- 25 Mar 2021
- Aviation Podcasts
Airplane Intel discusses what you should know if you’re thinking about buying an airplane or upgrading to something bigger...Back to Articles
This week, Airplane Intel dives deep into aircraft ownership costs—from acquisition costs, fixed costs, operating costs, and variable costs. You'll receive a real-world cost example on the Cirrus SR22 and hear how to assess the costs if you’re thinking about buying an airplane or upgrading to something bigger...
One of the most widely asked questions we get is, “What will it cost me to own and fly this airplane?” Along with other important factors, having a good idea of what it’s going to cost you to fly, maintain, and own a particular airplane is critical to your success as an aircraft owner or operator. Remember, the purchase price of an airplane is just the cost of admission…
While you may be able to afford purchasing the aircraft, there are other ownership cost variables to consider including total acquisition cost, annual fixed costs, and variable operating costs. For example, you can get a great Cessna 310 for a much better price than that of a similarly equipped Cessna 182, but what you save on the front end in low sales price, you may make up for on the back end with maintenance and operating costs.
If you’ve listened to the podcast for a while, you know that we advocate for the importance of knowing your mission before seriously pursing any airplane. By knowing your mission, you will be able to match an airplane make and model that best fits your intended utilization, budget, and preferences. Your mission is the foundation that guides virtually every decision you make regarding an aircraft purchase.
While most buyers can easily wrap their heads around understanding their planned mission profiles, like the types of trips you’ll be flying, range and useful load requirements, performance specifications, and avionics preferences, aligning your cost of ownership budget to a particular make and model is a little more elusive.
As elusive as it may be, having a clear understanding of what an airplane will cost you in the long run is an equally important element to assessing your mission; you need to give some serious thought about what you can realistically afford to spend on the front end of the purchase, vis a vis the cost of acquisition, as well as your hourly and annual cost budget.
A great airplane quickly becomes a paperweight when you can’t afford to fly it or fix an unexpected squawk.
Therefore, knowing your budget and understanding the expected cost outlay for a particular airplane can greatly affect the buying decision.
In just a moment, I’m going to give you a rundown of the various cost variables. We’ll cover each of these categories in some depth, and while it might sound overwhelming at first, I think you’ll find it interesting to know that while the numbers change from airplane to airplane, the categories of expenses are virtually the same for every aircraft whether you’re looking at a Cessna 172, Pilatus PC-12, or Learjet.
Let’s start with the front-end of the purchase with a quick rundown of the total cost of acquisition, which is an often-misunderstood aspect of buying an airplane. The cost of acquisition doesn’t just include the purchase price of the airplane, there are also a few additional line items to factor in as well.
For example, the total cost of acquisition will include line items such as the cost of a title search, which is normally less than $100, and the cost of escrow services.
Escrow and Title
If you’ve listened to our podcast lately, you’ll know that are proponents of using an independent escrow and title service for your airplane transaction, even if you’re paying cash. Why? Because it will protect both parties from potential scams or malfeasance, providing an extra set of eyes on the entire transaction and ensuring all the money and paperwork is completed before the airplane is delivered. They also help ensure all terms of the purchase agreement are met prior to closing.
The cost of escrow & title services may vary, but it is typically $1,000 to $2,000. It’s not uncommon to have both buyer and seller split the cost of escrow, depending on how the purchase agreement is written.
Speaking of purchase agreement, AOPA has a great sample agreement you can use as a starting point. I’ll add a link to that into the show notes. However, it is just that—a starting point. So, another cost to consider is hiring an attorney that specializes in aviation transactions to assist with the construction of the purchase agreement. Most attorneys charge between $250 per hour to $350 per hour.
If the seller is providing you with their own purchase agreement, your attorney can review the agreement for you to ensure all the terms are fair.
In most cases, you can expect to spend a total of $500 to $1,000 on legal fees as part your total cost of acquisition. Check out our discussion with aviation attorney Talbot Martin from episode 50 for more information about avoiding legal mistakes.
To open an escrow account, you’ll need to have the contact information for both the buyer and seller, as well as a signed purchase agreement that is sent to the escrow agent before the account can be opened.
If you choose not to transfer funds through an escrow service, I still recommend getting a title search performed. This will run you anywhere from $75 to a couple hundred dollars depending on the airplane and service provider. The title search fee as well as the fee to register the airplane in your name will be included in the total stipend when using an escrow and title service.
Another cost associated with an aircraft acquisition is the cost of a professional appraisal. In most cases, you will not need an appraisal to be performed, however, there are several occasions you might need one. One common reason an appraisal may be needed is if the airplane is being sold for a significantly higher price than market value, the bank that is financing the airplane may ask for an appraisal to be done at your expense.
This could run you anywhere from $500 to several thousand dollars depending on the airplane and the type of appraisal being performed. You can check out episodes 74 and 75 for a more in-depth discussion about aircraft appraisal. Bottom line, to avoidp having to pay for an appraisal, make sure you’re not overpaying for the airplane to begin with. Do a quick VREF valuation or call us to do a desktop valuation for you.
The next cost to consider is that of the pre-purchase inspection. The pre-purchase inspection, also known as a pre-buy, is one of the most important steps in purchasing an airplane. Check out episode 79 to learn more about pre-buys. They could run you anywhere from $500 to $20,000 depending on the airplane and who does it. I strongly advise not skimping out on the pre-buy because it’ll save far more money than it costs in the long run.
