Making the Right Operational Decisions when your Aircraft is not Flying
By Robert Wilke, ASA, Managing Director, Advanced Aviation Research
Those who own business aircraft know that there are a number of significant costs related to the ownership of the aircraft. These include acquisition costs and legal fees, financing, crew costs, fuel, maintenance, insurance, registration and filing fees, personal property taxes (in some jurisdictions), hangaring and depreciation of this very complex asset. What many operators do not know or understood is that not operating their aircraft has its own inherent and significant costs. During periods of forced aircraft inactivity due to economics, geographic unrest or global issues, decisions need to be made regarding what will happen to the aircraft.
So “To Fly or not to Fly, is the question…” What makes the most sense in your particular situation? And basically, there are three answers based on the goals and objectives of the operator. They are:
Perform “Exercise Flights” of 45 to 60 minutes in duration every two to four weeks,
“Operate” the aircraft on the ground by running the engines, APU along with all other systems normally used in flight, and
Take the aircraft out of operation, “Preserve” it and placed in storage.
But first and foremost, make sure you know the capabilities of the person or organization overseeing the care, operation and maintenance of the aircraft along with all contractual responsibilities related to it.
Whoever cares for your aircraft must understand, chapter and verse, the requirements of the airframe, engine and APU manufacturers when it comes to limited operation of the aircraft. They need to be well acquainted with third party maintenance requirements, such as how and to whom hours are reported (even if Zero) and what the minimum monthly payment obligations are, and then assuring that those payments are made.
Losing program coverage for engines, the airframe and/or APU is not something that you wish to have happen. Reinstating the engines and/or the airframe is extremely expensive, but not as much as experiencing a failure that is NOT covered by a program. In addition, most loan and lease agreements require the operator to maintain maintenance program coverage and not having it in place is a violation of the agreement, which could put the financing in default.
Absent a concession from your bank or leasing company that provides the opportunity to defer payments due them, the agreed upon payments will continue, even if your asset cannot be used. These concessions are not offered in the ordinary course of business and if available at all, often have limits on the length of the period of relief, with six (6) months being the normal maximum.
In a loan situation, interest-only payments are often required, with leasing companies frequently lengthening the lease term to offset the lease deferrals, probably at an increased rate to compensate for lower residual values.
Some operators are attempting to invoke the Force Majeure clauses in their documentation as a way of limiting their payment obligations. This strategy is being met with much derision where it has been attempted.
The aircraft will continue to depreciate in value over time, which may violate loan to value covenants as stated in the loan documentation. An aircraft that is not in “normal” operation tends to experience a greater and more rapid loss in value.
Calendar Maintenance items, Service Bulletins and Airworthiness Directives continue accrue whether the aircraft operates or not. Deferring these items can add significantly to their ultimate compliance costs.
So, the operator has three options when their aircraft is not flying its intended missions.
Exercise Flights Exercise flights are the best option for keeping an aircraft in a “Ready State” and gives the operator the most flexibility should the owner wish to sell the asset.
However, exercise flights require a qualified crew, fuel, running time and additional cycles on the engines and airframe, entail pre-flight and post flight inspections and cleaning. But aircraft want to fly, and in this area, they are much like human beings, needing a certain amount of exercise to stay healthy and perform at their best.
Exercise flights are like yoga or stretching exercises. Things that are stretched or flexed are much less likely to break.
The advantages of twice monthly exercise flights are the actuation of all systems on the aircraft. Oil flows within the engines, providing lubrication to bearings, shafts and seals. Hydraulic systems are pressurized, pumps operated and those functions that are hydraulically controlled or operated, move and the areas that they operate (flaps, landing gears, etc.) are lubricated with fresh grease. Moving the control surfaces allows these essential airframe components to receive necessary lubrication.
The movement of fuel from the tanks to the engines and APU helps to keep the fuel system pumps, filters and lines free of contamination and moistens the system seals. Particulate matter collects in the engine filters, which when appropriate, are easily and cost effectively replaced.
Sustained operations of 45 minutes or more at altitudes above 40,000 feet allow the cold, dry air to remove moisture from within every part of the fuselage, wings and empennage to help prevent or minimize corrosion.
The high altitudes also removes condensation from the aircraft’s avionics, cabin entertainment, Wi-Fi, Satellite communications and other on-board electronic systems. Fresh air is introduced into the cabin ventilation system, eliminating the stale odors acquired from the aircraft spending extended time on the ground.
At altitude, the aircraft’s pressurization system is tested and checked for proper function. Upon landing the thrust reversers are employed, verifying proper function and providing necessary lubrication to pivot points. The aircraft’s braking system is also used on landing. Aircraft brakes are made of steel and are highly prone to rust which reduces the effectiveness of the breaking system. Landing the aircraft removes the rust and allows for longer life for these very expensive components.
The tires are also rotated during taxing, takeoff and landing. If an aircraft sits for a sustained period, the tires will develop flat spots and contribute to dry rotting. Both weaken the structure of the tire and ultimately result in failure on takeoff or landing. Not the places where you want to have a blowout.
Any squawks are identified and quickly addressed so if the owner chooses to place the aircraft on the market it is always in top condition.
You know the current condition of your aircraft.
