2. May 2014 17:34
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A maintenance facility recently asked me to explain what duties it may owe to an aircraft owner when the owner leaves his or her aircraft with the facility for service, other than the responsibility for performing repair or maintenance services on the aircraft as requested by the aircraft owner. This situation creates what many states refer to as a "bailment" and it does impose certain additional duties upon the maintenance facility.
So, what is a bailment? Well, the bailment relationship is created when:
- the aircraft owner (the "bailor") delivers the aircraft to the maintenance facility (the "bailee");
- the aircraft owner/bailor does not transfer ownership of the aircraft to the maintenance facility/bailee;
- the maintenance facility/bailee accepts the aircraft based upon an agreement with the aircraft owner/bailor that the aircraft will be returned to the aircraft owner/bailor; and
- return of the aircraft to the aircraft owner/bailor, the aircraft must be in at least the same condition it was in when delivered to the maintenance facility/bailee.
Once the bailment relationship is created, as a bailee of the aircraft, the maintenance facility has a duty to exercise reasonable care with respect to the aircraft based upon the maintenance facilities acceptance of possession of the aircraft and its subsequent exclusive custody and control over the aircraft. The maintenance facility/bailee must ensure that the aircraft is in at least the same condition as it was when it was delivered to the maintenance facility/bailee.
If the aircraft is damaged while it is in the exclusive custody and control of the maintenance facility/bailee and it is damaged (e.g. the aircraft is lost, stolen, damaged or destroyed), the maintenance facility/bailee will be responsible for the damage unless the damage occurred in spite of the maintenance facility's/bailee's exercise of reasonable care. And, the maintenance facility/bailee will have the burden of proving that it was not at fault and the damage occurred despite its use of reasonable care.
To be clear, the maintenance facility/bailee doesn't become an insurer of the aircraft under the bailment relationship. However, the maintenance facility/bailee must use reasonable care; the type of care a reasonably prudent maintenance facility would exercise with respect to its own aircraft under similar circumstances which, of course, may vary depending upon the time and place or the custom and usage of maintenance facility.
Additionally, if the maintenance facility/bailee fails or refuses to deliver the aircraft to the aircraft owner upon demand, or if it uses or permits others to use the aircraft contrary to the aircraft owner's/bailor’s instructions, then the maintenance facility/bailee could also be liable for conversion. In that situation, the maintenance facility/bailee could be responsible for the value of the aircraft at the time of the conversion plus interest from that time.
However, the duty to return the aircraft is qualified: a maintenance facility/bailee may condition return of the aircraft upon the aircraft owner proving that the owner has title or right to possession of the aircraft, so long as the maintenance facility/bailee then does, in fact, provide an opportunity for the aircraft owner/bailor to present proof of title or right to possession. This rule is intended to protect the maintenance facility/bailee from being placed in the difficult position of risking a suit by the rightful owner of the aircraft for converting the aircraft when the maintenance facility/bailee gives the aircraft to another person who claims to be the owner of the aircraft. If the maintenance facility/bailee does not receive such proof, the maintenance facility/bailee will likely not be liable for conversion.
Unfortunately, this can potentially leave a maintenance facility/bailee in the unenviable position of having to decide to whom it should release the aircraft and to suffer the consequences if its decision turns out to be incorrect. In situations where the maintenance facility/bailee may be presented with multiple bills of sale or documents indicating security interests held by creditors, it may be difficult to figure out which party has the right to delivery and possession of the aircraft.
Another situation that may impact the decision to deliver the aircraft may arise if the maintenance facility/bailee has no been paid for its services. Depending upon the state in which the maintenance facility/bailee is located, it may be necessary for the maintenance facility/bailee to retain possession of the aircraft if it wants to assert a mechanic's or artisan's lien against the aircraft to secure payment of the amount owed for the work it performed. Retaining possession of the aircraft to perfect the lien would excuse the maintenance facility/bailee from complying with the aircraft owner's request for return of the aircraft and, as long as the lien claim was valid, the maintenance facility/bailee would likely not be liable for conversion of the aircraft.
