A~

Helicopter Association ~ International

GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES

2001

ECONOMICS COMMITTEE HELICOPTER ASSOCIATION INTERNATIONAL 1635 PRINCE STREET ALEXANDRIA, VA 22314-2898

REVISED 2/1/2001

A~

Helicopter Association ~·International

GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES

2001

ECONOMICS COMMITTEE HELICOPTER ASSOCIATION INTERNATIONAL 1635 PRINCE STREET ALEXANDRIA, VA 22314-2898

REVISED 2/1/2001

GUIDE FOR THE PRESENT A TION OF HELICOPTER OPERATING COST ESTIMATES

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES

PREFACE

What does it cost to operate and maintain a helicopter? On the surface, this may appear to be a simple question, yet it is one that has generated a great deal of debate and confusion within the industry. Several factors in combination contribute to this situation.

» Helicopters come in many different types and sizes. Therefore, one estimate does not fit them all. For example, operating costs for a twin-engine turbine heavy helicopter are not representative of costs associated with operating a single-engine piston helicopter.

Many variables can affect the operating costs for a given type of helicopter. These include the size of an operator's fleet, the type of mission flown, the environment in which missions are flown, the environment when not flying, and the number of hours flown during a specified period.

Published operating costs from a variety of sources-such as those by manufacturers, dealers, operators, or independent third parties-may reflect differing assumptions, and may include varying lengths of time, differing configurations (helicopters with basic configurations, as opposed to helicopters with optional equipment), fixed costs instead of variable costs, direct versus indirect costs, etc.), and may include different types of maintenance costs, such as heavy maintenance, labor costs, consumables and others. Even helicopters of the same type may be of different ages, and this may lead to differing operating costs.

The industry has twice taken steps to reduce this confusion. The first effort resulted in the 1981 edition of the Guide for the Presentation of Helicopter Operating Cost Estimates. The Guide's objective was clear: To close the gap between manufacturers and operators on the subject of operating costs.

Briefly,

)0> Helicopter operators voiced a need for greater realism and improved clarity in the direct operating cost estimate information published by manufacturers on their helicopter airframes and engines.

Manufacturers recognized the need for actual operating cost data to serve as the basis for published estimates. However, a lack of standardization among operators in tracking and reporting costs has hampered their efforts.

By 1986, the Aerospace Industries Association of America (AlA) and the Helicopter Association International (HAl) recognized the need to update the 1981 Guide. A committee of operators and airframe and engine manufacturers believed the Guide

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES could further serve as a catalyst in establishing communication, increasing standardization of term defmition and accounting practices, and ultimately serving a a repository for the developing knowledge of operating cost estimates. With that belief as their objective, the group produced the 1987 Guide for the Presentation of Helicopter Operating Cost Estimates.

The 1987 revision expanded the original guide from one to three sections:

sec Ion or operators by operators to provide the best and most current available advice on estimating, tracking, and reporting of operating costs.

A section for airframe manufacturers-by airframe manufacturers-to aid in the standardization of estimation and presentations, and refme the emerging techniques that lead to increased accuracy and usefulness.

A section for engine manufacturers-by engine manufacturers-to aid in a common definition of terms, to promote standardization of estimation and presentation.

Recent comments from the industry have indicated a need for another revision to the 1987 Guide, and the Economics Committee of the HAl accepted the task. Our primary objective for updating the sections of the Guide was simple:

~ Individuals in our industry need further clarification about operating costs.

~ Operators need an expanded list of common defmitions and standardization about operating costs, and a better understanding about how to collect operating cost data.

Once collected, operators need to be able to put to use those costs in the management of their operations.

This revision of the Guide moves toward our objective by continuing the momentum established by the 1981 and 1987 versions of the Guide. We trust you will find the revised Guide for the Presentation of Helicopter Operating Cost Estimates a useful tool when wrestling with the subject of operating costs.

Will it answer all of your questions about operating costs? Quite likely not. Therefore, the Economics Committee welcomes your suggestions for improvements for future revisions.

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES

INTRODUCTION

This guide is intended to help all segments of the civil and commercial helicopter industry. It is designed to aid helicopter airframe and engine manufacturers in preparing realistic, standardized operating cost estimates that are readily understood. It is also intended to help operators project, track, and record operating costs.

These guidelines are intended to serve all operating components of the industry, whether the aircraft is operated for pleasure only, for business use, , personnel transport, for civil government uses, or for the numerous other utility missions of which the helicopter is capable. No matter what type of operation, it is imperative to the health of the industry that each operator understands the true costs of operation.

This Guide covers Direct Operating Costs (hereafter referred to as DOC), the Daily Costs that an operator incurs to make the aircraft available, the costs that are peculiar to a specific type of mission, and the Fixed Costs an operator experiences in providing aircraft services.

» It is important to note that because helicopter operators are involved in much more than simply transporting persons from one location to another on a set schedule, these guidelines differ substantially from those used by fixed-wing Certificated Air Carriers in the fmancial and operating statistics reports to the appropriate government agencies.

Direct Operating Costs (DOC) are those costs whose dollar value in a given period varies in proportion to the amount of flight hours accumulated. Basically, this covers maintenance required due to flight hours, fuel, and lubricants. The DOC vary little, ifany, from one period to another. A manufacturer can address these costs in his DOC estimates as "generic" costs based on fleet operating history. Important elements in this calculation are any adjustments necessary to account for repetitive heavy lifts and higher-than-normallandings and/or engine cycles.

Daily Operations Costs are those costs whose dollar value is directly proportional to the number of days the helicopter is committed to perform the mission. This includes salaries (including benefits) for pilots, technicians, and support personnel necessary to accomplish the mission. It also includes maintenance costs that become due because of calendar time. These costs are generally supplied by the operator, are more specific in nature than generic, and can vary widely from operator to operator.

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES

Mission-specific Costs include the cost of maintaining mission-specific equipment and any additional costs incurred as a result of the operating environment, such as extreme climatic conditions or high concentrations of airborne contaminants.

Fixed Costs are those costs the operator incurs whether or not the aircraft is actually operated. Essentially, this includes buildings, management personnel, support equipment, financing, insurance, depreciation, and myriad other miscellaneous expenses that range from office supplies, to postage, to telecommunications expenses, to coffee service. This includes any costs commonly referred to as "Corporate A&G" (Administrative & General) expenses.

Both manufacturers and operators have made the following suggestions as to how operating cost estimates should be prepared:

1. CLARITY - Information should be clearly presented to prevent ambiguities that lead to misunderstanding. Poorly worded statements, incomplete estimates, and overor under-estimating of costs can often cause unnecessary and expensive negotiation and explanation. When not clarified in the process of reaching agreements, they can cost an operator money or cause the end-user to feel overcharged.

