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Making an Upgrade Decision

by David Wyndham 9. August 2017 09:53
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The owners of a turboprop were facing the possibility of significant avionics upgrades in the next few years. In addition to adding in ADS-B, they were considering a major upgrade to their avionics suite. They also had a good offer on a new aircraft that, when delivered, would have everything they were looking for, albeit at a higher initial cost.

The upgrade would add value to their current aircraft and might make it easier to sell.  What path was best for the owners? When does it pay to do the upgrade, and when doesn't it?

The FAA requires ADS-B to be installed by 2020 to allow aircraft to use the air navigation system. If not done, the aircraft is essentially no longer flyable in its current capacity. Avionics installers have been warning that there is not enough capacity to complete ADS-B installs in all the remaining aircraft before the deadline. With residual values already low for most models, an older, non-compliant aircraft in 2020 may be unsellable except for parts.

Some long range turbine aircraft may require even more avionics upgrades to operate globally, especially in Europe. These FANS requirements and similar also can add considerably to install. But, as with ADS-B, they won’t add value but just allow you to retain the value in the aircraft and keep it flyable in the future airspace.

When to Do the Upgrade

After keeping the aircraft compliant with air navigation standards, upgrades fall into two categories:  adding new safety features and adding new capabilities.   If you need the advantages of a new aircraft, such as more range, speed or cabin volume, but don’t want the acquisition expense, the upgrade path may work.

There are a number of avionic upgrades available from companies like Avidyne, Garmin, Honeywell, Rockwell-Collins and others. Third party specialists are also doing modifications that range from updated navigation gear to a full (glass) panel replacement. When looking at new systems, consider what the current variant of your aircraft (or closest relative) has for its avionic system. Done right, these systems enhance both safety and reliability.

Possibly you may seek to add performance, such as better fuel efficiency or range.  Companies like Aviation Partners, Raisbeck and Blackhawk have been quite popular for many years.  They, and others, have aerodynamic and engine upgrades that allow your current aircraft to fly faster, further, or both. Sierra Industries offers Williams engine upgrades for older Citations that add speed and range. 

In between refurbishment and new is remanufactured. Nextant Aerospace is remanufacturing older Beechjets into Nextant 400XTi's - complete with new engines, new avionics and a new interior. Nextant is being joined by an engine upgrade from Textron. Other companies offer engine modifications as well.

For the passenger cabin, interior specialists offer all sorts of options for in-flight entertainment and airborne Internet as well as new seat designs and modern materials. If you need "more" as in seats, payload or room, your only true alternative is acquiring a larger aircraft.

Considerations

Before you undertake such a major project, consider your current aircraft’s age. Older aircraft cost more to maintain than newer ones. Wear and tear items, aging aircraft issues, and engine overhauls all drive costs up. Your aircraft must be in excellent mechanical condition and essentially free of corrosion, otherwise don't consider the upgrades.  

Do the upgrade if it has value to you. If it has value in the market place, so much the better but do it primarily for you. Unique is great with art, not with aircraft. Stick with established programs with a successful track record. Do equipment upgrades that mirror the new models or closest equivalents. Those will tend to have the best impact on resale value and also maintenance supportability.

For example: upgrading the engines on a King Air C90 can run to over $700,000. Adding in a new avionic system can run to another $750,000 or so.

A stock 20-year old C90B sells for about $1 million.  Looking at today's market, its doubtful that the upgraded C90B can recoup 100% of the upgrade at resale. The engine upgrade will add to the aircraft’s value, but don't do it just to resell the King Air after the retrofit.  The avionics are great and add to the capability and situational awareness of the pilots.  

If you are planning to sell in the next few years, these major upgrades won’t pay a full return and you won’t enjoy them long enough to benefit. Best just to do the ADS-B and start shopping for a replacement. Budget carefully and talk to other operators who have done the same upgrades. Look at the tax considerations as these upgrades may need to be capitalized. Consider the cost of borrowing the funds needed to upgrade or replace.  As long as your current aircraft is in excellent mechanical condition and you plan to keep it for the next few years, the added utility and flexibility of the upgrade may add all the value you need.

