Engine Hourly Cost Maintenance Programs and the Pratt & Whitney Eagle Service Plan

Tony Kioussis (00:33):

Welcome to another Asset Inside podcast covering the aircraft ownership life cycle. I am Tony Kioussis, president of Asset Insight, and your host. Delray Dobbins leads sales and global strategy for Pratt and Whitney’s Eagle Service plan, or ESP as it is commonly known in the industry. During his 25 plus year career, Delray has held several key aviation industry positions, including posts of increasing responsibility with an airframe OEM, and he’s also worked for a major aircraft acquisition and sales organization. He joins us today to discuss engine Hourly Cost Maintenance Programs. Welcome to our educational podcast series, Delray.

Delray Dobbins (01:14):

Tony, thank you for having me, and thanks for creating this great platform to help educate others about engine programs.

Tony Kioussis (01:21):

For anyone not familiar with Hourly Cost Maintenance Programs, let’s start off by explaining the concept in general, and the Eagle Service plan offered by Pratt and Whitney.

Delray Dobbins (01:32):

At the risk of over-simplifying what an engine program is, if I try to use an automotive analogy, if you go to the dealership and you get an oil change for 40 bucks, and when you’re leaving, the salesman offers you a book of 10 oil changes. Well at straight retail rate at 40 bucks an oil change, 10 old changes would have been $400, but as an incentive, they try to sell you the book for 25% less, maybe $300. And in a very simplistic analogy, that’s kind of what an engine program is. It looks at the inevitable cost of overhauling the engines, and in many cases, the hot section inspection as well, and divide that by the total hours that are going to be consumed, and they come up with an hourly rate.

Delray Dobbins (02:14):

And then, the OEM will take that hourly rate, and usually apply some sort of discount so that it becomes worth the customer’s time. Rather than saving that hourly rate in their own savings account, it becomes worthwhile to put that money into an engine program, where in most cases you’re not just getting the overhaul or the hot section inspection, but you’re usually getting a variety of other benefits as well. Taking it back to the automotive analogy, almost like your roadside hazard warranty, in addition to the oil changes. And so the OEMs and Pratt Whitney, especially, have done a great job of creating a program that adds value to the customers, while also providing a fixed cost certainty.

Tony Kioussis (03:06):

Let’s talk about how OEM engine programs have evolved over the last 20 years.

Delray Dobbins (03:11):

The 20 year perspective is really a good snapshot to look at where we are right now in this space, this time in the industry. If you go back about 20 years ago to about 2000, or maybe even the late 90s, engine programs generally covered the major shop visits, like your overhaul on the hot section, and they also provided some AOG support if you were broke down and maybe you needed a fuel control, or maybe you needed a technician on-site to come replace or troubleshoot that fuel control.

Delray Dobbins (03:45):

Since then, customers have said they wanted more. One of the things I have heard over the last 15 years is: “I don’t want just that benefit in 15 years at the overhaul, I want more benefits. I want more value, more coverage. I want to see some benefits on an annual basis.” And so over the years, engine programs have evolved to cover more things and be more comprehensive.

Delray Dobbins (04:11):

A lot of the things that have been added into the mix are things like corrosion coverage, scheduled line maintenance, oil filters, fuel filters, tech pubs, low utilization inspection. And so, an ESP has evolved to add all sorts of these types of items to make the program more comprehensive, and also add more value. One of the latest examples of our ESP program evolving is just now this month, we are rolling out a ESP Platinum coverage for the Embraer Phenom 300. That particular model aircraft just hit a milestone, and it just delivered with a new, improved thrust engine: the 535E1 engine.

Delray Dobbins (04:54):

First one was delivered to a customer in Texas just a few weeks ago. And so in concert with the rollout of that new engine model with a higher thrust, we are also rolling out a Platinum coverage that really illustrates just how far engine programs have come in the last 20 years, because that Platinum coverage is going to offer more, I would almost call it, short-term benefits like Fly-Away kits with the oil filters and fuel filters, scheduled line maintenance, compressor wash, corrosion coverage. These are the things that the customers in the last 10 to 15 years have really been asking for.

