The Overhaul Savings Program
We get a lot of questions here at Gemco, and they range from the factual type that can be answered with 1 word, all the way to more complex questions that require more lengthy explanations. One question that falls in between is this: “why should I enroll my engine on your overhaul program?”
When it comes to saving for overhaul, the usual method cited by the experts is to start a reserve account, and start putting money away into that account for every hour you fly. It sounds easy. Sadly, though, just opening a bank account to store cash is usually not the most effective way to save your pennies for the eventual day that you'll need to overhaul your engine.
First of all, few banks, financial advisors, investment houses, and other professionals know about the unique challenges related to saving for something as variable as an engine overhaul. Unlike some investment goals like college and retirement, your overhaul date is not set in stone. You might need to access your money at any moment, with little to no warning. Because of this, many popular options used to create yield in long term accounts are not an option for overhaul accounts simple as a byproduct of traditional investment vehicle volatility. Faced with the possibility of a variable time frame, many financial experts will simply advise clients to park money in low-yielding, short term investments. This works, but you’re losing money as your reserve account loses buying power to inflation and the naturally rising cost of engine overhauls.
Secondly, your reserve account is not something easily transferred between owners at the time of sale. Your mission is constantly changing, and the airplane you own may change with it. If you rely on traditional reserve account methods, you’ll find yourself trying to juggle selling your used aircraft to a market saturated with others just like it, as well as adjust your reserve savings schedule to ensure you’re prepared for your next aircraft.
Third is the tax implications of your reserve account. Many aircraft are owned by specifically established LLCs, and Corporations to help increase the tax benefits of ownership, as well as limit the liability of operation. Likewise, owners may find it difficult to navigate the tax maze created by simply establishing a reserve account. Instead of having the option to write off their engine in a more consistent manner, owners may find they have to conform to more traditional writeoff methods, such as straight line deductions, a MACRS deduction, or a 179 deduction (assuming that it still will exist in the year you need it).
Fourth is the simple fact that people are just no good at saving. Imagine if you created a running reserve account for all the future liabilities in your life. For example, one to paint your house, one to replace your dishwasher, one for your car, and even one for your lawnmower. It’s just too much. So, what many of us do is just start saving an arbitrary amount of cash, in the hopes that we’ll have the cash when needed. This usually results in too little cash at critical times, as what we want trumps what we actually need.
That brings this article to the ultimate question we get all the time here at Gemco: “why should I put my engine on your Overhaul Savings Program?” The entire purpose of the Overhaul Savings program is to help you save money, and be financially prepared for the flexible requirements of owning your aircraft. The Overhaul Savings program starts with you and Gemco agreeing on what your overhaul will cost. Gemco maintains a comprehensive list of costs of almost every single engine manufactured by both Lycoming and Continental, so you get an immediate benchmark on how your savings plan stacks up vs. our expectations. We then help you see how inflation, and rising manufacturing prices will affect your future engine cost expectations. This information is then compiled to give you a flat monthly price for your Overhaul Savings program.
Once you’re enrolled, you’ll get to enjoy the flexibility offered by the program. You will always have access to the money you placed in your overhaul account, so in the event you need an early overhaul, you won’t be stuck trying to liquidate the assets in your own reserve account at lower than expected prices. If you decide to sell your aircraft, you can decide to sell your Gemco account with the aircraft (giving you a large leg up in the used aircraft market), or roll your account value into your next aircraft. Don’t worry, the transition is easy and we’ll help you.
For those seeking tax benefits, Gemco’s Overhaul program offers you the ability to have a consistent write-off-able expense you can rely on throughout the entire life of your engine. No more complex depreciation tables, wildly varying deductions, etc. Instead, you can stabilize cash flow, and better predict what it actually costs to operate your aircraft.
No. Gemco’s Overhaul Savings program does not provide you a way to obtain a new engine at below market value. Remember the adage: “if it’s too good to be true, it is.” Instead, what the Overhaul Savings program does do is provide you is another financial tool that you can use to help stabilize the expense of operation, and reduce the burden on yourself of running an entire reserve account.
We’ve written in the past how the Overhaul Savings program helps you stay ahead of the “savings power curve.” So, when it comes time for you to start planning for your next overhaul (which was yesterday), you can count on Gemco to provide you with the best tools in the industry to do it. Feel free to contact Gemco at any time, and we can start working with you to make aircraft ownership more affordable, and more predictable. We’re always here to help.