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28 Mar 2024, 10:13 [ UTC - 5; DST ]


Concorde Battery (banner)



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 Post subject: Re: MUSTANGS
PostPosted: 22 Nov 2018, 22:26 
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Question: Is it a mistake to buy a Mustang that is not on an engine program? Is it similar to buying an airplane with missing logs or major damage history?


Missing logs or DH does not affect your maintenance costs. Without an engine program you need to be able to handle all costs. You are self insuring and may get lucky and only have major costs at HSI & OH, or you can have a #3 bearing failure and it can cost you in the mid six figures to repair. How deep are your pockets?

If all you can afford is an off program Mustang then you probably should not be buying it. If you can afford an on program aircraft but choose to buy an off program aircraft and keep the difference in the bank you will see how that account has done when you sell the plane.

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 Post subject: Re: MUSTANGS
PostPosted: 22 Nov 2018, 23:24 
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Username Protected wrote:
If all you can afford is an off program Mustang then you probably should not be buying it. If you can afford an on program aircraft but choose to buy an off program aircraft and keep the difference in the bank you will see how that account has done when you sell the plane.

I can afford either, thank you very much.

It sounds like you, and most of the market, are in favor of engine programs. I’m just not that familiar with programmed maintenance and am trying to educate myself.

I read about Clint’s engine failure and subsequent replacement. I have also read Mike C.’s comments and his negative feelings toward the Williams program. Is the Pratt program better?

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 Post subject: Re: MUSTANGS
PostPosted: 22 Nov 2018, 23:38 
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The Mustang market is geared toward airplanes on the engine programs. There’s nothing wrong with the Mustang engine program. It works as advertised. However, if you buy a non-program Mustang, Pratt has another engine program that lets you buy into it over time, rather than having to pay up past hours up front. Non-program Mustangs are the exception, not the norm, and many are foreign registered.

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Last edited on 22 Nov 2018, 23:47, edited 1 time in total.

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 Post subject: Re: MUSTANGS
PostPosted: 22 Nov 2018, 23:44 
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Clint, can you share with me how the Mustang maintenance program is handled? Do you just pay so much a month (or year), or is it based on hours flown? Is it billed through Textron or through P&WC? Do you mind sharing the cost? I understand if no. Thank you.

John

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 Post subject: Re: MUSTANGS
PostPosted: 22 Nov 2018, 23:57 
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They offer a program called ProTech, which covers Citation Service Center Labor. Most Mustang owners aren’t on it because 1) They don’t have their Mustang maintained by a CSC 2) It’s expensive. Then, there’s ProParts, which covers all of the parts including consumables (tires, brakes, batteries, etc.). If you’re like me and only have engines and parts programs, you pay out of pocket for inspection/maintenance labor and have parts and engine programs pay for everything else. The engine program is 140/hr/engine and parts is 170/hr.

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 Post subject: Re: MUSTANGS
PostPosted: 23 Nov 2018, 00:06 
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Username Protected wrote:
They offer a program called ProTech, which covers Citation Service Center Labor. Most Mustang owners aren’t on it because 1) They don’t have their Mustang maintained by a CSC 2) It’s expensive. Then, there’s ProParts, which covers all of the parts including consumables (tires, brakes, batteries, etc.). If you’re like me and only have engines and parts programs, you pay out of pocket for inspection/maintenance labor and have parts and engine programs pay for everything else. The engine program is 140/hr/engine and parts is 170/hr.


Just so I have it correctly, the Engine program is $140 per engine, per hour and the Parts program is $170 per hour total, not per engine...? Correct?

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 Post subject: Re: MUSTANGS
PostPosted: 23 Nov 2018, 00:13 
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Yes, parts has nothing to do with engines. Programs run 450 total (actually, I think it’s 457, but I’m using round numbers). Maintenance and inspections average 15-20,000/yr depending on where you have your maintenance done.

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 Post subject: Re: MUSTANGS
PostPosted: 23 Nov 2018, 00:25 
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We have a Mustang and are on all programs - in round numbers $600 per hour: Engines, Parts, Labor. We are happy with being on all programs.


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 Post subject: Re: MUSTANGS
PostPosted: 23 Nov 2018, 08:21 
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One thing people tend to forget is that you have to pay per engine hour no matter if you are on the engine program or not. The value of a non-program airplane goes down every hour you fly it. From a financial consideration standpoint you would need to calculate that number and subtract it from the engine program cost per hour. Once it becomes clear that you are not “saving” the $300 per hour, the engine program starts to look a whole lot better.

My general rule of thumb is that if the majority of operators are on the program, you should be as well.

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 Post subject: Re: MUSTANGS
PostPosted: 23 Nov 2018, 08:37 
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So when the engines reach TBO, who pays for the overhaul?