The turboprop owner above elected to acquire the new aircraft and retain the current turboprop while adding just the ADS-B.

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David Wyndham | Maintenance

What Should You Do If ATC Asks You To Call?

by Greg Reigel 3. August 2017 08:51
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If you ever find yourself in this position, it is important to understand that you do not have to make that call. You are under no legal obligation (regulation or otherwise) to place the call. The request is not an ATC instruction under FAR §91.123. So, if you don't want to call you don't have to. But just because you don't have to call, that doesn't mean you shouldn't call. You need to analyze your situation and understand the pros/cons of making the call before you decide to simply ignore ATC's request.

Why does ATC want you to call?

For starters, ATC wants to obtain your personal information so they know who was flying the aircraft. Although ATC may have the aircraft's registration number, it may not know who was flying the aircraft. This is especially true if the flight was a VFR flight without a flight plan. Also, if the aircraft is a rental or club aircraft available to multiple pilots, ATC won't necessarily know which of those pilots is actually flying the aircraft. So, ATC wants to identify the pilot and obtain his or her information. And if you make the call, you will be providing the FAA with the connection between the aircraft operation and you, the pilot.

ATC may also want to discuss what happened. Depending upon the circumstances, it is possible that providing ATC with an explanation of what happened will resolve the situation. If the situation resulted from a simple mistake or flawed procedure, ATC may provide some informal counseling to ensure that you don't end up in the same situation in the future, and that will be the end of it. Under the FAA's new compliance philosophy, this would be considered a "compliance action." However, if the situation was more complicated or severe (e.g. an intentional deviation that resulted in loss of separation) that isn't the type of situation that would be handled as a compliance action. In that case, you may not want to make the call.

What happens to the information you provide during the call?

If you decide to make the call, you need to understand a couple of key points. First, the call will be recorded. So, the FAA will have a record of what you say during the call. Second, the FAA will use the information you provide to determine how it is going to handle the situation. That could be good for you or it could be bad, depending upon what happened and what you say. If it is bad, the FAA will not hesitate to use the information you provided against you in an enforcement action.

Should you make the call?

If you are asked to contact ATC after a flight you need to answer a number of questions to determine whether it makes sense to make the call:

  • What happened?
  • Why did it happen? Did it result from a simple mistake, flawed procedure etc.?
  • Is ATC able to connect you, the pilot, with the flight operation?
  • Is it the type of situation that the FAA should handle as a "compliance action"?

When you are considering these questions, it may make sense to discuss the matter with an aviation attorney. He or she should be able to help you analyze the situation to determine whether calling ATC will help or hurt you and, if it makes sense, what you should and shouldn't say if you do decide to make the call. You should also make sure to file your ASRS Form with NASA so you can potentially benefit from the FAA's Aviation Safety Reporting Program.

The good news is that the FAA's new compliance philosophy is resulting in fewer enforcement actions in cases of simple pilot deviations where the pilot does decide to make the call. The bad news is that you now have more to consider before you decide whether you should or should not make the call. If you find yourself in this situation, make sure you think things through and get the advice you need BEFORE you make the call.

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Greg Reigel

Tips for Your First Oshkosh Camping Experience

by Tori Williams 2. August 2017 12:30
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Ever wondered what it would be like to fly into Oshkosh for AirVenture and camp under the wing of your aircraft? Have you thought of doing it before but not known what to expect? I am here to answer any questions you may have about flying in, camping out, and making the most of Aviation’s Greatest Celebration!

A little background about myself: I have been to Oshkosh a total of four times, three of which I flew in and camped beside the plane. That is by no means anywhere near as many times as most Oshkosh attendees. In fact, I met a man this year who said it was his 42nd consecutive year at the fly-in. Now that is impressive! I am a novice, but I was new to camping my first year and there are certainly things I wish I had known beforehand. So here is my complete beginners guide to airplane camping at Oshkosh!

Some financial information upfront: two adult weekly wristbands ($123 each for EAA members) plus 9 nights of camping ($27 a day) will cost just shy of $500. You do get a refund on camping if you do not stay the whole 9 days, and the only major cost you should have left after that is food. Buses are available to take you on Target runs which help to avoid the typically overpriced food offered on the grounds. Overall this can be a very affordable vacation if you plan it out well.

