Mallory Cantrell | November 21, 2020
Insights

Pay Now or Pay Later

Pay Now or Pay Later

The value of an aircraft is predicated on numerous factors, some big and some small. Most of these factors are easily identified and accounted for when building an aircraft valuation. However, what are the consequences of not fully understanding the pros and cons of the various aircraft maintenance programs? When it comes to the value of these programs, one miscue could equate to large sums of money. There is no requirement for an aircraft owner to pay an hourly rate to ensure their asset’s value is secured, budget is stabilized, or their aircraft is protected against scheduled and unscheduled events. With that being said, you either pay now or pay later. You do not get to have your cake and eat it too.

When an aircraft rolls out of an OEM and the new owner starts paying into the maintenance programs, the aircraft owner starts building equity in programs that will help pay for upcoming maintenance events. They also are taking the odds in the event any unscheduled maintenance events occur. Finally, they have set the course for more consistent and predictable aircraft budgeting throughout their ownership. There are instances where an aircraft owner may rightly decide not to participate in such programs. Once an aircraft reaches a point in its life where the cost of an engine program or parts program becomes cost prohibitive, the best decision may be to forgo the hourly cost of programs and self-reserve these funds in anticipation of operating the aircraft to the end of its life cycle. The decision to participate in the multitude of engine, airframe, avionics, and parts programs is completely independent to each situation. However, the choice to not participate in programs that are considered standard will incur a value deduction.

I am running out of fingers trying to keep up with the number of times I have been told, “my engines are working fine, I don’t need an engine program”. This may be half true, but you are not simply paying for some sort of complicated insurance or warranty program. Keep in mind the next buyer will expect the value of the missing engine program to be accounted for in the sales price. This expectation from buyers will be factored in when they evaluate your aircraft for purchase. Not having an engine program means the new owner will need to buy back into the program by paying for hours that were not previously compensated for. It is possible for a seller to find a buyer that prefers not to have the engine program, but this is the exception and not the rule. Even in this case, the buyer will expect the same discount as if they were to buy into a program. Relying on this exception and not deducting the aircrafts value, puts the seller in a position that cuts his or her potential buyers significantly. Aircraft sellers today, living in a buyer’s market, need all the advantages possible.

At the end of the day, these aircraft maintenance programs have various benefits and equate to added value when transferred to the new aircraft owner. It is always disappointing when a client has a misinformed understanding of the value, or lack thereof, with these programs as they relate to aircraft value.  All things being equal, aircraft owners who have paid into these programs for years will possess a more valuable asset than those who do not, period.

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Ryan Linn – Vice President of Aircraft Sales

Those who know Ryan know his longtime passion for planes. As a matter of fact, Ryan soloed his first aircraft before receiving his driver’s license at age 16. Today, he holds multiple jet type ratings (LRJET, CL604 and B737) and is responsible for aircraft sales, brokerage, acquisitions, market analysis, data research and special projects. Ryan puts client needs first, always respecting time and understanding the importance of investments. Outside the world of aviation, Ryan enjoys spending time with his wife and two children. He also enjoys heading out to the golf course as often as possible.

rlinn@flyomni.com | (916) 753-4797

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