Knowing Your Options for Guaranteed Maintenance Programs — Originally published in BusinessAir Magazine, August 2014, Volume 24, No. 8.
When purchasing new appliances or a new car, I am often asked if I want to invest in an extended warranty. I never do this. I believe, correctly or not, that the company offering the extended warranty has significant data that shows the warranties they are selling will be profitable for the company selling the warranties. Somehow they know that my dishwasher will break the day after the warranty expires!
Pre-owned airplanes are different from dishwashers. However, buyers considering the purchase of a pre-owned aircraft are faced with a similar decision – should they enroll their aircraft in a guaranteed maintenance program (GMP)? A GMP functions, to some extent, like an extended warranty because it provides a means of reserving for and paying the costs of scheduled or unscheduled maintenance after the warranties issued by the original equipment manufacturer (OEM) expire. Unlike the dishwasher, a pre-owned aircraft is guaranteed to incur ongoing and substantial scheduled maintenance costs. Furthermore, unexpected and unscheduled maintenance and repair costs, though not assured, are commonplace. Because these unanticipated aircraft maintenance costs can vastly exceed the costs of a broken dishwasher, GMP programs can be a boon for some aircraft owners. These programs offer the aircraft owner a way to prepare for unexpected costs that undoubtedly will occur and to effectively cushion the impact of those costs. The owner can purchase different types of GMP programs which include engine, auxiliary power unit or comprehensive nose-to-tail coverage. The GMP can provide owners with peace of mind and a fixed budget with fewer variable costs.
With a GMP, an aircraft owner can guarantee aircraft maintenance costs. On a monthly basis, each flown hour is reported to the GMP provider, and a payment is made for each flown hour at the established hourly rate. When maintenance is due, the GMP provider pays for the maintenance. The GMP allows for a fixed aircraft budget without significant capital outlays in certain years due to scheduled or unscheduled maintenance costs such as engine overhauls. One added benefit is that aircraft on GMP programs resell for more than aircraft not covered by a GMP program. The resale value of an aircraft is increased by any accrued dollars paid into the GMP program and also by the high quality of the maintenance records these programs require of the operator.
GMP providers include aircraft manufacturers, engine manufacturers, and independent companies like Jet Support Services, Inc. GMP providers are able to secure competitive prices due to the volume of business they can provide to a maintenance center. Additionally, many of the manufacturers benefit by generating business for their related service centers. They also have the knowledge to make sure the vendor or, in some cases, the sister company is doing the work necessary and not charging for unnecessary items.
If the purchase of a preowned aircraft is going to be financed, some lenders are more willing to finance or provide more favorable terms for an aircraft which is on a GMP. In the event of a foreclosure, the lender knows it is not going to need to immediately overhaul the engines before turning around and trying to resell the aircraft.
If an aircraft is not on a GMP at the time of purchase, the cost of buying into a GMP program may be prohibitive. Certainly, there are many owners who would rather pay as they go instead of paying in advance for a GMP – but aircraft are not like dishwashers – the high cost of an unexpected maintenance expense can wreak havoc with an aircraft owner’s budget. Consequently, many owners purchase a GMP so they can reliably control their maintenance costs without significant variance from year to year.
Please contact Amanda Applegate at 877-237-5398 or firstname.lastname@example.org.