Step One:

Pack Appropriately.

Obviously, what you are able to pack depends a lot on what type of aircraft you are flying in. The first year I had the opportunity to fly into Oshkosh with my husband we flew in a Stinson 10A. That little plane couldn’t haul a third person, let alone a tent, chairs, luggage, and all of our supplies for the week. We ended up having to have my father-in-law carry most of our supplies in his plane which was able to carry much more. You also have the option of mailing your supplies in and picking them up once you get there, if that seems like a better option. Just remember, you’ll have to mail them back or throw them away! Some items I could not live without during the week include: sunscreen, bug spray, a hat, a shower tote, shower shoes, and a medium sized backpack. Don’t forget regular items such as toiletries, sheets, pillows, and a few warm blankets. It can get extremely cold at night. Bring enough shampoo and conditioner to shower every night, even if you don’t feel like it. Believe me, the week will go by much smoother if you go to bed clean every night.

Step two:

Arrive Gracefully.

Read the NOTAM! Believe it or not, there are actual real pilots that attempt to fly into AirVenture without reading the arrival procedures NOTAM. One such pilot was ahead of us on our arrival in this year. He kept asking his buddy over the radio what he was supposed to do. It’s embarrassing and inefficient. It takes literally 10 minutes to review and get an idea of what is expected of you when you arrive at Ripon. Print it out, highlight the frequencies, and get ready to rock your wings when they ask you! Make sure you have your sign with you to signal the ground crew where you need to go. Follow their instructions and take up any grievances with your parking location with the appropriate personnel after you have shut down the engine. Screaming out the window at a volunteer who is just following someone else’s’ instructions won’t get you anywhere.

Step Three:

Set up Your “Home Base.”

I personally think it is important to enjoy the place that you return to every night. We have had great luck with bringing an air mattress and setting it up inside our (slightly oversized) tent. If you do not have access to a battery or generator for the week, there are plenty of outlets where you can blow the mattress up and return it to your tent. I saw this happen more than once, and it is totally worth it to have a comfy bed. I suggest bringing a lantern, cooler, and any other “extras” that would add to your experience camping. Things can get messy and disorganized very quickly in a tent environment, so having a system for where you put dirty clothes, shoes, etc. will also be beneficial.

Step Four:

Scope out Your Amenities.

It is important to know the location and availability of the amenities closest to your campsite. EAA has been very good about providing hot showers, charging stations, drinking water, porta pots and mirrors to their campers at several locations throughout the grounds. The showers are usually in the form of giant trailers with doors that open to individual changing rooms and curtains covering the shower portion. I have had no issues in the past being in Vintage camping, however, this year they did not provide any sinks in the South 40 portion. I had to take a bus and a tram to get to any kind of sink. That made the week difficult, as I wash my face with soap every single morning. I had to get creative and carry my facewash with me as I got on the bus to reach the main area, where I would stop off and wash at the nearest sinks in Vintage. This might not be important for your situation, but getting a good idea of where your amenities are before it gets dark will help a lot.

Step Five:

Have fun!

I know that it sounds cliché, but having fun and enjoying the week is the ultimate goal here. Get to know your neighbors, walk around and see everything you possibly can, and take time to simply appreciate how big and wonderful EAA AirVenture has become. I know of a lot of people who consider it the best week of the year, and it is certainly easy to find something interesting to learn or see.

Let me know in the comments if you have any tips for first-time campers at Oshkosh! As always, I am already looking forward to next year!

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Flying | Airports | Tori Williams

A Methodology For Comparing Aircraft Costs

by David Wyndham 13. July 2017 15:16
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When comparing aircraft costs, it is important to understand what costs are included and what aren't. Otherwise, you can end up comparing "apples and oranges." This can lead to making a decision with wrong or incomplete information. First off, let's review the predisposed views of some folks when talking about aircraft costs:

The Maintenance Director looks at what it takes to maintain the aircraft in an airworthy condition. The maintenance director can bid out major repairs to get the best price for quality work. Talk to maintenance professional and he/she will take that one "maintenance cost" item and really go into detail. As an example, a maintenance reserve for a twin-engine turboprop can be about $455 per hour ($180 for parts and labor, and $275 for the engine reserves).