2. DATA SOURCES - The dollar values of maintenance man-hours should be generated from historical statistical data, usually available from operator records. Operators attempting estimates on a helicopter with which they have no experience should work with the manufacturer to reconcile their "average" cost estimates to a more customized cost estimate reflecting the resources available to the operator, the operating environment, and the type of operation under consideration. Manufacturers attempting to aid operators with estimates on new models on which no service data has been accumulated should be sure to explain the rationale employed in arriving at the estimated cost. This generally can be accomplished by honest comparison with known cost history on previously-fielded models that is aggregate in nature and sanitized to prevent cost comparisons among competitors. Both manufacturers and operators must realize that the manufacturer can only issue generic DOC for a "standard" configuration, which is on an aircraft equipped with the only those items required for Certification. Many operator-created modifications or add-on options can add significantly to cost, and must be considered in the fmal estimate.

3. AVERAGES - Both operators and manufacturers must continually bear in mind that helicopter operating costs vary widely among various operations for reasons other than hours of utilization. Significant cost differences are driven by such factors as environment, climate, stage length, distance from base, cycle fatigue, skill levels of both pilots and technicians, the necessity for special tools and ground support

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES equipment, and the type of operation, such as offshore crew transport, logging, firefighting, EMS, etc.

4. COMPLETE - Especially for those not familiar with helicopter operations, operating cost estimates will be more meaningful if they are complete. That is how they arrive at the total operating cost. While the manufacturer can-and shouldsupply maintenance and fuel usage average costs, the operator must supply those costs that cannot be estimated outside his operation. These costs include pilot and technician salaries, depreciation methods, insurance rates, the method and cost of fmancing, overhead, and profit objectives.

5. CONCISE - All estimates should clearly state the exact economic time period or date to establish dollar values in relation to inflationary and global economic pressures. All estimates should also clearly state the exact model manufacturing time period or date. A recent production aircraft of a given model for which the manufacturer makes his estimates may incorporate technological improvements lowering DOC that are not incorporated on earlier versions of that same model. In this situation, both the manufacturer and the operator of an older version can have equally accurate-yet, widely differing=-cost estimates.

6. STANDARDS - Average salary and wage figures, when used, should be representative of current United States operations. Adjustments can be made, when appropriate, for foreign pay scales. Fuel prices, similarly, should be based on average spot prices for domestic US operations. Sources of this data are often trade associations and their publications that publish the results of surveys of their members on a variety of subjects, including wages, salaries and prevailing fuel pnces.

7. CONTINGENCIES - When estimating labor costs, material costs, overhead costs, and general and administrative costs, operators should consider the many variables that "real world" operations can impose on the best-laid plans. While not an addition to the Generally Accepted Accounting Practices categories of expense such as labor, material, facility overhead, and general and administrative, they are certainly items of consideration when estimating future costs. Care should be taken on such items as "Incorporation of Service Bulletins and Airworthiness Directives" shown below, as some manufacturers include provisions for these costs in their published estimates. While it is important not to underestimate costs, it is equally important not to "double-dip"-or overestimate costs-for obvious reasons. A partial list of variables, factors, or contingencies follows. The amount by which an operator should adjust their estimates for labor, materials, overhead, and general and administrative expenses will depend on the situation and environment and can be influenced by the following:

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES

» Additional or special support vehicles (four wheel drive, fuel tankers, a

cherry picker)

» Additional special tools and ground support equipment

» Additional spare parts and component inventories required

» Additional support facilities

» Allowance for crew sick leave, overtime, etc.

» Audits or additional inspections required by the customer

» Catastrophic failure not covered by warranty or insurance

» Commissions

» Crew lodging and meals

» Deductibles on insurance claims

» Environmental impact such as corrosion, cold weather, etc.

» Environmental and hazardous material costs

» Ground vehicle costs including depreciation, insurance, debt service and

maintenance

» Incorporation of Service Bulletins and Airworthiness Directives

» Lawsuit expenses not covered by insurance

» Lost revenue due to aircraft down time

» Mission-specific equipment (radios, rigging equipment, safety equipment,

etc.)

» Personnel recruitment and training costs due to turnover

» Premature contract cancellation and associated costs

» Regulatory or political shutdowns or delays

» Replacement aircraft costs while awaiting parts or repairs

» Scheduled crew changes, including transportation

» Specialized or additional training, such as long-line mountainous

operations, etc.

» Supplier price increases and inflationary trends

» Transportation costs for personnel, equipment, and supplies

» Unanticipated expense due to new government regulations

» Unscheduled crew changes including transportation

» Unusual wear and tear on the aircraft (transporting linemen vs. inspectors)

» Weather shutdowns and delays

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES

SECTION I:

GUIDE FOR OPERATORS PREPARING HELICOPTER OPERATING COST ESTIMATES

This guide addresses the Direct Operating Costs ("DOC") of operating helicopters, expressed in dollars-per-flight-hour, based on flight time (not engine or rotor time). It also addresses the Daily Costs that an operator incurs to make the aircraft available, and the Mission-Specific costs and Fixed Costs an operator experiences in providing aircraft services.

Direct operating costs (DOC) are those costs that vary in direct proportion to flight hours. The categories that make up these costs are fuel, lubricants, that part of maintenance that is necessary because a predetermined number of hours have been flown, as well as unscheduled maintenance costs. The manufacturer can provide fairly accurate estimates of these costs based on fleet history.

Daily operating costs are those costs whose dollar value is directly proportional to the number of days the helicopter is committed to perform the mission. This includes salaries (including benefits) for pilots, technicians, and support personnel necessary to accomplish the mission. It would includes maintenance costs that become due because of calendar time. The operator should provide these costs, as it is the operator that measures and knows which of these costs he will incur.

Mission-specific costs can vary substantially from one mission to another. Included in these costs are the additional expenditures necessary because of extreme heat, cold, or wet conditions, as well as concentrations of contaminants such as salt water, industrial air pollutants, sand, and even volcanic ash. Mission-specific costs also encompass the expense of maintaining equipment unique to that mission and any fees, rents, permits, licenses, and other expenditures that the operator would not incur, were they were not servicing that mission.

Fixed costs are those costs the operator incurs whether or not the aircraft is actually flown. Essentially, this covers buildings, management personnel, support equipment, fmancing, insurance, depreciation, and any corporate Administrative & General expenses. The operator needs to furnish this component of the total operating cost estimate, but should consult with the accountant and insurance professional to more accurately predict future costs.

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES

MANUFACTURER-SUPPLIED COST INFORMATION

1. Fuel and Lubricants

Although fuel consumption may vary as much as +/-30% during differing flight regimes, experience has shown that the overall consumption (the figure obtained by dividing the gallons of fuel consumed over an extended time period by the total flight hours) does not vary greatly from the fuel consumption at maximum cruising speed for conventional helicopters. For the purpose of standardization, this can be taken for the following conditions:

Gross Weight:

Cruising Speed:

Altitude:

10% less than maximum certified 10% less than VNE for that weight 1,000 feet, ISA day

Fuel costs should be determined on the "into-aircraft" price per gallon, multiplied by the nwnber of gallons of fuel conswned per hour. Engine oil and replenishment of other airframe lubricants can be approximated either by utilizing manufacturers' estimates based on system capacity and frequency of replacement, or on the basis of a percentage cost of the engine fuel. A survey of operator experience indicates an average of 3% - 4% is realistic.

