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Explain "power By The Hour"  
User currently offlineDocLightning From United States of America, joined Nov 2005, 19738 posts, RR: 59
Posted (2 years 7 months 3 weeks 6 days 22 hours ago) and read 12334 times:

OK. I understand the basics of "Power-by-the-Hour" arrangements:

*OEM retains ownership of the engines and thus responsibility for them.
*OEM actively monitors engines and charges customer per hour of use.
*OEM maintains engine maintenance facilities and performs engine maintenance and repair.

How do these agreements benefit the OEM's? The operators? If they're such a great idea, why are they only relatively recent? Does an operator pay a special initiation fee for each new engine or is that included in the hourly rate? At some point can the operator choose to buy the engines and maintain them independently? UA has a huge turbine shop at SFO, for example.

17 replies: All unread, jump to last
 
User currently offlineBMI727 From United States of America, joined Feb 2009, 15747 posts, RR: 27
Reply 1, posted (2 years 7 months 3 weeks 6 days 21 hours ago) and read 12280 times:

Quoting DocLightning (Thread starter):
How do these agreements benefit the OEM's?

They get their engines on more planes and offer a product that customers want. For manufacturers getting the engines on the wings is the goal, even if they don't make a cent on the initial deal. The money is in parts and maintenance.

Quoting DocLightning (Thread starter):
The operators?

Less outlay of capital and no need to maintain an expensive maintenance infrastructure. The manufacturer gets to bear the costs of maintaining facilities and parts inventories.

Quoting DocLightning (Thread starter):
If they're such a great idea, why are they only relatively recent?

I think such deals are only marginally younger than large scale aircraft leasing. I want to say that Eastern was one of the first to get a power by the hour deal on their A300s. Furthermore, having more than one powerplant choice for an airliner is a relatively new thing. There were the relatively small number (37) of RR powered 707s, but the idea of airlines choosing a type and then choosing an engine to power it really didn't become commonplace until the 1970s.



Why do Aerospace Engineering students have to turn things in on time?
User currently offlinemaxpower1954 From United States of America, joined Sep 2008, 1098 posts, RR: 7
Reply 2, posted (2 years 7 months 3 weeks 6 days 21 hours ago) and read 12265 times:

This idea goes back to the Lockheed L-188 Electra. GM/Allision owned the engines and props, and leased them to the airline.

User currently offlineDocLightning From United States of America, joined Nov 2005, 19738 posts, RR: 59
Reply 3, posted (2 years 7 months 3 weeks 6 days 21 hours ago) and read 12198 times:

Quoting BMI727 (Reply 1):

They get their engines on more planes

Not when the competition moves to match.

Quoting BMI727 (Reply 1):

Less outlay of capital and no need to maintain an expensive maintenance infrastructure. The manufacturer gets to bear the costs of maintaining facilities and parts inventories.

Presumably, at a large airline like UA, the costs might be comparable, no? The operator does bear those costs through the hourly fee.

Quoting maxpower1954 (Reply 2):
This idea goes back to the Lockheed L-188 Electra. GM/Allision owned the engines and props, and leased them to the airline.

Why does it seem to be getting popular again?


User currently offlinegigneil From United States of America, joined Nov 2002, 16347 posts, RR: 85
Reply 4, posted (2 years 7 months 3 weeks 6 days 21 hours ago) and read 12185 times:

Outsourcing of everything has become very popular. Power by the hour is a lease, and can be borne as a capital expense.

NS


User currently offlineBMI727 From United States of America, joined Feb 2009, 15747 posts, RR: 27
Reply 5, posted (2 years 7 months 3 weeks 6 days 21 hours ago) and read 12155 times:

Quoting DocLightning (Reply 3):
Not when the competition moves to match.

Of course competitors will emulate a successful business model. And power by the hour can help get new customers by lowering the barriers to entry for a new engine type.

Quoting DocLightning (Reply 3):
Presumably, at a large airline like UA, the costs might be comparable, no?

Maybe, but a large airline like that still requires a large inventory and enlarging the maintenance pool with such deals UA could lower their costs and spares requirements. And they may be able to make money too, since I think the manufacturers utilize a network of third party providers. UA might have top notch facilities and people in San Francisco, but how useful is that when you have a birdstrike in Berlin?

Such arrangements are not limited to engines either. Boeing has created GoldCare as a network of maintenance providers and can offer management, inventory, and maintenance for airframes with economies of scale to minimize costs and downtime for airlines.



