Buying or Selling Aircraft on Maintenance Programs
Learn how maintenance programs impact aircraft costs, resale value and purchase agreements. Plus, discover the benefits and risks
Many aircraft sale listings note that an aircraft is “on programs” (e.g., maintenance programs). These programs typically include “power by the hour” arrangements for engines or APUs, and, in some cases, airframe maintenance.
The gist is that an aircraft owner pays the original equipment manufacturer (OEM) or third-party program provider a specified rate per hour of use, plus a monthly fee. In return, the program provider pays for certain specified maintenance costs for the engines, APU, or airframe
Similar to other industries, aircraft OEMs generate a significant portion of their revenue from ongoing maintenance. Naturally, program providers aim to profit from these maintenance programs as well. So what benefits do they offer aircraft owners?
Benefits of Aircraft Maintenance Programs
At least three key benefits stand out. For starters, an aircraft owner can spread out maintenance costs. These are typically paid by the hour and month instead of in large amounts when the actual maintenance is performed.
Second, a maintenance program will often increase an aircraft’s resale value. When selling a plane nearing overhaul, one on a maintenance program will typically cost significantly more than one without. This is because the next expensive maintenance event has largely been prepaid.
Additionally, aircraft that are on maintenance programs are perceived to be better maintained. With the program covering the maintenance costs, there’s little incentive for owners to skimp or cut corners on upkeep.
Third, a program will lower your overall maintenance costs. This is because program providers have enormous buying power, including the third-party providers, that source their own parts. In turn, this translates to savings for the owner–even taking into account the actuaries’ cut in the program providers’ offices.
Purchase Agreement Considerations
Whether buying or selling an aircraft, it’s imperative that your aircraft purchase agreement addresses the various aspects of maintenance programs. First, it should cover whether the plane is delivered with the programs. Since many programs allow deferred hours or balloon payments due at engine overhaul, address any such “deferrals.”
Conversely, the purchase agreement should cover whether a current owner can “cash out” any positive balances in the programs (to the extent allowed). Finally, the purchase agreement should cover whether a purchaser must complete the transfer of the programs.
These variables can sway the value of the aircraft by hundreds of thousands of dollars or more, and prevent costly fights later on about the status of program enrollments.
When buying an aircraft “on programs,” most purchasers elect to continue the enrollments. It makes good business sense. Why stop paying into an engine program when the previous owner has already contributed a substantial amount toward the next major maintenance event?
That said, the decision to buy a plane enrolled on programs should be made in conjunction with advice from your aircraft broker. They’ll explain the intricacies of each manufacturer’s program-specific benefits. With your aircraft broker’s guidance, you can determine if a plane on programs is right for you. After all, it’s certainly cheaper in the short term to buy a plane without programs if you plan on discontinuing them anyway.
How to Transfer Maintenance Programs
The typical transfer process involves the seller providing proof of enrollment and the current invoicing status. (This is because the program provider usually only communicates with the current owner). Invoicing from program providers often lags because it relies on the owner reporting their flown hours. Any shortfall can be reconciled at closing, as calculating amounts owed is straightforward using the last reported hours and the hours on the aircraft or engines at closing. Program providers supply the paperwork, whether it’s an assignment or a new enrollment contract.
Some new owners prefer to avoid regularly scheduled payments, choosing instead to invest in their businesses until the cash is needed when aircraft maintenance expenses arise. However, an often-overlooked risk of discontinuing a previous owner’s maintenance programs lies in potential early termination fees or liquidated damages provisions.
Certain maintenance programs are “term” contracts that heavily penalize owners for discontinuing them. One manufacturer’s airframe maintenance program is particularly aggressive in enforcing these penalties. Another OEM’s program imposes penalties if the provider has paid more for maintenance than the owner contributed, and the contract is terminated before the scheduled term ends. In such cases, owners may receive surprise invoices for tens of thousands of dollars–or more–within months of closing the sale.
If these scenarios aren’t addressed in the aircraft purchase agreement, disputes over responsibility for termination fees or liquidated damages can arise, post-sale.