2. Hourly Maintenance

Most Maintenance cost information is provided by the manufacturer, and is the focus of the most concern expressed by operators about manufacturers' DOC estimates. The manufacturer has very little-if any-personal cost history, and must rely on the combined presentations of cost estimates and history provided by cooperating operators. Consequently, maintenance cost deserves close attention on the part of operators. It is in this area that standardization and completeness of cost history can help both operator and manufacturer,. and it is the area that operators can most help manufacturers in projecting direct operating costs of new helicopters.

Maintenance costs included in the DOC can be divided into five categories:

a. Line Maintenance Labor

This cost includes all labor expended by the operator's mechanics while performing hours-based maintenance events, exclusive of the overhaul or major repair of components and engines.

Manufacturers traditionally compute maintenance labor by summing the various man-hours necessary to perform hours-based inspections and routine maintenance and repairs.

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES

The line maintenance man-hour figure should not include an allowance for indirect labor (maintenance burden), even though such has sometimes been included (incorrectly) in direct cost estimates. Maintenance burden includes such costs as unallocated shop labor, cleanup, supervision, record keeping, and spares stocking, which should be recognized to be daily costs.

In addition to performing hours-based maintenance and the previously discussed maintenance burden, technicians are often called upon to do other tasks. These tasks include maintenance events that are calendar driven, such as daily inspections, annual inspections, six-month servicing as well as cleaning the aircraft, and groundhandling the aircraft. While the technician is in these cases performing maintenance, this maintenance does not vary with flight time and therefore should not be included in DOC estimates. These costs should be included in daily cost calculations.

Allowances for the performance of special inspections or to incorporate service bulletins or Airworthiness Directives should be included if the manufacturer does not already make allowance for this.

The estimated times often assume work is done in an ideal, warm, well-lighted hangar with adequate facilities. Each operator must determine his particular situation and make provisions to allow maintenance labor increases due to the weather, outdoor conditions, and quality of facilities.

The operator's man-hour estimate should include all airframe, engine, and major inplace component maintenance, removal and installation time, and airframe repairs and modifications which are not known to or estimable by the manufacturer. However, once the total man-hours are estimated, it is not necessary to again subdivide all hours into these categories except as necessary to understand or evaluate the differences in man-hour usage between models or between aircraft of the same model.

An estimated direct cost for line maintenance labor-in the case of operators who employ their own mechanics-can then be obtained by multiplying the estimated man-hours per flight hour by the average wage line maintenance cost including benefits. Alternatively, operators who do not employ their own mechanics, but have work done outside, must reimburse their maintenance entities for their labor rate (hourly rate including wages, and allowance for allocated overhead, general and administrative expense and profit).

b. Aircraft Parts Replacement

This cost should be obtained by adding the purchase prices paid for replacement parts used and repairs done on all aircraft parts except the major component

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES overhauls, blades, and engine costs covered separately below. Operators should use the actual price paid (either list or discounted as appropriate) and include freight and tax paid if this is not accounted for elsewhere. Typical items in the category are tires, instruments, avionics, generators, relays, pumps, brakes, filters, airframe hardware, windows, interiors, paint, shafting, and bearings not inside major components covered under the overhaul.

The operator's subcommittee makes the following recommendations concerning the expense and accounting for expense of spare parts:

~ To determine the hourly airframe spares cost, divide the value of at least five to seven years' usage of parts by the accumulated flight hours over that same time period to arrive at a spare parts cost per hour not distorted by intermittent high cost maintenance actions.

Initial spares supply purchased with the helicopter could be capitalized and depreciated along with the helicopter, as long as it is the "depreciated book value" of that part which is recorded as expense at time of usage. It would not be prudent to expense these parts out as depreciation expense in one time period, then to double-dip by expensing them a second time, as they are deemed used at time of installation. Consult your CPA, lawyer, tax accountant, or other reliable accounting source to determine the best method for your operation.

Parts used during normal operations for the aircraft should be expensed only as they are used. Prior to this expense being recorded to a helicopter or operation, they should be carried on the balance sheet as inventory in the assets category.

c. The overhaul of Major Components

The projected cost of the overhaul of major components should be based upon the operator's individual arrangements for this maintenance activity, such as:

1. Manufacturers' power-by-the-hour program

2. Manufacturers' exchange program

3. A service center overhaul

4. An operator's in-house overhaul capability

The total estimated cost for overhauls, and the derived hourly cost, should be determined by dividing the total anticipated cost for materials and labor by the expected actual time between overhauls. Manufacturer- or FAA-established time between overhauls (TBOs) are ceilings, and may not reflect actual realizations of TBO attainment for the following reasons:

1. Corrosion, excessive wear due to operations, etc.

2. Progressive damage caused by a linked component

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES

3. Catastrophic damage due to sudden stoppage, FOD, etc.

4. Maturing of a newly designed component requiring design modification after sufficient field experience.

A manufacturer-provided power-by-the-hour program helps to defray the unexpected impact of expenses caused by Item 4, above, and can be a method by which a new operator can defer the investment in associated special tools, run-in stands, major component spares inventory investments, etc. Each program should be reviewed for applicability to each new situation and operation to determine cost effectively.

d. Rotor Blades and Other Life-Limited Items Other Than Major Components

Helicopter airframe and engine manufacturers and certification agencies frequently assign maximum service life limits to various SUbcomponents within major components, or to those parts subjected to fatigue and corrosion such as rotor blades, rotor head components, flight controls, landing gear, rotating engine components, etc.

In some cases operators cost these anticipated replacement parts separately through the established or reserves based on anticipated life and replacement cost. Rework costs or interim inspections, if performed by outside services, should be considered in overall costs for this category. As is the case of overhauled components, the service life limit is a ceiling, not an absolute realization. Operators should work with the manufacturers and available industry history to determine the average expected life of components that may not reach the ceilings established through regulation.

e. Engines

Engine maintenance costs include costs for intermediate inspections and overhauls not performed by the operator's line maintenance mechanics, plus the cost of any likely replacement or repair of parts used between overhauls.

To determine accurate hourly DOC, the operator should divide total costs (for a statistically valid sample size or number of years of operation) by the actual flight hours for the same period. As in airframe costing, the ceiling imposed for purposes of mandatory overhauls mayor may not coincide with the actual necessity for overhaul.

Operators experiencing short flight times, heavy external load operations or other factors contributing to high cycle or fatigue factors will experience considerably higher costs than those encountered in average operations. See the engine section for guidance.

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES True average costs can vary from quoted estimates by as much as 100% depending on engine maturity, environment, and application.

