Operating Costs, and Financing

Operating Costs, and Financing

The way to determine the total cost of owning an aircraft is to estimate hourly operating, maintenance, and overhaul reserve expenses. There is no trick to estimating hourly costs. Simply add up all of the expenses for one year, and divide by the number of hours flown. Overall expenses go up the more the aircraft is flown, but hourly operating costs go down.

The most common mistake made in computing hourly costs is an error of omission. Not all expenses are considered, and therefore, the figure does not represent the true cost of owning and operating the aircraft. It is easy to overlook the cost of a propeller overhaul or a reserve fund for replacing avionics, for example. Manufacturers, estimated aircraft operating costs often paint a rosier picture than what owners actually experience.

Hourly operating expenses can be broken down into four components: direct, fixed, reserves, and variable. Direct costs are out-of-pocket expenses: fuel, oil, and landing fees. The amount depends directly on how much the aircraft is flown. Fixed expenses do not change with flying time. These are bills that must be paid regardless of how much or little the aircraft is flown: insurance, hangar or tiedown fees, annual inspection, state and local personal property taxes or registration fees for the aircraft, and, if applicable, principal and interest on the loan used to purchase the aircraft in the first place.

Reserve funds should be established to pay for expensive engine, propeller, avionics, and airframe overhauls. Ideally, the owner pays into an escrow fund each time the aircraft is flown so that when it comes time to schedule a major overhaul, the money to pay for the work will be on hand.

The spoilers in estimating aircraft operating costs are variable expenses, which usually derive from unscheduled maintenance. No one can predict with certainty if and when a vacuum pump, starter, or radio will fail. An unanticipated repair can devastate a carefully constructed budget.

To see a sample cost calculation that we have put together for you please see the Hypothetical Cost Calculation document.

Guidelines for Estimating Direct Operating Costs and Reserves

As a rule-of-thumb for initially setting rates, the hourly contribution for Routine Maintenance (Engine and Airframe combined) can be roughly equated to one-half the hourly cost of fuel and oil. Appropriate adjustments can later be made based upon actual operating experience.

For a printable chart on which to plot your own operating estimates click here.

The Cost of Maintenance

If you're like many renter-pilots, you probably remember the occasion — prior to a weekend flying trip with the family or that sort of thing — when you first heard the term from the individual behind that fixed-base operator's desk: Sorry, the airplane isn't available; it's just come in for its 100-hour.

The 100-hour inspection is basically the same as an annual inspection. Identical checks must be made, and the airplane must meet the same airworthiness standards. Airplanes used for hire are required to have 100-hour inspections; they are in addition, required to undergo annuals.

By the Federal Aviation Administration's reasoning, such airplanes need more frequent inspections because of high usage; as such, sacrificial items like tires, brakes, and engine oil need to be inspected more often than in an owner-flown airplane. What's more, an airplane used for primary training receives punishment that it would never experience at the hands of the owner, and inspections based on that premise could avert mechanical turmoil.

Such differences between owner-flown and rental airplanes might beg the question of whether a 100-hour-inspection program has merit for personal airplanes. Your answer will depend on your airplane. If a simple single occupies your hangar and you are the only one who flies it, chances are that the annual inspection route is adequate to catch deterioration while being as merciful as possible on the checkbook, especially if your use of the airplane does not place unusual demands on the airframe or powerplant; aircraft living on floats or flown in the bush country, for example, would be excellent candidates for the 100-hour routine.

Also, if you fly a high-performance (turbocharged, especially) single or twin, you might want to consider having 100-hours performed on the engine or engines. You'll double your chances of finding problems or deterioration before they manifest themselves as failure. For the meticulous owner, these inspections would be in addition to the usual 50-hour oil and filter changes.

According to FAR Part 43, Appendix D, an annual or 100-hour, regarding the "engine and nacelle group," will include a differential compression check and inspection of oil filters and screens for foreign material. If there is "weak cylinder compression," the cylinders are to be checked for proper internal condition and tolerances.