So, what can a maintenance facility do to protect itself from potential liability under a bailment relationship? For starters, the maintenance facility should ensure that it is, in fact, exercising reasonable care with respect to the aircraft in its custody. Maintaining custody and control of the aircraft and taking reasonable precautions to minimize the opportunities for damage to aircraft will go a long way to avoiding claims.
Another option is to include language in the work order or service request signed by the aircraft owner that limits the maintenance facilities liability for negligent damage to an aircraft. This may include exclusion of damages for loss of use or diminution of value and it may cap or limit the total amount of damages for which the maintenance facility could be liable. Other language may be included to require that the aircraft owner carry certain minimum insurance and that the maintenance facility be protected by the owner's insurance.
In the end, when the maintenance facility accepts an aircraft owner's aircraft for service, in most cases a bailment relationship will result. Maintenance facilities should understand the duties and liability to which they may be exposed as a bailee in that relationship. With proper procedures and contractual planning, maintenance facilities can comply with their duties and limit their liability exposure in the bailment relationship.
1. March 2013 13:44
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|When comparing aircraft costs, understand what costs are included, what costs aren’t, and how the costs are calculated. If you don’t take all three into account, you can end up with cost data, that although technically correct when viewed alone, is an invalid comparison.
Let’s take an easy one. Fuel How much do you spend on fuel? We did this for a benchmark client, asking what their cost per gallon was for fuel at home and on the road, as well as their annual fuel budget. Seemed straightforward until I started looking at the results. At home, several operators reported fuel costs of less than $2.50 per gallon. This was when then national average was over $5 per gallon. I was able to follow up with the operators and I found out two things:
1. These operators had their own fuel farms.
2. The cost of fuel to them was the wholesale cost when the truck pumped the fuel into their storage tanks.
These operators correctly and accurately reported that their fuel cost at home was less than $2.50 per gallon. The cost of the installing and maintaining the fuel tank and operating their fuel truck, as well as the taxes and fees were all excluded from their cost of fuel. Those costs were in the cost of the hangar and grounds throwing that benchmark off as well. So my intent was to arrive at the “Total cost of fuel inclusive of every cost of every item needed to get the fuel into the aircraft tank.” But without a lengthly definition and explanation, how is an operator to know exactly what I need?
When comparing costs, you need to be clear and consistent in what costs are included and how those costs are calculated.
Another area where costs can be reported in disparate ways is maintenance. “What is your cost of maintenance?” is such an open, and loaded question. Do you get your aircraft maintained at a service center? Do you have in-house maintenance staff? Do you have inventory and how/where does that cost get recorded? Did you record the costs as an accrual or as they occurred?
As an example, take a major airframe inspection due every six years on a large business jet. The cost of that inspection is $240,000. As an answer to “what is your cost of maintenance?”, it could be:
1. $240,000 this year as the inspection was done this year ($600 per hour if flew 400 hours)
2. $40,000 per year accrual for six years (or $100 per hour is flying 400 hours each year)
While in our costing we look at the $100 per hour as the cost of the above inspection, neither accounting is incorrect. When comparing costs, we stress using an accrual method. This way the cost of something is allocated over the time it took to accrue that cost.
If budgeting, then you need to look at the timing of the cost. Comparing costs by looking at a budget can be helpful as it shows not only what the costs are expected to be, but when they are likely to occur. If you are evaluating the acquisition of a used aircraft, when the major airframe inspection is next due can be important. So while Both Aircraft A and Aircraft B can have a similar budget, Aircraft B may face that major inspection sooner than Aircraft A. This information is good to know.
Comparing aircraft costs should be done using a fair and consistent method. The timing of major costs should also be considered. While no one method is the best method, the comparison should be done on an “apples-to-apples” basis and then relative differences are what adds meaning to the comparison.
31. July 2012 10:26
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|EAA AirVenture 2012 has just wrapped up. If you were fortunate to have gone this year (sorry to say I was not), and I asked if you saw any antique airplanes, you might mention seeing a Waco, a DC3 or Ford Tri-Motor. But what about a Learjet 35A, Citation II or Hawker 700? Early serial numbers of these venerable business jets are well into their golden years as they all were in production during the late 1970s. These and many other business jets are well past age 30.
In our aircraft cost databases, we assume that all the business aircraft are maintained more or less the same way with new parts replacing old, worn out parts. As many operators of long-out-of-production aircraft are finding out, this is not the most cost effective way to keep these aircraft flying.
