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Guaranteed Maintenance Plans 101

by David Wyndham 26. September 2011 17:17
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I drive my Honda Odyssey about 25,000 miles per year. I’ve done the maintenance on schedule and save for brakes and tires, that is all that it has needed these past few years. No unscheduled maintenance! That’s why I like my Honda. 

Unlike my Honda, aircraft have some very complex systems. Those systems cost far more than my Honda, and an unscheduled event outside of warranty can be costly. Even the scheduled maintenance can be expensive, especially for things such as C-Checks, 12-year inspections and of course, the engine overhaul. 

Turbine airplane manufacturers and one third-party company have tried to take some of the pain away from the maintenance budget and offer some peace of mind with Guaranteed Maintenance Programs (GMP). Here is a primer on these plans.

What are they? As the generic name suggests, these plans are a way to contractually guarantee your maintenance costs. You pay an hourly accrual fee to the plan vendor. That money goes into a reserve account. When maintenance is due, the plan vendor pays for the maintenance. Costs are guaranteed with no major spikes for costly inspections and overhauls. The resale value of the aircraft is enhanced by the dollars accrued in the program, by the guarantee of cost coverage, and by the quality maintenance records these programs require of the operator. 

Along with the financial stability these plans offer, many financial institutions are looking for these programs to secure the value of the aircraft under a loan or lease, especially for the engine coverage.

The history of these plans has its start in the airline industry. When making huge fleet purchases, the deal was sweetened by the engine manufacturers when they offered guarantees on engine costs in order to secure the selection of their engine. Today each major turbine engine manufacturer has some sort of GMP for their engine

In addition to the large turbine engine companies, many of the business airplane manufacturers and Jet Support Services, Inc (JSSI), an independent company, provide these GMP. JSSI is the only major third-party provider of turbine GMP for business aviation.  The engine companies cover their respective engines. The airframe manufacturers cover their airframes and several of the major avionic manufacturers cover their avionics. JSSI covers turbine engines, APUs, and also has programs for many of the newer airplanes’ airframes and avionics.

These companies have an extensive staff of trained maintenance professionals who work with you and the maintenance providers in order to secure both a competitive price and to make sure the vendor does the job in the best possible manner. 

What kinds of maintenance are covered?  These plans tend to cover the scheduled and unscheduled maintenance (except negligence).These plans can cover the engines, the airframe, avionics, or a combination of all three. The most popular seem to be the engine plans (also called power by the hour (C) by Rolls-Royce). Most turbine engines are covered by a GMP for the engine, either by the manufacturer or by JSSI. 

Engine plans typically include parts and labor. Optional coverage can include rental engines.  Airframe plans typically cover the airframe parts. Labor coverage is rare. Part of that may be due to operators having their own in-house maintenance staff. Tracking in-house labor required under a guaranteed plan may not be feasible.  The part coverages are much like the engines covering scheduled and unscheduled part replacement. 

Avionic coverages may or may not be included in the airframe programs. They can get very specific depending on what avionics are installed. 

The GMP can sometimes be tailored to the operator’s specific needs. For example, if the operator is leasing a plane for five years, they may be able to get airframe/avionics coverage for the five year term plus reserves for the engines. 

Best when new! These programs are available on most popular turbine business planes and on some helicopters as well. They are offered at reduced rates to new aircraft buyers. Part of this is to encourage participation, part is due to the warranty coverage of new aircraft, and part is when accruing for maintenance, costs are lower for  younger aircraft. Aircraft buyers are encouraged to sign up early by the reduced rates for new aircraft/engines. Operators of older aircraft/engines can buy into the program, but often at a substantial cost if the aircraft or engines have accumulated many hours. 

Financial professionals love these programs as they offer a stable, predictable cost for maintenance. They’d rather pay $500 per hour for every hour flown than face a half-million dollar maintenance bill every couple years. They also like the insurance against unscheduled maintenance. 

GMP aren’t for everyone. Operators of older aircraft that are not on a program may not be able to afford the buy-in. For them, the engines can be covered if they sign up at engine overhaul, but they still may face a higher expense as they accrue for the higher cost of the second or third overhaul. Fleet operators with significant in-house maintenance may feel they can manage their fleet for a lower average costs. And some operators would rather keep their money until the expense occurs rather than let the GMP provider accrue the money in advance. 

