# Hypothetical Operating Cost CalculationHypothetical Operating Cost Calculation

Hypothetical Operating Cost Calculation

We have constructed a hypothetical operating cost estimate using a 1975 Cessna 172M Skyhawk.  Pilot Frank lee Hooked has just bought the Skyhawk for \$39,000.  The airplane has a mid-time Lycoming O-320-E2D engine; Cessna IFR avionics including dual nav/coms, transponder, automatic direction finder, and audio panel; and original paint and interior.  How much can Frank expect to spend for each hour he flies his newfound joy?  Frank anticipates logging 300 hours over the next 12 months.  However, since he has averaged only 100 hours over each of the past three years he decides to make two estimates – one based on 300 hours usage, and other for 100 hours.

Frank can easily find and list his fixed costs first. An insurance quote from AOPA came in at \$1200/yr; a hangar @ \$250/month would be another \$3000; while, monthly loan payment on 90% of the purchase cost (\$35,000 loan for 20 years @ 7.9%) equals \$ 290/mo or, \$3480 per year.

With that estimate in mind, Frank begins to compute his direct expenses for the aircraft.  For direct costs, he figures the \$40 an hour for fuel, \$2 per hour for oil and \$50 annually for landing fees. The fuel estimate is based on fuel consumption of 8 gallons per hour at \$5.00 per gallon. The Skyhawk owner's manual claims 7.4 gph at 5,000 feet and 2,500 rpm (68-percent power), but Frank makes an allowance for climbing and less than optimum-altitude performance. The previous owner of N7575H said the aircraft uses one, \$6 quart of oil every three flying hours. After talking with his local mechanic and after chatting with the Cessna Pilots Association (type clubs are helpful in specific model details), Frank estimates yearly maintenance at \$2500 if he flies 100-hours/year (\$25/hr) and \$4000 if he flies 300-hours/year (\$13.34/hr). Landing fees are difficult to estimate, but Frank knows that the airport he flies to once a month on business trips charges a \$2 landing fee.  He adds \$26 for unanticipated landing fees at other airports for an annual cost of \$50. That breaks down to 50 cents per hour if he logs 100 hours and about the same, hourly, if it turns out to be a busy 300-hour flying year.

There are two other major projects Frank factors into his operating budget. The aircraft is beginning to look a little frayed around the edges. He can live with it for awhile, especially because the airplane will be hangared, but he makes up his mind to have it painted and the interior refurbished in the near future. As with the avionics, the cost of the paint job, which he estimates at \$5500, and the interior refurb, estimated at \$1,600 for a kit he can install himself.

The last and most nettlesome category of costs Frank has to consider is unanticipated expenses. Into this smorgasbord of unscheduled maintenance will go shop receipts for fixing or replacing the unexpected problems. Frank budgets for \$1000 annually in unscheduled repairs.

Now that he has identified all the costs, it is time to figure the bottom line. Frankly, he is not prepared for the numbers that appear on the display of his electronic calculator. Logging 300 hours the first year year, Frank will pay \$108.10 per hour to operate the Skyhawk. At 100 flight hours the first year, the cost will be \$225.30. The total annual costs are \$22,530 for 100 hours and \$32,430 for 300 hours.

He refigures, cutting discretionary expenses to the bone. Any new radios, paint and interior are struck from the budget.  Frank resolves to do as much of the maintenance work himself as regulations allow and therefore trims, by half, the line items for unscheduled maintenance and, by one-fourth, the annual inspection.  Giving up the hangar for an outside tiedown spot cuts storage expense more than half. The bank loan and insurance expenses are locked in and cannot be adjusted.

Frank punches the buttons of his calculator to figure the new totals:  \$125.05 per hour for 100 hours annually and \$74.43 for 300 hours.  That's much better, but he still is uneasy.  Frank realizes he could be fooling himself by not planning for airframe and avionics improvements and underestimating the cost of repairs and the annual inspection.  He proceeds cautiously, seeing that the improvements he desires would add \$100 per hour to his acceptable \$125/hour cost rate – in the first year, at  100hrs/year use. If Frank compares his calculated \$125/hr rate to the local FBO rental rate of \$135/hr – wet – on a comparable airplane, he sees that he has already bettered his flying cost position. Break-even on own vs. rent was just under 100 hours per year (if we don’t technically count the 10% or \$4,000 down-payment and any sales taxes), more hours flown and the freedom of an unlimited schedule would add to the ownership benefit margin!

Additionally, there are two sides to a balance sheet. Offsetting the ownership expenses will be the equity Frank builds in the Skyhawk!  In fact, some aircraft owners absorb the cost of improvements, such as new paint, interior, and radios, rather than factor the cost into hourly operating budgets because the investment is reflected in increased equity that is returned when the aircraft is sold.

Any engine reserve figure of \$17 per hour (\$17,000 over the next 1000 hours until overhaul) could be handled by another loan or refinancing at a future time, or paid into a reserve-type bank account if Frank choose to save the money as he flew.

Finally, there is the pride that will flow when Frank tells friends and business associates that not only is he a pilot; he also is an aircraft owner.