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When is Old Too Old?

by Jeremy Cox 1. August 2009 00:00
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Is it now time for us to accelerate the natural attrition of "old" business jets as the older members of the ageing fleet are laid to rest?

The oldest pyramid at 4,639 years is the Step Pyramid of Djoser built in the desert twelve miles south of Cairo near Saqqara, Egypt. The oldest standing structure, a temple in Malta is 6,000 years old. The oldest archaeological remains of a structure found in Japan, dates back to 500,000 years ago. The Grand Canyon is somewhere around 2,000,000,000,000 years old.

The oldest machine that is still functioning is reputed to be either a waterwheel in Spain, at about 1,300 years, or a clock in England that is 620 years old, or so. The oldest aircraft that is still flown today is a 1909 Bleriot (The Shuttleworth Collection in England, and Old Reinbeck Aerodrome here in the USA.) The oldest turbo-propeller aircraft still in operation are a handful of early 1950's Vickers Viscount aircraft. The oldest business jet aircraft that are still in operation includes: several 1964 Rockwell Sabreliner 40 aircraft (including serial number 001), two 1965 Learjet 23 aircraft, a handful of 1965 and 1966 Hawker 1A aircraft, a slew of 1965 and up Dassault Falcon 20 aircraft, a 1967 Lockheed Jetstar TFE731 converted aircraft, and several 1968 'dash-eight's' Jetstar aircraft. Since I myself am a 1965 model that has considerably more time on me than any of the aforementioned business jets, I am not suggesting that any of these aircraft are physically and technically 'over the hill'; no my argument is purely spawned from today's market and economic realities.

The 1977 crash of the Zambia Airways leased B707 was the first major commercial aircraft accident that was caused by age and metal fatigue. The horizontal stabilizer spars were fatigue cracked, and after inspection, more than fifteen percent of the 'then' in-service fleet were found to have the same problems that brought down the Zambia aircraft. Eleven years later when the Aloha airlines accident took place in 1988, where unnoticed corrosion caused an explosive decompression of a Boeing 737 while in-flight, immediately converting the subject aircraft into an 'open-top' vehicle, had rocked the aviation industry. Mainly thanks to the over-built strength that was inherent in the design of the B737 which allowed the damaged aircraft to make a safe landing, the Federal Aviation Administration (FAA) immediately leapt into action and created an 'Ageing Aircraft' Task Force to review the technical issues that were the result of aircraft ageing in service.

Apart from issues with the embrittlement of conductors and the breakdown of insulation in electrical wiring; crack formation and growth within some metal structures caused by stress and/or corrosion, the FAA found that the majority of ageing issues found in older aircraft were more likely to be serious in areas that had been structurally modified or repaired. Technically speaking, there is still no physical 'across the board', industry-wide hourly or calendar limit that is either required or implemented. In simple terms, there is little to no "too old" in aircraft design. Obviously then this becomes an issue of economics only, whereby the useful age of an aircraft is reached, when economic gain is either lost or significantly reduced.

Having worked for a time at Marshalls of Cambridge in England, I immediately learnt about a fundamental distinction between Commercial and Military Aviation that sets each segment diametrically opposite to each other, namely that it costs money when a commercial aircraft is down and parked, while conversely it costs money when a military aircraft is up and flying.

While the fact that the United States Air Force is still flying many 43 year-old Boeing B-52 Stratofortress aircraft, the average age of their fleet is approximately 26 years old. Notwithstanding the obscure African airlines that continue to fly their unsuspecting public around in fifty plus year-old turbo-props, the World's passenger airlines are operating aircraft that are younger than 25 years old. The target of the airlines is to have a fleet that is younger than 15 years old which today means that they are now unwilling to operate anything built before 1985. When one adds to the issue of calendar age, by introducing the factor of flight-hours, a truer picture emerges.

