Jetrader - January/February 2013 - 16

The other thing is, a CFM or a V 2500 is a propulsion system, with its own built-in fan, protected from rocks and birds by a big cowling. Our turboprop “fan” is bolted on the front and has a life of its own in the open air. Every 8-9,000 hours the assembly has to go to the shop. The blades are unlikely to make it to that limit in fact without having hit something unyielding and requiring of attention. They are composite and not cheap to repair. Reckon every blade will cost at least a dollar per hour to operate and remember there are six on every engine. If your blades hit something really unyielding then expect them to be written off, at a replacement cost of $70,000 each. The hub, actuator and associated bits will cost $100-120,000 every 8,000 hours.

does behave like an older generation jet and go to the shop regularly so the quantum of exposure in a lease default will be much less at any particular point.) When you do the math as experienced by the lessee however, the full import of this cost element sinks in. The CFM 56-7B carries 189 passengers approximately 350 nautical miles in every hour of operation so the engine shop visit cost per available passenger mile is 2x126/ (2 x 189 x 350) = 0.2c/nm. The PW 127 on the other hand only propels 72 souls along at an average of 215 knots so it’s cost per available passenger mile is 2x129/ (2 x 72 x 215) = 0.8c. Those turboprops actually cost four times as much per passenger NM to maintain as a modern CFM 56.

reserves or overspend during the early life of the asset can mean it will never repay its acquisition cost. When the proportion is as high as it is in a turboprop it is more important still. With maintenance costs being as signiﬁcant as they are on a turboprop, maintenance suffers ﬁrst in a downturn. Parts and engines are so relatively expensive, compared to the revenue generation capability of the asset, that it is a greater temptation to put one or two of a ﬂeet on the ground as “Christmas trees” when times get tough and, if you are the owner and eventually get stuck with resurrecting the assets and rebuilding them after a default, they will cost as much if not more to bring back into service as a 737 or an A320.

For years a dead market with a few expert, specialist, lessors making a good, if unspectacular living, suddenly fuel prices have ignited the turboprop market.
This is all beginning to add up and we will do the math now because as the late and great leader of one of the pioneering leasing companies was wont to say “a million here and a million there, pretty soon it starts to add up to serious money!” Let’s benchmark our CFM56-7. Although its bulletproof image has been a little dented by a high consumption of HPT blades, we can still expect a good one to make 17,000 cycles and 30,000 hours on its ﬁrst run with another 8-10,000 cycles before the next LLPs drive it off and a full overhaul is needed. A reasonable budget for the non LLP related work would be 2.6 mm for the ﬁrst run and maybe 3.2mm for the second, giving us a cost of 5.8mm over 46,000 hours or 126 dollars per hour with another 107 dollars per cycle for the life limited parts. Our PW 120 on the other hand can consume 1.5 mm of engine shop visits in 13,500 hours , equivalent to $111 per hour. Then add the “fan”, hub and blades for $18 and the whole package can hit $129 per hour, plus $24 per cycle for the LLPs. Leaving aside the LLPs for a moment then, these engines cost pretty much the same per hour to operate and that means your liability as a lessor builds up at pretty much the same rate but on an asset that starts with less than half the value! ( The only saving grace for the turbo is that it As a proportion of overall operating costs therefore, maintenance costs are greater than they are on the jet cousins. Landing gears can cost three to four times as much on a per passenger sector basis while C Checks and heavy checks come in about the same. Our 72-seat turbo sips fuel at only about 190 usg per block hour. At $3 per gallon, that is $570 per hour, but in a typical hour over on a typical stage length, our turbo will produce 14,400 passenger miles, a cost of around 4c/APM. Our 737 will produce 62,500 passenger miles in that same hour at a cost in fuel of 3.6c/APM so the two aircraft are within 10 percent of each other in fuel economy per passenger, although at really short, sub 200nm ranges, the turbo reverses the jets advantage. However, for you as an owner, the difference in fuel consumption is fairly irrelevant. No one is going to take an ATR on lease when what they really need is a 737. The difference in maintenance cost however is going to impact you because, as a proportion of the actual asset value over time, it is so much greater. It has recently dawned on many people that the proportion of the value of the asset locked up in maintenance condition and, hopefully, reserves, as the asset ages is such that it becomes feasible to liquidate the asset progressively earlier. The ﬂip side of that coin is that bad None of this should put off a professional lessor with the full range of asset management capabilities. The asset is good and quite well put together and supported, although in a rather more quaint and “cottage industry” way than the big jets. The amplitude of the cycles is bigger than the jets, in good times it produces great returns while in bad times they are really lousy. The ﬂip side is that they are not for amateur lease managers. If you are tempted to go into the turbo lessor business because they are cheaper to buy, currently popular, and there is less competition so you think you can do it on the cheap, they will eat your lunch. It is the most labor intensive sector of the market and parts and maintenance costs are out of all proportion to the productivity of the asset. Without active, hands on asset management you will see the value of the asset fade away like the morning dew. Play at this table if you seriously know what you are doing and are well advised and supported. If you are, go ahead and enjoy! Who knows, you may just be building the next bubble! Andy Carlisle is an ISTAT Certiﬁed Appraiser, a principal in Aviation-Appraisal Limited in Dublin and Head of Aviation Technical Asset Risk Management at Investec Bank PLC. He lives in Dublin, Ireland.

16 The ofﬁcial publication of the International Society of Transport Aircraft Trading

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Jetrader - January/February 2013

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