A major factor in determining an aircraft’s value is engine program enrollment, but not all programs are created equally. Manufacturers and third-party providers offer a variety of programs, each of which differs in coverage and cost, and the details impact the value of an aircraft.
One obvious differentiator is what’s included in coverage. More robust programs include labor and rental engines for use during a scheduled or unscheduled event. More recently, program offerors have begun to include corrosion coverage as well, at a premium.
The factor that most often surprises aircraft buyers is a deferred plan, like ESP Flex, which allows its participants to enroll in a program with full coverage, keep funds in their operating budgets, and make a balloon payment at overhaul. Devised during the recession to retain clients, the program is still an attractive financial mechanism for some—and has gone through several iterations to what’s offered today.
Pro tip: In a purchase agreement, establishing that there are no deferments in any programs or shortened maintenance intervals is a great idea.
Another differentiator is life-limited parts coverage. For clarity’s sake, a life-limited part means any part for which a mandatory replacement limit is specified in the type design, the Instructions for Continued Airworthiness, or the maintenance manual, according to the FAA. Life-limited parts can include bolts, fans, wheels, discs, and other internal parts that must be replaced after a certain number of cycles. With some programs, coverage includes that life-limited fan blade, but with others, the cost would come straight out of your pocket.
Honeywell’s Maintenance Service Plan (MSP), for example, covers life-limited parts. Rolls-Royce Corporate Care, on the other hand, does not. Pratt & Whitney’s Eagle Service Plan (ESP) offers both options. That isn’t to say that one option is objectively better than the other, but knowing what’s covered beforehand can go a long way in budgeting for your aircraft’s maintenance and accurately assessing its value.
Many buyers—and sometimes their advisors—assume that “freshly overhauled” engines mean the expense starts over at zero, but they fail to anticipate the expiration of the life-limited parts.
“A common situation involves a buyer who purchases a mid-size business jet with mid- to high total time on airframe and engines,” says Delray Dobbins, who works in ESP Sales and Global Strategy. “The engines have been freshly overhauled, so both the seller and buyer assume there is no cost for buy-in to ESP Gold. With the transaction completed, the buyer initiates enrollment in ESP Gold only to be told the buy-in is actually over $1M dollars. Understandably, the outcome is one seriously unhappy new owner.”
Dobbins goes on to explain, llthough an aircraft may have recently overhauled engines, many of the engine’s life-limited parts may not have been replaced, depending on how long the life of that part may be. In that case, the program’s buy-in will differ based on the “life status” of those parts, or the percentage of the part’s life that’s been consumed up to that point based on the number of cycles it’s been flown.
With that in mind, Dobbins also said it’s a good rule of thumb as a seller to advertise a program’s rate sheet rate, not the current contract rate, because the hourly cost may differ based on the owner’s operations. More cycles on life-limited parts may equal a more expensive program.
It’s also frustrating to close on an aircraft and find that the account is past due or has been suspended for non-payment. If you are buying an aircraft with an engine program, be sure to check with the program provider that an aircraft’s programs are in good standing and ready to be transferred, with no deferrals or limitations outside of a normal contract.
The bottom line is that there is no one-size-fits-all program solution for aircraft owners, and this is one area that often catches buyers unaware with hidden costs down the road.