Run The Numbers Before You Top Overhaul Your Engine

I recently had a Bonanza owner approach me about making his airplane available to a customer for purchase. When I asked him what he wanted for the airplane, he said he didn't know what the airplane was worth... so I ran an appraisal for him. When the appraised value came back low, I explained to him that the engine was only 160 hours away from TBO and that's where the hit to the aircraft's value was coming from. The gentleman said to me "But I've only got 100 hours on the engine since I did a $13,000 top overhaul with all new cylinders." To make the pain even worse, the decision to top overhaul the engine was recommended by a very well-known aircraft maintenance advisor who sells his technical advice to aircraft owners... but it was bad and costly advice and I thought it was worth sharing with my fellow BeechTalkers.

Let me start here. There is no increase in value added to your airplane for a top overhaul... none. Furthermore, in my opinion, the decision to top overhaul an engine also does not add to the airplane's salability. A top overhaul is simply a maintenance decision to get more life out of your failing airplane engine and so the decision to top overhaul the engine in your airplane needs to be a calculated decision based solely on the operational economics of the engine. Let me explain.

Let me use the numbers from my potential seller's airplane. IO-520 engine, 1700 TBO, 1540 SMOH and 100 since a $13,000 top overhaul with new cylinders. The cost of a factory rebuilt IO-520 should run around $43,000 give or take and I would estimate the R&R costs at about $4,000. So the owner will have $47,000 to purchase and install an IO-520 in the airplane. But the "book" says our $47,000 engine only costs "$30,000 installed" and then gives the owner a $15,000 credit in added value for the fresh engine. So, with the $15,000 credit in added value, the net cost of the overhaul is $32,000. If the engine has a TBO of 1700 hours, the operational cost (or engine reserve number) is $18.82 per engine hour. But for this illustration, let's talk in out of pocket expense on the part of the owner and use $47,000 as the cost to replace the engine.

So, our owner of this airplane spent $13,000 on the "top" at 1440 SMOH which allowed the engine to get to the 1700-hour TBO. I am not saying here that the engine would not be able to run well right up to 2,000 hours or more but speaking rather from an appraised value perspective. If you take $13,000 divided by the 260 hours remaining until TBO when the owner top overhauled the engine, the hourly operational cost of the engine goes to $50.00 per hour... the cost to amortize the $13,000 top overhaul over the 260 hours remaining to TBO. Had the aircraft owner run the numbers, he would have learned that even though he was only able to get 1440 hours out of his engine, at $47,000 to install a 0 SFRM IO-520, his hourly cost was $32.64 per hour for every one of the 1,440 hours he operated the engine or rather 35% less than the $50.00 per hour operating cost to get the engine to TBO where its value is zero.

Thus, speaking strictly from an aircraft value viewpoint, the engine should have been overhauled or replaced rather than undergone a top overhaul and the owner would have saved himself $5,812 in the process

It's always hard to "bite the bullet" when it comes to an engine replacement but as you can see in the example I've illustrated above, often it makes financial sense to do just that... "bite the bullet" and replace your engine with a freshly overhauled or factory rebuilt motor. The point is simply this... before you opt to top overhaul your engine, run the numbers. More often than not, it will save you substantial AMU's.

Keep the blue side up and Happy Holidays to all.