Why do Aerospace Engineering students have to turn things in on time?
User currently offlineStarlionblue From Greenland, joined Feb 2004, 17044 posts, RR: 67
Reply 6, posted (2 years 7 months 3 weeks 6 days 19 hours ago) and read 12118 times:

Apart from all the rest, power by the hour also decreases uncertainty for the airline. The engines will cost x/hour regardless of what happens. Easier to plan that way.


"There are no stupid questions, but there are a lot of inquisitive idiots."
User currently offlineLAXintl From United States of America, joined May 2000, 25444 posts, RR: 49
Reply 7, posted (2 years 7 months 3 weeks 6 days 19 hours ago) and read 12091 times:

Keep in mind - "Power by the Hour" can mean many things.

In your example Doc you take the assumption that the equipment (engine in this case) ownership is help by the OEM still, however power by the hour contracts can also extend to owned, or leased aircraft covering broader maintenance purposes.

Power by the hour deals are available on airframes, engines, components, and even down to basic turn around mechanic services. For example EasyJet has entrusted basically the complete care of its aircraft to SR Technics Group with fixed rates based on utilization. This covers everything from the line mechanic meeting a plane in various cities and changing a cabin light bulb up to heavy checks.

While I can easily argue both the benefits, and or downsides of power by the hour deals, they do at the very least provide cost provide stability for operators and often ability to shed all types of layers of inhouse support while generating a stable income stream for vendors and or OEMs depending on the case. Power by the hour deals are also part of a broad set of marketing and sales tools that companies utilize.



From the desert to the sea, to all of Southern California
User currently offlineTristarsteve From Sweden, joined Nov 2005, 4010 posts, RR: 34
Reply 8, posted (2 years 7 months 3 weeks 6 days 17 hours ago) and read 12051 times:

Quoting LAXintl (Reply 7):
Power by the hour deals are available on airframes, engines, components, and even down to basic turn around mechanic services

We even have power by the hour on deicing!
We pay the provider a fixed fee for the whole season, based on the number of departures.

But back to engines, I believe that this is driven by the massive increase in engine reliability. Once upon a time, when you bought 10 aircraft with 20 engines, you bought 2 spare engines. Nowadays, the OEM can own the spare engines for all airlines, and store them worldwide, spreading the risk now that engines rarely break down.


User currently offlineirshava From Ukraine, joined Oct 2011, 214 posts, RR: 0
Reply 9, posted (2 years 7 months 3 weeks 6 days 11 hours ago) and read 11878 times:

Baltia Airlines, the 30-year start up is getting PW engines on a power by the hour basis on their 747 classics for flights from JFK to LED and it seems to work for them.


“If you were born without wings, do nothing to prevent them from growing.”
User currently offlinejetlife2 From United States of America, joined Jul 2006, 221 posts, RR: 25
Reply 10, posted (2 years 7 months 3 weeks 5 days 9 hours ago) and read 11490 times:

Quoting DocLightning (Thread starter):
*OEM retains ownership of the engines and thus responsibility for them.

Just a clarification. Bear in mind the engine ownership and the service contract are usually two separate deals. There are leasing companies that are leasing the engine; there are service companies receiving a fixed $/hr for the maintenance of that engine, when it is required. Usually these are separate deals, and usually the engine OEM is not the owner of the engine.

Just about every combination _can_ exist: but the most common is that the engine OEM is not the owner, they are the service provider. The ownership of the engines is usually the airline, or a 3rd party lease company if the airline is not the owner. For most product fleets, the engine OEM retains ownership, or at least control, of a small lease pool for worldwide fleet support such as AOG support, but that is the exception not the rule. The engine OEMs are not large owners of engines for purpose of leasing to airlines. On the other hand, they are large service providers. So the second part of the statement above "..and thus responsibility for them" is correct, but that responsibility originates in the service contract, not because they are the owner.

Hope that helps.


User currently offlineDocLightning From United States of America, joined Nov 2005, 19738 posts, RR: 59
Reply 11, posted (2 years 7 months 3 weeks 4 days 22 hours ago) and read 11317 times:

Quoting jetlife2 (Reply 10):
Just about every combination _can_ exist: but the most common is that the engine OEM is not the owner, they are the service provider. The ownership of the engines is usually the airline, or a 3rd party lease company if the airline is not the owner. For most product fleets, the engine OEM retains ownership, or at least control, of a small lease pool for worldwide fleet support such as AOG support, but that is the exception not the rule. The engine OEMs are not large owners of engines for purpose of leasing to airlines. On the other hand, they are large service providers. So the second part of the statement above "..and thus responsibility for them" is correct, but that responsibility originates in the service contract, not because they are the owner.

