MAINTENANCE PROGRAMS: A PREREQUISITE FOR PRE-OWNED AIRCRAFT OPERATORS
Pay-per-hour engine programs help operators minimize maintenance costs, improve availability and maximize resale value. That’s why most pre-owned aircraft buyers now insist on one, as our expert explains.
TOP COMPANIES PIVOT TO MAINTENANCE PLANS
Ten years ago, Delray Dobbins, Senior Manager, ESP Sales, began tracking Fortune 100 companies’ use of engine maintenance plans for their corporate jets. In 2009, only one of the top five companies’ flight departments had their engines on a plan. By 2014, that number had jumped to four out of five—reflecting a major shift in the market that continues today.
When the largest companies in the world are embracing engine maintenance programs, that often sets a tone for smaller companies. These programs are more in demand now from aircraft buyers than they have ever been.
Indeed, for aircraft owners concerned about the resale value and time on market of their assets, maintenance plans like P&WC’s Eagle ServiceTM Plan (ESP™) program have become a must. Large business jets which are not on an engine program may languish on the market for year. Even the biggest companies with the best-kept aircraft are at a disadvantage when they try to sell aircraft without coverage.
“Brokers have run a ton of data and metrics in recent years showing that aircraft on engine programs sell faster than those that are not,” Delray notes. This is especially true for medium and large fixed-wing aircraft, for which an overhaul is significantly more expensive than it is for a smaller utility aircraft.
ENGINE PLANS MINIMIZE BUYER RISK
Many engine programs have been around for 20 years or more. Why the surge in interest during the past decade?
According to Delray, the shift is driven by buyers of pre-owned aircraft, for most of whom an engine program is now a prerequisite. Before he joined P&WC, he worked for a broker in Texas. When potential buyers look at a list of aircraft for sale, typically the very first filter applied, is an engine program. If it’s not enrolled, it does not make the short list for a buyer.
In the past, when I would meet with energy and oil companies here in Texas to discuss putting their aircraft engines on a maintenance plan, they would tell me, ‘We see the benefits of your program, but we’d rather spend the money on drilling instead.’ It was this way for 40 years. However, in the last 5-8 years, most of these same companies are seeing the value of engine programs are embracing the OEM ones.
Delray Dobbins - Senior Manager, ESP Sales
An important factor underlying this market shift is the increase in shop visit intervals, which have risen steadily from 2,000 or 3,000 hours in the 1980s to as much as 10,000 hours today.
That means an aircraft could easily change hands half a dozen times instead of once or twice before its first overhaul. And each time it sells, the buyer will want an engine program.
For buyers, the biggest risk of buying a used aircraft is unexpected engine expenses. Buyers don’t want to be left holding the bag if there are any surprise costs. Without an engine plan, the cost of an overhaul could exceed the value of the aircraft. The only way to mitigate that risk is to have the engine hours paid for through a maintenance plan.
ESP PROGRAM OFFERS FLEXIBILITY, INCENTIVES
In a nutshell, P&WC’s ESP program makes maintenance expenses easier to predict and manage by covering the cost of overhauls, inspections, unscheduled engine and accessory repairs and more on a pay-per-hour basis. Various levels of coverage are available to suit the needs and budgets of different operators. Plans can be transferred to the new owner when an aircraft is sold and there are no minimum annual flying hours. When P&WC dropped the annual minimums in 2012, many low utilization operators moved to enroll as they could now only pay for the hours they flew.
In keeping with the general market trend, more and more P&WC customers are recognizing the value of these plans. This is reflected in fast-growing enrolment numbers. P&WC now has over 10,000 engines on a pay-per-hour program. In 2018, there were a record 350 new ESP enrollments, along with 370 transfers thanks to a very active pre-owned market.
What’s more, while other programs on the market have not changed significantly in 20 years, P&WC has proactively developed incentives and enhanced coverage and financing options tailored to different missions and operating environments as well as to help customers enroll in-service engines onto a plan.
One example is the ESP Flex enrolment option. While the long-term benefit of an engine program is clear, the up-front cost may deter so operators. Flex addresses this by providing financing options that eliminate the need for a large initial lump-sum payment by deferring part of the cost. This is a great way to get all full coverage immediately while deferring a major capital outlay for more than 10 years, in some cases.
We don’t know of any other manufacturer who has come up with a way to spread out the cost of a buy-in to an engine program while giving 100% coverage from day one. The Flex program has been very well received by buyers of mid-time and high time aircraft. It has allowed them to enroll engines where previously the buy-in was a barrier to entry.
The ESP™ecially for Your PT6 program, meanwhile, is helping drive uptake of engine plans in the turboprop world. In this market, operators have been more reluctant to enrol in engine programs, since overhaul costs are not as variable as they are for larger aircraft. The ESP™ecially program addresses this by offering 400 hours or two years of free coverage.
With overhaul costs rising and aircraft changing hands more frequently, Delray doesn’t expect the trend to change any time soon. “Even if there’s a rollback in pre-owned activity, demand for engine programs will continue to grow in all segments. Most buyers won’t even look at an aircraft without one,” he concludes.
For advice on choosing an engine plan, see our article on Calculating the Value of the Right Aircraft Maintenance Program.