Tony Kioussis (05:33):

What have been the biggest improvements in OEM engine programs?

Delray Dobbins (05:37):

Without a doubt, the biggest advancement in engine programs, I think, is how we’re using technology. Technology is letting us use data-driven engine health management on our engines to help avoid AOGs, and really maximize dispatch for liability. We’ve got FAST boxes that are cellular technology-based, and on many of our programs, that FAST box will transmit all the engine data from that flight 15 minutes after shutdown to our proactive help desk. And then we can manage the data, and advise the operator if there’s any anomalies or issues that need to be addressed.

Delray Dobbins (06:16):

If you go back 10 years ago, where a technician would take his laptop out to the aircraft, and he would manually download the engine data once a month and email it in, and now we’re getting that data after every flight. And so not only does the engine health data we’re getting now have many more parameters than it did years ago, getting the data daily after every flight means we have much more advanced notice of any issues and anomalies that could cause an AOG if left undetected. Many times our EHM trending can detect items that are imperceptible to the pilot.

Delray Dobbins (07:00):

And so, I’m always an advocate of engine health monitoring, and I talk a lot about it, because if you’re tracking your maximum dispatch reliability, engine health monitoring helps a lot of our fleet operators really achieve maximum dispatch reliability and avoid AOGs. When I talk to customers about the value of an ESP plan, I often ask them to consider: What’s the cost impact to a missed meeting due to an AOG in a really inconvenient place like Reykjavik, Iceland or Jakarta, Indonesia? And now imagine that the daily engine data downloads could have identified that problem three weeks earlier while the aircraft was at its home base. That’s really the power of the engine health management services and how it can help customers avoid AOGs. I think that technology benefit of EHM has not really been fully recognized by the average business owner.

Tony Kioussis (08:06):

I’m really impressed with these FAST boxes that you mentioned. They may just be a simple communication device to some people, but the impact can be quite dramatic to the operator.

Delray Dobbins (08:17):

It’s interesting, again, when you go back 20 years, and you look at engine programs in their earlier versions, it was really more about just covering the shop visits. And now, because engine health monitoring is such a major component of our ESP program, it’s not about just fixing your cost for your shop visits, it’s about preventing problems on the road.

Tony Kioussis (08:45):

Are OEM programs increasing or decreasing in popularity, and why?

Delray Dobbins (08:50):

The engine programs now, I think they had never been more popular than what they are right now. In the last six to eight years, I’ve seen several Fortune companies that have not done engine programs for the previous 40 years, I’ve seen them change their position and enroll their new aircraft onto an engine program. I think there’s a few things that are driving this shift in the market and the shift in the mindset of flight departments of big corporations. One thing driving this is liquidity at resale. I’ve seen firsthand many large corporations that have experienced difficulty selling their used aircraft in the market without an engine program. In some cases, I’ve seen aircraft languish in the market for up to a year. Were large cabin aircraft from a US-based, very reputable flight department, but they couldn’t move the aircraft, because it wasn’t on an engine program, and buyers didn’t want that uncertainty.

Delray Dobbins (09:44):

I think one of the other things that’s driving the ever increasing popularity of OEM engine programs is the engine intervals are getting longer and longer. Again, if you go back to the 90s, many of the engine intervals to your hot section and to your overhaul were 2,000, 3,000 hours. Since then, a lot of the newer engine programs had been certified with much longer intervals. Our PW800 series engine on Gulfstream is showing how far we’ve really come. Those engines are, on-condition, somewhere around 10,000 hours is what we expect the first shop visit will be. And so, the amount of maintenance exposure on those longer shop visit intervals is much higher than the exposure that would have been back 20 years ago on a 3000 interval engine.

