Business aviation & The Boardroom - Aircraft Maintenance and its Impact on Costs
Category: Business Aviation and the Boardroom
Author: David Wyndham
Aircraft Maintenance and its Impact on Costs
After fuel, aircraft maintenance is typically the largest part of the operating cost budget for a business aircraft. However, maintenance should not be looked at as solely a cost by the corporate user, says David Wyndham. Here’s why...
Let’s consider a typical variable hourly cost for a mid-size business jet (as represented in Table A). On the basis of the variable cost for the company jet being $2,430/hour, if the airplane flies 400 hours per year the annual total variable cost (400 x $2,430) would be $972,000 - see Table B. Typically, annual fixed costs associated with a mid-size jet in a traditional flight department are as follows:
• Crew Salaries (2 Captains) = $218,000
• A&P Mechanic = $82,000
• Benefits = $90,000
• Hangar = $36,000
• Insurance = $31,000
• Training = $55,000
• Charts, publications, and miscellaneous services = $18,000
• TOTAL FIXED ANNUAL = $530,000
Parsing data to identify those costs attributable to maintenance, we obtain the following total:
• Parts = $100,000/year
• APU = $16,000
• Engine Reserves = $160,000
• A&P Mechanic = $82,000
• Benefits = $24,600
• Training = $10,000
• TOTAL FIXED ANNUAL = $392,600
If our pre-tax operating budget were $1,502,000 per year, then maintenance actually accounts for about 26% of the operating budget for our midsize jet. Other than fuel, this represents the biggest single part of the annual operating cost. When viewed from a purely financial perspective, it would be natural to ask, “Can we safely continue to maintain the aircraft while reducing this cost category we call maintenance?”
I stress that reduced safety is not an issue here: The question is whether it’s possible to be as safe, but to spend less? To assess this, it is necessary to look at the maintenance sub-categories listed above.
This covers the parts that need replacing and those that are repaired or overhauled. Ways to save here include:
• Tracking part warranties. New parts have warranties. There may be some credit due if parts need additional repair during this warranty period.
• Exchanging parts. Some components can be exchanged for minor credit toward the price of new.
• Inventory. The costs above do not include the cost of inventorying spare parts. FedEx/UPS for overnight deliveries are often less costly than the carry costs of inventory.
This is the Auxiliary Power Unit. The cost listed above is for the annual guaranteed maintenance program (GMP) contract. Pay-as-you-go may save money in the short term, but the bill is large and may come at inopportune times. The GMP also insures against premature failure and unscheduled repairs. It is better to keep the APU on a GMP plan.
This amount is also the cost of the GMP. Engine overhauls are infrequent, but very expensive. Allowing for Engine Reserves insures against unscheduled maintenance, offers budget stability, and actually adds to the resale value of the aircraft. Forgoing Engine Reserves may save, but only in the short term.
The last three sub-categories (A&P mechanic, training and benefits) are all related to the A&P mechanic. If you have a qualified maintenance facility on the airport, that facility may be able to provide the A&P service for a shop rate of about $100 per hour.
Whether you have an A&P on staff or not, you still must take the aircraft to a third-party for the major inspections as the small operator lacks the specialized equipment and number of people needed for the major servicing. However, the A&P (as your employee or employees) offers value that can exceed salary in the following ways:
• Your A&P knows your airplane, therefore, he/she (or a maintenance Team) may be able to provide a higher level of knowledgeable service since those individuals are dedicated to just your aircraft.
• The A&P can ‘baby sit’ the aircraft during major inspections, interior refurbishments, new paint, etc. Your maintenance personnel can ensure both an on-time completion and on budget cost. Do not over look the value of this!
• Increased dispatch reliability and aircraft availability: Your A&P employees can keep ahead of all the minor maintenance and upkeep. They can come in early to make sure the aircraft is prepped for flight. If something is amiss, they often can correct it before the scheduled departure, which is far more favorable than having to contact the maintenance shop and schedule an ‘emergency’ visit (with its minimum charges and possible overtime fees).
• The A&P can enhance your aircraft’s value through proper maintenance and record keeping. A well-maintained aircraft with impeccable records has increased value.
Having an A&P on standby is like having the fire department near your home. When you need those resources, it’s nice to know they are close by. If you have a mid-size or larger business jet, having an A&P on staff can enable the aircraft to be more productive, and often will result in overall savings that can equal salary cost. Just as a well-trained pilot is a wise investment, so is a well-trained A&P. Maintenance is a significant part of the aircraft operating budget, but like your personal health, quality matters.
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