Aircraft Buyer Questions, Part 2: Building Budgets

CHART A: Direct Operating Cost vs. Range Analysis

SOURCE: CONSULTANT ANALYSIS

Although a pre-owned aircraft might meet the required price sticker and mission requirements, it is still important to consider whether a factorynew aircraft could provide more value.

For example, a new aircraft will have a lower maintenance cost, with various maintenance items covered by the warranty. And it is likely to have a stronger residual value at the time of resale. Clearly, there is far more to consider than purchase price alone, and price should always be viewed in parallel with value.

How can you Weigh the Direct Operating Costs?

In addition to the acquisition cost, consider the annual operating budget you can afford, and check what the estimated Direct Operating Cost per hour is for each of the aircraft on your shortlist.

This way, you can tell which of the aircraft meet your intended operating budget, removing the candidates with higher Direct Operating Costs from your shortlist.

You will need to establish how many hours you expect to fly annually in order to prepare a yearly operating budget. Other metrics should be factored, too, such as the ‘cost per seat mile’, and the total variable and fixed costs of ownership, per flight hour.

Let’s consider a key cost performance indicator of Business Aviation when it comes to evaluating multiple aircraft options for budgetary purposes: A Direct Operating Cost (DOC) versus Range analysis will allow potential owners to understand where an aircraft sits among the comparative aircraft on the market.

Ideally, buyers should focus on one specific cabin segment, though Chart A (above) shows various cabin segment options with the aim of providing cost visualization across multiple categories. (The DOC data within the chart is from AMSTAT, and includes maintenance and engine costs, and miscellaneous trip expenses. It assumes a fuel cost of $4.25/gal.)

Considering only the Super Mid-size Jet segment, Chart A shows that the Cessna Citation Longitude offers the lowest variable cost within its cabin segment, compared to the Gulfstream G280 and Bombardier Challenger 3500. 

CHART B: Price vs. Range Analysis

SOURCE: CONSULTANT ANALYSIS

Price Versus Range

Another metric, a ‘Price versus Range’ analysis, will allow potential owners to better understand the different OEM price points, as highlighted in Chart B (above).

Within the Super Mid-size Jet segment, the Gulfstream G280 is shown to cost $24.5m (2021 price) – the lowest price in this field. Chart A showed the Citation Longitude had the lowest DOC per hour, whereas Chart B shows it costs $5m more than the Gulfstream G280.

This is a key budgetary information to be considered when running multiple financial scenarios, and benchmarking your options side-byside.

Another key metric to consider, by cabin segment, will be the cost of fuel per hour. Typically, fuel represents between 30% to 42% of the total variable cost per hour, and is the largest variable cost before maintenance and engine costs. In Conclusion…

While the DOC and purchase price are key indicators when evaluating an aircraft acquisition, other metrics need to be considered if you are to establish which aircraft provides the highest return on investment.

Residual values, productivity index, and other KPIs – including cabin volume, maximum payload, fuel cost versus range, and more – will all combine to make one aircraft on your shortlist stand out above the others.

For those in the market for a factory-new plane, the level of warranty, service, and technical support offered by the OEM need to be factored into the equation, too.

And, finally, aircraft amenities, cabin technology, financing package, and delivery timeline (in the case of new aircraft) need to be considered as part of any purchase decision, and will be discussed in future articles within this series. ❚

RENÉ ARMAS MAES

is vice president, Commercial at Jet Link International LLC and an international consultant with a broad experience in business aircraft sales. He has developed multiple analyses and studies for a number of US Fortune 500 companies and Venture Capital firms, and participated as keynote speaker at a number of business aircraft conferences.

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