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What does it cost, really?

by David Wyndham 5. July 2016 10:24
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I had a call from a customer who's flight department flies a popular mid-size business jet. He was looking at the variable cost we publish and comparing it with his own. After adjusting for fuel cost, his variable cost was almost double what we publish. He called me to try and figure out the cause of the diffrence.

My company specializes in understanding and explaining the costs associated with owning and operating an aircraft. One of our published databases calculates an average hourly operating cost. Many in our industry and in Government use these numbers as benchmarks or as should-cost figures. We do publish an explanation of terms defining the ground rules we use, and I've spent many a phone call like the one above  discussing and explaining what we did it that way, or how to adjust them for your situation. 

My call that day led to a fruitful discussion that identified the discrepancy in costs as the maintenance costs. After a couple questions, we figured it out. His aircraft has predominantly calendar based inspections. Much of the scheduled maintenance inspections were based on the number of days since last accomplished and not the hours flown. For our costs, we were showing about 380 flight hours per year. His utilization was about 130 to 175 hours per year - less than half of our assumption. A quick bit of math showed his maintenance cost average per flight hour were more than double what we published. He was also on a parts by the hour program that also had hourly billing minimums. Knowing how much he flew and the fact the jet's maintenance was calendar based  led us to understand that there can be significant variability is the cost to operate that aircraft.

When did you last ask the question, “How much does our aircraft cost to operate?” The answer will vary in relation to where you are between scheduled inspection and maintenance work. Sometimes significantly.

Required maintenance schedules vary, but a typical one might look like this:

- Routine airframe & engine checks every 500 hours or 12 months.

- More complicated airframe checks every 1,500 hours or three years. 

- Engine mid-life inspection every 2,500 hours. 

- Airframe heavy maintenance every eight years. Often, while undergoing heavy maintenance, the aircraft gets paint and interior refurbishment, maybe some new avionics and cabin upgrades. Costs can be $500,000 to $1.5 million depending on the “extras” added.

- Engine overhaul at 5,000 hours. Cost could be $500,000 per engine unless engines are on a guaranteed maintenance program.

- Aging aircraft inspections once the aircraft reached 12 years of age or older.

If you fly the above aircraft under 500 annual hours, much of your scheduled inspections will be determined by the calendar. Fly 500 or more annual hours and the hours flown drive the maintenance.  Where the aircraft is in age and hours will also impact its costs.  What if at age eight the aircraft just had a major maintenance inspection, avionics upgrades, and refurbished paint and interior adding to the cost of an additional $1.0 million? Due to the downtime to accomplish all that, the hours flown that year might have been only 250 hours. That cost for this one year will have just consequently ballooned to $2.25 million, or $9,000 per hour! If the CFO were doing a cursory review of your aviation costs with an eye to reduces expenses, you'd better be prepared to explain all this!

Answering To answer the question "How much does the aircraft cost" really depends on who you ask and when you ask. Give someone a very broad question and you will get a wide range of answers depending on the individual's perspective and timeframe.  You need to track these costs at a level of detail that leads to understanding. You need to be able to communicate these costs, in plain words, to the management or financial executive.

None of the answers are "wrong" or "right," only they are merely different. Knowing this, when you are talking about aviation costs with various professionals, you should keep in mind who you're talking with (and their unique perspective) so that you can understand their needs when they ask "What does the aircraft cost to operate?"


 

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David Wyndham | Flight Department | Maintenance



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