A GMP can add value and provide peace of mind to the aircraft owner. They warrant careful consideration, especially for the new aircraft buyer.

 

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David Wyndham | Maintenance

Experimental Helicopter Purchaser Receives Suspension For Registration And Airworthiness Violations

by Greg Reigel 26. September 2011 13:18
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In a recent opinion issued by the National Transportation Safety Board ("NTSB"), the Board affirmed the findings of violations issued by an administrative law judge ("ALJ"). The case, Administrator v. Haddock arose following the crash of an experimental helicopter operated by an airman shortly after his purchase of the helicopter. After investigating the accident, the FAA issued an order alleging that the airman had not properly registered the helicopter and, at the time of the accident, the helicopter did not comply with its experimental operating limitations because it did not have a current condition inspection. According to the order, the airman's operation of the helicopter violated FARs 91.403(a) (owner or operator responsible for maintaining aircraft in an airworthy condition), 91.13(a) (prohibiting operation of an aircraft in a careless or reckless manner), and 47.3(b) (prohibiting operation of an aircraft unless registered or using temporary registration). The airman appealed the order to the NTSB and requested a hearing before an ALJ.

After a hearing, the ALJ determined that the prior owner of the helicopter had used the wrong language to indicate he had completed the required condition inspection and thus the ALJ found that the helicopter was not airworthy at the time of the accident. However, the ALJ did not make a specific finding as to whether the airman had relied upon the prior owner's verbal statements to him regarding the condition inspection and the airworthiness of the helicopter. The ALJ also found that the airman hadn't produced any documentation to show that the aircraft registration had actually been submitted to the FAA Registry prior to the accident flight. But the ALJ did reduce the sanction from 90 days to 60 days based upon evidence that the airman had apparently made a “substantial attempt” to register the aircraft.

The airman appealed the ALJ's decision and the Board remanded the case back to the ALJ for more detailed findings on certain issues. The ALJ obliged, and issued an order again affirming the findings of violations, but providing further explanation regarding most of the issues with which the Board was concerned. The airman then appealed the ALJ's order on remand back to the Board.

On appeal, the airman argued that the ALJ erred in determining the helicopter was not properly registered at the time of the accident. He also contended that the ALJ improperly concluded he was responsible for operating the helicopter when it was in an unairworthy condition because the prior owner had, in fact, completed a condition inspection before the accident and he had reasonably relied upon the prior owner's verbal statements to that effect.

With respect to the registration issue, the Board first noted that the ALJ had not addressed its question concerning the paperwork required to register an aircraft pursuant to FAR 47.3(b). However, rather than remanding to the ALJ a second time, the Board relied upon the ALJ's credibility finding in favor of the two FAA inspectors who testified at the hearing to support the Board's own conclusion regarding the documentation required under FAR 47.3(b).

Since one of the inspectors opined the helicopter was not registered to the airman until he sent the registration to the FAA, sometime after the accident, the Board considered that opinion to be an interpretation of FAR 47.3(b) to which it must defer. When it combined that interpretation with the inspector's testimony, which the ALJ found more credible and to which the Board also had to defer, the Board agreed that the pink copy of the application for registration needed to be present in the aircraft on the date of the accident in order for the airman to have complied with the requirements of FAR 47.3(b). As a result, based upon the inspector's testimony that the pink slip was not in the cockpit at the time of the accident, the Board concluded that the helicopter had not been properly registered.

With respect to the airworthiness issue, the Board rejected the airman's defense based upon the doctrine of reasonable reliance. Since the prior owner was neither the airman's copilot nor crew member, as required by that defense, the airman, as owner and operator of the helicopter, had a duty to ensure that the helicopter complied with its type certificate and was in a safe condition for operation.