OPERATOR-SUPPLIED COST INFORMATION

1. Crew Costs

. Individual flight crewmember costs can be computed by dividing the annual salary by 250 to arrive at a daily cost. This assumes five days a week for fifty weeks a year. The operator can easily determine the total number of crewmembers necessary to complete the mission and add the daily cost for each to determine the full daily cost of the mission.

Consider also, when estimating personnel costs, indirect costs that will impact total cost for these services, such as:

A. Appendages, or employee benefits (including vacations, illness,

incentives, etc.)

B. Cost of training or proficiency checks

C. Payroll taxes

D. Travel and per diem expenses (may be treated as direct)

E. Personnel turnover expenses such as recruitment, etc.

The combined effect of the above can significantly increase TOTAL crew cost and each should be considered carefully.

2. Insurance Costs

Insurance costs, as previously stated, are fixed costs. They do not typically vary with flight time and are normally priced on an annual basis.

In this Guide, we will discuss three types of insurances. As the industry develops, new types of insurance will emerge or combine. It is advisable to periodically reevaluate one's true insurance needs in order to maximize one's value.

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES

A. Hull Insurance

Depending on the country in which the aircraft is operated, this is typically the most expensive form of insurance, and premiums can vary considerably. Factors causing significant variations are:

1. Type of service, such as:

a. Airline

b. VIP travel

c. Offshore

d. External lift

e. Agricultural

f. Emergency medical services

g. Civil/governmental (law enforcement, fire control)

2. Aggregate fleet value insured, aircraft mix

3. Operator's incident/accident experience

4. Insured value (as compared to replacement cost.

5. Aircraft model incident/accident records

6. Terms of coverage, deductible amounts, etc.

7. War risk and expropriation

8. Pilot qualifications and experience

A major ingredient is the extent to which the agent/broker understands the operation. Many insurance professionals do not fully understand the nuances of helicopter operations, and as a result, may not be equipped to provide an accurate portrayal to the underwriters.

Other cost guides have suggested various percentage factors be applied for the purpose of estimating insurance. Insurance rates have fluctuated sufficiently to require a complete investigation of insurability and proposed insurance rates before "plugging in" a factor representing this potentially volatile expense item.

B. Public Liability and Property Damage Insurance

In more litigious societies, such as is currently the case in the United States; this can be the most expensive ingredient in the insurance premium. Public liability and property damage insurance protects the operator against claims for any property damage or injury to persons on the ground. The rates for this coverage vary considerably, and the recommendations made in paragraph a., above, apply equally here.

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES C. Passenger Liability Insurance

This protects the operator against claims caused by injury or death to passengers riding in the helicopter. Again, rates have been increasingly difficult to predict due to wide variances, and should be a matter of careful investigation before making estimates of cost.

Most insurance contracts contain provisions whereby the insured pays minor claims. The anticipated cost of these claims is listed in the contingencies discussion and should be included in the accounting reserves for losses. Guidance as to the value to use for this should be obtained from discussion with insurance underwriters and industry associations.

In addition to the costs of the types of insurances listed above, the operator should pay particular attention when addressing insurance needs and the anticipated costs of the following:

Determination of Insured Value

The insured value may differ from the fully equipped aircraft value. Determination and acceptance of this difference is a matter of individual operator preference. Most sources advise the insuring of the fully equipped aircraft value. In this situation the purchase price of all optional equipment must be added to the price of the helicopter to determine the base. These individual costs should be identified, priced, and totaled to determine the add-on cost being attached to the base premium. Stipulated loss values associated with lease transactions may be higher than replacement values to compensate for tax recaptures. Premiums will be adjusted accordingly.

Cost of Special Services

Due to type or importance of cargo and passengers, or the unusual nature of operations, special job-related coverage or excess liabilities may become necessary and should be anticipated by the operator.

3. Depreciation

Depreciation, although it appears as an item among the direct operating costs listed in CAB Form 41, is not a DOC item as described in this publication. It does not vary directly with the number of hours flown.

It is included on Form 41 primarily because airplane models-for which the CAB form was developed-- are considered to have a fmite useful economic and service life due to continuing technological advances.

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES The helicopter industry has seen times when high demand and inflation have drastically increased helicopter values, as well as times when low demand has severely decreased helicopter values. For this reason, no "rule of thumb" is possible for addressing the probable residual value of any given helicopter. It is more prudent that the operator evaluate recent economic situations and consult on resale values. Similarly, the emergence or repeal of investment tax credits, credit for doubledeclining depreciation with conversion to straight line for tax purposes, etc. can have great impact on the optimal depreciation method to use, period of depreciation, and establishment of residual value. The operators' subcommittee to this Guide strongly urges consultation with your company's tax professional prior to making this decision and then establishing cost estimates. Fees paid to a competent tax advisor can be well worth the fmancial benefits gained.

When consulting manufacturer's estimates of operating cost, keep in mind that the manufacturer is limited in presentation typically of only one type of depreciation formula that fits the greatest number of operators, and will attempt to use a "representative" formula which may neither represent nor be optimal for each operator's individual situation.

4. Interest and Finance Expense

Other expenses that are significant and vary greatly are the fmance charges and interest paid on new aircraft purchases. The 1970s and 1980s demonstrated that interest rates can triple, and that accompanying charges can add up quickly. Again,

in the long term it is a very inexpensive and worthwhile matter to consult with lending institution( s) prior to fmancing aircraft, to determine the period of payoff and interest rates available and best-suited to one's fmancial situation.

5. Spares Inventory

In the preceding discussion on Direct Maintenance, under the subsection b. Aircraft Parts Replacement, the method of "costing" spares, and variations, was discussed, and should be self-explanatory.

However, in addition to the previously-mentioned costs, there are "associated" costs, which can be significant. These are costs such as interest on the investment in spares, cost of space and shelving, insurance, obsolescence, wastage, theft, freight, and others. These can be roughly termed "holding" costs, and where not accounted for elsewhere (as in building depreciation or associated utilities expense), should be done so here.

Some operators have experienced a spare parts holding cost as high as 50% of the cost of the spare parts average inventory.

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES 6. Overhead

Often separated into the two categories of "Factory ( or Shop) Overhead" and "Administrative & General", all expenses not identified as direct labor or materials usually fall into this category. This can include items varying from shop rags to health insurance, to company car expenses to paper clips. These costs are added on an amortized basis to the other expenses to determine the total cost. The list of contingencies given previously provides a checklist to consider when estimating overhead expenses, which are generally categorized:

a. Facilities (including offshore fuel, radio networks, base vehicles, etc.)

b. Support personnel costs (clerks, supervision, etc.)

c. Shop overhead (maintenance vehicles, shop rags, cleaning supplies, etc.)

d. Administrative, accounting, legal costs, etc.

e. Marketing and advertising

f. Management (management personnel, consultants, etc.)