The airlines target at least 3,000 hours per annum for their business model, hence that the target retirement/scrap age of most commercial passenger airliners starts around 60,000 hours and pushes as high as 90,000 hours. The business jet fleet truly falls under the 'boutique' category of aviation because it is rare for any business jet to fly more than 400 hours per annum. 30,000 hour business jet aircraft are highly unusual, especially in a field where 14,000 hours is considered 'high-time', and a fleet snapshot returns an average of 4,115 hours total-time-in-service for the majority of the active fleet.

Currently there are 29,858 business aircraft in existence all-around the World. 4,850 of which are advertised as available for sale. A normal healthy used business aircraft marketplace sees that there are ten-percent of the entire fleet up for sale at all times. Unfortunately if I borrow a term from the stock market, I can best describe today's used business aircraft market as being a 'Bear Market.' This is bourne out by the fact that since the late summer of 2008, the market value of most of the aircraft that are for sale, has dropped between 40% to 60%, while the number of available aircraft has gone up by more than 50% to sixteen-percent of the entire fleet being up for sale today.

Since 1958 there has been 3,667 turbo-prop and jet business aircraft that has crashed, been scrapped, stored, or written-off for whatever reason. This 'attrition number' accounts for almost 11% of all turbine powered business aircraft built (34,301 historically in total.) To force the return of a normal-stable and healthy marketplace ahead of any economic miracles taking place, at least 1,800 aircraft must be immediately removed from the marketplace. I don't foresee this taking place anytime soon. There are 10,382 turbine powered business aircraft in existence that were manufactured prior to 1985. If it were possible to see half of these aircraft removed from service, the used aircraft marketplace would be much healthier for it.

I do envision that a new business sector with our industry shall become prominent and then see immense growth over the next decade. This is the sector that transcends the normal aircraft salvage businesses of today, and focuses more on disposal and recycling of rare materials, rather than filling barns with spare wings, controls, cowlings, engines, etc.

The USA is the World's leader in aircraft manufacturing. This country could also become the leading aircraft recycler as well, just like Bangladesh is the leading ship recycler, and Africa is the leading computer recycler. This is 'food for thought'; eh?

See you all next month.

Do you have additional experience with this topic? Tips, Tricks, or Advice? Please discuss it with us!

Shared Expenses and the Private Pilot

by Greg Reigel 1. August 2009 00:00
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Shared Expenses And The Private Pilot

By Gregory J. Reigel

© August, 2009 All rights reserved.


Introduction

In today's economy, many private pilots look for ways to minimize the cost of their flying. One of the ways to reduce the cost of a particular flight is to share that expense with the passenger(s) on the flight. However, if a private pilot receives compensation for flying persons or property for hire in excess of what is allowed by the Federal Aviation Regulations ("FARs"), he or she risks an enforcement action that could result in suspension or revocation of the pilot's private pilot certificate. In order to legally do that, private pilots must be clear on both the privileges and limitations of their airman certificate.

Privileges and Limitations

FAR 61.113(a) provides that "no person who holds a private pilot certificate may act as pilot in command of an aircraft that is carrying passengers or property for compensation or hire; nor may that person, for compensation or hire, act as pilot in command of an aircraft." Fortunately, this is not as complete a prohibition as it appears. In addition to other exceptions, Paragraph (c) of the regulation states "[a] private pilot may not pay less than the pro rata share of the operating expenses of a flight with passengers, provided the expenses involve only fuel, oil, airport expenditures, or rental fees."

So, what does this really mean? Well, it means that the fuel and oil consumed on a flight and ramp or tie-down fees at the destination airport can be shared on an equal basis by the pilot and his or her passenger(s). Or, if the aircraft is rented from an FBO or other third-party, the hourly rental fee plus the cost of fuel, if that is not included in the rental fee, can be shared by the pilot and his or her passenger(s). Indirect expenses such as insurance, maintenance, depreciation or other capital costs (e.g. costs of ownership) can not be shared.

With respect to the method for calculating the amount the pilot and passenger(s) must each pay, according to the FAA it is not necessary that a mathematically exact division of each operating expense is calculated. However, if the pilot pays less than an equal share of the total operating costs or flight, the FAA will assume the pilot was not actually sharing expenses. Not a particularly precise position, I know, but it at least provides some guidance. In general, divide the total allowed costs for the flight by the number of people in the aircraft during the flight and the result will be the amount that each person must pay.

