Guaranteed Engine Maintenance Programs
Boon or Boondoggle
By Bill de Decker
They are known by names such as "ESP," "MSP," "JSSI Complete," and "Power-by-the-Hour," yet they all have one thing in common — comprehensive turbine engine maintenance and overhaul coverage at a fixed price per hour.
This coverage is now offered by almost all of the major turbine engine manufacturers, as well as one independent company. They are available for almost all engines in common use on helicopters, turboprops, and jets.
These programs generate a lot of heated debate. Some people believe they can get their engine maintenance for a lot less money than to buy into a program — others are convinced that it is the best thing since sliced bread; and still others support a full range of opinions in between.
What is without debate is that these maintenance plans have become quite popular. What is also without debate is, that as managers, we have to take a step back and look at these programs from a management point of view. Perceptions aside, the real questions you must answer are:
• How do the costs compare?
• What are the benefits of these programs?
• How can this help your organization?
First, lets look at the costs. This is where a lot of the confusion gets started, because many people think the maintenance cost of the engine is the same as the hot section inspection and overhaul cost. For one popular engine, the cost of the hot section inspection and overhaul is about $71.50 per hour, while the guaranteed maintenance cost is about $110 per hour.
One possible conclusion is that the company providing the guaranteed maintenance program is making one heck of a profit! Although these programs come in many different flavors, the most popular ones (including the one in the previous example), are the comprehensive ones. These include a lot more than just hot section inspections and overhauls. They also include consumables, maintenance of the accessories, recommended and mandatory service bulletins, loaner engines, coverage for premature removals, unscheduled maintenance, and replacement of life limited parts.
If each of these additional coverage items is priced out, it increases the cost per hour from $71.50 to $114.50 and all of a sudden, the guaranteed maintenance charge of $110 per hour looks pretty reasonable!
Second, let's look at the benefits. The major ones are:
• Guaranteed maintenance plans take the uncertainty and unpredictability out of one of the major cost areas on any aircraft. Engine maintenance costs are nearly negligible until heavy scheduled or unscheduled maintenance is required. For example, a typical overhaul on a small jet may cost $200,000 per engine. If that small jet is used in charter service, it may generate about $1,000,000 in charter revenue for a year. Overhaul of two engines will be about $400,000, or 40 percent of the revenues for that aircraft for the year.
If the year hasn't been all that good, this will be a nightmare for the chief financial officer. At the same time, it distorts the financial picture — the years prior to the overhaul will show a higher profit than was warranted, and the year with the overhaul will show a huge loss.
Thus, from both a cash flow and a financial management point of view, it is in fact much better to spend a fixed hourly fee for each hour flown and avoid the huge expense peaks associated with paying for heavy maintenance as incurred. This applies whether you are with a small charter operation or with the corporate aviation department of a Fortune 500 company — both watch cash flow like hawks.
They are both expensive, and the death of one can lead to the death of the other.
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