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The Business Case for Hourly Cost Maintenance

Posted on: November 1st, 2015 by Pete Agur

Hourly cost maintenance programs may not be for everyone. If a $250,000 unexpected expense is not a concern to you, you probably don’t need them. For the rest of us, they can be invaluable. The following is an exploration of some of the primary business reasons many aircraft owners employ hourly cost maintenance programs so they can sleep better at night.  These validations apply for both companies and high net worth individuals and their family offices.

FIDUCIARY RESPONSIBILITY

An aviation manager is a business unit leader. His or her span of responsibility goes well beyond making sure takeoffs equal landings. Chief among those other duties is fiduciary; managing the capital and operating costs for best outcomes throughout the capital asset’s life cycle. This is especially true when you consider it is rarely a good idea to surprise the executive to whom you report with bad economic news. An hourly cost maintenance program is a tool for covering those bases.

BUDGET ACCURACY

A close cousin to fiduciary responsibility is maintaining budgetary accuracy. There is a growing requirement within businesses for predictable and assured cash flows. This may not be a major challenge within the owner’s core business because their costs may be very linear and predictable. However, budgetary linearity and predictability are not a certainty in aircraft operations. No matter how conservatively and carefully you operate, stuff does happen. The cost of an engine overhaul can be six or seven figures. A faulty starter-generator or avionics box that is out of warranty is an expense in the tens of thousands of dollars. Covering these items under an hourly cost maintenance program can take the shock out of what would otherwise be seen as unacceptable cost variances.

SERVICE INTERRUPTION SUPPORT

If you have an aircraft system or component failure, you have three sources for support: the original equipment manufacturer (OEM), your favorite maintenance-repair-operations (MRO) vendor and the open market. Unless you operate a large fleet of one type of aircraft, you are a small fish in a large school of users. This leaves you with little leverage, beyond your interpersonal skills and relationships, unless you are covered under an hourly cost maintenance program. These programs have three advantages over you and me: 1) they have fleet buying power, 2) they either have an inventory of their own or “best customer” status with the suppliers, and 3) they have a wealth of expertise on component reliability and maintenance vendor performance. In other words, they can pull rabbits out of hats when you cannot.

BRIDGE THE OWNERSHIP CYCLE GAP

Most airframe OEMs include a five-year warranty, with flight hour limitations, in the purchase of a new aircraft. Most owners keep their aircraft for 7-10 years. This ownership cycle gap in warranty coverage pressures you to trade your aircraft before the end of five years. However, that timing may not necessarily be in your capital asset plan. Unless the aircraft is subjected to hostile environments (salt air, etc.) or other operational abuses, most aircraft mature very gracefully during their first decade. In other words, there is usually no compelling financial reason to trade the aircraft earlier than you need to if you have an hourly cost maintenance program that bridges the gap between the end of the OEM’s warranty period and when you finally trade the aircraft for a newer one.

The original article was published by JSSI AIRWAYS 2015. You can download a copy here.

 

 

 

 


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