Another acquisition cost is the cost of any insurance deposit your carrier may require. Some may ask for a down payment or at least the initial monthly payment will be higher than remaining payments. Be sure to have your own insurance before taking final delivery of the airplane. You can check out episode 48 to learn more about how insurance works.
Next, if you’re flying a high-performance airplane, anything from a Cessna 182 and up, you’ll likely need some additional training to be legal, safe, and insurable. Training may include additional ratings such as a multi-engine rating, or endorsement such as a high-performance or complex endorsement.
You may also be required to get simulator training if you’re transitioning to a turbine airplane like a TBM, PC-12, or King Air 90. A type rating will be required if you’re getting into a jet or a large turboprop like a Cessna Citation or King Air 350.
In addition, your insurance provider may require you to have time in type with a mentor pilot. For example, you may be required to have 25 hours’ time-in-type to fly a Mooney, Bonanza or Baron; you might need 50 or more time in type for larger, faster airplanes.
So, if you need additional training in your new airplane, you can consider that part of the acquisition cost.
Check with a qualified instructor or sim center for pricing. Most mentor pilots charge by the day and is usually around $500 to $1,000 per day and simulator training will vary between $5,000 to $20,000, depending on the airplane. If you’re buying a new or used Cirrus, transition training is included in the purchase. You can check out episode 69 for more information about Cirrus’ Embark program.
The Initial Deposit
The next acquisition cost to consider is the final sales price of the airplane, minus your initial deposit. I can tell you that in many cases, the advertised sales price is not the final sales price. Between upfront negotiating and conceding on squawks, the final sales price is often lower than advertised, unless the airplane was very well priced to begin with.
Getting a good sense for what an airplane is worth compared to how it’s priced on the front end will definitely help you navigate how to approach the negotiations. We can help you determine the aircraft’s value as well as a good asking price through our coaching program @ airplane intel dot com.
I also just mentioned the initial deposit. Keep in mind, no two transactions are exactly the same, but generally speaking, if you are using a deposit to hold an aircraft, which is likely to happen in today’s market, you can expect to have a deposit somewhere between one and five percent of the initial asking price.
For instance, with a $250,000 airplane, you can expect to have a deposit of $2,500 to $12,500; it really depends on what you and the seller agree to. Your deposit will be used to hold the airplane and will be credited toward the final sales price. In most cases, the deposit is refundable should something come up during the pre-buy or title search that prompts you to reject the airplane.
Ferrying Your Newly-Acquired Airplane
Next, once you’ve closed on the airplane, you’ll most likely have to move it to your home airport. Often, the best airplane on the market is hundreds or even thousands of miles away from your home airport. This is something to consider when buying an airplane—if you live in North Carolina and the airplane is in California, it’s going to cost a lot more to have it flown across the country to you.
Some people choose to fly the airplane themselves while others choose to hire a ferry pilot. Either way, it’s going to cost you at least the cost of gas. Ferry pilots typically charge by the day plus travel expenses to and from the airplane.
We offer ferry pilot services and flight instruction for many airplane makes and models. In fact, I just returned from a ferry flight in a Cessna 182 from Indiana to Oklahoma City, which was a lot of fun. I’ll be posting a vlog from that trip on our YouTube channel in the next few months.
The final acquisition cost to consider is taxes. Depending on where and how you’re buying the airplane, you may be responsible for either sales or use tax. This is typically owed at the time of the transaction.
I’m not going to go into detail about taxes here because we already covered the ins and outs of aviation taxes in our recent interview with Aviation CPA, Sue Folkringa in episode 76. Depending on what state you live in, such as California or Indiana, you might be required to register the airplane with the state, county, or city and owe a tax or fee for it as well.
You might run into a few miscellaneous expenses as part of the purchase such as airport fees, subscriptions, and fixing minor squawks.
To summarize the total cost of acquisition, you’ll have the final sales price of the airplane minus your deposit, the cost of escrow & title services, the cost of the appraisal if one is required, the cost of the pre-purchase inspection, the cost of any legal fees, your initial insurance down payment, sales or use tax, the cost of flying the airplane to your home airport as well as any training you may need to be safe and legal, and finally any miscellaneous costs that might be associated with the purchase such as travel to/from the airplane, airport fees, performing any upgrades or fixing minor squawks.
We put together a handy calculator on our website called the Acquisition Cost Calculator. With the calculator, you can input all the variables to determine the total cost of acquisition.
Why is this important you might ask? When you’re setting your budget to purchase an airplane, you should account for the additional expenses associated with the acquisition into that budget.
If you have $250,000 to spend, then realistically you can get a $235,000 to $245,000 airplane. Knowing what the approximate cost of these additional expenses will be can certainly help you set a more accurate budget. You can start by heading over to our website and using the free Acquisition Cost Calculator in our free resources section @ airplaneintel.com.
Now that you have an idea of what your total acquisition cost is going to be, you can set an acquisition budget accordingly. Next, let’s take a look at ownership costs.
Similar to setting our acquisition cost budget, it’s also a good idea to set an annual fixed cost budget as well as an operating cost budget. Doing so will ensure you’re not spending more money than you have as well as help you narrow down airplane makes/models that not only fit your mission and preferences, but also what you can afford to spend hourly, monthly, or annually.
As a quick disclaimer before we get started, it’s important to note that every situation is unique; I will be providing general guidance in this podcast. I highly recommend you consult with someone that knows the cost outlay for specific aircraft that can customize their advice to your situation and mission. Of course, we’re happy to assist you through our coaching program.
Check out the podcast for a specific cost example featuring a Cirrus SR22 model.