reliably meeting operational and utilization goals against associated maintenance costs and asset management. Maintenance planning and budgeting only from an airworthiness perspective, not including cost-saving measures, and failing to account for operational demands, are serious management oversights.

HCMP frameworks ensure a formal approach to asset management which satisfies diverse ownership and operational needs. Table 2 provides an overview of HCMPs by major airframe and engine/APU OEMs. Enrolling an asset in an HCMP is an exceptionally sound strategy to improve the reliability, usefulness, and accuracy of budgeting and planning for one of the most critical cost centers in aircraft operations.


Don Van Dyke is professor of advanced aerospace topics at Chicoutimi College of Aviation – CQFA Montréal. He is an 18,000-hour TT pilot and instructor with extensive airline, business and charter experience on both airplanes and helicopters. A former IATA ops director, he has served on several ICAO panels. He is a Fellow of the Royal Aeronautical Society and is a flight operations expert on technical projects under UN administration.

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