In small operations the "burden" of overhead can be very low-often as little as 5% to 10% of total labor and materials. In larger operations, the overhead increases to 20% to 25%. In very large organizations, the overhead burden representing heavy investment in facilities and in personnel can run as much as 300% of direct labor and materials.

Keep in mind that, whether the aircraft fly or not, the many items associated with overhead expenses may continue and therefore should not be included in cost-perflight-hour calculations.

CONCLUSION

Industry experience in recent years has reinforced two important lessons with regard to operating cost estimates:

1. There is no single representative cost of operations estimate that will suffice as serviceable for all operators. Drastic fluctuations in inflation, insurance costs, individual incident/accident history, the skill of pilot and maintenance personnel, mission applications, and environment all serve to cause high variances in cost experience. This Guide is intended to help individual operators determine their proposed cost profiles using factors known only to themselves and which may apply only to their own operation.

2. "The defmition of terms is (truly) the beginning of wisdom." The terms of costs (e.g., indirect cost, direct cost, and average cost) can mean many different things in different situations. They may seem contradictory, yet be entirely correct, depending on the facts and

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES situation. It is extremely important that operators take the time, even absorbing some expense, to reach the most exact estimates, and keep the most exacting cost records possible. The benefits to the entire industry through better cost awareness are as significant as the danger of treating costs, and cost estimates, lightly.

The operators' subcommittee has attached an OPERATING COST WORKSHEET, which allows the individual operator to compile costs specific to his operation and fmancial procedures. This, along with the SAMPLE COST OF OPERATIONS STUDY on the fmal page, should help the operator determine and understand the nature and behavior of direct and indirect, fixed, and variable operating costs.

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OPERATING COST WORKSHEET (Prepared by Operator Subcommittee)

Direct operating cost per hour (Variable)

Fuel and lubricants Fuel@_%pergal,and_galperhour Lubricant @ _% of fuel

Total

Direct Maintenance and Spares

Maintenance @ $_ per hour, and _ manhours Per flight hour

Reserve for Retirement Items Reserve for Aircraft Spares

Reserve for Engine Overhaul and Repairs Reserve for Component Overhaul Reserve for Aircraft Refurbish and Miscellaneous Costs

Total Direct Maintenance and Spares

Contingency Maintenances (Semi- Variable) Airworthiness Directives

Service Bulletin

Technical Bulletins

Maintenance Training

Subtotal

Fixed Annual Cost

Crew Cost-Salary & Benefits Training

Publications

Subtotal

Insurance and Claim (Fixed and/or Variable) Liability

Hull @ % of Value Deductible Loss

Aircraft Down Time Replacement Aircraft Legal and Defense Subtotal "Insurance Effects

Overhead and Contingency Depreciation _ years with % residual value

Taxes

Spares Account

Total Operating Costs

20

$$$$$-

$$$$-

$$$$s..;

$$-

Direct Cost Indirect Cost TOTAL

$$-

$-

$$$$$-

$$-

$-

$-

$$$$$-

$$$-

GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES

SECTION II

GUIDE FOR AIRFRAME MANUFACTURERS PREPARING HELICOPTER OPERATING COST ESTIMATES

In the Preface, Introduction, and Section I of this Guide, the recurring references to disparities between manufacturers' estimates of operating costs and the estimates of operators reflect both a real discrepancy in estimation (which this Guide attempts to assuage) and a perception of intentional misrepresentation which is caused by the limitations and methodological differences between the two estimates.

In recent years improvement has been seen in manufacturers' estimates, partly due to greater skill in extrapolating cost history from an expanding database of contributing operators, and partly due to the manufacturers' willingness to clarify the criteria used in estimating cost. It is also notable that not all cost information is available to the manufacturer for them to then present.

Notwithstanding, the committee at-large agrees that continued improvement is possible in the preparation and presentation of manufacturers' estimates.

A giant step toward healthier industry cost awareness is the willingness of each manufacturer to take a step toward standardization of the formats used in presenting costs, and increased transparency as to the criteria and methods used in the estimation process.

An even bigger step toward cost awareness is made possible by the emerging maturity of field history and operator records.

In preparing man-hour or parts usage estimates, whenever possible manufacturers should use recorded data from a statistically valid sample size of a cross section of operators. When appropriate, or when the facts are available, manufacturers' representatives should be ready to discuss the ranges of costs associated with the average costs published and to qualify such data by including factors for consideration before recommending such average cost estimates for generalizations. The principle factors affecting maintenance man-hours and parts usage include, but are not limited to:

1. OPERATING ENVIRONMENT AND CLIMATE. It has been well established that sand, salt, air, and corrosive environments have tremendous impact in pushing costs well above the fleet average.

2. TYPE OF SERVICE. The manufacturer should initiate analysis by a prospective operator relative to the higher costs that are affected by heavy lift operations, shorthop airline or shuttle operations, and severe environmental operations.

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES

3. EXPERIENCE A CREW OF AIRCRAFT MODEL. Particularly on newly fielded models, the "mature" cost profile which can be reasonably expected over the life of the helicopter as maintenance and service resources develop can be much higher initially as ''hugs'' are ironed out and inexperienced maintenance personnel must study new manuals or expend a great deal of time troubleshooting. While cost estimates cannot possibly be generated to cover every level of expertise that may exist in each operator's organization, estimates should emphasize the impact of this condition. Sales organizations, in particular, should be trained to interpret "average" costs published in terms of new operator learning curves and cost probabilities.

4. OVERALL AIRCRAFT UTILIZATION. As mentioned in the introduction, "fixed" costs can quickly get out of hand if utilization is significantly lower than fleet averages or than the operator's own expectations. While most manufacturers' estimates deal mainly with the variable cost of maintenance and fuel (generally incurred only when an aircraft is flown), it is imperative for both the health of the operator, the industry-and ultimately the manufacturer-that prospective operators fully understand the impact of fixed costs on decreasing utilization. Also, calendar life limits that have the same effect as fixed costs should receive careful attention and discussion.

S. Maintenance plan. Most airframe manufacturers' estimates normally are based on operator overhaul, for this is where the bulk of actual field history is obtained. However, the operator who must contract his overhaul work outside the shop, or who has significant additional maintenance work done for him necessarily encounters significantly greater material and labor costs. Manufacturers basing cost estimates on exchange programs or power-by-the-hour programs should clearly state that criteria, and indicate its increasing or decreasing effect on total costs.

When a manufacturer must estimate man-hours on a helicopter that has no flight experience, he should explain the various considerations used in preparing the estimates presented. Estimates should be made by comparing the amount of maintenance required, accessibility, and other factors with actual history documented from data gathered on similar, previous models.

The practice of making use of operator experience, through data supplied to the manufacturer by the operators, should be utilized at every possible point. As operators more closely approach some sort of standardization in cost accounting and estimating, the usefulness of this information becomes increasingly significant. Both manufacturers and operators are realizing the estimating process is a joint effort, with clarity and communication needed by both sides. Helicopter operators and members of the HAl who were members of the committees presenting this and original versions of this Guide will cooperate in supplying data (in confidence) to manufacturers.

