Engine Cost Management in the Covid-19 Environment

Engine Cost Management in the Covid-19 Environment

Due to the current Covid-19 environment and reduced cashflows within an airline, taking control of the costs of an engine has never been more important.

Management of the costs of an engine during its operation is essential to all airlines and is measured in a $/flying hour rate and a $/cycle rate. Ongoing detailed management can reduce these rates significantly and save $m’s on just one individual engine over the period of operation. Future shop visits should not be the only costs considered. Other conditions that will have an impact on costs include contractual requirements such as reserves/settlement fees and hand back requirements if an engine is leased and the future disposition of the aircraft if it is owned.

TGIS Aviation has two very clear views of engine cost management; ‘If the costs are not known, they cannot be controlled’, and ‘all engines should be considered individually.’

It is not uncommon in the industry for Airlines and Lessors to assume a ‘one size fits all’ approach when it comes to budgeting the costs of an engine whilst in a fleet. The same assumptions and costs are applied to all engines within the same fleet.

This philosophy works well for airlines who own the aircraft and the same shop visit workscopes are applied to all engines. And, to a lesser extent, to the first shop visit for leased engines, although redelivery requirements should be considered for this group of engines. Probably the single area which has the greatest impact on increasing an airline’s $/hour and $/cycle rate is an early removal solely to meet redelivery requirements. If an engine with a typical time between removals of 20,000 cycles must be inducted into a shop 4,000 cycles early to meet the handback conditions, i.e., 20% earlier, then the $/hour rate would increase by approximately the same rate. For a $5M shop visit, this would be an additional $1M cost to the airline.

When evaluating the future shop visit costs of an engine, the following must always be considered as each one can have a significant impact:

  • Workscope for the next shop visit
  • Engine shop visit history, i.e., the workscope performed at the last shop visit, which modifications and materials were installed?
  • Build life requirements: do they need to meet handback requirements?
  • Is a further shop visit required before handback?
  • Can this be avoided by increasing the build life at the earlier shop visit?

The Covid-19 situation has added a new dimension to engine cost management. For the foreseeable future, it is clear that airlines will endeavour to take steps to avoid any shop visits to preserve cash flow. By taking the approach that each engine has individual cost profiles, a mid-size airline introducing a phased reintroduction of the fleet into service could make significant savings of potentially $10m’s. Based on a lifetime cost review, selecting specific engines to return to service first can result in a major cash flow benefit over another engine.

Avoiding just a single handback shop visit by delaying the return to service could result in a cash flow benefit to the airline of $1m’s.
Engine cost management is always important but knowing and understanding your costs today and acting on it will provide the maximum benefit to preserving cash flow.