Jetrader - Fall 2014 - 35

Engine
Support
Plans
Shift
Market
Dramatic changes in
the engine aftermarket
causing major concerns
for aircraft investors

T

The following is an extract from a whitepaper
written by Stratos.

The era of independent engine servicers
having a free-for-all in disassembling and
maintaining engines appears to be coming
to an abrupt end with profound implications for aircraft investors. Engine original
equipment manufacturers (OEMs) are rapidly
gaining market share with their all-inclusive
support packages. The complexities of these
packages combined with their tightening
grip on all areas of the aftermarket will,
in our view, result in the collapse of those
second-tier investors and independent
maintenance, repair and overhaul (MRO)
companies who don't adequately adapt their
business models to meet these challenges.

Engine Values

Engine values are extremely important
for aircraft investors because for any given
aircraft, the relative value of the installed

engines increases from about 20 percent of
the total value at new to 90-100 percent at
age 20-25. The cost of maintaining engines
is heavily stacked toward the second decade
of an engine's life, so investors are very
sensitive to the cost burden of maintaining
mature engines: the forecast of intrinsic
maintenance value is a key element in an
investor's evaluation of residual values during the life of the aircraft. If current trends
continue, the value of certain engines may
be depleted to close to zero at any point
after 12 years old, making the negotiations
with lessee's concerning compensation payments for usage one of the only avenues to
recover some loss in residual value.

a collateral against future maintenance
cost obligations during the entire life
cycle of 20 years or so, referred to as lifebased rates. In this way, investors protect
the asset value against the risk of lessee
default and eliminate any requirement to
subsidize engines transferring from one
lessee to another by keeping the engine
synthetically at full life throughout its
operating lifetime. This sensible market
practice has been receding over the past
few years, affected by the shift by many
airlines from traditional time and material maintenance contracts to all-inclusive
engine service agreements.

Maintenance Reserves

Concurrently, engine OEMs are moving
to control more of the aftermarket and are
Continued on page 37

Traditionally, investors have collected engine maintenance reserves as

OEM Programs

Jetrader  *  Fall 2014 35



Jetrader - Fall 2014

Table of Contents for the Digital Edition of Jetrader - Fall 2014

A Message from the President
Calendar/News
Reach for the Stars
Beauty Contest
Boeing’s Current Market Outlook for 2014
Aircraft Recyclers Debate the Coming ‘Tsunami’ of Retired Aircraft
Engine Support Plans Shift Market
The Second Life of Aircraft: Does It Still Exist?
Restructuring Aircraft Leases in Bankruptcy
Aviation History
Aircraft Appraisals
ISTAT Foundation
Advertiser.com
Advertiser Index
Jetrader - Fall 2014 - cover1
Jetrader - Fall 2014 - cover2
Jetrader - Fall 2014 - 3
Jetrader - Fall 2014 - 4
Jetrader - Fall 2014 - 5
Jetrader - Fall 2014 - 6
Jetrader - Fall 2014 - A Message from the President
Jetrader - Fall 2014 - 8
Jetrader - Fall 2014 - 9
Jetrader - Fall 2014 - Calendar/News
Jetrader - Fall 2014 - 11
Jetrader - Fall 2014 - Reach for the Stars
Jetrader - Fall 2014 - 13
Jetrader - Fall 2014 - 14
Jetrader - Fall 2014 - 15
Jetrader - Fall 2014 - Beauty Contest
Jetrader - Fall 2014 - 17
Jetrader - Fall 2014 - 18
Jetrader - Fall 2014 - 19
Jetrader - Fall 2014 - 20
Jetrader - Fall 2014 - 21
Jetrader - Fall 2014 - 22
Jetrader - Fall 2014 - 23
Jetrader - Fall 2014 - 24
Jetrader - Fall 2014 - 25
Jetrader - Fall 2014 - 26
Jetrader - Fall 2014 - 27
Jetrader - Fall 2014 - Boeing’s Current Market Outlook for 2014
Jetrader - Fall 2014 - 29
Jetrader - Fall 2014 - 30
Jetrader - Fall 2014 - 31
Jetrader - Fall 2014 - Aircraft Recyclers Debate the Coming ‘Tsunami’ of Retired Aircraft
Jetrader - Fall 2014 - 33
Jetrader - Fall 2014 - 34
Jetrader - Fall 2014 - Engine Support Plans Shift Market
Jetrader - Fall 2014 - 36
Jetrader - Fall 2014 - 37
Jetrader - Fall 2014 - 38
Jetrader - Fall 2014 - 39
Jetrader - Fall 2014 - 40
Jetrader - Fall 2014 - The Second Life of Aircraft: Does It Still Exist?
Jetrader - Fall 2014 - 42
Jetrader - Fall 2014 - 43
Jetrader - Fall 2014 - Restructuring Aircraft Leases in Bankruptcy
Jetrader - Fall 2014 - 45
Jetrader - Fall 2014 - 46
Jetrader - Fall 2014 - Aviation History
Jetrader - Fall 2014 - 48
Jetrader - Fall 2014 - 49
Jetrader - Fall 2014 - 50
Jetrader - Fall 2014 - 51
Jetrader - Fall 2014 - 52
Jetrader - Fall 2014 - Aircraft Appraisals
Jetrader - Fall 2014 - 54
Jetrader - Fall 2014 - 55
Jetrader - Fall 2014 - ISTAT Foundation
Jetrader - Fall 2014 - 57
Jetrader - Fall 2014 - Advertiser Index
Jetrader - Fall 2014 - cover3
Jetrader - Fall 2014 - cover4
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