Engine hourly-cost programmes and the price of an aircraft

One line in the records moves the price harder than year of build. An aircraft outside an engine hourly-cost programme loses $1.5–2M at sale on a Challenger 604 and on a Global 6000, $1–1.5M on a Legacy 450, and $500–800K on a Phenom 300, to my knowledge. Here is how these programmes are built, where those figures come from, and how to calculate the rate when there is no programme.

What the hourly contribution buys

An engine is a consumable with a known life and a known restoration cost. A programme turns the rare invoice for a removal, comparable to the value of the whole aircraft, into a level contribution for every hour flown, and moves the risk to the provider.

Factory programmes are run by the engine makers: MSP at Honeywell, CorporateCare at Rolls-Royce, ESP at Pratt & Whitney Canada, OnPoint at General Electric. Independent coverage comes from JSSI and similar companies, which take on a range of engine types. Airframe and component programmes such as EEC Enhanced and Smart Parts run separately.

Basic coverage closes the scheduled overhaul. Extended coverage, usually called Gold, adds unscheduled removals, foreign object damage, a rental engine and off-base work.

Where the money comes from

Orders of magnitude for restoration, to my knowledge:

A GIV-SP in good condition sells for $4–5M, and restoring a pair of Tays takes more than half of that. On the Hawker 1000 an overhaul of the pair costs more than the aircraft itself — hence the low prices on the type and their spread.

How the market prices programme status

The buyer works out the uncovered risk and subtracts it from the price. The discount by type, to my knowledge:

It works in reverse the same way: on a Learjet 45, engine and airframe programmes together add $300–500K to the price, to my knowledge.

The rate when there is no programme

Restoration cost divided by remaining life. Take a pair of CF34-3A: life 6,000–8,000 hours, restoration $1.5–2M. The upper bound is $2M over 6,000 hours, $333 an hour; the lower is $1.5M over 8,000 hours, $188 an hour. That $190–330 an hour covers two engines only, without the auxiliary power unit and the airframe.

The same rate is the benchmark for comparison against the quoted contribution: whatever the contribution exceeds it by is the price of transferring the risk.

The second benchmark is annual hours: at a hundred hours a year the CF34-3A accrual comes to $19–33K, at four hundred it comes to $76–132K. For scale: the variable block of costs on a Praetor 600 runs at $4,029 an hour, the fixed block at $948,470 a year, to my knowledge.

What to read in the programme contract

What is covered. Engines, the auxiliary power unit, the airframe and components are separate programmes with separate contributions. The phrase "the aircraft is on programme" usually covers the engines alone.

Transfer at sale. Active coverage passes to the new owner and counts as an asset of the deal; the terms of transfer and the fee for it are written into the contract.

Joining retrospectively. An engine that has already flown hours is accepted after an assessment of its condition and with a payment for the time elapsed. Joining late costs more than continuous participation.

What is excluded. Foreign object damage, corrosion, the consequences of improper operation, off-base work, a rental engine while the shop visit runs.

Minimum hours and escalation. An aircraft that flies little pays the minimum regardless of what it actually flew. The contribution rate is revised by the formula in the contract, and a five-year ownership horizon is calculated with that in mind.

What to do when buying

Ask, for every candidate, how many hours and cycles each engine has flown, what remains before the next removal, and for a statement of programme status with the date of the last payment. Check the level of coverage: on a large aircraft the difference between basic and extended runs to hundreds of thousands of dollars.

Add to the advertised price either the cost of joining the programme or your own reserve at the calculated rate. Two aircraft a million dollars apart on the listing often swap places after that calculation. Check the auxiliary power unit separately: it brings its own invoice, and it is the one most often forgotten.

An owner pays for a repair known about in advance in one of three forms: a level contribution every month, a single invoice in an inconvenient year, or a discount at sale. The sum is of the same order in all three cases.

The figures here are market reference points by type, to my knowledge. The terms of a programme and the sums for a given aircraft follow its contract and its records.

Alexander Filimonov — business aviation: selection, purchase and entry into service of aircraft.

If you are working through a specific offer, send three inputs: the type, the hours flown on the engines, and the programme status with its date. I will show what joining will cost and where the reserve is being underestimated. Contacts in the profile.