The aircraft is always in a “fresh” and ready-to-fly state.
If you wish to sell, you know how your aircraft performs.
Squawks are identified and can be immediately remedied.
Operating costs are incurred; crew, fuel, pre-flight prep and post flight handling.
Time and cycles are added to the airframe, engines and APU.
Requires proper entry into the aircraft logbooks and records.
Minor exposure for the aircraft during flight and ground movement.
Ground run-ups of engines and systems By FAA definition, an aircraft does not have to fly in order to be “operated”. Ground movement and running of the engine and systems can constitute “operation”. If this “exercise” is performed on the ground, in addition to engine and APU run-ups and functional checks, all control surfaces should be moved multiple times to their extreme limits in both directions.
Avionics should be worked and checked to make sure that all contacts are clean and free of corrosion. Heat and air condition functions should be checked along with the aircraft’s hydraulic system. Tire pressures should be checked, and the tires should be inspected for any cuts and/or dry rot.
Upon completion of the ground operation, the aircraft should be inspected for fuel, oil and hydraulic fluid leaks. It is vital to note the ground operation in the appropriate Logs and Airframe, Engine and APU Maintenance Records. The fuel tanks should be “sumped” at least once every two weeks to remove water that has accumulated in the bottom of the tanks.
Even with the use of anti-microbial fuel additives, the development and growth of microbes that consume hydrocarbons as well as tank sealants and if severe enough, the fuel lines, secreting highly acidic excrement that can clog the fuel filters, stopping the flow of fuel while the engines are in operation. These organisms have been known to cause significant damage to the entire fuel system.
A full explanation of any service or repair work should be noted in the Logbooks and maintenance records. If none was required, state that “30 Day inspection was completed on 1 August 2020 by A&P Technician X” with the record entries signed and entered into the aircraft’s maintenance monitoring system.
No flight crew is required for ground operation, as a trained Technician can taxi the aircraft and operate the engines and systems in a non-flight mode, minimizing crew costs, and less fuel is required as well.
This period of limited “Operation” provides the perfect opportunity for modifications and major system upgrades, which can then be tested while the aircraft is on the ground, or flown, as required.
The main drawback of ground operation is the lack of high altitudes flight where the air is cold and dry. This environment removes accumulated moisture from within the aircraft structure where, over time, is likely to cause corrosion or accelerate, a very expensive condition to remedy.
Preservation; Taking the aircraft fully out of Service Some operators make the decision to take their aircraft fully out of service with no operation whatsoever, however, this decision should not be taken lightly. Great care must be taken to follow every step required by the manufacturers for the airframe, engines, APU, avionics and cabin systems when the aircraft is being placed into long-term storage.
This is a very labor intensive and costly undertaking which removes the aircraft from an Airworthy condition. If and when the operator wishes to return the aircraft to flying status, the process must be reversed but with a number of functional checks required to assure the Airworthy status of the aircraft.
In a preserved state, the physical condition of the will degrade at a faster rate than if it were being Operated. Hopefully the aircraft will be hangered. If left on the tarmac, both the exterior and interior will degrade and at a very rapid pace, depending on the environment.
Strong sun will bake and fade the paint and the interior will become a virtual oven with temperatures reaching 150 F. The issues will be exacerbated if the aircraft is stored in a salt air environment. Corrosion will begin or accelerate and notwithstanding “Preservation”, if not kept inside the aircraft will begin to break down. Tires will rot and brakes will rust. It’s just a fact that bad things will happen.
Rather that placing an aircraft into Preservation, the owner should consider selling it as quickly as possible. The truth of the matter is that Preservation of the aircraft provides its owner with the fewest options and the least flexibility. Over the past 12 years, aircraft values have been in steady and often precipitous decline.
The longer an owner waits to market the asset, the less value there will be to recognize. You don’t want to be the last one to market with and aircraft that is the least desirable.
As a wise mechanic once said,” You can pay me now or pay me later”.
Robert Wilke is Managing Director for Advanced Aviation Research, LLC, a woman-owned minority consulting firm that provides business aviation lenders with a range of technical and operational support services. Mr. Wilke has been engaged in aviation finance, aircraft maintenance programs and consulting for more than 30 years. In addition to his own consulting practice, Bob was Vice President of Business Development for Jet Support Services Inc (JSSI) for North, Central and South America, the Caribbean, Africa, the Middle East and Asia. Robert held Vice President or Director-level positions with Boeing Capital Corporation, Bombardier Aerospace, GMAC, CMI Corporation and Michigan National Leasing Corporation. Areas of expertise include Sales and Sales Management, Asset and Portfolio Management, Credit Analysis, Contract Negotiation, Transaction Structure and Pricing, Transaction Review, Status Monitoring and Syndications, Account Collection and Aircraft Repossession and Remarketing. Robert holds a Senior Aircraft Appraiser designation from the American Society of Appraisers. He earned a BS Degree in Accountancy at Western Michigan University and a MBA in Finance from the University of Detroit. Robert is a Guest Lecturer at Embry-Riddle Aeronautical University, the University of Detroit and Michigan State University, and an Instructor of Corporate Finance for Davenport University. He works from offices in Detroit, Michigan and Ormond Beach, Florida servicing a base of domestic and international clients.