Jet Ownership: The Price Tag is Just the Start

When buying an aircraft, especially if it is a first-time acquisition, some buyers start and stop at the purchase price. That can be a critical financial error. The acquisition is just the start, meaning that would-be buyers need to do a full cost analysis to make sure the ongoing operating expenses won’t sink their finances. That will require a budget.

The budget for owning an aircraft is like any other operational budget. The first, and most important step is to establish the assumptions. Start with how much you expect to be flying per annum.

The various assumptions around that decision (hourly fuel, travel expenses, hourly operating costs, and more) will help define the budget. But there is more...

For the purpose of this article let’s assume you’re acquiring a five-year old or younger Cessna Citation Latitude business jet. According to Aircraft Bluebook, you may be spending between $17.5m to $19.5m.

If you finance 50% of the purchase you still need around $9m to begin with. Financing varies considerably in its terms, balloon payments, and more. A 120-month financing package might cost you more than $1m per year. If you are leasing, you should plan on monthly payments between $150k to $180k.

Budgeting for the Fixed Operating Costs

If you’re buying an aircraft, the acquisition budget may be the most significant jump, but there is more to consider, including the following fixed operating costs:

• Paint and interior upgrades, avionics updates, etc. Depending on the scope of the upgrade, these can add over $1m to the acquisition budget.
• Initial training costs for the pilots and technicians. Though these tend to be included with new aircraft, buyers of a used aircraft will need to budget for them – and the costs vary.
• To keep your aircraft in optimal maintenance condition you will need a hangar. Rental rates vary, depending on the location you base your aircraft at.
• You may need a tug to pull your aircraft in and out of the hangar, and perhaps some ground power. Again, these costs should be factored into your fixed costs budget.
• Insurance can be a significant additional cost, so make sure you hire a good broker who can find you the most favorable rate.
• Depending on your operating location and ease of access to spare parts, you may need to buy an initial supply of spares to keep in reserve – including tires and other basics.
• Don’t overlook the cost of hiring pilots, administrative staff and perhaps a maintenance technician, to oversee the running of your flight operation. You’ll need two pilots, maybe a third. With the current pilot shortage salaries need to be competitive, so wages and benefits are likely to run between $400k and $500k just for the flight crew.

While the fixed annual cost will vary, depending on the size and complexity of the aircraft and the location of your flight operation it is reasonable to budget up to $1m per year for those who are based in a major metropolitan area with a full flight staff.

Budgeting for Variable Operating Costs

As the word ‘variable’ implies, your variable operating budget will change, depending on the number of flight hours, the travel locations, the number of nights spent on the road, and more. Fuel is a significant part of your variable operating cost budget but is also just the start.

It’s important to look at a ‘full life’ set of maintenance costs. Don’t just consider the initial routine aircraft maintenance inspections - factor the less frequent but high- cost major maintenance checks. The aircraft’s engines may be the single largest cost item – but it is possible to add predictability to their upkeep costs via an hourly maintenance program.

Similar hourly programs exist for airframes, APUs, and avionics. Paying a pre-agreed amount into the program for each hour flown, that money accrues to protect the asset, level out maintenance costs, and protect the aircraft’s overall value.

Assuming fuel, an hourly maintenance program and allowances for travel expenses, variable costs can typically run in the region of $3,300 per flight hour, meaning an annual operating budget for 350 hours would be $1.155m.

So How Much Does Ownership Really Cost?

Added to the projected fixed operating costs, the variable costs would bring an overall operating budget in the region of $2.155m per year of ownership.

If these costs were constant over a period of ten years, you could expect to spend over $21m operating an aircraft you acquired for $18m. Allowing for a resale value of 40% ($7.2m) your acquisition, less resale is $10.8m (about one-third of your total expenses).

Buying a much older business jet of a similar size and capability will have a significantly lower price. However, the operating costs will be higher due to increasing maintenance costs.

The initial cost of putting the aircraft into service may be higher, too, depending on the condition and maintenance status. All-told, you could factor on the operating budget being 25-50% higher than for the newer jet.

There are many different ways to acquire and own an aircraft, and chartering your jet when you are not using it may afford you some income to offset the expenses. (For example, management companies may provide their crew for an hourly fee as opposed to you paying full salaries.) All these options come with advantages and disadvantages that must be weighed carefully.

For those who do the math, understand the costs, and can justify the expenditure, there is nothing like a business aircraft to facilitate a heavy travel schedule and enable you to be in multiple places on the same day.

The purpose of this article is not to scare potential owners away from buying a jet, but simply to highlight that the acquisition price is only the beginning. Do a thorough budget, revise and update it annually, and you will be well placed to have a fruitful, surprise-free ownership experience.