The Board found that the airman could have "reviewed the maintenance log and compared it with the requirements of the experimental operating limitations applicable to the aircraft, which explicitly provide the language necessary to indicate the aircraft underwent a satisfactory condition inspection." If he had done so, the Board reasoned, he would have discovered that the prior owner had not used the language to properly document a condition inspection. The Board concluded that the airman's reliance upon the prior owner's statements that the helicopter was airworthy was not reasonable under the circumstances and did not excuse his violations of FARs 91.403(a) and 91.13(a).

Conclusion

This decision highlights the responsibility pilots have for confirming the airworthiness of their aircraft before they fly. If pilots, or aircraft buyers, are going to trust representations by others, as the airman did in this case, they will also need to take reasonable steps to confirm those representations. Similarly, aircraft owners need to comply with the requirements of the aircraft registration regulations on a timely basis to ensure proper registration of their aircraft while they are flying. Although the requirements are simple and straightforward, they need to be met to avoid the consequences suffered by the airman in this case.

South Dakota holds rally for general aviation

by GlobalAir.com 2. September 2011 10:08
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Rallying for General Aviation in Pierre, SD
Posted: Aug 31, 2011 7:24 PM EDT Updated:Aug 31, 2011 7:25 PM EDT

By Courtney Collen of KSFY News Sioux Falls, SD

One thing many South Dakotans don't often think about is General Aviation. Hundreds gathered for a rally in Pierre, SD today to show support making sure the multi-billion dollar industry continues to grow.

General Aviation is vital in our state especially with areas like health care, agriculture, politics and law enforcement. Wednesday's rally sent a message that this type of aviation is a crucial part of our everyday economy, creating jobs and generating not only millions of dollars in South Dakota but billions through the country.

Warren Pietsch flew this plane in from Texas. It's a 1942 bomber used in World War II. It's one he calls extremely unique, not only because it's his job, flying is his life.

"When I was 10 years old, I painted a picture of one of them on my bedroom wall, 10 feet long, and started to dream about having the chance to fly one," Warren Pietsch said.

His passion for aviation runs in the family.

"My father started a business very similar to this in the 40s in Minot, ND which my wife and I still run there. So general aviation has been my living since before I Was born," Pietsch said.

He's not the only one with that passion. More than 100 people gathered in Pierre for the same reason, knowing this type of aviation is vital in the state.

"We have a large state, vast geography, wide open space so we have great history and heritage with G.A. In South Dakota. So it's really important that we appreciate that but we also look at that continuing in the future and that's what many of the people here are interested in and committed to," Senator John Thune said.

"It's encouraging to see that I'm not the only one who feels that way and that there's a group of people here that support where we're going," Pietsch said.

His goal is to get whoever he can involved in the industry.

"It's up to us to go out and educate the public on G.A. About what it does for us as the general public. That is saving lives, saving property, transporting people, entertainment and all those things," Pietsch said.

In the state of South Dakota alone, the General Aviation industry has contributed more than $50 million into the economy. In the U.S., it's more than $150 billion. In addition to that, the industry has supported more than one million jobs nationwide.

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Alternative Aviation Fuels and Their Impact Upon Your Flying

by Jeremy Cox 1. September 2011 13:46
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Written by Jeremy R.C. Cox

The single biggest operational expense to you when you fly is the cost of the Jet Fuel that is fed through your engine. Even though the modern gas turbine ‘jet’ engine is significantly different than what was first designed and conceived by its inventors, this type of engine does require a considerable amount of fuel to enable it to achieve the necessary power levels to attain, and sustain flight within the stratosphere.

 

To illustrate the issue of consumption, and how engine manufacturers have changed the efficiency of their engines, as an example a four-engine Lockheed 'JetStar' from 1961 would burn as much as 1,400 USG of Jet-A fuel per hour. A 2010 Dassault Falcon 7X that flies 60 KTAS faster, provides almost twice as much cabin space, and delivers more than double the range of the vintage JetStar, has an hourly fuel burn of only 380 USG per hour. Obviously price is age related. You can pick-up a pretty decent JetStar for $600,000 U.S.D. or less. The Falcon 7X is going to run you something in the high $30 Mil to mid $40 Mil U.S. Dollar range.

