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Guaranteed Maintenance Programs Decrease Surprises And Increase Aircraft Resale Value

Following is an excerpt from an article written by NARA for publication in the March 2012 edition of World Aircraft Sales magazine. To read the full article, please go to page 100 of the digital March edition of World Aircraft Sales by clicking here.

When it comes to operating an aircraft during today’s economic times, financial surprises are something most aircraft managers try to avoid. That is likely why guaranteed maintenance programs for business aviation aircraft have increased in popularity.

These maintenance programs provide coverage for almost all engines, auxiliary power units (APUs), airframes and even avionics found on most turboprops, jets and helicopters flying today. Offered by original equipment manufacturers (OEMs) and one major independent company (Jet Support Services, Inc.), maintenance programs also affect the resale of an aircraft.

How Does a Guaranteed Maintenance Plan Work?

Aircraft maintenance programs provide maintenance coverage for a fixed price per hour. This helps those managing the various maintenance aspects of an aircraft in setting – and meeting – a maintenance budget. Engine plans are by far the most popular guaranteed maintenance programs available. That is because the cost of engine overhauls or core zone inspections (CZIs) can be staggering, and that doesn’t even include unplanned maintenance events.  

According to Louis C. Seno, Chairman and Chief Executive Officer of Jet Support Services, Inc. (JSSI), a long-time associate NARA member, an engine HSI for a long-range business jet can easily cost more than $250,000 for each engine while an engine overhaul can easily cost in excess of $500,000 for each engine. In addition, opening an engine for inspection subjects all of the cycle-limited components within the engine, like turbine wheels and blades, to repair or replacement. It is not unheard of to have a final bill increase by two or three hundred percent due to unexpected repairs required for these components.

With a guaranteed maintenance program, the aircraft operator pays in a set amount of money. This amount is based on a per-hour basis and is determined by contract, depending on the make and model of the aircraft and the type of plan the operator chooses. Since the money put into the account is accrued on a per-hour basis, it is much easier to budget for the future than with “pay-as-you-go” engine maintenance.  

As engine maintenance programs became more popular, companies began looking at offering the same types of programs for other areas of the aircraft. Operators can now put APUs, airframes, avionics and passenger cabin equipment on guaranteed hourly cost maintenance programs.

Those working in the transaction side of corporate aviation agree that whether or not an aircraft is on a maintenance program has a direct effect on the value of the aircraft and even the length of time it remains on the market.    

How Do Maintenance Programs Affect Aircraft Value?

Nicholas Cerretani, president of Cerretani Aviation Group, LLC, and a long-time member of the National Aircraft Resale Association, says an engine maintenance program almost always enhances the value of an aircraft in two ways. “First, an engine program like ESP, MSP or JSSI has an objective value because it is essentially a prepayment for scheduled maintenance and overhaul events in the future. Secondly, it has a subjective value in that it protects the owner from potentially large expenses related to an unscheduled failure of an engine or engine component.”

Doug Kvassay, an aircraft sales representative for Duncan Aviation and a longtime NARA member, agrees. “The engine program is the big one that affects the aircraft’s value. The value is usually equal to the amount paid in. For engines, as you are funding hours used, the value is the same as zero time.”

Cerretani  and Kvassay say the other maintenance programs affect aircraft value as well, though in differing degrees.

“The APU maintenance programs work in the same way engine programs do,” Cerretani says. “But since the expenses related to APU maintenance are typically far smaller, these programs have a much smaller effect on the value.”

Kvassay says he has recently seen an uptick in the number of aircraft on APU programs. This is likely because the expense of APU inspections has increased significantly in recent years and operators are seeing larger out-the-door costs on these units.

Another thing aircraft purchasers might discover is that the financial institutions they wish to use if they finance their aircraft might have some maintenance program requirements of their own.

“Since engines are the single largest variable in the value of an aircraft and banks and finance companies like to mitigate their risk when it comes to the value of their secured assets, engine programs are strongly preferred by most lenders,” Cerretani says. Purchasers need to be aware of that.

Just as it is with other forms of insurance, the main benefit of maintenance programs comes down to peace of mind. Guaranteed maintenance programs assure predictable budgets to the aircraft owner, operator, manager and financier.

Posted on: March 29, 2012