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 Post subject: Re: MUSTANGS
PostPosted: 23 Nov 2018, 09:19 
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Username Protected wrote:
So when the engines reach TBO, who pays for the overhaul?

You did, over time, but it technically comes out of P&Ws checkbook. At $140 an hour You're paying $500,000 over time towards the engine overhaul. Each. What's the cost out of pocket for an overhaul? And what are the chances you make it 3500 hours and not need additional work on the engines?

Chip-


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 Post subject: Re: MUSTANGS
PostPosted: 23 Nov 2018, 09:20 
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Username Protected wrote:
One thing people tend to forget is that you have to pay per engine hour no matter if you are on the engine program or not. The value of a non-program airplane goes down every hour you fly it. From a financial consideration standpoint you would need to calculate that number and subtract it from the engine program cost per hour. Once it becomes clear that you are not “saving” the $300 per hour, the engine program starts to look a whole lot better.

My general rule of thumb is that if the majority of operators are on the program, you should be as well.


I don’t recall discussions of tax implications here. Let’s say $1,000,000 is spent on acquisition and depreciated over five years. If you you are on the engine program, you have paid all that money in, and let’s assume the plane is still worth $1,000,000. When you sell the airplane the tax depreciation is recaptured. So you have deferred taxes.

Now if you aren’t on the engine programs and the plane is worth $500,000, the depreciation recapture is half. You have reduced taxes.

If the contention is true that the cost is the same on or off engine programs, it appears not being on the program, realizing depreciation and letting the buyer “catch up” on engine expenses is the loweroverall cost?


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 Post subject: Re: MUSTANGS
PostPosted: 23 Nov 2018, 10:39 
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Username Protected wrote:
One thing people tend to forget is that you have to pay per engine hour no matter if you are on the engine program or not. The value of a non-program airplane goes down every hour you fly it. From a financial consideration standpoint you would need to calculate that number and subtract it from the engine program cost per hour. Once it becomes clear that you are not “saving” the $300 per hour, the engine program starts to look a whole lot better.

My general rule of thumb is that if the majority of operators are on the program, you should be as well.


I don’t recall discussions of tax implications here. Let’s say $1,000,000 is spent on acquisition and depreciated over five years. If you you are on the engine program, you have paid all that money in, and let’s assume the plane is still worth $1,000,000. When you sell the airplane the tax depreciation is recaptured. So you have deferred taxes.

Now if you aren’t on the engine programs and the plane is worth $500,000, the depreciation recapture is half. You have reduced taxes.

If the contention is true that the cost is the same on or off engine programs, it appears not being on the program, realizing depreciation and letting the buyer “catch up” on engine expenses is the loweroverall cost?


Matt, that is a really good point! I’m interested in hearing from out BT tax gurus... does writing off the payments into the program balance it out?

I’m also seeing more CJ series on the market with TAP deferred, as buyers become more comfortable with purchasing and reinstating the program, your scenario could really make a lot of sense... I’m going to ponder this one a bit!
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 Post subject: Re: MUSTANGS
PostPosted: 23 Nov 2018, 13:07 
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I think the answer to the above tax question is how the parts/engine program costs are treated. If they are treated as current expenses and therefore deductible (against ordinary income rates) in the current year, the value of those deductions may offset or be higher than the capital loss taken on a depreciated aircraft. You could come out ahead that way.

If those costs (or some portion of them) must be capitalized and treated as depreciation over some period of time, then it's more complex and would have to be modeled for each aircraft. I know that the IRS has previously taken the position that the cost of new/overhauled jet engines at TBO should be capitalized and not taken as a current expense when the overhaul occurs. There was a case involving FedEx if I remember right.

I am no tax expert but since the programs effectively amortize the costs over time, my uneducated guess is that you should be able to expense them since you are effectively capitalizing the costs. But I'm sure there are tax experts and jet owners here who have already figured this out. If this analysis would move your aircraft purchase needle (or your appetite for programs), then definitely consult an aviation tax accountant.


Interesting question however; we piston (or SETP) drivers don't really come up against this tax issue except possibly when going through an overhaul.


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 Post subject: Re: MUSTANGS
PostPosted: 23 Nov 2018, 13:12 
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It’s true that you would have less capital recapture when selling a non-program jet. However, there are offsetting costs and risks. First, since you’re depreciating the airplane, it’s a given you’re flying it for business use. Therefore, your operating costs, including program reserves, are deductible. No program, no deduction. So, while you benefit from less recapture when you sell it, you will have paid more ordinary income tax while you owned it. At the end, there’s no savings.

Then, there’s the risk management piece. If you have an unscheduled event with an engine, the program will pay for it. Otherwise, you’re out of pocket. When I had an unscheduled engine repair, the engine program paid the $450K bill, plus it covered the engine rental during the repair.

Although there are many that favor going without programs, I beg to differ.

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