 

The issue of ‘Peak Oil’ is a controversial one, where many who debate when this event will, or has occurred, are all pretty deeply divided (Peak Oil being the point at which global crude oil production ‘peaks’ and from this point on, the world’s oil supply is in decline and on its way to exhaustion.)

 

Excluding vegetable and animal oils, nuclear fission, and the combustion of natural renewable materials like wood and grass, virtually all other fuels that are used by combustion engines are derived from underground deposits of dinosaur and prehistoric rotted vegetation juice, more popularly known as fossil fuel. Coal powered the industrial revolution of the 1760’s, mainly thanks to the Scotsman, James Watt and Englishman, Matthew Boulton’s invention of the industrial steam engine. Unfortunately due to its bulkiness, the external combustion steam engine, travel was nowhere near as fast as it is today. It wasn’t until the useful application of petroleum oil as a replacement for coal along with the subsequent refinement of the early internal combustion engine, before air transportation became possible. This occurred at around the same time as Gugliemo Marconi’s communication revolution was underway with his invention of wireless telegraphy. Up until the present day, all subsequent non-military transportation systems have been entirely powered by a non-renewable fossil fuel.

 

There is now what appears to be a desperate search for both a renewable form of petroleum-like fuel product, and other alternative energy sources. Fortunately for the Green Movement, the ever deepening energy crisis is now proving more effective at meeting their environmental goals, rather than the decades of lobbying that they have been engaged in.

 

Ethanol distilled from cellulose rich materials like corn, sugar cane, beets, and grasses, etc. is taking up some of the slack found in a diminishing oil supply, but unfortunately this distillate does not contain sufficient calorific value to keep the industrial and transportation engines running at the same pace at which fossil fuels afford them. Scientists continue to seek out the best form of renewable ‘bio-fuel’ for the future. Many experiments with palm oil, soybeans, algae, nuts, animal fat, and other crops have proven successful and yet none of the resulting fuels has emerged as the ‘silver bullet’ answer to the problem.

 

The USAF, NASA, US Navy, Boeing, Rolls-Royce, GE, Sir Richard Branson, and New Zealand Airlines amongst others, along with the top engineering and research universities around the world, are working on this problem. The USAF in conjunction with NASA is working on a synthetic fuel (Bio-Jet) produced from coal (coal-gas.) The original process was developed by the Nazi’s during World War II, in-part because their fuel supply lines were being pounded by the allied forces. So far the U.S. version of this synthetic fuel when used in Jet Engines has only been successful when it is burnt in a 50/50 ratio of conventional jet fuel to Bio-Jet.

 

Similar results have been seen by the US Navy where they have managed to brew-up and distil a bio-fuel from a native U.S. flowering plant called Camelina. This renewable fuel must be mixed in a 50/50 ratio with petroleum based jet fuel to attain the heat requirements of their Jet Engines.

 

Before Sir Richard Branson, owner of Virgin Airlines amongst other enterprises, inked his order for 15 Boeing 787 Dreamliner aircraft, he made Boeing pledge in conjunction with the engine supplier General Electric, that all of the aircraft would be delivered capable of operating on his Virgin Fuels division Bio-Diesel derivatives. These are produced from various renewable sources including Algae, or the nuts from the Brasilian Babassu palm tree. In the Southern Hemisphere Air New Zealand is working in cooperation with Rolls-Royce to encourage the production and use of an Algae derived Bio-Jet fuel.

 

With ‘Peak Oil’ looming as the main driver for alternative fuels to be developed, the extraction and creation of bio-fuels are becoming more viable, even though they often require more energy to create, than what they produce in combustion. This is because they at least, are renewable.

 

My prediction for the future is that eventually we shall hit $25 to $30 U.S.D. per Gallon for Jet Fuel. At about this time, Bio or Synthetic Fuels will reach the same production output as current fossil fuel distillation; then the cost per Gallon will stabilize around $15 to $20 U.S.D. per Gallon. Today's national average is $5.68 U.S.D. per Gallon, according to Globalair.com's Aviation Fuel Price Index , therefore you can expect your operating costs to almost quadruple in the next couple of decades or so.

