For many years it has become the norm for investors and lessors to add a dollar amount to compensate for an aircraft being returned in full life or via a monetary adjustment but as an aircraft ages it becomes ever more impractical to consider that an aircraft will actually be physically in half or full life. Once an aircraft exceeds perhaps 15 years of age it becomes increasingly unlikely that overall the aircraft will ever be in half condition. While the airframe checks and landing gear overhauls are calendar based and will be performed in their entirety, the engines are overhauled with a view to minizing the expense as well as the remaining time to the next overhaul. The replacement of Life Limited Parts (LLPs) on the engines will also likely be limited with new for old becoming less apparent. As the age of the aircraft increases and goes beyond 15 years, the level of utilization is also likely to decrease. This makes it even less economical to maintain the aircraft to its highest possible state as it is unlikely that the aircraft will remain in service long enough to expend the remaining “green” time. The cost of overhauling the engines and replacing the LLPs constitute the major portion of the overhaul cost when considering the half to full life adjustment. This means that for an aircraft older than 15 years of age, the average aircraft will feature a maintenance status of less than half life, particularly with regard to the engines. On the CFM56-3s powering the B737-300 for example, the life of the LLPs approximates 20,000 cycles. Assuming a reduced annual utilization of some 1,500-2,000 hours per annum and perhaps 1,000-1,500 cycles, then the 20,000 cycles equates to more than 15 years, considerably longer than the envisaged economic life. Therefore, instead of 10,000 cycles being considered to be half life on the CFM56-3 engines, the assumption is that 3,500 cycles more reflects reality. The ceiling of 7,000 cycles for LLPs is now considered to be full life. This will be the case for engine LLPs on widebodies. The net effect is to see a much lower half to full life adjustment. Such a method of reassessing the half to full life adjustment also reflects market realities. No buyer contemplating buying a B737-300 for $3 million would consider paying another $3 million merely because the aircraft is in physically full life. The aircraft would not be worth $6 million. For decades the means of adjusting the value to reflect the maintenance status has been based on a simple arithmetic exercise whereby the cost of overhaul or replacement parts is divided by the number of hours or cycles. But as an aircraft ages, the validity of the arithmetic method loses its relevance as buyers of aircraft are only willing to pay so much for an aircraft in better than average condition, not the actual numerical cost. Instead, the adjustment needs to reflect market realities in that maintenance adjustments for older aircraft need to adopt a different metric to newer ones. Failing to reflect market realities can easily lead to significantly inflated maintenance adjusted values.
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