Engine programs good or bad?

The Pros and Cons of engine programs seem to be a pretty common debate here at BT. I thought I would try to bring some clarity to the comparisons and eliminate some of the mystique.

The rule of thumb is that if more than 80% of the operators of a certain aircraft are on the program, you should be as well. Aircraft are purchased by and operated by really smart people, if they have decided to be on the program it's probably because it is the smart thing to do.

The common exceptions are the $600k CJ / Premier you can run-out and throw away.

The guy who can afford, without any hesitation, to just write a check for a repair or new engine. (I think this is crazy, but I can't write the check so what do I know?)

More in comments...

Why do engine programs seem expensive?

There's two reasons, one is that people usually neglect the value portion of the expense. Typically an airplane on an engine program drops very little in value (assuming the aircraft is expected to be on an engine program) and an airplane that is not on an engine program takes a considerable reduction in value for each hour that is flown.

Here's an example;

Aircraft A - Engine program cost - $270 per hour.

Aircraft B - No engine program - value deduction according to VREF - $170 per hour.

The difference is $100 per hour... not $270 an hour!

That's $20,000.00 per year assuming 200 hours of flying. So, it is a lot... BUT... look at a five year ownership scenario if you buy an airplane with 1400 hours remaining until overhaul.

5 years X 200 hours per year = 1000 hours

In this scenario, 400 hour remain until overhaul is due.

How much did the aircraft drop in value? $170 per hour? $170,000.00?

Actually about $240,000.00 because now the aircraft is valued as a "run-out"

The same airplane on program would have cost $270,000.00 and it's value would not be decreased because of engine times.

Is the $30k savings worth the exposure?

The second reason they seem expensive is that it's not just a piggy bank for engine overhauls, it is insurance. Not only against mechanical issues but also most SB's and AD's that effect the engine.

*I am speaking in VERY general terms, engine programs, their values and cost vary a great deal.

It’s the savings you mention plus having more money tied up in the airplane instead of elsewhere plus the insurance on that money tied up.

I do agree that confirming with the norms is generally wise, an opinion which is stronger if you’re involved in transactions as a broker. (I’m not taking a shot here; I value your contributions and time spent educating future turbine owners. It is however natural for you to hold a “do the normal thing, please” opinion as it creates less hair on deals.)

Even more true for me, as I'm not really a broker. My involvement is as a consultant, I would need a really valid reason to advise a client to do something that was contrary to popular wisdom. My concern isn't really "hair on deals" but more that my client might be tempted to do something that sounds good today that has a serious penalty attached tomorrow. When tomorrow comes and it's time to pay the piper people tend to only remember "Chip said it was ok!"

Sorry - posted in the other thread.

I did the math when I bought the Phenom. IMHO engine programs and maintenance programs are great for corporations that need a fixed hourly rate to expense; no surprises. Also, they are great for those flying 300-400 hours or more per year as they will reach hot/tbo in a few years. For me it can be a decade of flying before a hot section and a lifetime before TBO so I'd rather leave that money in my bank account.

What I decided to do, right or wrong, is take out a term life insurance policy from JSSI. It only covers non-maintenance issues; bearings, blades, FOD, etc and includes the rental engine. When due, they handle the hot/overhaul so in theory I should get a better price then going it alone.

Basically "term life" vs "whole life" insurance. It cost me ~$18.50/hr at 150 hrs minimum per year or ~$5500.

Not an expert by a long shot. IMHO - The large majority of jets are owned by corporations so engine and maintenance programs make sense (see my prior post); the 80% you noted above. I suspect as more individuals by small jets (honda, cirrus, embraer) you'll see more of what I'm doing with a term-life insurance plan.

That sounds awfully attractive. Sooooo many people say "I would sure love a jet, but I can't just drop $250K if the engine eats somebody's ballcap

That sounds awfully attractive. Sooooo many people say "I would sure love a jet, but I can't just drop $250K if the engine eats somebody's ballcap

Can you give a little more insight into this? I'm not clear for when you are covered and when you are not covered?

JSSI is just insurance for unscheduled events. Think of it as the "insurance" portion of the regular engine programs. Or, put another way:

Full Programs through Pratt or Williams
- Hot Section parts and labor
- Overhaul parts and labor
- Coverage for any continuing airworthiness SB's (typically)
- Coverage for an unscheduled event due to premature failure.

JSSI:
- Coverage for an unscheduled event due to FOD or premature failure
- Hot sections and overhauls are on YOU

Bare:
- It's all on you, but you bank the money in between. Analyze your exposure vs. ROI of the capital. With cash returning 3%-5%, programs look attractive. If we were getting 10% on cash, not as much. But again, you have to factor in the risk of an event.

To the point of "I suspect as more individuals by small jets (honda, cirrus, embraer) you'll see more of what I'm doing with a term-life insurance plan" - I must respectfully disagree. Citation Mustang - most of the fleet is on programs. Phenom 100, same thing. Cirrus Vision Jet - 100% are on programs (they integrate database subscriptions, annuals, even recurrent training). So I would argue that for the newer items, they will be on programs.

Older aircraft will slide off of programs once the values depreciate to a certain point AND parts are available on the secondary market. Will you find a 501SP on programs? No. Because you can get parts from freaking ebay.

My $.02. Fire away.

Tune in next week for "Should we run turbines lean of peak?". Sure to be a barn burner.

I guess someone told Chip he needs to keep his name popping up on BT to help his business along. Got to churn that social media! Starting weekly threads asking age old unanswerable questions seems to do that.

Past subjects:

Best light jet
M2 basics
Denali first impressions
Replace PC12?
...

When I see all those little images loading on the right side of the BT web page, I'm sure glad not every BT sponsor creates as many foamy threads as Chip does.

Mike C.

Good thread. Thanks, Chip, for starting. The Siren song of a Mustang often calls me.

People pay you for that advice?

This consulting thing is easier than I thought, maybe I should try it someday.

Mike C.

Tune in next week for "Should we run turbines lean of peak?". Sure to be a barn burner.

I guess someone told Chip he needs to keep his name popping up on BT to help his business along. Got to churn that social media! Starting weekly threads asking age old unanswerable questions seems to do that.

Past subjects:

Best light jet
M2 basics
Denali first impressions
Replace PC12?
...

When I see all those little images loading on the right side of the BT web page, I'm sure glad not every BT sponsor creates as many foamy threads as Chip does.

Mike C.

People pay you for that advice?

This consulting thing is easier than I thought, maybe I should try it someday.

Mike C.