First off, availability of new parts for older aircraft is becoming harder to find. Some non-OEM vendors are no longer in business, or they have been acquired and merged into different entities. They do not keep production lines open year round or may only build spares as needed.
Overhauling of serviceable components is also getting harder to accomplish. Sure, you can overhaul a generator multiple times, but what about the holes for the mounting bolts? Over time, you can only use "oversize" bolts so often before the component case is no longer serviceable.
To say that avionics have evolved since the mode 1970s is an understatement! Many of these older aircraft use what we euphemistically call steam gages. And relative to today’s technology, that statement is not too far off. Repairing these older instruments is becoming more costly, as are replacements. Glass cockpit upgrades are available, but at what cost?
Perhaps the toughest choices come with the engines. The first and second-generation business jet engines are all into their second, third or fourth overhaul cycle. Guaranteed engine maintenance program rates reflect this with rates much higher than current generation engines. The cost to overhaul a pair of these engines can run to more than the cost of the aircraft itself. Even with fresh engines, a 35-year old business jet will not double in selling price.
Look at the very popular Citation II. According to the Aircraft Bluebook Price Digest (Summer 2012), the selling price of a 1978 Citation II is $650,000. The basic overhaul price is about $350,000 per engine. Add in some cycle-limited items like rotor disks and impellers and the price jumps to over $500,000 – each!
Overhaul a pair of run-out engines on your 35-year old business jet and you will be lucky to get 50% back if you sell it. There are just too many of theses aircraft available for sale and at very low prices.
I have talked with more than one operator of aircraft like these who will not, and cannot, pay for an engine overhaul. Instead they look for a similar model year aircraft with engines in good condition with maybe 1,500 hours remaining until overhaul. They buy the second airplane, swap engines and part the rest out. This recycling method is more cost effective for many of these older business jets.
I doubt values on these “vintage” jets will ever recover. So it looks like we will see a steady dwindling of whole aircraft as we see two aircraft make one flyable aircraft and so on. Keeping these older business jets flying is becoming more of an exercise of scrounging and cannibalizing versus one of replacing/overhauling.
Maintaining older aircraft in this manner requires time, and decreases the aircraft availability. You need to have two or three aircraft to keep one in flyable condition! It can be done, but it is better suited to a flier that can live with low utilization and decreased availability. So enjoy these aircraft now, because it won't be to many more years at Oshkosh before a Learjet 35 is parked next to the Staggerwing!
23. April 2012 09:40
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UVALDE, TX – April 20, 2012 – Joining a select group of approved aircraft service centers in the United States, Sierra Industries has been certified by the Mexican government aviation agency to service Mexican-registered aircraft. The Dirección General de Aeronáutica Civil (DGAC) presented certificate no. CO-038/12 to Sierra Industries representatives on April 4, permitting the company to inspect, repair and modify a wide variety of aircraft from piston singles to cabin-class business jets.
In May, the Mexican government is expected to issue a ruling restricting maintenance services for Mexican-registered aircraft to facilities located within Mexico, with the exception of a limited number of DGAC-certified facilities outside the country’s borders. Located some 50 miles from the Mexico-Texas border and less than 250 miles from Monterrey, Sierra’s Uvalde facility is ideally positioned to allow convenient access to Mexican-based aircraft.
Enjoying nearly 30 years of aircraft service and modification experience, Sierra Industries’ location at Uvalde’s Garner Field Airport offers true “one-stop shop” capabilities including PMA parts manufacturing. in-house avionics support and on-field paint and interior specialists. Numerous Sierra employees are bilingual in Spanish and English, helping to facilitate communications with south-of-the-border aircraft owners and operators.
A number of Mexican-registered aircraft already enjoy one or more of Sierra’s well-known Citation performance modifications, such as FJ44 re-engining and Eagle/Longwing airframe upgrades. The DGAC certification ensures that those owners can continue to utilize Sierra’s expert service for their upgraded aircraft and new modification clients can count on after-the-sale support without undue regulatory restrictions.
For more information, please contact me at your convenience.
Manager of Creative Marketing
Sierra Industries, Ltd.
830-278-4481 ext. 226