Hourly cost contracts

Hourly Cost Contracts A new-wave maintenance approach comes of age By Greg Napert February 1998 If you spend any time at all around turbine aircraft, you've probably heard the term "power-by-the-hour®" mentioned at least once over...

Hourly Cost Contracts

A new-wave maintenance approach comes of age

By Greg Napert

February 1998

If you spend any time at all around turbine aircraft, you've probably heard the term "power-by-the-hour®" mentioned at least once over the last few years. The term, which has been around for 15 plus years was actually coined by Rolls-Royce when it first offered the program on its Viper engine.

Although hourly cost maintenance programs have traditionally been associated with engines, several of the airframe manufacturers now offer hourly cost maintenance contracts on the airframe, engine, or airframe/engine combination.

What are hourly cost contracts?
Stated in the simplest terms, these contracts involve nothing more than estimating the cost of maintenance over a period of time, and dividing that cost into monthly payments.

"The value of these programs is twofold," says Rick Haskins, president of Jet Support Services Inc. (JSSI®). "First of all, in this day and age, an aircraft with an hourly maintenance program on it will sell faster and for more money — it's a fact. They sell for an average of 7 to 14 percent more. It brings clarity to the issue of the value of the aircraft or engine. If you include the residual value of what you get out of the airplane when you sell it, then the program can be cheaper than maintaining the aircraft outside of one of these programs."

From our research on the subject, we discovered that there are four basic types of hourly cost programs: parts or labor only coverage from the manufacture, nose-to-tail coverage, independent contract provider coverage, and maintenance/overhaul facility coverage.

A couple of things stood out when reviewing the contracts — these programs vary widely from company to company and even from individual contract to individual contract. Make it a habit to always contact the service provider before beginning maintenance on an aircraft enrolled in an hourly maintenance contract.

Additionally, all of the companies reviewed had provisions in the contract which restrict discretionary removals. If the customer wants to remove or replace something and it is not supported by the maintenance program, they will likely be charged accordingly.

Following is a random sampling of each type of program.

Parts coverage
Cessna Parts Distribution provides a somewhat unique parts-only hourly contract for Cessna Citation Jets. It has taken a unique approach to coverage when compared to other programs — it wants to lower the cost of maintenance for the Citation Jet through their program.

Jack Stiffler, director of Citation spares, says, "We (ProPartssm) are the customer's advocate within Cessna for reduced operating cost, and we put a great amount of effort into understanding what these airplanes are doing and attacking direct operating costs."

Fred Parsons, manager of sales and warranty for Citation Spares, says, "What we tell the market is that the cost will be equivalent to a normal aircraft in the fleet maintained in a prudent manner by good mechanics using good decisions," says Parsons.

To back this concept, Cessna offers an efficiency bonus to encourage keeping costs down. If the customer uses less in parts than is budgeted for in the program, 60 percent of the dollars saved will be returned to the customer.

Cessna's approach to parts replacement is to supply new exchange or repair parts as they see fit. Stiffler says, "We generally supply exchange because that gives us instantaneous parts availability, plus it's less costly than new. However, the customer can choose to have his component repaired if they have the time. By doing so, the cost savings would be credited to their account."

"The program covers all parts required for maintenance and repair of the aircraft to include consumables. The only thing not covered, explains Stiffler, is interior wear items such as seat fabric and carpet and plating and paint. The exterior paint on our new aircraft is covered by a Cessna warranty."

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