TBO is not an expiry date
Time Between Overhauls is the manufacturer's recommended interval — 2,000 hours on a Lycoming O-360, 1,700 on many Continental IO-520s, 2,400 on an O-235. Under Part 91 it is not a limit. You are legally entitled to keep flying a piston engine past TBO as long as it remains airworthy, and plenty of well-maintained engines run several hundred hours beyond it.
That legal fact causes a lot of financial damage, because it lets a partnership tell itself the overhaul is a problem for later. It is not. The engine is consuming itself at a knowable rate right now, and every hour flown creates a liability whether or not anyone writes it down.
The number that matters
Take your realistic overhaul cost and divide by TBO. That is what each hour of flying actually costs you in engine life.
- Lycoming O-320, $28,000 overhaul, 2,000 hr TBO → $14.00/hr
- Lycoming O-360, $32,000 over 2,000 hr → $16.00/hr
- Continental O-470, $38,000 over 1,500 hr → $25.33/hr
- Continental IO-550, $62,000 over 2,000 hr → $31.00/hr
- Twin Continental IO-470s, $90,000 over 1,500 hr → $60.00/hr
Use a realistic overhaul figure, not the cheapest quote you can find. A field overhaul that turns into a cylinder replacement, a new prop governor and an unexpected crankshaft is the normal outcome, not the pessimistic one. Add 15% to whatever number you first thought of.
Why partnerships break on this specific rock
Consider a three-way partnership on a Cessna 182 that never set up a reserve. They have flown 900 hours together over six years. The engine is now at TBO and making metal.
The bill is $38,000. Split three ways, that is $12,667 each, due now.
One partner has the money. One does not. One flew 60 hours last year and 15 the year before and is not sure why they are paying the same as everyone else. Someone points out that a partner who left two years ago flew 200 hours and contributed nothing to an overhaul they helped consume.
All of these are reasonable positions and none of them can be resolved fairly after the fact, because the money that should have been collected across six years now has to be found in one month. This is the most common way a functioning partnership stops functioning, and it is entirely preventable with a spreadsheet column and some discipline.
Two ways to hold the money
A separate account. The reserve physically sits in its own bank account and is not touched for anything else. This is the honest version. It also means when the overhaul comes, you write a cheque rather than a group email.
A ledger within the operating account. The money is tracked as a ring-fenced balance but sits with everything else. Simpler to run, and fine — provided the ledger is real and the balance is genuinely reported. The risk is obvious: an operating account that dips into the reserve to cover an expensive annual is a reserve that does not exist.
Whichever you choose, be precise in how you describe it. It is a reserve you track, not an escrow account, unless a third party is genuinely holding the funds. Getting that language right matters if anyone ever reads your agreement in anger.
Make it visible or it will be doubted
The reserve's real job is not financial, it is social. A partnership survives on the belief that the money is there. That belief has to be maintained continuously, and the only way to do it is to publish the balance where every partner sees it without asking.
Two numbers, on every monthly statement:
- Cash in the fund — what has actually accrued
- Hours to TBO — how much engine life remains
Read together, they tell any partner in three seconds whether the group is on track. $18,430 with 612 hours to run against a $32,000 overhaul means you need to accrue $13,570 over 612 hours — $22.17 an hour — and if you are charging $16, you now know you have a problem while there is still time to fix it.
When you are already behind
Most partnerships discover their reserve is short. The options, in rough order of preference:
- Raise the hourly reserve rate now. Recalculate against remaining hours, not TBO. Painful but proportionate, and it keeps the cost with the flying that causes it.
- Add a fixed monthly top-up. Spreads the shortfall across time rather than hours. Fairer if the shortfall arose from historic under-charging that everyone benefited from.
- Accept a capital call at overhaul. Only workable if every partner genuinely has the cash and has agreed in writing, in advance, that this is the plan.
- Run past TBO on condition. Legitimate with good oil analysis, borescope results and compression checks — but it is a monitoring programme, not a funding strategy, and the bill still arrives eventually.
Do not forget the propeller and the rest
Propellers have their own overhaul interval, typically six years or the engine's TBO, and typically $2,500 to $6,000 for a constant-speed unit. Vacuum pumps, magnetos, alternators, starters, hoses and the ADS-B box all have finite lives.
Many groups fold these into a single hourly "reserve" figure by adding $8 to $15 an hour. That works. What does not work is having only an engine fund, then discovering the prop overhaul is due and treating it as a surprise.
Recording it properly
The reserve ledger needs three entry types and nothing more: accruals from flying, withdrawals when work is done, and adjustments when the group changes the rate or corrects an error. Every entry should carry a date, an amount, and a note.
Do this and, five years from now, any partner — including one who joins next year and asks the awkward question — can see exactly what went in, what came out and why. That record is the thing that makes the fund believable, and believable is the entire point.