Beyond the cylinders, the 100-hour inspection is expected to include the engine mounts, controls and control cables, exhaust system, accessories — and a general look-see for excessive fluid leaks and improper torque and obvious defects in fasteners, cowlings, and cooling baffles. There are a few common-sense items not on the Appendix D list, including ignition timing, magneto and harness integrity, spark plug gap and condition, air filter condition, and vacuum pump integrity, among others.

Not all mechanics and FBO managers think the 100-hour inspection is a good idea. Several we talked to said that because the rental airplane sees regular use, much of the deterioration that takes place in low-use aircraft isn't a problem. Even though it gathers hours quickly, a rental-line airplane often comes through its inspections with fewer squawks than a similar model that is seldom flown. And some say that constantly opening up the airplane to inspect systems that have just been looked at 60 or 90 days before only increases the chances that such an inspection will induce failure.

One alternative to 100-hour inspections is a progressive inspection program. Essentially, the airplane undergoes an annual inspection in pieces, in 25-, 50-, or 100-hour segments. The idea is that, say, control cables need not be inspected at every stop but should be seen once a year. In this case, the cables appear on the inspection list so that they're only checked every 12 months and deferred on the in-between inspections.

An opposing argument to progressive inspections goes thus: By bringing the airplane into the shop every 25 hours, you often spend more money in labor because you have to get to the parts in the first place. An inspection plate takes the same amount of time to remove the fifteenth time as it does the first. And for a busy FBO, where an airplane's time on the line is money, an airplane on progressive inspections can make itself unavailable too often for the whole process to be cost effective. Several FBOs cite this reason for sticking with the 100-hour on rentals.

Financing: How to Avoid a Lemon of a Loan

Tips for a fast approval

  • Select an aircraft that will fit your needs.
  • Put together a complete financial package.
  • Provide a thorough description of the aircraft.
  • Give a detailed description of the purpose of the aircraft.
  • For higher loan amounts you may need up to three years of tax returns.

Information that may be needed

  • Credit application.
  • Personal financial statement.
  • Verification of income: W-2; Pay stub; Tax returns.
  • Aircraft information: Annual date; Airframe and engine times; Equipment list; Photographs; Purchase agreement.

For most banks a well-managed portfolio poses very little risk. Light airplane values for the most part have been stabilizing, building equity for the owner. An owner who finds himself in financial difficulty may be able to sell the airplane, payoff the loan, and perhaps even pocket some equity.

A great reason to reason to check financing options with your local bank is not for an aircraft loan at all, but for a home equity loan. Just as you can use the equity built up in your home for adding on a family room, you also may be able to use it to buy an airplane. Interest on personal aircraft loans is not. Home equity loans generally carry interest rates lower than those offered on aircraft loans, but fees and points assessed on home equity loans usually will be higher than for aircraft loans.

A home equity loan may be particularly attractive to someone who wants to borrow a small amount or to borrow for an experimental or kit aircraft. When using a home equity loan, the value of the aircraft for collateral purposes is not important because the home, itself, is the collateral.

AOPA members can take advantage of a syndicate of aviation lenders through the AOPA Aviation Finance Company, LLC. The AOPA Aviation Finance Company works with AOPA members to find the right financing package for their individual needs. They have a dedicated toll-free telephone number established to help AOPA members with all of their aircraft financing needs and questions, (1-800-62-PLANE). AOPA Aviation Finance Company  is able to obtain competitive rates and terms for many types of general aviation aircraft.

AOPA's Aero Space Reports provides  title searches, service difficulty reports, airworthiness directive services, and accident/incident reports, all of which are grouped together in what is called the Buyer Protection Plan. Call 800/765-2236 for more information on services offered.

Though the number of institutions willing to finance aircraft is growing; plenty of concerns remain. One concern expressed by all the lenders is the aging aircraft fleet. Older aircraft tend to have incomplete or questionable histories. Logbooks come up missing, old liens don't get removed from records — all of which affect resale values. The caution, then, is to shop carefully both for your airplane and for your loan.

For a breakdown of a financing sample, please click here.