Airframe Parts Programs... Good
by Jay Mesinger
That is one
of those questions that will get you as many positive
responses as negative responses. How does one weigh the
answers if they are so divided? Here is how we help clients
understand this important choice. First, just as a matter of
clarification, an airframe parts program is a fixed fee,
hourly or annually calculated insurance type coverage for
the airframe parts. It could be a Bombardier Smart Parts, or
Citation ProParts, or a JSSI Tip to Tail type plan that
covers avionics and airframe parts.
mention the word insurance, I must also say one never buys
insurance when they need it, so they always curse it when
they pay for it. When you need it is when you can really
assess its’ value. One clear way to evaluate any program's
worth would be to calculate if you have paid less or more on
a per-hour basis than the actual costs for parts purchased
during the period evaluated.
things may cause an owner to be enrolled in one of these
parts programs. Budgeting is the main reason that is often
stated as a justification for program enrollment. One knows
that every hour, the cost of parts and avionics is set and
fixed. This allows for an owner to take all the guesswork
out of budgeting and planning. This is especially helpful
for the first time buyer. There is so much to learn in new
aircraft ownership that equalizing the parts costs can be
aircraft with higher parts failure expectations are another
reason to fix the per-hour or annual parts costs. Parts
programs do not really vest or accumulate pass-along value.
Consequently, the ongoing value of a program does not pass
along to a new owner. The aircraft may qualify for a program
based on past enrollment, but there is no vested value that
accrues to the new owner.
If you were
to sell the plane prior to the end of the three or four-year
parts program contract, the negative balance if one exists
must be paid by the owner (seller). This negative balance
occurs if what has been paid hourly over the course of
enrollment is less than the amount actually used in parts
placed on the aircraft.
Additionally, if you cancel a program mid-year the program
can also assess you the balance of the contracted peryear
hourly commitment compared with actual hours flown. For
instance, if the contract calls for you to fly and pay for
300 hours a year and you cancel after flying only 100 hours,
that year the fee to cancel could cost you the additional
per-hour cost of the 200 hours not flown! If, however, the
contract runs to term and you have a surplus in your account
that was created by paying more in than you used, you will
only get back 50-60% of the surplus.
You see, in
the end you either used more parts than you paid for,
creating a deficit, or the parts you have used costs you 40
to 50% more than if you were not on a program. The real
message here is about managing maintenance.
I once had
a first-time owner go on a parts program. They hired a
management company to oversee the operation. I told the
client and the management company that they shouldn't stop
managing the maintenance just because they were on a parts
program. The owner of the aircraft did not understand my
comment. When he sold his aircraft before the parts program
contract was up and received the deficit bill from the
program he began to see what I meant. His parts purchase
through the program included, for example, a ridiculous
amount of new avionics black boxes and new actuators, etc.
There was example after example of no real thought or
management with respect to maintenance. Every time the plane
broke the management company just called the program and
ordered a new part. They stopped managing and just worked to
make their job easy.
troubleshooting and common sense could have solved many of
the problems for considerably less money. More often than
not, just replacing a part with a new one did not solve the
problem. To the management company it was like free parts.
of course no free rides with an aircraft. It is ‘pay me now,
or pay me later’ in aviation. Engine programs often tend to
have different outcomes due to the pass along value of the
program. Unlike the parts programs, these engine programs
stay with the aircraft and there is never a deficit.
of these programs on your plane can really add go-forward
value to the plane. In fact the 100% programs like MSP and
Corporate Care and some JSSI programs make the plane seem as
if the engines are always "0" time.
A buyer of
a plane that sees it is on Smart Parts or Pro Parts should
be very careful to not assess added value to the plane. This
is a very different mind-set to evaluating an airplane that
is on a 100% engine program. That program participation is
real hard value. As always, understand the issues and
approach aviation with your eyes and ears open.
Jay Mesinger is the CEO of J. Mesinger Corporate
Jet Sales, Inc. He is on the NBAA Board of Directors
and is Vice Chairman of the AMAC. Additionally, he
served on the Duncan Aviation Customer Advisory
Board for two terms, is a member of MEBAA, EBAA
and is associated with IBAC.