To Overhaul Or Not To Overhaul
With declining airframe values and increasing engine overhaul costs, its extremely important for Bonanza owners, and prospective Bonanza buyers to give careful thought to the state of the engine in your current, or prospective airplane.
Today, many of us are faced with a costly decision on whether or not to overhaul the engine in our Bonanzas. It used to be a simple decision when the value of our airplanes were high and the cost of an engine overhaul represented a smaller proportion of the overall cost to maintain our airplanes. But those days are gone as of 2008 when the value of our airplanes were cut in half. So the purpose of my post is to give you all a bit of insight that hopefully you can use when faced with this decision in an airplane you own or one you are considering purchasing.
The engine (or engines) in your airplane represent the largest maintenance expense as well as the single largest potential liability. As a result, the remaining engine life of your airplane engine, more often than not, has the largest impact on the value, or lack thereof, of your Bonanza, and that impact is increasing. Since 2000, the cost of maintaining and overhauling an aircraft engine has continued to rise, while airframe values have remained on the decline, resulting in a widening and disproportionate gap between engine replacement cost and aircraft value.
To illustrate this point, let's consider the value of a 1963 P Model Bonanza relative to the cost of engine exchange or overhaul. In 2000, the average retail price of the P Bonanza was $69,000. Today, that number is $49,000... a 29% drop in aircraft value over the past 18 years. The engine in the P model is the TCM 10-470-N. In 2000, the cost for a factory reman was $25,200 compared to a price of $39,300 today... a 26% increase in cost. So over the past 18 years, the cost of the engine itself as a percentage of the total aircraft value has increased from 36% to 80% where it is today.
It would be fair to estimate the total costs for a factory reman engine exchange in this airplane at $47,000 when one considers remove and replace (R&R) labor, hoses, engine mounts, accessories, etc. and a prop overhaul. However, when you appraise the aircraft value and account for a zero time engine, a newly overhauled engine only adds $15,000 to the retail value of the aircraft. So when the owner of this P Bonanza is faced with engine overhaul, if he should choose to install a factory reman in the aircraft, he will incur an immediate $32,000 loss on the difference between the price of the overhaul and the increase in the book value of his airplane. Should he decide to install a field overhauled engine instead, the cost of the install drops from $47,000 to $41,000 but the difference in the appraised value stays the same at $15,000. While its true that replacing the engine with a field overhauled engine versus a factory reman will save 13%, it's still a loss and a poor investment in an older airplane.
Why should you care? Because in the case of an older Bonanza, your airplane will not be worth what you will have in it should you choose to overhaul the engine. Thus, as an aircraft buyer, you are far ahead financially to pay a premium for an airplane with low engine hours. In fact, engine hours should be one of your primary considerations when purchasing a legacy aircraft. Conversely, as a seller, you are far ahead financially to sell your airplane without performing an engine overhaul. And while "book" may reflect a decrease in value of $15,000 for an airplane with a runout engine, the savings of not having to overhaul the engine is almost double that amount.
The decision of whether or not to proceed with an engine overhaul in your airplane tends to be a bit of a judgement call on the part of the aircraft owner but the example shown above illustrates a point that should be considered. Based on the continuing decline in aircraft values, it will almost always prove more profitable to sell your airplane with a runout engine at a loss than to invest in the cost of a new engine overhaul.