The Pilot is responsible for the safe and efficient operation of the aircraft. That person is usually most concerned with fuel, maintenance (as one number), and travel expenses. The pilot can choose fuel vendors who have competitive prices. For our turboprop, that operating cost figure would amount to about $1,000 per hour. What else might be missing?

The Aviation Department Manager is concerned with the cost of the aircraft, plus the fixed overhead items such as hangar, training, insurance, and pilot salaries. Those items for our turboprop example can be about $300,000 per year, plus the hourly cost of the aircraft. For a nominal 400 hours per year operation, the Aviation Department Manager's budget for a turboprop is $700,000 annually, or $1,750 per hour average.

Lastly, the Executive/CFO is concerned with acquisition costs, amortization, interest, depreciation, taxes and the cost of capital. That can easily add another 70% onto the Aviation Department Manager's "costs" depending on the value of the aircraft. If the aircraft is operated for business use, the corporation has the ability to write off the expenses of ownership and operation. After taxes and depreciation, the total figure to own and operate an aircraft can change dramatically. An educated Executive will also consider not only what the costs are, but when they occur and the value of the aircraft at the end of a specified amount of time.

What is the general methodology to use when analyzing the acquisition of an aircraft? 

When analyzing the potential acquisition of a whole or share of an aircraft, Life Cycle Costing ensures that all appropriate costs should be considered. The Life Cycle Costing includes acquisition, operating costs, depreciation, and the cost of capital. Amortization, interest, depreciation, and taxes also play a part in what it costs to own and operate an aircraft and can be included in the Life Cycle Costing as appropriate.

The assumptions used need to be clearly spelled out. The costs should cover a specific period and take into account an expected aircraft value at the end of the term. Comparisons of two or more options should also cover the same period of time and utilization. This provides a fair (or "apples-to-apples") comparison. A complete Life Cycle Cost also accounts for the time-value of money in an NPV analysis. This way, the differing cash flows form two or more options that can be compared and analyzed from a fair and complete perspective. 

What is a Net Present Value? An aircraft acquisition involves a very complex financial decision. Accurately judging the financial impact of such a major acquisition project can best be done with a Net Present Value (NPV) analysis. An NPV analysis takes into account the time value of money, as well as income and expense cash flows, type of depreciation, tax consequences, and residual value of the various options under consideration. When an expense (or revenue) occurs can be as important as the amount of that item.

By using the time-value of money, an organization can thus judge whether a project will yield a better or worse return than the average return experienced on a company-wide basis. Thus, the NPV analysis allows the comparison of different cash flows based on a set target return. It also allows comparisons of buy versus lease versus finance options of the same aircraft. This type of analysis is also the only effective way of judging whether it is better to purchase, finance, or lease, even if different conditions and interest rates apply to each alternative, and is the standard financial analysis technique used by the chief financial officers of major organizations.

The Net Present Value calculation applies a time value of money rate to when income and expenses occur. This time value of money is referred to as internal rate of return (IRR) or return on investment (ROI). Many organizations have a published IRR or ROI target. For those that don't, a way to estimate it is by dividing the profit before taxes of the organization by the equity and expressing as a percentage the return the organization expects to make on the money it invests in the enterprise. For many organizations, such as Fortune 500 companies, this is typically from 10% to 25%. Government agencies can use the current rate of return for Treasury Bills or State Bonds.

An NPV of zero means that the target return has been met. A negative (less than zero) NPV means the target return has not been met. A positive (greater than zero) NPV means the target return has been exceeded.

When analyzing the potential acquisition of a whole or share of an aircraft, Life Cycle Costing ensures that all appropriate costs should be considered. The Life Cycle Costing includes acquisition, operating costs, depreciation, and the cost of capital. Amortization, interest, depreciation, and taxes also play a part in what it costs to own and operate an aircraft and can be included in the Life Cycle Costing as appropriate.