Delray Dobbins (10:37):

The other thing that’s kind of occurring here in the same space is when you take these longer intervals, say a 10,000 hour engine, that aircraft’s probably going to sell three to five times. Three to five owners will own that aircraft before the first shop visit occurs. Whereas on these older engines 20 years ago, maybe that aircraft only sells one to two times between the shop visits. And I think every time an aircraft sells, it’s likely that the buyer is going to require an engine program. And so as the shop visit intervals get longer, that deferred pent up maintenance exposure increases. So if you go back to the lower intervals 20 years ago, a 3 or 4,000 interval exposure for an engine overhaul, maybe it’s a million dollars. Now you take that interval out to 10,000 hours, that exposure is no longer a million dollars, maybe it’s 3, 4, or $5 million. And every time an aircraft sells, buyers do not generally want that uncertainty of what that deferred maintenance exposure is. The only way to add a fixed cost to that is to buy the aircraft on an engine program.

Delray Dobbins (11:47):

The last thing that I think is kind of driving the ever-increasing popularity of engine programs are the banks and the financial institutions. Banks are requiring engine programs more than I think they ever have before. They’re making it standard on most of their leases. And I think the fact that more engines now are on-condition, which leads to the longer intervals, is kind of driving that. I think, back to 2005-ish, a lot of the lease return conditions on banks were simply that the engines had to have a hot section or midlife completed. In this new on-condition environment that we’re in, a lot of engines don’t have a hot section or a midlife. And so the banks, in the effort to protect their own interests of their assets, the most common yard stick available to just equalize everything and protect their exposure is just to require an engine program.

Tony Kioussis (12:39):

As you know, I’m a big believer in these Hourly Cost Maintenance Programs. Having worked for a financial services company, I can tell you that, historically, these programs have saved everybody’s bacon. From the operator to the financial services company, that’s the reason why you see so much support for these programs from the aircraft finance companies. What do you see on the horizon for Pratt and Whitney and the ESP maintenance program?

Delray Dobbins (13:03):

I think one of our biggest messages is that we’ve been listening, and that we will continue to listen to our customers. We continue to embrace that feedback. We want to understand the customer’s pain points so that we can come up with solutions to improve their experience with us. And the last couple of years, we’ve really broadened that listening that we’ve been doing, because for the longest time, we were really focused on just the customers.

Delray Dobbins (13:29):

And in the last few years, we’ve really started reaching out with focus groups and other opportunities to meet with the industry influencers, the bank, the appraisers, the brokers. And what we’ve realized is an individual customer might touch our ESP product one time when he enrolls his one aircraft that one year onto ESP, and then that’s it. And we’ve realized that the major influencers in the industry, like the major brokers and appraisers, they may touch 30 or 40 aircraft a year, with Pratt and Whitney powered products. Or appraising aircraft 30 or 40 times a year that have ESP.

Delray Dobbins (14:11):

And so, we really felt it was important to reach out to these influencers, and make sure they’re up to speed with what we’re doing with our products. Make sure they understand the full suite of products that we offer, most of which is ESP, but we also offer some options to ESP. We offer some parallel products as an alternative to ESP to provide solutions to customers that they’ve been asking for. And as we’ve started reaching out to these influencers, we quickly realized that we’d hit up on a vacuum where we had not done a good job over the last 10 years of educating these influencers, and making sure they have the right information to forward on to their clients.

Tony Kioussis (14:55):

Let’s talk a little about your latest engine, the PT6 E powering the Pilatus PC-12 NGX. It has been referred to as a game changer by Pratt and Whitney on the general aviation front. Tell us why.

Delray Dobbins (15:09):

We’re really excited about that engine for quite a few reasons. On the technology front, that’s the first turboprop engine in general aviation to offer a dual channel FADEC, which adds a huge degree of reliability. Also because it’s a FADEC, it lets us do engine health monitoring, because we can, again, we’re right back to engine health monitoring, and getting all that engine data 15 minutes after every shut down, so it lets us do a proactive help desk. And we haven’t offered a proactive help desk and that level of engine health monitoring of a turboprop before. When we developed the ESP plan for this new piece in ’12, we really took a hard look at it, and we did focus groups, we talked to Pilatus, we took a lot of input to say, “Okay, how do we develop an ESP program that’s going to be a game changer in the turboprop space?”

