Progressive Maintenance Concept
How to fairly divide operations expenses
by Erin Pierce
I came up with the following concept to simplify my aircraft management transactions. Please keep in mind that I make every attempt to only manage aircraft for highly qualified owners. These are fair-minded people who enjoy a reasonable amount of liquidity. I try to have knowledge of their personal financial situation, and have either done business with them in the past or know people who have.
PMC is very simple. Basically, we divide fixed costs by ownership interest, and times variable cost by percentage of use. I accept any cost that does not change with use as “fixed”. All upgrades to equipment are also considered “fixed”. Everything else is variable, and subject to the percentage of use calculations for capital.
Percentage of use is calculated using flight hours as follows:
FHU divided by TFH/100 OR: Flight Hours Used divided by the quotient of Total flight hours in that period divided by 100.
So, if a wear item is being replaced for a total parts and labor cost of $5,000 (using Joe and Pete’s example from above) 50/(300/100) is 16.67% of $5,000, or $833.50. Assuming the rest of the annual inspection expense was a flat-rate inspection and a few upgrades (thus a shared expense), Joe only owes $3,333.50.
Unless otherwise specified, the “period” of a wear item is the time elapsed between it being deemed serviceable and the replacement time. Parts and labor for that task are billed as variable cost. Any item that breaks between inspections is treated in the same manner. Every wear item on the aircraft is deemed “serviceable” at annual inspection. On some occasions (like the brakes on an Eclipse Jet) a high dollar item “period” will not be zeroed out by being deemed “serviceable” at inspection. Instead, that “period” will be whatever flight time elapses between installation and removal.
All basic airworthiness cost is viewed as “fixed”. We establish a base line cost by negotiating with a shop to do inspections for a specific rate.
Utilizing the PMC method requires an aircraft manager who is familiar with the aircraft type and required maintenance. Each inspection or repair must be closely monitored so that the parts and labor are appropriately categorized, and all flight time records must be permanently retained. Of course, the owners have final authority, and some changes are bound to be made over time to better suit any particular group’s needs.
With PMC, Joe does not have to pay for the brakes that Pete wore out, and Pete does not have to leave the money for the brakes in an account with me until they are replaced. The lack of extensive reserves means that both Joe and Pete can enjoy reduced hourly costs; they will subsequently utilize the aircraft more often—which maximizes the divided hourly cost efficiency of the aircraft over time. Everybody wins. |