22

GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES The following discussion of criteria for manufacturers' estimation and presentation of costs concentrates on manufacturer-supplied data and is divided into four (4) sections:

1. Fuel and lubricants

2. Direct maintenance

3. Summary

4. Standardized sample form for presentation of estimates.

It is hoped that manufacturers utilizing this section of the Guide for direction in the preparation of estimates will also become thoroughly familiar with the principles discussed in the Operator's section, as well as the Engine Manufacturers' section. This familiarization should prove to be of some help to operators in understanding some of the inescapable and frustrating differences encountered in manufacturers' estimates vis-a-vis operators' estimates, and help in reconciling those differences and communicating the value in viewing the concept of costs from different stances.

MANUFACTURER-SUPPLIED INFORMATION

1. Fuel and Lubricants

a. Fuel

Hourly fuel consumption is affected by the following:

Airspeed Altitude Gross weight

Externally mounted accessories sling loads

Manufacturers' fuel consumption data will be based on these conditions:

Gross weight - 90% of maximum internal gross weight Altitude - 1000ft., standard day

Cruise speed - manufacturer's recommend maximum cruise speed. The speed selected will be stated in the literature.

Engine manufacturer's specification fuel flow data (not "average" engine).

No externally mounted accessories or sling loads.

Cost per gallon data is not included here because of the current volatility in pricing and the other variables such as geographic location and wholesale or retail purchasing. Manufacturer's data may include a typical value, which can be adjusted in light of the specific conditions involved.

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES b. Lubricants

The cost of lubricants is estimated at 3% of fuel cost.

2. Direct Maintenance

Manufacturers will provide data on maintenance costs, including labor and parts with breakdown as follows:

a. Line Maintenance Labor - This includes all labor required to perform required inspections, line replacement of parts, and removal and replacement labor incident to major maintenance and overhaul. Manufacturers should attempt realistic estimates considering additional factors for troubleshooting and real-world maintenance times based on operator history or manufacturer's history during testing and demonstrations. On new models where insufficient labor tasks should add a "realization" factor to account not only for the ''hands-on'' time, but also for normal time spent acquiring and reading manuals, obtaining and preparing parts, obtaining tools, etc. For mature commercial models, a factor of 1.3 is considered appropriate, while for newly-fielded models, a factor of 1.5 may be more realistic.

In some operations, hourly labor costs can be based on the annual cost of an in-house maintenance staff divided by the number of hours flown annually.

b. Replacement Parts - This category covers those parts which are neither included as-nor within-major dynamic components, nor have specified replacement times based on cycles, hours, or calendar time. (Major components and life-limited parts are addressed in separate categories, below.) For cash flow forecasting, the expected reduction in cost due to initial warranty benefits should be considered.

An increment will be added in this category to account for the possibility that components may not reach scheduled overhaul time for life-limited time before needing replacement. A typical value of 20% of major component parts cost and life-limited parts cost is considered appropriate.

c. Major Components - Those major components, normally dynamic-such as transmissions, gearboxes, and rotor heads-which have to be periodically overhauled. Both labor and parts cost will be provided.

There are several methods available to cost these components:

> Operator overhaul > Contracted overhaul

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES ~ Component exchange

~ Participation in a "power-by-the-hour" program

The manufacturer will provide data for those of the above options that are available for a particular model of helicopter. The operator must then decide which approach best suits his needs.

1. Operator Overhaul is performed by properly trained operator personnel with special facilities such as "clean rooms" and specialized tools and equipment. Facilities, tools, equipment, and training costs are considered as overhead.

2. Contracted Overhaul is performed at an outside service facility (or by the manufacturer, and may cost more than operator overhaul, though it eliminates facilities, tools, equipment, and training investment.

3. Component Exchange involves the operator purchasing an overhauled component, such as a transmission, and returning his component for credit. A credit is based on the condition of the returned component. The estimation provided should be based on average net cost for the exchange. Use of the exchange options may increase cost but does reduce downtime and the necessity to stock spare components. The price will not cover improper maintenance or operation outside of maintenance manual procedures.

4. "Power-by-the-hour" is a program in which the operator contracts to pay a certain amount per flight hour (usually with a minimum), for which payment the manufacturer will provide overhauled components when needed, pay for costs of unscheduled maintenance and costs associated with service bulletins. "Power-by-thehour" will not cover damage due to accidents, mishandling, improper maintenance, etc.

"Power-by-the-hour" is generally the most expensive choice, as the manufacture is required to have "on-the-shelf' components and parts to satisfy the needs of the customer. The benefit of "power-by-the-hour" is that any major costs, such as major components overhaul or repairs, become predictable.

5. Life-Limited Parts are those so identified by the airframe manufacturer, along with current list prices, in his literature.

6. Powerplant includes the engines, engine accessories, and any gearboxes provided by the engine manufacture.

~ Overhaul: The same discussion applies as discussed above under airframe major components. Manufacturer's data may exclude the operator overhaul since there will be very few operators with the facilities, equipment tools, and trained personnel to perform this procedure. Exchange costs provided

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES by the engine manufacture will be based on average costs, including average credit on the returned engine, accessory or gearbox.

)0> Line Maintenance: Labor includes that required to perform inspections, line replacement of parts and removal and replacement labor incident to major maintenance or overhaul. Parts include those required in conjunction with inspections (seals, gaskets, "O't-rings, etc.) and minor on-ship repairs.

SUMMARY

The airframe manufacturer will provide the aforementioned data in the format shown on the following table. Such data may be detailed with selected values for fuel cost and labor rates for illustrative purposes. (The operators' section of this guide presents various ranges oflabor costs for operator and service center labor.) In all cases, the manufacturer's data will be based on current list prices for parts.

It should be noted that the manufacturer's warranties would reduce direct operating costs during the warranty period. Affect of warranties on direct operating cost will be reduced if "power-by-the-hour" is selected.

Also, it should be noted that the manufacturer's data apply to a newly-purchased helicopter in current standard configuration. Accessories such as autopilots, avionics, emergency floats, etc., will add to direct maintenance costs unless included in a "power-by-the-hour" program. Data for costs associated with major accessories may be obtained from the vendor of that equipment.

Direct operating costs associated with used helicopters may be greater because of the accumulation of flight hours and cycles and because the latest, cost-saving components may not be included on a particular used machine. The manufacturer's base may not, therefore, be applicable to a used helicopter.

26

27

GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES

SECTION III

GUIDE FOR ENGINE MANUFACTURERS PREPARING HELICOPTER OPERATING COST ESTIMATES

Having reviewed the previous editions of this Guide, and also participating in and reviewing the Preface and Introduction to this Guide, the engine manufacturers subcommittee realized that the most significant amount of new material being introduced into this Guide was that dealing with the actual process of estimating and presenting operating costs for single- and twin-engine applications.

