Aviation claims costs are rising, fuelled by expensive technology repairs, explains John Bayley, regional director for Europe and Russia at McLarens Aviation.
Aircraft manufacturers have made flying progress in recent years, utilising composite materials and structures to improve efficiency, strength and safety, in addition to adopting new techniques such as 3D printing.
Yet these modern materials and structures are expensive to repair and, with manufacturers often being the only parties with sufficient knowledge, replacement costs are gaining altitude. A fan blade on a large jet engine that might have cost $30,000 (£23,000) two decades ago could easily cost $150,000 (£113,000) today depending on the material and design.
We have reviewed our own data relating to typical, day-to-day claims (those under $10m dealt with on a weekly basis across the globe) and found that claims relating to composite aircraft with significant repair needs are on average 2.3 times more expensive to deal with than traditional metallic structures. Though by no means comprehensive, this provides an indication of the extent to which costs have risen for aviation insurers.
One of the key issues is that repair development and design is occurring on a bespoke basis for almost every incident, with relatively little investment being released to design obvious repair needs prior to events occurring.
Traditionally, maintenance engineers have utilised an aircraft’s Structural Repair Manual in the review, assessment and application of many simple repair situations. This SRM application uses the gained skills and knowledge of maintenance teams, with an understanding of the material properties, to interpret information.
Composite structures have completely changed this method of repair, although some limited SRM repair actions are now available.
At the same time, manufacturers are beginning to develop something of a monopoly over large material repairs, in addition to controlling a large part of the spares market, meaning that maintenance budget holders (and subsequently insurers) have to pay manufacturers, rather than the open market, for spare parts.
This is all compounded by developments in maintenance and repair contracts. Many aircraft and engines are now rented in a similar way to cars, with a full maintenance package included at the time of initial purchase, allowing pre-planning for both manufacturers and customers. This is all well and good. However, these contracts are negotiated in the absence of almost any input regarding what may be reasonable in the event of a loss and expected financial support from insurers, meaning that the labour charges and engineering input costs in the event of an ad hoc incident are costly for insurers.
The same is as true for engines as it is for airframes. As a result of manufacturing developments, engines can now last on wing much longer than earlier generations and on many occasions can be operated on a ‘Power By the Hour’ cost concept.
The number of components considered to be one-life usage items has also increased. The result being that with some of these parts not having lives restricted by regulation, there is a difficult discussion to have when considering betterment in a regular engine claim. There are a number of engine types manufactured by large producers that have been in service for over a decade and still do not have full repair capability on all of their core components. Bird ingestion and foreign object damage within engines, therefore becomes expensive in the core.
With the lack of independent organisations being able to develop repairs on complex materials, combined with the manufacturers’ decision not to develop their own repair schemes in many cases, replacement is used instead of a repair.
Consequently, the aviation adjuster’s role is developing with a need to understand the current and future business influences along with the technical changes on new generation aircraft. Wherever possible, we try to have some influence on new repair management. However, long-term planning between original equipment sellers and buyers often overlooks the role of insurers as significant stakeholders when a loss occurs.
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