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Statistics & Bikinis
How much is covered-up? Use caution when comparing costs.

Our company founder used to joke that statistics are like a bikini- what they reveal is interesting but what they cover up is vital. So it is with aircraft costs and how those of us in aviation compare them. We've done many benchmark reports and analyzed the costs of hundreds of aircraft. It is vital to understand exactly what went into the number that you have.

Perhaps the biggest bikini cover-up is the cost-per-hour figure. This is commonly known as the ‘DOC’- or the Direct Operating Cost. If I tell you an aircraft costs $1-200 per hour and your friend- who operates the same type- tells you $900 per hour- who is correct? Well- we both can be. But what costs are each of us referring to? In general- when I refer to an 'operating cost' I am referring to a variable cost - one that varies with the use of the aircraft. If you don't operate the aircraft- the cost goes away.

Fuel is the best example of a variable cost. For each hour that you fly- your aircraft consumes X-amount fuel: no flying- no need to buy fuel. In my $1-200 and in your friend's $900 figure there is fuel. But my fuel is at $5.25 per gallon while your friend used $4.50 per gallon. At 85 gallons per hour- we are different by $63.75 per hour. Next up in variable costs is maintenance. But what maintenance is included? Scheduled- unscheduled- retirement items- engines? Do we use a guaranteed maintenance plan or pay as you go approach?

When I do Life Cycle Costing I try to look at all the maintenance costs that occur during the given period. For high dollar items like engines- I'll often use the guaranteed engine program fee- but at a minimum I'll use the set-aside for the scheduled engine heavy maintenance.

In my $1-200 was $125 per hour for a guaranteed engine maintenance program while your friend used $90 per hour for hot section and overhaul set-aside and nothing for unscheduled maintenance. There is another $35 per hour difference.

My variable costs also included unscheduled maintenance- propeller overhaul- and a set-aside for a big airframe inspection due in a few years ($30 per hour just for that inspection). Your friend did cover the prop- and at the last 100-hour he did have some unscheduled items. But the airframe inspection isn't due this year for your friend- so he didn't include that. Also my shop rate was $90 per hour while he pays $80 per hour where he is. There is another $100-or-so.

My variable costs included landing and parking- crew travel and catering. The friend left those categories out (another $60 per hour). When you have all the details- and adjust for the difference between a local cost and a 'typical' industry cost- it turns out we were both right. I just think I'm more right!

The above example is a simplification- but one that illustrates the process I've frequently gone through in explaining our cost numbers. What if you had just an annual budget number and hours flown? Think of all the things that can be included or excluded!

I see this in benchmarking: Operator A paid cash for the aircraft. Operator B has an operating lease. So in the annual cash costs for Operator B is the lease payment. Operator A doesn't have a lease (or loan) so their cost for that one item is zero. Training costs- new avionics- upgrading paint and interior- how much insurance coverage you have- whether you have three full-time crew- or two full-time crew and one part-time contract pilot (and so on) all can add up to significant differences in the annual cost. We show an annual allowance for paint and interior refurbishment which means that compared to a typical operator- we are too high until the one year they do paint and interior. Then their cost greatly exceeds our annual set-aside.

In a general cost picture- we initially leave out taxes. There are so many exclusions and 'it depends' that the general cost number we use rarely includes taxes until we discuss the ownership and operation of the aircraft with a specific owner. A Part 135 operator in Texas will have a different tax picture than a Part 91 operator in Louisiana.

Essentially- when you are analyzing and comparing costs from different sources- you need to know what methodology is used- and what the numbers include (or exclude). The more detail- the better as you can easily be lulled into a false sense of security when two big numbers are close together. Lastly- please keep in mind that every serial number of a single model does not cost the same to operate. In the real world some folks will see higher costs than others - especially in the area of maintenance. Ask questions and understand that your actual results may vary.

David Wyndham is an owner of Conklin & de Decker. The mission of Conklin & de Decker is to furnish the general aviation industry with objective and impartial information in the form of professionally developed and supported products and services- enabling its clients to make more informed decisions when dealing with the purchase and operation of aircraft. With over 1-800 clients in 90 countries around the world- Conklin & de Decker combines aviation experience with proven business practices.

More information from www.conklindd.com; Tel: +1 508 255 5975


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