Managing Aircraft Ownership Costs with Reserves

Sunday, October 8, 2017 Ownership

Aircraft ownership is a complex process, sometimes far more involved than many new owners might expect.  Wrapping your head around all of the required maintenance items, time-limited parts, inspections, and related items can take time, and each aircraft due to equipment differences will result in different items being needed.  In addition to this, one of the items often overlooked are larger, future maintenance items.  These are items that are not planned in the immediate term, possibly not even long-term, but when they come up are a big hit.  

By the nature of owning an aircraft one is used to the occasional expensive repair, and with the current cost of 100LL, there is a certain minimum level of disposable cash on hand.  However, many owners are not fully prepared to do a sudden engine overhaul, propeller overhaul, or other big-ticket items.

Example Items

Everyone will have their own threshold for what is considered a truly big-ticket item in aircraft ownership.  But to highlight a few items that we often hear:

  • Engine Overhaul, typically after 1,800 - 2,400 hours of operation with a cost in excess of $35,000 per engine
  • Propeller Overhaul, typically after 1,800 - 2,400 hours of operation with a cost in the thousands
  • Planned avionics upgrades, this is a special concern with the pending 2020 ADS-B mandate around the corner
  • Parachute repacks, for those with CIrrus or other aircraft equipped with airframe parachute systems.  Typically done once every 10 years or so, with a cost between $10,000 and $15,000 depending on the aircraft

These are just a few items that we have compiled from the listing of items on our Cirrus SR-22 Aircraft.

Cost Management Options

The whole point of this post is to discuss the management of these costs and to try and avoid the "big hit" when an item becomes due.  In our case, we don't want to count on just having $45,000 sitting in the bank when our IO-550 needs overhauled.  We want to plan ahead.  There are various methods to plan for this.  Let's explore two of the most common that we hear of.

Annual Cost Planning

We find that owners with larger amounts of disposable cash abilities will prefer to calculate an expected "end date" where an item will occur and they will simply set aside money each year leading up to the event.  They might do this with a monthly deposit to a savings account, or some other period, but they are using an anticipated "time" value.

Per-Hour Reserve Costs

Another method we commonly see, and one supported within FlightFiles, is the use of a per-hour cost to determine how much money needs to be saved.  This method has many advantages, including the ability to determine a total cost of operation per flight hour with an aircraft.  In this process, we do a calculation to see what our hourly rate would be.  For hour limited items this is quite simple, let's assume we have an aircraft with 750 hours on the engine, a TBO time of 2,000 hours, an overhaul cost of $37,500 and we have $3250 in the bank.  We can calculate an hourly rate using the following.

(Overhaul Cost - Current Savings) / (TBO - Current Hours) = Cost per Hour

or

($37,500 - $3,250) / (2000 - 750) = $27.40/hour

This is simple enough math, and once calculated, if you set aside the calculated amount for each hour you will have the money in the bank before overhaul.  If you fly more in a given year, you will put more in, etc.  Tracking your planned expenses just like your other consumable costs.  We prefer this method, as then, even if we don't make it to TBO for an item, we still are much closer to having the total amount.

How FlightFiles Can Help

FlightFiles support the configuration, tracking and automatic calcuation of per-flight-hour costs.  A simple report will show the "total reserve cost" for a flight, including a breakdown by individual logged flight.  All you as an owner has to do is the initial calcuation to tell FlightFiles what the hourly rate is, and it can take it from there.

You can then use this information to stay informed on your costs, and take the necessary actions to move money into savings etc to be ready for the big items.  This is just one of the many ways we can help take some of the pain our of ownership.  If you have any questions about FlightFiles, or would like assistance you can use our contact form, or reach us at webmaster@flightfiles.com

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