The assumptions used need to be clearly spelled out. The costs should cover a specific period and take into account an expected aircraft value at the end of the term. Comparisons of two or more options should also cover the same period of time and utilization. This provides a fair (or "apples-to-apples") comparison. A complete Life Cycle Cost also accounts for the time- value of money in an NPV analysis. This way, the differing cash flows form two or more options that can be compared and analyzed from a fair and complete perspective.

For a commercial operator, they expect a return on the money spent - or profit. An NPV of zero means that they have earned enough money to pay off their initial investment, plus pay all expenses and have generated a profit equal to their expected rate of return. 

Business aircraft do not directly generate revenue except for the sale of the aircraft. Thus, the NPV results are typically negative. When comparing negative NPVs, the "least negative NPV" is the more favorable. In other words, if option A has an NPV of ($5,000,000) and the NPV of Option B is ($6,000,000), Option A has the better NPV.

You don't have to be a financial expert to do an NPV.  There are spreadsheet programs that can do the math for you. Or leave it to the experts in finance, but understand what it means.


 

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David Wyndham

Thoughts From The National Waco Club Reunion Fly-in

by Tori Williams 2. July 2017 12:30
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Last weekend I had the opportunity to attend an aviation event that truly inspired me. The 58th annual National Waco Club Reunion was held at Wynkoop Airfield in Mount Vernon, Ohio. My husband and his father have flown into this particular fly-in for several years. This was my first year being able to join them, and I am so glad that I did.

Our trip to Wynkoop was a little over 200 nautical miles. We arrived Thursday evening and did our best to prepare for the incoming thunderstorms on Friday. The rain definitely hit full force and pilots were grounded for the majority of the day. Thankfully all was not lost, and the skies opened up to beautiful sun and favorable winds on Saturday. It was the perfect weather and a great backdrop to the 22 unique Waco aircraft that flew in.

There were several factors that made this fly-in so special. First, the majority of the Waco aircraft flown in are project planes that have been meticulously restored from the ground up. The passionate aviators who have dedicated thousands of hours to their planes aim to honor historical accuracy. These are friends that go back decades and have watched the progress of each other’s projects over time. They call it a reunion for a reason!

Second, the pilots at this fly-in wanted to do just that – fly! At any point in the day there would be several beautiful biplanes whirling around the field, doing low passes, and occasionally taking the lucky passenger for a ride. I like this aspect better than events like AirVenture because you are able to go up whenever you’d like, whereas it can be difficult to get into the air at AirVenture if you aren’t in an airshow.

The third special thing about the National Waco Club Reunion is the locals who come out to see the planes. They are always respectful and curious about general aviation. Unlike some fly-ins where the public seems to come just for the entertainment value, these people have a much deeper passion and respect for the work that goes into restoring and maintaining these aircraft.

An important part of every fly-in is the food that is available. There was a hearty breakfast served Saturday as pilots prepared for the day ahead. In the afternoon attendees enjoyed brats, burgers, and hotdogs with all of the fixings. Another great option was the homemade ice cream food truck parked outside the FBO. The Saturday night banquet was especially delicious and the catered buffet was served on the field!

The fly-in is not heavily publicized in the area. Locals just know that near the end of June the biplanes will come in, and they will show up after they see them flying around town. I had a good experience with every single person that I interacted with from the town of Mount Vernon. They were enthusiastic about the airplanes and we had several of them thank us for coming to town.

My husband especially enjoyed taking the locals up for rides during the fly-in. He said it’s important to him to show people that aviation is a lot more than a way to get from point A to point B. General aviation is more than a hobby, but rather a lifestyle for many. The more that the general public knows about it, the more they will be willing to support pilots and airports in legal matters they may have a voice in. Giving a face to general aviation and the people who enjoy it is an important mission for both of us.

Overall this fly-in was a great experience and I highly recommend attending in the future. The enthusiasm and zeal for aviation shared by the pilots is very clear as soon as you step onto the field. This fly-in truly serves as a great example of success for all other types of aviation events.

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Flying | Tori Williams | Vintage Aircraft



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