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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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