 

The most desirable solution to how aircraft will be powered in the future is probably electrical power instead of combustible fuels. This is most likely how all motorcars will be powered in the next 50 years, however can we expect the same to be true for all heavier-than-air, high speed jet aircraft as well?

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Jeremy Cox | Aviation Fuel

Considerations For Putting A Private Aircraft Onto A Part 135 Certificate

by David Wyndham 1. September 2011 08:58
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For an FAA Part 91 aircraft owner who is looking to reduce the cost of their aircraft, one thing to consider is placing the aircraft onto a commercial certificate. By doing that, when the aircraft is not being used by the owner, it can be earning revenue by flying charter. 

Since you can’t easily go out and get a Part 135 operating certificate, you will need to add your aircraft to an existing certificate holder. This involves a lot of work, and probably some expense on the owner’s part. Here are a few pros and cons to consider if you find yourself having this discussion.

Pros

You can generate revenue that will offset the cost of owning and operating the aircraft.  As a rule of thumb, the aircraft owner typically gets 85% of the base charter rate while the certificate holder keeps the remaining 15%. The aircraft owner typically pays all the aircraft specific charter expenses such as fuel and maintenance. The excess of charter revenue over those expenses helps offset the fixed costs resulting in a net decrease in total cost to the owner.

The aircraft owner can still fly their own aircraft under Part 91, or they can elect to have the certificate holder operate their aircraft under Part 135. Under Part 135 operations, the certificate holder has operational control of the aircraft and crew, and thus, the liability for the charter flight rests with the certificate holder. If the aircraft owner wants to reduce their aircraft liability, this may be an option.

Charter activity is a business use of the aircraft. If the aircraft owner flies mostly personal, non-business use, the charter activity may qualify them to take a tax deduction for the business use of the aircraft. 

Considerations

The FAA has increased scrutiny of a Part 135 certificate holder. Charter operators are required by the FAA to have operational control of the aircraft and crew during all 135 operations. Operating under Part 135 places greater restrictions on aircraft and crew than does Part 91.

Putting an aircraft onto a charter certificate also requires that the aircraft meet the more stringent safety requirements for commercial operations. The initial conformity checks commonly result in additional costs to the owner as the aircraft must be brought into compliance with those standards. The aircraft must also be maintained to the certificate holder’s approved maintenance practices.  This means that all maintenance must be coordinated through the certificate holder. This adds some cost and complexity to the aircraft maintenance function.

The owner may wish the crew to be employed by the certificate holder. The owner’s crew can’t just start flying 135 operations, even if they are as well or better qualified as the certificate holder’s crew. If the owner’s crew is to fly for the certificate holder, that certificate holder must be able to show they have control over the crew and that the crew (much like the aircraft) meets with their approved training program and has drug testing. 

As the aircraft owner is not actively involved in the charter business, the IRS considers the charter income as passive income, much like rental income. So tax planning for the aircraft owner gets more complicated. Thus, the aircraft owner needs a careful review with an aviation tax person. 

There are more tax issues with for-hire flights. Federal Excise Taxes are due on the aircraft charter income. The charter operator commonly handles this. The tax depreciation status of the aircraft may change. In general, an airplane in not-for hire business-use may qualify for a 5-Year accelerated tax depreciation schedule. If the predominant use is commercial for-hire, the IRS limits an airplane (but not a helicopter) to a 7-year accelerated tax depreciation schedule. Contact my partner Nel Stubbs about this (602-404-1854 or nel@conklindd.com) or for any aviation tax issues.

Your aircraft insurance and lease or mortgage documentation needs a thorough review to ensure the commercial activity is a permitted use. This may be a pro if the certificate holder has a fleet insurance policy that offers a lower policy cost to the aircraft owner.

Lastly, wear and tear will increase on the aircraft. Not only due to the increased flying in general, but charter customers may not treat the aircraft interior as well as the owner. In the case of some rock bands, they will mistreat the interior!  

For an aircraft owner placing their aircraft onto someone else’s commercial certificate requires careful planning and compromise. The arrangement can be beneficial for both aircraft owner and charter operator, but only if both parties compromise, cooperate and communicate. 


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David Wyndham



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