The subcommittee felt it was important to publish engine-related material in an understandable manner that would permit operators to make their own evaluation of those elements that make up engine-related operating costs for the operators real world.

Toward the achievement of this objective, and with the emphasis on description of engine terminology, the following outline was established:

I. introduction

2. defmition of terms, modular/non-modular

3. defmition of cycles (mission profiles)

4. defmition of flight line maintenance/inspection

5. definition/discussion ofTBO and on-condition engines

6. some thoughts on overhaul, including accessories

7. the parallel paths of power-by-the-hour and warranty

INTRODUCTION

The types of cost discussed in this Guide relate to engine direct operating costs only. Some examples of direct operating costs (DOC) relative to engines that must be addressed include the following:

1. fuel and oil costs

2. line maintenance labor, parts, and materials

3. overhaul reserve

4. unscheduled LRU (Line Replaceable Units) reserve

5. unscheduled repairs reserve

6. spare inventory amortization and maintenance

Other costs (i.e. indirect) are not evaluated by the engine subcommittee. The engine subcommittee does not detail how individual operators track indirect costs, as the operator is much better equipped to quantify these costs. However, items such as spares, overhead, and other indirect operating expenses should be recorded and analyzed by the operators.

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES

Engine operation costs are accounted as dollars per engine operating hour and, to avoid misunderstandings, these costs apply to an engine functioning unit as supplied by the engine manufacturer. It should be kept in mind that ancillary equipment will vary from manufacturer to manufacturer and with each installation. Configuration must also be considered. In the case of twin gas generator/power section and gearboxes driving an airframe manufacturer-supplied gearbox, the combination will be considered as separate units and so accounted in cost comparison with a generator/power section driving through a combining, engine manufacturer-supplied gearbox, The hourly operating cost applies to the complete, twinned configuration.

Engine shop visits are a significant portion of the engine DOC, and subject to the widest variation due to engine configuration and maintenance concept. A major factor in the maintenance concept is whether or not shop visits will be occasioned by TBO intervals or on condition.

Fleet size can also significantly affect the DOC. From the engine manufacturer's point of view, engine or engine module removals may incur varying costs dependent upon whether the operator requires loaner or exchange engine/engine module services, or is supported by inventory replacements. Another factor to be considered is whether the operator dedicates or shares heavy maintenance facilities, or relies on fixed base operator or contractor overhaul services. The applicability of these factors should be taken into consideration when accounting engine operating costs.

Variation in engine maintenance costs for identical engine and helicopter models between operators also occurs as a result of differing environmental and use modes. There are several factors that may be used to extrapolate individual operator DOC estimates from a generic use but, in the case of unique or rigorous duty roles, the operator should seek individual analysis from the engine manufacturer.

SCHEDULED REMOVALS

Scheduled removals normally fall into the following categories:

overhaul

internal inspections

life-limited parts replacements results of performance monitoring time stagger for all of the above

To be considered a scheduled removal, based on performance monitoring, an engine or component must be selected for removal on the basis of age/configuration considerations and monitored performance level and be removed prior to failure or prior to exceeding established limits that are, in themselves, cause for removals. This

29

GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES category of removal is intended to reflect the effectiveness of performance monitoring programs as a means of minimizing unscheduled removals and thereby maintaining a higher degree of operation reliability.

Generally, service bulletins (SB) are incorporated when the engine is in maintenance for other reasons. If maintenance is performed on the engine solely to incorporate a SB, the event is considered to be in the unscheduled category.

UNSCHEDULED REMOVALS

Basic or inherent (engine-caused) engine removals occur as a result of malfunctioning of an engine while being used in the manner for which it was designed and for which the incident or malfunction was not externally induced.

Non-basic or non-inherent (externally caused) engine removals occur as a result of externally induced conditions unrelated to the basic engine. Examples of causes for non-inherent removals include foreign object damage (FlO), airframe manufacturersupplied component failures, build error other than original equipment manufacturer (OEM), line replaceable unit (LRU)_caused, and improper maintenance action.

Engine removals based on maintenance monitoring procedures are to be classified as basic unscheduled removals. These procedures include (but are not limited to) oil filter analysis, chip detector analysis, spectrographic oil analysis program (SOAP), borescope inspections, and visual inspections.

MODULARITY

Most engine manufacturers have developed the concept of modularity to reduce engine maintenance costs.

In the concept, engines may be split by the operator into different modules and independently replaced, which avoids the return of complete engines to the factory. Modularity is advantageous in the case of premature failure or in the case of different life limitations affecting engine parts.

This concept is consistently used on modem engines as a design rule and is currently used in the field on new engines. This concept yields costs savings in the following areas:

~ reduced maintenance man-hours

~ lower transportation costs (lower weight/size of modules compared to engines)

~ better usage of TBO or life limits for different engine sections.

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES CYCLES

It is universally agreed that cycles of the rotating machinery in gas turbine engines may be life limiting. However, there is no industry-wide method of defining or counting these cycles. Each engine manufacturer has evolved its particular system. Operators should clearly understand how each engine manufacturer defmes a cycle.

Nevertheless, since the life-limiting factors are rotational speed and temperature, in general, a cycle can be said to be from start-up to shutdown of the engine. The severity of the cycle in helicopters usually depends upon the aircraft mission profile, and it is here that the engine manufacturer factors the cycle in order to recognize, for example, long periods or frequent excursions at high rpm or temperatures. Thus, for a particularly severe mission, an engine could be judged to have exceeded one cycle from engine start to stop.

Recording of engine cycles in helicopters is at this time achieved in one or more of the following ways:

» manual count that is performed by flight crew

» mission/usage defmition that is acceptable for an aircraft flying a repetitive mISSIon

» mechanical counter that counts engine starts

» mechanical counter that requires a sophisticated device to measure manufacturers' factors (i.e. does more that count engine starts)

The possibility of onboard Health and Usage Monitoring Systems (HUMS) in lightand medium-sized helicopters opens up a new dimension in recording engines usage. The current practice of counting cycles will become obsolete.

LINE MAINTENANCE

Engine line maintenance cost includes the labor and material to perform (a) preflight and post-flight inspections, (b) schedules inspections, (c) special inspections, and (d) minor repairs and modifications to the engine at the field level. Although operators and engine manufacturers may defme the categories of line maintenance differently, the tasks are generally the same.

Preflight and post-flight inspections are generally visual inspections. Scheduled inspections are made at periodic intervals in an effort to prevent engine malfunction and to serve in the role of preventive maintenance for the engine. Special inspections are required when the engine has been subjected to abnormal operating conditions, when engine damage is suspected, or when associated parts are removed from the engine. Special inspections usually include the labor and material to remove and install engines, modules, and engine accessories. The minor repairs and modifications performed at the field level will vary considerably between operators.

