How do OEM Engine Maintenance Contracts Affect the Ability to Remarket Aircraft? September 2017

Aircraft values are driven by multiple factors, including: damage and repair history; operational location; utilisation profile; configuration; specification; and maintenance status. It has historically been mooted that using original equipment manufacturer (OEM) repairs instead of designated engineering representative (DER) repairs, will bolster an aircraft’s residual values.

Aircraft’s engines account for a significant percentage of value, so an operator’s maintenance and management of these engines is crucial.

Globally, how many of a particular aircraft type are already on the market will affect whether the market (sale price) favours the buyer or the seller. A similar principle applies to leasing: demand will drive lease rates up, whereas a stagnating market with little requirement will cause aircraft values and lease rates to dip. It also follows that a high number of parked aircraft has a negative effect on the ‘marketability’ of an aircraft type. Several factors affect demand for used aircraft, including: fuel prices; spare engine availability; lease rates; maintenance costs; OEM support; and availability of green-time engines and used serviceable material (USM). Another issue is the ability or freedom to perform maintenance without strict OEM control. It is important that the operation of maturing and ageing engines continues to make financial sense for carriers, whereas for newly-entered-into-service (EIS) engines, many operators want the comfort of transferring the risk of managing the asset to the OEM.

Early EIS engines with new technology are subject to unknown costs, so they are exposed to potential early service issues, and unscheduled modifications arising from hospital visits. Moreover, most first-tier operators want steady and predictable maintenance costs. Those seeking to invest in new engines often require OEM maintenance support. This is why total care or power-by-thehour (PBH) agreements have flourished. Maintenance priorities shift throughout an aircraft and engine’s operational lifecycle, as do the risks and economic strategy. For example, if engines are ageing, maintenance will focus on sourcing the most economic parts and shop visit (SV) workscopes. The operator therefore requires complete freedom to manage engine maintenance. Mature fleets also benefit from industry experience. Most common infleet problems have already been ironed out, so operators feel comfortable in managing SV work scopes, removal patterns and intervals, and defects that may arise. Less emphasis is, therefore, on the OEM.

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