Ownership 2.qxp_Finance 22/02/2022 09:29 Page 1
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How to Budget your Operating Costs The ongoing costs of running a business aircraft should factor in the budget of any aircraft owner. But what comprises the operating costs of an aircraft, and how can owners control these? Dave Higdon provides some basic tips…
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imply put, a potential aircraft owner needs to know the operating costs of an aircraft in order to budget adequately, both on an hourly and annual basis. Understanding the costs will also help anticipate where expenses are likely to increase or decrease over time, thus helping owners build and maintain medium-term operating budgets. There's no substitute for knowledge in Business Aviation, and even the seemingly predictable elements of business aircraft ownership should be revisited, and reexamined. That’s because even items labelled as ‘fixed’ costs can change over a period of time. Determining which ownership costs are ‘fixed’ and which are variable is essential to successful aircraft cost management. If you are a potential aircraft buyer or operator, knowing these can help determine whether an aircraft is affordable. An aircraft’s fixed costs for a period remain the same no matter how many hours the plane flies. However, the ‘cost per unit’ of a fixed cost will increase (or decrease) depending on the level of activity of the airplane. For example, if one of your fixed costs is insurance, you will pay the same rate irrespective of how much the airplane flies each year. If your insurance costs $1,200 per year, and
46 Vol 26 Issue 3 2022 AVBUYER MAGAZINE
you fly the airplane for 100 hours annually, your hourly insurance cost is $12 per hour, whereas if you fly the airplane 200 hours annually, then your insurance could be interpreted as $6 per hour. Conversely, fuel – a variable cost – will increase with additional flying, or decrease if the aircraft flies less. And that doesn’t factor the swings in fuel costs per gallon (or liter).
What are the Fixed Costs?
Fixed costs can be identified relatively easily as those which don't change with the number of hours flown. Often, they’re covered with a single payment. Examples of fixed costs include: • Aircraft financing (whether it’s on a lease or loan payment basis) • Insurance • The cost of books, charts, and materials • Hangar rental • Taxes and FAA registration fees • Aircraft accessories • Crew salaries (assuming a fixed annual salary). Adding all of these costs up can help identify the hourly costs of flying the company jet or turboprop. Add the www.AVBUYER.com