Finally, keep in mind that in addition to equal sharing of the cost of the flight, the pilot and passengers must have a common purpose for the flight as well. That is, they must be flying to the same destination for a common reason. A pilot may not carry expense sharing passengers to a destination at which he or she has no particular business. Also, a pilot may not share the expenses of a private flight with his or her passenger(s) if the pilot's purpose is to merely build flight time or get flight instruction, unless that is the purpose of the passenger(s) as well (which is usually not the case).


Conclusion

Although a private pilot is generally precluded from being paid for flying, a private pilot may still share a particular flight's expenses with his or her passenger(s). However, private pilots should be careful that they are legitimately paying their share of the expense and not trying to stretch the FARs beyond what the FAA allows. At the end of the day, a private pilot needs to be aware of the restrictions and limitations for sharing expenses in order to avoid situations that could compromise his or her private pilot certificate.

Do you have additional experience with this topic? Tips, Tricks, or Advice? Please discuss it with us!

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Greg Reigel

Pre-Buys + Budgets = Safe Acquisition

by David Wyndham 1. August 2009 00:00
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A lot of folks are out at Oshkosh enjoying one of the most fun events in aviation. Many are lusting after some aircraft of their dream, and a few will act on that dream. Given the number of pre-owned aircraft available, there are many opportunities to get the aircraft of your dreams. Here are two tips to avoid that dream becoming a nightmare.

Tip #1: Do not ignore the operating costs when acquiring the aircraft. Too many just look at the initial acquisition price and do not factor in all the costs of owning and operating an aircraft.

The acquisition cost is just one piece of the cost pie. What is the better deal, a $1.5 million dollar turboprop or a $2 million dollar one of the same model? Aircraft cost a lot to acquire, no question. But, the costs of operating them will meet or exceed that amount, often in a short time. The $1.5 million dollar aircraft may need paint, interior, and avionics updates and perhaps some engine work. After waiting four months and spending a half-million, you now have the equivalent of the other $2 million dollar aircraft. Consideration of all the costs is important.

This calls for an application of life cycle costing. You need to account for all the costs of owning and operating the aircraft. You need to budget for those routine expenses and have a rainy day fund for the unscheduled expenses. Life cycle costing includes:

Acquisition Cost Operating Costs with allowances for scheduled and unscheduled maintenance Depreciation (market, not tax)

The acquisition cost is obvious, significant, and a major hurdle to getting all the aircraft you want, versus what you (or the bank) can afford. However, your analysis must go beyond this. Operating costs can meet or exceed the acquisition cost. A life cycle costing will look forward to include upcoming maintenance, planned for refurbishments, upgrades and also allow for unscheduled maintenance. That, plus fuel, insurance, engine reserves and so on will slowly but surely come to exceed to initial acquisition cost. Depreciation is a crystal ball exercise. That last 12 months saw some spectacular dives in terms of aircraft values. They will level off, but may not recover. Even if your older aircraft retains its current value, what will its replacement cost in the future? All of these need to be factored in your next aircraft acquisition.

Tip #2 is the pre-buy inspection. Lee Rohde of Aviation Management Systems said it best. "Buying an aircraft without a pre-buy inspection is like playing Russian roulette with a fully loaded pistol." Life cycle costing will look forward and tell you what you may expect in terms of costs. The pre-buy tells you from where you are starting. You need to work with someone knowledgeable about the aircraft and spend the time and money on a thorough "aircraft physical." Aircraft condition is far more important than selling price. A good deal is only a good deal once you know the condition of the aircraft.

A pre-buy sets you up with the knowledge of the condition of the aircraft and the life cycle costing gives you a budget for future expenses. Then, and only then, do you have the big picture needed to evaluate the aircraft deal. Doing these take time and diligence but you will end up closer to your dream rather than a Stephen Kingesque nightmare of out of control costs.

© 2009 David Wyndham

Do you have additional experience with this topic? Tips, Tricks, or Advice? Please discuss it with us!

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David Wyndham



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