While maintenance programs can simplify upkeep and stabilize costs for aircraft owners, failing to address them in the purchase agreement leaves both parties vulnerable to costly conflicts down the road.
The Aviation Leader’s Role: Guiding with Certainty and Strategy
An aviation leader’s role is to guide with certainty, rooted in trust and strategy. Dustin Cordier explores how desire, action and iteration fuel team success.
A pilot’s perspective offers a profound lesson for leaders: the sun is always shining, even when obscured by clouds. This truth is not rooted in wishful thinking or positive self-talk but in experience. When faced with the greyest skies, a pilot knows that ascending to a higher altitude reveals blue skies and radiant sunshine.
Similarly, an aviation leader’s role is to cultivate certainty within their organization by grounding it in three fundamental steps to success: desire, willingness to act and iteration.
Step 1: Desire – Specific and Measurable Goals
Desire is the cornerstone of any achievement, but it must be specific and measurable. Vague aspirations lead to vague results.
Whether the goal is increasing revenue, improving team performance, or launching a new product, clarity and precision are essential. Without an aligned vision, there can be no buy-in from the team. The team will lack inspiration and meaningful action.
Step 2: Commitment to Act
Desire without action is empty ambition. Just look at failed New Year’s resolutions. Many people resolve to make changes—improving health, finances, or relationships—but fail to take the necessary steps.
Action bridges the gap between intention and reality. However, action alone can lead to frustration if it lacks purpose. Busyness does not equal effectiveness. Action must align with the specific, measurable goals defined by desire.
Step 3: Iteration – Learning, Adapting, Improving
Even the best plans need adjustment. Iteration ensures growth by fostering an ongoing process of learning and improvement. An aviation leader’s role is to understand that setbacks and turbulence are part of the journey but can be navigated through effective iteration. This requires healthy debate, which is only possible in an environment of trust.
Trust stems from vulnerability—a willingness to admit mistakes, ask for help, and collaborate openly. When teams engage in honest reflection and constructive dialogue, iteration becomes the engine that ensures success.
Just as a pilot trusts in the laws of physics and nature, a leader must trust in the principles of success. Positivity can place a team in the right mind set, but following the principles of success is what creates certainty.
Aviation leaders inspire their teams beyond doubt into humble confidence by fostering an environment of trust and focusing on desire, action, and iteration. A trust that the process works and the knowledge that, just like altitude is the only barrier to sunshine, time is the only barrier to success.
Multi-owner Aircraft Structures: Tax and Ownership Insights
Sharing aircraft ownership can cut costs, but tax treatment varies based on structure. Learn how multi-owner aircraft structures impact FAA compliance and tax planning.
Our firm has been seeing an increase in multi-owner aircraft structures over the past few years. This means you share aircraft ownership, which is a great way to cut down on overhead and reduce your overall costs of ownership.
However, what many owners do not realize is that the tax treatment of these arrangements depends heavily on how the aircraft is titled and structured.
There are two primary ways that multiple owners can own an aircraft. First, and usually the default, is to put the aircraft in an LLC and have each owner own a piece of the LLC.
The second, often more favorable option, is co-ownership, where each owner holds a registered, undivided interest in the aircraft. With proper planning, both structures can comply with FAA regulations, but their tax implications differ significantly.
If the owners will be the primary users of the aircraft, the co-ownership structure is almost always the better option. With the co-ownership, it’s possible for the owners to elect out of partnership treatment and treat their “piece” of the aircraft as a single aircraft for tax purposes. This means that each owner can handle their tax planning independently of the others. In many cases, this is the only option to allow deductions for bonus depreciation.
In the multi-member LLC structure, we run into two major hurdles. First, the related-party leasing rules under IRC Sec 280F disqualify many related party leases from being eligible for bonus depreciation. If the owners or their related businesses are the primary users of the aircraft, bonus depreciation will likely not be an option.
Second, the LLC operates as an aircraft rental company, so it generates passive losses that can only offset passive income, not active business income. Even if the aircraft is eligible for bonus depreciation, most taxpayers cannot use the passive losses in the current year.
