Aviation Engine Maintenance Reserve Contract Management

Sofema Aviation Services www.sassofia.com looks at key drivers related to Aircraft Maintenance Reserves and what they mean for Engine Maintenance.

The Role of Maintenance Reserves

The essential purpose of Maintenance Reserves is to calculate the cost of consumption of applicable parts or components typically calculated on a per hour basis

Example of Maintenance Reserve Calculation using a Propeller

Mean Time Between Overhaul (MTBO) = 5000 Hours

Cost of Overhaul 15000 Euro

MX Reserve would therefore be 15000/5000= 30 Euro / Operating Hour.

Note – Usually the service time is identified either in Flight Hours or Flight Cycles per OEM MPD.

At the lease end a close out calculation is performed to cover the use of the propeller during the lease. If there is more potential available on the propeller at the end of the lease than at the beginning, the Lessee normally receives a compensation.

Of course, if there is less potential at the end of the lease than at the beginning the Lessee may in fact be required to pay a compensation to the Lessor.

Considering Engine Reserve Specifics

Whilst the same principle holds true for the engines, we have two scenarios in play to ensure optimum valuation

a) A fund to cover life limited parts (LLP) and

b) A fund to cover engine performance restoration

Life Limited Parts (LLPs) have a defined number of cycles before they need to be removed from the engine.

The cost of a set of LLPs is often in the millions of dollars, so the maintenance reserve is based on the cost of the total LLP for a given engine divided by the target cycle limit.

Similarly, with the engine performance restoration, we have a similar scenario and whilst there is no “hard time” interval applicable the reserve payment is based on the number of hours accumulated by the engine.

With the cost of a typical performance restoration running into some millions of dollars, engine restoration can be a significant burden if not managed appropriately.

Often when developing criteria for the Maintenance Reserve Ground rules the following points to be considered

During the maintenance check the aircraft is not flying so no reserves are due.

In addition, typically during the initial period – say 1 month again no reserves are due.

Often there is no adjustment made for Engines which are operating in Hot & High Conditions.

Inflation may also not be included when calculating forward reserves.

In essence, maintenance reserves are intended only for routine maintenance, being major events such as Heavy Maintenance Visit HMV, engine overhaul, engine Life Limited Part LLP replacements.

Within these packages there will of course be various “non-routine” findings for which the maintenance reserve will be used to pay for, however the principle event itself remains a routine maintenance task.

typically in the case of incident or accident, there is no mechanism for maintenance reserves to be paid or to be claimed for on accidental damage.

Of course in respect of managing financial risk Insurance will be the typical vehicle of mitigation.

As a final cautionary note maintenance reserves, especially during end of lease returns, have effectively become an additional “less visible” additional form of payment.

Sofema Aviation Services Delivers EASA Part M and Engine Condition Trend Monitoring, vocational as well as ensuring compliance with EASA regulatory obligations.

Please see www.sassofia.com and www.sofemaonline.com or email office@sassofia.com