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Cessna Citation III - Citation XLS+ Cost Analysis

Considerations to help operators tackle the ‘Older’ Vs ‘Newer’ BizJet purchase question…

Chris Doerr   |   24th May 2016
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Chris Doerr Chris Doerr

Chris Doerr owns and operates Aircraft Cost Calculator, a highly-rated aircraft operating cost...
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Are newer jets always better? Drawing comparisons between the newer $8.0m Cessna Citation XLS+ and the older Cessna Citation III business jet, Chris Doerr, President Aircraft Cost Calculator looks into the pros and cons of each option.

At first glance, there may be several reasons to purchase a newer jet compared with older models. The younger aircraft typically has lower operating costs. Charter clients—particularly those who are new to Business Aviation—generally prefer newer aircraft since they perceive them to be ‘safer’.

An intelligent buying decision needs a far deeper analysis, however. For example, a look at the economics in totality may reveal that the newer jet is not necessarily ‘less’ expensive. For purposes of this article, let's define ‘newer’ as aircraft less than 10 years old, and ‘older’ as aircraft aged over 15 years.

Newer vs Older Airplanes

Buying a newer aircraft certainly has its advantages. For example, it will have a higher dispatch reliability; lower operating cost (to similar older aircraft models); and may still come under the OEM’s warranty, crew training and OEM support, along with many other ancillary items that are beyond the scope of this article.

The other obvious reasons for somebody to purchase a newer aircraft are often improved performance numbers over older models, cabin and cockpit systems redundancy issues in older aircraft, and there may be tax advantages.

We’d encourage anyone considering an aircraft purchase to fully engage an aviation tax specialist before making a decision.

On the other hand, older airplanes can be acquired at a much lower cost and as such tend not to be subject to high exposure in terms of residual value depreciation.

Cessna Citation XLS+ Jet in the Sky


 

Financing Considerations

An operator should consider financing issues when seeking to purchase an aircraft. For example, if an operator borrows $5m towards the purchase of a Citation XLS+ (valued at $8m) at an interest rate of 3% over 120 months, they'll need to factor an additional $579,364 of ‘fixed’ costs per year to cover the cost of borrowed money as well as amortization on the loan. Also, there are the opportunity costs of the $3m cash needed to purchase the XLS+.

Meanwhile, an older Citation III with good paint and interior may be bought for $800k in today’s market. A prospective owner may find securing a loan on an aircraft this age more difficult, but should give the matter serious thought if in a position to make a cash purchase.

As a matter of interest, according to JETNET data, at the end of 2015 just under 75% of aircraft purchases (both for new and used aircraft) were cash purchases, versus just over 25% financed.

Residual Value

In 2007, I was selling Citation III's for $3.5-3.9m. It’s hard to believe that the aircraft has lost almost 80% of its value over the past 10 years. The nature of today’s market means that an $8m asset such as a Citation XLS+ has much more room to depreciate.

Both Citations in our analysis lose a certain percentage of their value annually. Using our analytical tools, Aircraft Cost Calculator figures that the XLS+ stands to lose $361,950 during the first year of ownership while the Citation III depreciates $22,000 per year, on average. Historically, newer airplanes depreciate faster than 20+ year old aircraft.

Table A represents Aircraft Cost Calculator’s depreciation in aircraft value for each model over the course of the first five years of ownership.

Business Jet Residual Value

Variable Hourly Cost

Clearly the Citation XLS+ costs less to operate, as demonstrated in Table B. Let’s assume an owner flies 350 hours domestically over the course of a year… We calculate for this example that you'd have incurred approximately $95,000 of airframe maintenance on the XLS+ versus $262,000 on the Citation III.

Cessna Citation III Jet & Citation XLS+ jet Cost Summary

Engine and APU maintenance would also be less on the XLS+ ($137,557 versus $203,889). Note that the fuel burn for the Citation III is 33 more gallons per hour than the XLS (248gph vs. 215gph).

Summary…

So how do we put this all into perspective for a side-by-side comparison? While Table A shows a marked difference in costs relating to acquisition, financing and residual market value, there’s more to a buying decision than these factors alone.

Coupled with the information represented in Table B, we can see in Table C that, based on other fixed and variable operating costs, the Citation XLS+ requires a lower annual, monthly and hourly budget (based on both jets flying 350 hours annually) if financing is excluded from the equation.

Cessna Citation III and Citation XLS+ jet Annual Costs

These do not offset the vastly greater acquisition cost of the Citation XLS+, however. The owner of a newer aircraft should plan ahead and buy with a clear picture of how long they plan to own their jet. Chances are, even with depreciation in value, they’ll recoup a good amount of the original outlay thereby lessening the difference over the course of ownership, whereas the Citation III will have a lower resale value.

Cessna Citation III Cessna Citation XLS+ Cost

Ultimately, a prospective buyer should weigh their mission requirements carefully.

More information from www.aircraftcostcalculator.com.  Find Used Jets for Sale on AvBuyer.

 

Read more about: Business jet ownership | Cessna Citation XLS | Cessna Citation III | Aircraft Cost Comparison

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