Transferring Maintenance Programs in the Transaction Process

Transferring Maintenance Programs in the Transaction Process

March 18, 2014

Many aircraft are enrolled on either an engine and/or airframe maintenance program. In brief, these are programs where you typically pay into the program per flight hour you use. These are a form of insurance against the cost of maintenance on either the costs of the engines or the airframe. As with many types of insurance, there are a plethora of coverage packages available, ranging from full coverage for all events and parts to coverage of only unscheduled events on selected parts.

How do these programs affect the sales process? There can potentially be a tremendous amount of value in these programs, so ensuring they are transferred during a purchase is important. The timing and structure of how this is implemented needs careful review, and there is no standard industry practice to follow as each deal differs widely. Usually each program will require a transfer document to be signed by both parties. While simple in theory, many times providers of those programs will not issue those transfer documents prior to a sale occurring and will ask for evidence of such sale in the form of a dated bill of sale. This requires much faith from a purchaser to ensure that the seller will complete its obligations in a timely manner post-closing.

In addition, most program providers do not provide a final billing statement until the end of month billing period, a time frame that rarely, if ever, coincides with the date of closing. Getting the proper billing amount for a specific day and date can be very difficult and often takes a period of a few days to get the correct information. Planning ahead of time is crucial to ensuring a smooth transition and transfer.

Special consideration should also be given to pre-payment programs. For example, some programs offer a one-time up-front annual payment for coverage. If the aircraft is enrolled on this type of program, what happens to the balance during a sale? This should be considered as much in advance as possible, as last minute negotiations are often nerve-wracking affairs with all sides very sensitive to additional costs.

Most providers can be extremely flexible and easy to work with, but it takes time. With proper planning, program transfers are a non-event. However, most often they are left until the last minute, setting off a scramble to get the right information in a very quick time frame and often creating a number of issues. Avoiding this is a matter of knowing your program and relying on the relationships you have with your program provider. Keeping an eye on this crucial part of transactions makes for an easier deal for both buyer and seller.

Discuss how your aircraft’s programs will affect your transaction with your aircraft broker. They will be able to get the process of transfer started for you so your transaction can proceed smoothly.

 

Blogs are written from real world experience by Colibri Aircraft’s individuals. If you have any questions or comments about the topic of this blog, please feel free to contact our team at enquiries@colibriaircraft.com