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THREE MISTAKES ABOUT OPERATING COSTS
Don’t get caught out with the common wrong mindsets

I had just had my 15-year-old stove repaired. I went to warm up the oven to cook my home-made pizza and after five minutes- it was still cold. While the $232 repair cost is probably more than the stove is now worth- the replacement cost is much higher. My next home cooked pizza will now cost $236- including the $4 cost of ingredients.

Delivery = $24. What's wrong with this?

The mistake I just made above is the same that many of us make when looking at aircraft costs (but with many more zeros). New-to-aviation folks and even those with a few decades of aviation under their belt make some of these same mistakes when looking at their aircraft operating costs.

Mistake #1: Ignoring the costs at acquisition
Acquisition cost is just one slice of the pie. What is the better deal: a $4.5 million dollar jet or a $6 million dollar jet of the same model? Aircraft cost a lot to acquire- there’s no question about that. But- the costs of operating them can meet- or exceed that amount- often in a short time. The $4.5 million dollar aircraft may need paint- interior and avionics updates and perhaps some engine work.

After four months and $2 million outlay- you now have the equivalent of the other $6 million dollar aircraft. So consideration of all the costs is important.

Mistake #2: Underestimating the costs
I've found that many folks new to aviation think they understand that aircraft can be costly- but it isn't until the first major maintenance bill arrives that they genuinely realize this. The new owner is happy flying their aircraft for the first few months - maybe complaining a little about the cost of fuel or catering.

Then the aircraft goes into the shop- returning to the owner clean and fresh- but with a five or six figure bill attached for the work carried out...

Unfortunately- it is not uncommon that we tend to take our experience with automobiles and translate it to aircraft. We might use the logic- “I paid $30 for an oil change- so I'll expect $300 for my next aircraft maintenance bill.”

These machines are exquisitely designed- though- and function in a very complex way. Maintaining and repairing such machines comes with a price. Add into that all the other costs such as hangar cost- insurance- training- record-keeping and plenty more besides! Accurate budgeting is a must.

Mistake #3: Underestimating the nature of operating costs
We may publish a figure of $400 per hour for parts and maintenance- but what does that really mean? Fuel at $400 per hour is easy to understand- as you see the fuel slips from each trip. Many of us see the $600-000 major maintenance expense and look only at the recent flying (like I did for my recent stove repair). In that case it may seem like it is $2-000 per hour.

We need to educate folks that many of these major inspections and repairs have taken years - and several thousand hours to accrue. That $600-000 maintenance bill may have come after 2-400 hours of flying - or an accrual of $250 per hour for that event.

As the wording would suggest- ‘unscheduled expenses’ are those that cannot be scheduled. These may crop up all at once: a fuel leak- avionics failure- and the darn oven won't work. It doesn't necessarily indicate that the aircraft is failing- just that the unscheduled events happened to occur close together in time.

No free lunch!
These three mistakes seem to particularly affect folks with older aircraft. They may only have the aircraft for a year or two before seeing these major expenses. They may forget- ignore or put blinders on to the fact that (a) older aircraft require more maintenance and (b) the previous owner enjoyed some of those maintenance-free hours. With the good price you just paid on the acquisition- the previous owner 'paid' for those so-called maintenance costs.

Remember: There is no free lunch. The balm for this is an application of life cycle costing.

• You need to account for all the costs of owning and operating the aircraft.
• You need to budget for those routine expenses and have a rainy day fund for the unscheduled expenses.
• You need to realize that those average costs are averaging low numbers and high numbers together.
• You need to review and understand those costs so that as they occur- you can better manage and control them.

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