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES

Engine manufactures typically project line maintenance cost by summing the labor hours and material required to perform the scheduled inspections. As previously state, manufacturers have difficulty in estimating the time required for special inspections. Thus, it is important that operators with knowledge of specific area conditions make their own assessment. It should be remembered that engine manufacturers quote fleet average values, and it requires a more detailed study of the local environment conditions to make more accurate predictions.

Although performed at the line maintenance level, some engine manufactures include the projected cost of hot sections inspections in the overhaul or repair cost of the engine. Operators using engine manufacturers' estimation of maintenance cost should be aware that this cost may be included by engine manufacturers in either line maintenance cost or the overhaul and repair cost of the engine.

Some engine manufacturers include the overhaul and repair cost of the line replaceable units in the overhaul and repair cost of the engine or engine accessories. However, other manufacturers include it in the cost of line maintenance.

The operator's estimate can differ significantly from all engine manufacturer's estimate for many reasons:

1. The engine manufacturer may not have included the material and labor to perform preflight and post-flight inspections and special inspections in the line maintenance cost calculations.

2. Time spent in getting ready to perform the specific task, to troubleshoot the problem, or to study maintenance. The engine manufacturer may not have included manuals and technical publications in the line maintenance cost

calculation. .

3. Time spent servicing, cleaning, or waiting for the helicopter to return for maintenance may not have been included in the engine manufacturers' estimate of the maintenance cost.

4. As mentioned previously, engine manufacturers typically assume work is performed in environmentally controlled, well-lighted hangars with complete facilities. However, operators frequently work outdoors and have to improvise facilities.

5. Some operators may choose to have "dedicated" line maintenance mechanics that, in actuality, perform other tasks.

Many of these items are difficult for engine manufacturers to project unless actual data from operators are available. In preparing line maintenance cost estimates,

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GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES engine manufacturers should use actual data from operators ifpossible. However, such data are difficult to generalize for estimating other operators' line maintenance cost and the factors affecting the data need to be listed explicitly. Such factors include when the data were collected, the operating area and climate, type of service experience of crew with the aircraft, engine use, experience and training of maintenance personnel, and maintenance facility capabilities.

When an engine manufacturer estimates line maintenance cost for an engine with no filed experience, the engine should be compared to an existing similar engine and application for which there is data available. Comparing the amount of maintenance required, ease of access, and other factors of the new engine should make projections to the existing engine easier and more accurate. The manufacturers should detail the rationale used to arrive at the projected line maintenance cost for the new model.

In calculating direct operating cost for line maintenance, an allowance should not be made for indirect labor or maintenance burden. Maintenance burden includes such costs as unallocated shop labor, maintenance supervision, record keeping, stocking of spares, and other indirect maintenance-related expenses.

The estimated direct cost for line maintenance labor, in the case of operators who employ their own mechanics, can be calculated by multiplying the labor hours per flight hour by the average wage paid to the mechanics. Alternatively, in the case of operators who do not employ mechanics directly but have required work performed by an outside agency, the fully-burdened hourly rate charges are considerably higher than the hourly mechanic's direct wage. However, indirect cost may be proportionately lower. The cost of material used for line maintenance can be calculated by dividing the total cost of material used over a time period by the actual hours flown during the same time period.

ENGINE AND ACCESSORIES OVERHAUL

TBO Versus On Condition Maintenance Program

When presenting engine direct operating cost figures, manufacturers should be sure to state clearly if the analysis was based on an on-condition maintenance program or whether a time between overhaul (TBO) was assumed and on engine overhaul cost included in the calculations. Some engines are required to be overhauled at published time intervals. For example, if an engine has a 3000-hour TBO, it must be overhauled by the time it accumulates 3000 hours of operation. Use of an oncondition maintenance program requires an operator to perform additional engine diagnostic checks o~ performance trend monitoring to ensure the serviceability of the engine. There is a general trend in the industry toward the incorporation of oncondition maintenance programs and it is expected that this trend will continue in the years ahead. On-condition maintenance programs are the natural outgrowth of

33

GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES improved engine reliability and are usually less costly to the operator than scheduled engine overhauls.

In the DOC calculation of a TBO program, it should be clearly stated by the manufacturer exactly what the overhaul consists of, since there is some difference among manufacturers in how an overhaul is defined. Some manufacturers have engine/module overhaul exchange programs whereby an operator simply exchange programs overhauled or new unit. If this is the case, the manufacture will have published exchange prices that may be used for overhaul costs. If exchange units are not available, the manufacturer should be able to provide average overhaul cost estimates based on actual field history with that particular engine model or another similar model.

Another point of difference among engine manufacturers lies in the area of accessories overhaul and repair. Many of the engine control system accessories, such as fuel controls, pumps, governors, etc. are also required to be overhauled at published time intervals. While all manufacturers agree that these costs must be included in a total engine direct operating cost figure, some include these cost as line maintenance, since the components are replaced on the flight line. However, other engine manufacturers represent accessories overhaul costs and line maintenance costs as two separate DOC categories. Confusion may be avoided if the manufacturers' methodology for computing direct operating costs is clearly stated.

Maintenance Options

When the operator has purchased equipment, most engine manufacturers now offer two different options for handling maintenance.

The traditional means consists of operating the engine through the warranty period and overhaul or exchange programs that manufacturers offer. This system does not give the advantage of a known operating cost for the particular operation and usually requires a large sum to be available at the time of the overhaul or engine exchange. It also requires the operator to maintain a pool of spare parts.

Some engine manufacturers are now offering power-by-the-hour programs to the operators. Power-by-the-hour includes elements of DOC and such other features as spare engines and spare parts support. Power-by-the-hour programs make it easier for operators to budget, diminish the amount of spares that the operator has to maintain, and spread payments through the engine operation as opposed to the large sums requested punctually at time of overhaul. The program can be attractive to many operators who fmd such an arrangement more practical than making an upfront investment in spare parts.

Every helicopter operator knows engine repair and maintenance is just as important as selecting the right equipment to satisfy specific operating requirements, but only

34

GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES each operator applying factors unique to each operating scenario can make a meaningful decision on which path to take.

35

I

* * *

I

GUIDE FOR THE PRESENTATION OF HELICOPTER OPERATING COST ESTIMATES

HAl ECONOMICS COMMITTEE MEMBERS

CHAIRMAN

Ralph C. Rosenbrock HeliTech, Ltd.

VICE CHAIRMAN Richard Dodge

Bell Helicopter Textron

BOARD LIAISON

Peter Wright, Jr.

Keystone Helicopter Corporation

STAFF LIAISON

Elizabeth W. Meade Executive Vice President, HAl

COMMITTEE MEMBERS

Brandon Battles Conklin & de Decker Associates, Inc

Scott Parsinen

The Parsinen Group

Gary Potochnik HAS Corporation

1.J. Casagne Eurocopter France

Steve Sullivan

Aris Helicopters, Ltd.

Patrick Corr

Helicopter Adventures, Inc.

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