As I understand, on the QFA380 that had the small issue out of SIN, RR owned those engines, and so QF was really holding their head under water about being responsible for all the damage caused by their engine.


User currently offlineFabo From Slovakia, joined Aug 2005, 1219 posts, RR: 1
Reply 12, posted (2 years 7 months 3 weeks 4 days 21 hours ago) and read 11301 times:

Quoting irshava (Reply 9):
Baltia Airlines, the 30-year start up is getting PW engines on a power by the hour basis on their 747 classics for flights from JFK to LED and it seems to work for them.

Hey, now wait a moment. Are you telling the airline actually... exists, as in it has airplanes that are actually flying, on their registry in Russia/Baha



The light at the end of tunnel turn out to be a lighted sing saying NO EXIT
User currently offlineimiakhtar From , joined Dec 1969, posts, RR:
Reply 13, posted (2 years 7 months 3 weeks 4 days 18 hours ago) and read 11270 times:

Quoting DocLightning (Reply 11):
RR owned those engines,

Incorrect. The engines are (or at least were) fully owned by Qantas. The delay in repair was due to wrangling between RR and QF on the level of compensation due to the A380 fleet grounding and the extortionate parking fees at SIN. The engines were under a RR maintenance support contract provided by SAESL.


User currently offlinejetlife2 From United States of America, joined Jul 2006, 221 posts, RR: 25
Reply 14, posted (2 years 7 months 3 weeks 4 days 14 hours ago) and read 11213 times:

Quoting DocLightning (Reply 11):
being responsible for all the damage caused by their engine

I can't comment on the specific instance. But I can explain the general situation because what you are bringing up is outside the scope of a service agreement.

Under a service contract the service provider is responsible for the quality of the work. This is usually referred to as a "workmanship" guarantee. So if a service provider incorrectly maintains an engine, and that causes damage to the engine, they would be responsible for the repair of the engine. They may or may not be responsible contractually for any "consequential damages" such as damage to the airplane, loss of revenue, etc etc. No service provider takes on unlimited responsibility, their responsibility is clearly spelled out.

However, if the cause of an engine failure is unrelated to the service provider - for example a design or quality defect - then the operator may have a claim on the OEM in its capacity as the design owner and/or manufacturer. Such claims are administered by the terms of the original sale contract. There will be a new engine warranty period, x thousand hours or cycles. There will be a delay and cancellation guarantee, outstation removal guarantee, etc. If the consequences are large, then the operator will make a claim regardless of the contract and they will enter negotiation, or resort to legal means. Such a claim would not be made against the service provider if they were not the cause.

Hope that clarifies.


User currently offlinegemuser From Australia, joined Nov 2003, 5673 posts, RR: 6
Reply 15, posted (2 years 7 months 3 weeks 4 days 8 hours ago) and read 11130 times:

Quoting imiakhtar (Reply 13):
Incorrect. The engines are (or at least were) fully owned by Qantas

You got a source? My sources say QF ownes NO A380 engines, all provided by RR. I'm also pretty sure that in the mass of documentation produced by the QF32 incident ATSB attributes ownership of the engines to RR.

Gemuser



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User currently offlineimiakhtar From , joined Dec 1969, posts, RR:
Reply 16, posted (2 years 7 months 3 weeks 3 days 2 hours ago) and read 10944 times:

Quoting gemuser (Reply 15):
You got a source?

The QF financial reports should give you a clue (Property, plant and equipment). Qantas is very conservative when it comes to aircraft and engine leasing.

Quoting gemuser (Reply 15):
mass of documentation produced by the QF32 incident ATSB attributes ownership of the engines to RR.

I couldn't find anything on the atsb site. Got a link?


User currently offlineirshava From Ukraine, joined Oct 2011, 214 posts, RR: 0
Reply 17, posted (2 years 4 months 4 weeks 3 hours ago) and read 9642 times:

Quoting Fabo (Reply 12):

The planes are ready - the airline hasn't had a first flight as of now.. :/



“If you were born without wings, do nothing to prevent them from growing.”
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