Delray Dobbins (16:02):

And we’ve actually added quite a few things to the ESP program that has never been done before for a turboprop. So for example, it’s the first turboprop where we’ve offered a top-shelf Platinum coverage, and that Platinum coverage is going to cover routine periodic inspections, parts and labor. It’s going to cover compressor washes. It’s going to cover environmental protection like corrosion. It’s the first ESP program that we’ve ever offered 100% complete FOD coverage. Not FOD Gap coverage. Complete FOD coverage. We’ve never done that before. All these improvements in the ESP program for this engine we’ve brought to the market at an extremely competitive ESP rate.

Delray Dobbins (16:46):

When we look at the business jet market where maintenance plans have kind of become the standard, that’s not been the case in the turboprop world. [inaudible 00:16:55] engine programs were not the standard. And when we built the ESP plan for this next generation Pilatus, we were determined to package it right, price it right, add the right value points that customers will really appreciate, so ESP, we think, will become the standard for this next generation Pilatus. And I think one of the ways we’ve done that is creating values and services on an annual basis, like the compressor washes, and covering filters and stuff.

Tony Kioussis (17:25):

You mentioned FOD coverage, which of course is foreign object damage to the engine. Usually an insurable event.

Delray Dobbins (17:33):

You are absolutely correct. Historically, in business aviation, a FOD event, a lot of people might think of Captain Sully who landed the airliner in the Hudson. Geese went down the engines and caused the engines to shut down. That’s probably the most popular, heavily publicized version of a FOD event. But you’re right, FOD events have historically been an insurance claim, and adding FOD coverage to the ESP is going to change the game a bit. When you make an insurance claim, and again, I’ll go back to the automotive analogy, if you make an insurance claim, are you concerned that your rates at renewal are going to go up?

Delray Dobbins (18:09):

Maybe so, because in the insurance world and the way the insurance world works, that’s a risk. If you make a claim, are my rates going to go up at renewal? In the engine rate world where we do engine programs, that’s not really a factor. If a couple of people make a claim on their engine program for a FOD event, the rates are the rates across the entire platform, whether it be for the engine model or that whole segment. And so, I argue that making a FOD claim on ESP is not going to affect your rates at renewal the way it might on an insurance claim. And so I think it gives the customer more peace of mind and a more fixed cost certainty that may be an insurance company may not be able to provide.

Tony Kioussis (18:57):

You mentioned the FADEC system. For those listening to this podcast that are unfamiliar with this system, can you explain that a little bit?

Delray Dobbins (19:05):

Basically, it’s a dual channel computer that controls the fuel delivery to the engine, and it controls all the engine parameters. If you go back to the 70s and 80s where we didn’t really have the computer technology to run these engines, a lot of those engines in the 70s and earlier were run by what is, in essence, a hydro-mechanical control system, which is really very sophisticated. It’s amazing how those hydro-mechanical control systems work, and it’s amazing even today that they still operate engines with a level of precision that they do. But the fuel efficiency couldn’t be maximized and you couldn’t track and trend data. And so once we get into FADEC-controlled, and just think computer-controlled, it allows us to really tweak the engine, maximize its fuel efficiency, help protect the engine from things like a hot start, or maybe an oversight by the pilot where the pilot maybe isn’t monitoring the right temperatures on start. The FADEC can help protect the engine from itself. It can help protect the engine from pilot oversights. And that same computer can help us with tracking, downloading, and trending data to help identify anomalies as soon as possible.

Tony Kioussis (20:19):

What responsibility do engine OEMs have in a time of crisis and otherwise to support operators in the industry as a whole?

Delray Dobbins (20:27):

One of the ways that we look at that is operators by aircraft, not engines. And that means we as an engine manufacturer, we have to ensure that we are properly supporting both the aircraft manufacturers, and also the end users, and the operators, the mechanics and technicians, as well as an industry as a whole. One of the best ways we think we can do this is through flexibility. The ability to innovate, to adapt to changing needs, changing missions, changing environments. We think, as the engine OEM, we’re uniquely positioned to make these adaptations, whether it’s repurposing our facilities in a time of crisis to make personal protective equipment, or our role in repurposing aircraft to support different mission profiles.

