By James Becker – ASA Accredited Senior Appraiser for Elliott Aviation
Navigating an aircraft transaction can be challenging, but valuing an aircraft can be even more difficult. A simple aircraft price guide lookup can give you a broad range of potential values for your aircraft, but everything from the number of hours to the condition of the interior affects the value. However, the one area that can have a substantial impact on your aircraft value is the engines.
Not only can engines greatly influence the value of the aircraft, but the terminology can be very confusing. Terms like hot section, TBO, rotables, and engine programs can not only be difficult to understand, but each one has a bearing on how much you can realistically expect to receive for your aircraft. To give you a better understanding, an explanation of some of the most common terms you are likely to encounter regarding aircraft engines follows.
This refers to the time period specified by the manufacturer of an aircraft engine as the maximum length of time an engine should be operated between overhauls. However, the overhaul of an engine once it reaches its TBO hours is not mandatory, except for certain commercial operators that have the requirement written into their operations manual. It is important to be familiar with a particular engine’s TBO. Engine overhaul costs for turbine engines can range anywhere from $250,000 to well over $1,000,000 per engine. Even though the overhaul requirement may not be mandatory, the aircraft market places a significant deduction in value that equals or exceeds the cost for overhauling the engines.
It is critically important to know what the TBO is for a particular engine. The TBO may vary by thousands of hours between the different engine manufacturers. On some aircraft, there is the potential to have a different TBO on two otherwise similar aircraft that use the same engine model. There are also some manufacturers that have a calendar life on the engine and a usage limit.
As defined by the Federal Aviation Administration (FAA), a major overhaul consists of the complete disassembly of an engine, inspection, repairs as necessary, reassembly, testing, and approval for return to service within the fits and limits specified by the manufacturer's overhaul data. This could refer to new fits or limits or serviceable limits.
When reviewing the time since overhaul, it is also vital to ask questions about the overhaul facility. Not all engine overhaul facilities are viewed equally in the used aircraft market. Although all overhaul facilities must be FAA approved, only a select few are factory-owned or factory-authorized engine overhaul facilities. The factory-owned or factory-authorized overhaul facilities will only use parts that are approved by and manufactured for the engine maker. This assures that you are getting the highest quality parts made by vendors who meet the engine manufacturer’s criteria and specifications. The factory-owned or authorized overhaul facilities also have a greater support network with more support personnel and greater resources than an independent FAA-approved repair facility would have. Therefore, there are also more options when it comes to warranty service with a factory-owned or authorized overhaul facility. Although an engine overhaul performed by a facility that is only FAA approved is perfectly legal, the used aircraft market will usually give that particular aircraft a reduction in value for engines having been overhauled by a non-factory owned or authorized facility.
According to Beechcraft, a flight cycle is defined as an engine start-up with an increase to full or partial power (as required during normal flight), one landing gear retraction and extension, and a complete shutdown. It is important to know that landings/cycles and engine hours are usually different. On the one hand, an engine may have plenty of hours remaining before an overhaul is necessary, but before it reaches that point, it may require internal component replacement due to the engine cycle count.
This refers to parts in the engine that have specific serial numbers tracked by the operator. This is done because these parts have a finite life and must be replaced based on usage or age limits. It is essential to be aware of this because you may have an engine that has been recently overhauled but has major components that need to be replaced before the next overhaul.
A hot section refers to the portion of a gas turbine engine that operates at a high temperature. The hot section includes the combustion, turbine, and exhaust sections.
This is an inspection for which the engine manufacturer determines the scope and frequency. This is usually an inspection of the engine hot section. Such an inspection may also be referred to as a Major Periodical Inspection (MPI) or a hot section inspection (HSI).
Most aircraft engine manufacturers offer some type of engine coverage program. This is basically an insurance policy/savings account for your engines. This works by having the owner pay a predetermined amount of money to the coverage provider for every hour that the engines are used. This benefits the operator in a couple of ways. First, it is an insurance policy against a catastrophic failure of an engine. If something unexpected, such as a turbine wheel crack, were to happen, the service provider would pay for the expense of repairing the engine and returning it to service. The second benefit is that the operator doesn’t have to produce a large sum of money when it comes time for the engine overhauls or mid-life inspections. Since they have been paying the coverage provider for every hour, they have operated the engines. These costs are amortized over the life of the engines.
Some of the better-known engine manufacturer coverage programs are Corporate Care by Rolls Royce, ESP by Pratt & Whitney, TAP by Williams International, and MSP by Honeywell. Plans that engine manufacturers do not sponsor include Jet Support Services, Inc. (JSSI) and Power Advantage from Cessna Aircraft.
When assessing an aircraft’s value, it is important to note whether the engines are enrolled in a coverage program, and if so, what that program covers. Most engine coverage programs do not cover engine corrosion or external foreign object damage (FOD). Some programs cover only the actual parts used to overhaul an engine, leaving the operator to pay the remaining portion of the bill, which usually averages 20% - 30% of the total cost. Additionally, just because an aircraft is enrolled in a program does not mean that it is 100% covered at the time of overhaul. Several coverage programs allow the operator to enroll the engine at any time, regardless of the time since the last overhaul. Often, it is not required for the operator to go back and pay for the hours used before the enrollment. This will give the operator the benefit of the insurance program with a pro-rated amount of coverage at overhaul, depending on when in the cycle the engines were enrolled. This is essential because an aircraft may be advertised with its engines on a coverage program, but the current operator will have to make a significant contribution at overhaul time to cover the deficit. The only way to know for sure what is covered is to obtain a copy of the service contract from the service provider and to make sure the payments are not in arrears.
It should also be noted that if the operator hasn’t been operating the aircraft under the engine manufacturer's guidelines, this could void any insurance coverage program. For example, during the past several years, hundreds of aircraft have been repossessed by their lien holders during the economic turmoil of the past several years. Many of these aircraft were more or less abandoned by their operators. As a result, these aircraft were left unattended for months or even years in some cases. All turbine engine manufacturers have requirements for engine low utilization and storage. Failure to follow these guidelines exactly could very likely lead to engine corrosion and would most certainly void the coverage program. So it is critically important to find out how the aircraft has been operated prior to making a purchase.
Whether you are appraising or purchasing a used aircraft, the points of concern are the items that affect the price. Special attention must be paid to the engines, as this is where a significant amount of the aircraft’s value lies. A full understanding of the aircraft’s engines is crucial to determining its overall value. Although we only touched on engines in this article, there are many other items that determine the aircraft value that and each one carries its own terminology. Being an expert in determining how they influence the price takes many years of experience but will ultimately get you the most out of your aircraft.
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James Becker is a graduate of the Aviation Institute at the University of Nebraska at Omaha and also holds an FAA Airframe & Power Plant Mechanic license. With over 20 years in the aviation industry, 17 of those years have been with Elliott Aviation in the capacity of valuing aircraft. In 2011, he completed and obtained his certification as an Accredited Senior Appraiser with the American Society of Appraisers (ASA). With experience in aircraft market analysis, he has extensive knowledge of the aircraft market and has tracked and analyzed thousands of aircraft transactions. Under his Aircraft Specific designation with the ASA, he specializes in developing current and projected market values for turbine-powered aircraft.
