End-of-life asset management: Engine utilization

What exactly is asset manage­ment? While there is no need to go into a highly detailed and academic description here, a simpler explanation would certainly be worth­while. Dick Forsberg, chief strategist at leasing company Avolon, put it as well as anyone some years ago when he said: “Buy well, sell better, and act with care in between.” Specifically, then, asset manage­ment is about seeking to maximize the value of “assets” (facilities, machines or buildings—or, in the case of the aviation industry, aircraft) employed in pursuit of a given business goal.

Even so, asset manage­ment varies considerably depending on circumstances, such as the nature of the owner—airline or leasing company—and the age of the air­craft. “A 30-year-old Boeing 747 with CF6 engines is still worth millions, but without the engines it’s practically scrap,” says Jürgen Kuhn, head of corporate develop­ment at MTU Aero Engines, high­lighting the difference. The thing is, he says, that air­frames have a fixed service life, after which the “asset” is good only for scrap.

However, that is not necessarily the case for the various other components of an aircraft—and particularly not for the biggest and most expensive parts, the engines. Engines do have a number of life limited parts (LLP), but once the engine has undergone a comprehensive overhaul it is practically as good as new and can be used for many years to come. Whether that happens depends on a number of factors—not just the general market situation, business circumstances and the owner’s plans—but also the type of engine and the range of maintenance and overhaul services available for it.

Let’s look at an example. An airline has an engine with around 2,000 flight cycles left in its service life. It is currently fitted to a type of air­craft the air­line wants to operate for another five years. However, 2,000 cycles is not enough for five years of operation–at the same time, it wouldn’t make sense to replace the life limited parts with brand new ones that would last 20,000 flight cycles or more. The decision is taken to install used replace­ment parts with 5,000 cycles left in them so that the engine can sub­sequently be dismantled and any still usable components sold off. In the case that the air­line wanted to sell the engine in its entirety once it had left service, it would need to install replace­ment parts with a much longer service life remaining. There’s no doubt that good asset manage­ment is a wrestle with a large number of unknowns; at the end of the day, it is about doing what you can to ensure that the engine can still be used in a way that fits in with the owner and their current and future requirements.

All from a single source

MTU Mature Engines Solutions offers operators of older engines—within the MTU Maintenance portfolio, that means engines such as the CF6-80 and CFM56-3—these kinds of solutions. One of the key players in getting these activities off the ground was Southwest Airlines. The U.S. budget airline was approaching the phase-out of its last Boeing 737-500 and -300 air­craft along with their CFM56-3 engines when MTU Maintenance Canada made a proposal to obtain replace­ment parts for the remaining engines by using the engines from the 737 air­craft being removed from service (“three into one”). This ensures that the phase-out—which is to be completed by 2018—is as efficient and cost-effective as possible.

Dennis Reichel from corporate develop­ment at MTU points out the company’s advantage as both manu­facturer and independent provider of maintenance services. This allows it to offer a complete package from a single source—something a spare parts provider cannot hope to achieve. “We have the market and technical know-how to determine the optimum point at which to retire an engine from service.” But it is about more than just taking the engine from the customer and scrapping it. “We can find a use for the individual components because of the number of overhauls we complete within our network,” says Reichel. “Also,” continues Jürgen Kuhn, “our repair skills surpass those of most overhaul operations and manu­facturers, meaning that we can reuse more components and so create added value for the customer.”

In a period of extremely low prices for crude oil and kerosene, some air­lines are considering putting off the entry into service of new, fuel-efficient but expensive to procure aircraft, preferring to operate the air­craft they have for longer. Depending on the timeline air­lines decide on, this means either exchanging life limited parts so that the engines stay fit for further years of service or else handing over in payment to MTU engines that have come to the end of their service life while buying or leasing replace­ment engines. Ultimately, asset manage­ment is all about finding individual solutions for customers’ varying requirements.