If you're buying an aircraft with multiple owners, be sure to consult with your aviation tax and legal advisors. They’ll be able to explore the two ownership structures and choose the option that best meets your financial interests.
Aircraft Finance Trends: Insights for the New Year
The new year brings fresh insights into aircraft finance trends for 2025. Explore how interest rates and a healthy economy impact financing options for private jets.
A new year traditionally represents new beginnings and a clean slate. From an aircraft finance perspective, this new year is starting off with quite a bit of carry over activity from 2024.
This carryover is due to several buyers deferring their purchases into 2025 in anticipation of a more favorable tax environment under the new Presidential Administration. Even so, we saw robust financing activity closing out 2024, despite interest rates starting to increase.
Rate Direction in 2025
In December, the Federal Reserve dropped their interest rate another 0.25%. However, as we saw through the back half of 2024, this did not result in a decrease in longer-term interest rates. Case in point: the 10-year treasury yield rose up 0.45% from December 6, 2024, to January 6, 2025.
The Fed’s cut was also considered a “hawkish cut.” Meaning, they plan to slow the pace of rate reductions in 2025 and rely more on economic data to make future cut decisions.
Only time will tell how many more cuts the Fed makes in 2025. But, as we’ve seen with longer-term interest rates, don’t expect much downward change in aircraft finance rates in the near future.
The good news is that this overall interest rate stability signals a fundamentally healthy economy. Thankfully, all signs point to a robust year in 2025. This bodes well for aircraft financing availability, and we’ll hopefully see more predictability in financing costs than in recent years.
Understanding the Open Pilot Clause in Aircraft Insurance
Discover what an open pilot clause is and how it works in aircraft insurance. Learn how it affects coverage for aircraft owners and non-owner pilots.
As insurance brokers, we’re often asked the question: ‘What’s an open pilot clause?” In short, it’s a provision found in most aircraft insurance policies which allows other pilots to operate the aircraft if they meet a minimum level of experience/qualifications. So the aircraft can be flown by a pilot meeting the open pilot provisions without providing formal notice to the insurance policy’s underwriter.
While not all aircraft insurance policies have open pilot provisions, the vast majority do. Especially in the general aviation class.
Some policies are written on a “named pilots only” basis, where the insurer limits its exposure to pilots formally listed or named on the policy. These policies do not include open pilot provisions.
A named pilots-only policy doesn’t necessarily mean there is no ability to add or qualify additional pilots. It requires the policyholder (usually the aircraft owner) to formally submit pilot experience forms for any pilots they want approved. From the insurer's perspective, being approved to operate an aircraft either requires being a named pilot or meeting the open pilot requirements.
A policy with open pilot provisions allows a pilot, who may be unknown to the insurance company, to operate the aircraft on behalf of the owner or named insured. This is done without compromising the coverages provided by the policy.
A common misconception is that a pilot who meets the open pilot requirements is “covered” to operate the aircraft. That statement is only partially correct. A pilot flying under an open pilot clause ensures that the coverage provided to the aircraft owner remains in full force should there be a loss. However, there’s no direct coverage afforded to the pilot if they’re personally liable for a loss (incident or accident). For a non-owner pilot to have coverage in their favor, they must either possess a non-owned policy (think renters insurance) or be listed on the policy as an additional insured party.
We do encourage non-owner pilots, who regularly operate an aircraft, to ensure that they’re listed as a “named pilot.” A named pilot is known to the insurance company and listed within the policy pending submittal and acceptance of their pilot experience form. The owner(s) of the aircraft, and anyone frequently operating the aircraft, should be listed as named pilots.
I like to think of the open pilot clause as an after hours, weekend or one-time type provision. It allows pilots to fly an aircraft when the insurer may be unavailable to vet the pilot, or when the situation warrants a one-time flight (e.g., repositioning flight).
For pilots who don’t own the aircraft, whether in whole or in part, do your due diligence. Request to be listed as an additional insured if you expect to have insurance coverage in your favor should there be a loss, incident, or accident. After all, being a named pilot doesn’t automatically extend insurance coverage to a non-owner pilot. To have coverage, you must also be listed as an additional insured on the policy.