Delray Dobbins (21:14):

Only the engine OEM can manage the technical data on these engines, and we work closely with the regulators to make tailored and informed decisions to support our customer base. To an operator, this could mean extending engine time on wing, the ability to adjust agreements in challenging times or times of crisis, like we’re in right now. All these things can make a difference. And we’ve also got to look for other ways we can support our customers and help drive the industry, including to pivot when needed. Some of this is through the vertical integration and the power of Raytheon Technologies.

Delray Dobbins (21:49):

One of the other things we think we have a responsibility to do, and this comes back to listening to our customer feedback, when we developed the PW 800 engine that powers the G500 and G600, and it’ll also power the new Falcon 6X which will roll out into service in 2022, that engine was created with the operator in mind, but the operator was also part of the decision making process. The maintenance plans for that engine were reviewed at dedicated forums with operators, where they were attendees, and they voted and gave us input on the value of each one of these program components as we put together this program.

Delray Dobbins (22:27):

As we collaborated with the OEMs and we developed the ESP plan for the PW800, you’ll notice there’s only two levels of coverage. One of the things that our focus groups from the industry influencers have told us is that the way we structured ESP 10, 15 years ago, sometimes we would have four and five different levels of coverage. And what we’ve come to realize through these focus groups is it was adding a little bit too much complexity. Operators tend to want simple and comprehensive when they’re looking at an engine program. They don’t want surprises and they want a fixed cost.

Delray Dobbins (23:07):

And so when we developed the PW800 program, two levels of coverages is right. It’s simple and it still gives the operator a little bit of choice and the right level of coverage they want. And the case, taking us back to the PC-12, the PT6 Echo engine, there’s actually only one level of coverage, and it’s ESP platinum. And it’s so comprehensive, we didn’t need to offer a second level of coverage. And so I think you will see that as a trend moving forward. All of our new products that have an ESP plan to them will only have one or two levels of coverage. The input from the industry tells us that is the right way to package the program.

Tony Kioussis (23:49):

Is there anything else specifically that you would want people to know about Pratt and Whitney’s service within the business aviation community?

Delray Dobbins (23:57):

We had a major milestone for ESP in 2010. What we did was there was an announcement at NCAA 2010, where we eliminated all the annual minimums for the ESP program. This really removed the barrier to entry for low utilization operators. And for those who don’t know what annual minimums are: in essence, when you sign on to some engine programs, they may say, “Okay, here’s your engine program. Here’s your services. But you have to pay us 200 hours a year.” Because the minimums are 200 hours a year. Which means if that customer flies, let’s say he’s low utilization, let’s say he flies 75 hours a year. He still has to pay 200 hours a year. That’s created a bit of a rub point of that industry for a low utilization operators, because nobody likes paying for something they don’t utilize.

Delray Dobbins (24:44):

When we eliminated the annual minimums in 2010, we found there was a surge in increase of low utilization operators who wanted the benefits of ESP, they wanted the price certainty, they wanted the coverage, but they can never justify it before, because there were minimums. And so, once we realized the effect of waiving the minimums, we permanently deleted it from the program. And so since 2010, we’ve had no minimums. I tell people that are taking a brand-new aircraft, whether it be a Falcon, or an Embraer Phenom, or a Sovereign, I tell them: if you fly 36 hours a year, [inaudible 00:25:19] 36 hours a year. And that surprises a lot of people, actually. A lot of people aren’t aware that our program is structured that way, and so when I talk to brokers about this, their eyes light up. That’s a big deal.

Tony Kioussis (25:34):

This has been another Asset Insight podcast covering the aircraft ownership life cycle. Please visit our ever-growing podcast library at assetinsightpodcast.com, and select from any number of topics discussed with business aviation industry experts. This is Tony Kioussis, and as always, thank you for listening.