How to Manage your Jet’s Operating Costs: An Overview

Aviation, like most highly technical fields, is dominated by numbers. Pilots must know the aircraft’s operating speeds, its weights, and the fuel required to reach the destination. Aircraft mechanics are concerned with safety tolerances, pressures, torques, and a myriad of other values.

The aviation manager is responsible for the operating budget and should know the costs of maintenance, salaries and training, as well as the metrics of personnel management, including pilots, maintenance, and support staff.

As an owner, you are probably familiar with some basic numbers such as how many people the aircraft can accommodate, how quickly, or how far it can fly. More importantly, you need to understand what it costs to own and operate the aircraft and become comfortable with the budget for your operation.

The costs, especially for turbine aircraft, are significant. If their magnitude and variability are not understood, you leave yourself open to making unwise financial decisions relating to aircraft ownership, based on flawed knowledge.

BizJet Budget Assumptions

In the corporate world, budgets are a necessary fact of day-to-day operations. Flight Departments are business units, and all business units must adhere to corporate norms regarding fiscal planning and oversight.

Even if the Flight Department is privately owned, a budget is a necessary part of the fiduciary responsibility of being an aircraft owner. Your aviation department budget is usually prepared annually and monitored monthly. Variances between budgeted and actual expenses need to be noted and addressed as needed.

If you are to have confidence in your Flight Department’s budget, define your assumptions for the budget so that you and the person tasked with preparing it are working to the same ground rules.

The assumptions should focus on how often and how much flying to anticipate. If you want 24/7 on-demand availability of aircraft and crew, that specifies a different level of staffing than if you require advanced scheduling of a few travel days each month.

Do you want to keep your aircraft exclusively for your own use, or will it be available for others to use in your company or family? Do you intend to place the aircraft on a management company’s charter certificate to help defray some of the operating costs? You will need to do more than specify a set amount of utilization and translate that into the money needed to sustain the operation!

Budgets Can Run Deeper than Expected!

Too often, budgets and cost estimates are provided as a single number: the cost per flight hour. This can lead to major discrepancies when the actual cost per hour is shown to be significantly different than budget.

I have seen the actual cost per hour be a multiple of the original budget cost per hour which led to the natural question, “Is my management company ripping me off?”

So far, the answer has always been ‘No’, but it did highlight a lack of communication and understanding about costs. You need to understand what the major categories are, and how they can vary with time.

Defining Variable Aircraft Operating Costs

Variable costs are those that vary with utilization (flight hours). In a nutshell, the more you fly, the more the total expenses will increase in proportion to the amount flown.

A good example is found with fuel cost. Every hour that you fly, you will consume a certain amount of fuel per flight hour. If you don’t fly, you do not incur that cost. So, if your aircraft burns 350 gallons of fuel per hour, the fuel used increases with each hour flown.

Defining Fixed Aircraft Operating Costs

Fixed costs are incurred over a closed period. They don’t change with the utilization of the aircraft. One example of a fixed cost is the rent or lease of a hangar. This monthly cost is incurred whether the aircraft flies, or not. So, regardless of whether you fly 10 or 20 hours per month, the monthly hangar rent remains constant.

As shown in Table A (above), combining just these two cost examples, and assuming $5.50 per gallon for fuel, our cost per flight hour varies by $1,000 per hour when you fly 10 hours, versus 20 hours in a given month, with the cost coming down the more you fly.

Now, add in dozens of costs and their respective variables, and you will quickly see that an aircraft’s ‘Cost per Hour’ can becomes a very misleading term, unless you understand all the assumptions that went into that number.

As this series continues, we will delve into the major cost categories that form the aviation budget, exploring how they behave (variable or fixed), what assumptions need to be stated and understood, and how to compare the actual cost versus the budgeted cost.

Some costs, although simple to initially define, have a number of variable assumptions that not only impact on hours to be flown but where you fly, too.

As Jim Lara of Graystone Advisors said, “Budgeting is easy...once you agree on the assumptions!”

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