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BUSINESS AVIATION AND THE BOARDROOM - Capital Costs Only Part Of The Equation

Before you are ‘wooed’ by the values and prices of some of the more mature business jet fleet members- you will be well served by looking into their operating and maintenance costs- advises Jeremy Cox.

AvBuyer   |   1st February 2011
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Capital Costs Only Part Of The Equation
Before you are ‘wooed’ by the values and prices of some of the more mature business jet fleet members- you will be well served by looking into their operating and maintenance costs- advises Jeremy Cox.

With most- if not all makes and models of business jet and turboprop aircraft priced at fifty percent (or less) than the values seen prior to the Global Financial Crisis (GFC)- there appear to be some amazing purchase opportunities available to you.

We are truly living under conditions governed by an unprecedented ‘Buyers’ Market.’ Before you allow yourself to be ‘wowed’ by the prices of some of the more mature fleet members (20 years and older) though- you would be wise to look into the operating and maintenance costs of these aircraft deeper than you might for an aircraft that is less than twenty years old- to get a wide-angle view of all the costs involved.

One assertion that is often heard being espoused by prospective buyers of older jets follows the logic that “you can buy an awful lot of jet fuel for $1.0m/$5.0m” - the price difference between the older jet and a newer equivalent. The current-day reality is that whatever the perceived saving is- when the purchase price of an old aircraft is matched against a younger one it is not quite as it appears initially.

Fuel cost is definitely a factor for consideration. As an example- a four-engine Lockheed 'JetStar' from 1961 would burn as much as 1-400 USG of Jet-A fuel per hour. A 2010 Dassault Falcon 7X that flies 60 KTAS faster- provides almost twice as much cabin space- and delivers more than double the range of the vintage JetStar- has an hourly fuel burn of only 380 USG per hour. With carbon taxes for fuel usage in effect or being proposed- high fuel consumption can result in very high energy costs.

You can pick-up a decent JetStar for $600-000 or less. The Falcon 7X is going to cost something in the high $30m to mid-$40m U.S.D.-range. But be very careful to assess whether an older aircraft can meet newer airworthiness and environmental standards.

Another great example is the matriarchal 1968 Gulfstream GII compared to her younger sister- a 1994 Gulfstream GIV-SP. For all-intents and purposes- the GII has about the same size cabin as the GIVSP (only 16% more room). The Direct Operating Cost (DOC) of the venerable GII is $4-290 per flight-hour. The GIV-SP costs $2-962 per flight-hour.

You can buy an old GII with a couple of years of life left in the engines- before they must be torn-down for overhaul at $1.0+ million apiece- for around $500-000 - whereas the GIV-SP will set you back somewhere around $15m. The residual value of that GII may be nil when you decide to upgrade- however- while the newer GIV-SP would still be a viable offering in the used aircraft market. Again- weigh the costs carefully.

Our final example illustrates that a 1972 Cessna Citation 500 tops out at a service ceiling of 35-000 feet- while its 1993 equivalent model- the 525 CitationJet can fly at 41-000 feet easily. The CitationJet travels 34% further and 40 KTS faster than the Citation 500 - all for 44% less in DOC- and this underscores that performance and efficiency are much better with many younger aircraft. In addition to maintenance- insurance often costs less for more modern aircraft- and in some cases training also will be less expensive.

The area of maintenance is probably the biggest “gotcha!” Since 1958 there have been 3-667 turboprop and jet business aircraft that have either been destroyed by an unplanned impact with the ground- or have been scrapped- stored- or written-off for whatever reason (August 2009 figures). This ‘attrition number’ accounts for almost 11% of all turbine-powered business aircraft built (34-301 historically – August 2009 figures).

There are 10-382 turbine powered business aircraft in existence that were manufactured prior to 1985. Since the GFC- many of these- especially 1960s and 1970s aircraft- are now being scrapped because there is no real market for them anymore. Even though a wing- empennage or a flight control is pretty easy to obtain from any of the aircraft salvage companies that have absorbed many of these older aircraft into their inventory- a significant number of the specialist systems components like pumps- actuators- valves and motors (and their associated internal component parts) are becoming harder to source.

When you are unable to obtain a replacement part for your older jet- you’ll be grounded until the issue is resolved.

In addition to the material cost of maintenance- as aircraft age they spend more time undergoing maintenance on the ground- incurring a cost in terms of availability to support the company mission. Perhaps you can afford this additional downtime- or perhaps the acquisition of a second jet to supplement that downtime is required. Regardless- this situation needs careful consideration prior to purchase.

In summary- if you are contemplating the purchase of either a vintage jet or a younger equivalent- you must enter into the transaction of the older aircraft with ‘eyes wide-open’ and the philosophy that you will probably be its last owner. When the final operational end is reached- you will basically be throwing the aircraft away. With that understood I encourage you to make your ‘steal of a deal!’

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