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Calculating The Cost of Operation
The following format is "a" way to estimate the
cost of operation of a General
Aviation aircraft. It is not the "only" way. If any reader is so inclined,
please
feel free to copy this page and use it as you wish. I make no warranty that the
that this format is complete in any way. This format is offered only as a guide.
In addition, this format is designed primarily for piston engine aircraft weighing
less than 12,500 lbs.
The best way to determine the cost of operation is by the
"history" method. All
costs should be recorded, in detail, for at least a year. Estimation is at best an
informed guess simply because human beings operating complex machines makes
the variables infinite.
Another point, this format has to do only with the the cost of
operation, not ownership.
The cost of ownership has to do with things like debt service, depreciation,
appreciation,
and property taxes etc. Costs that one would incur to simply own the
aircraft; flown or not.
The most common way to express the cost of operation is the
"cost per hour"
method. Therefore one must first "estimate" the numbers of hours to be
flown
annually. Recreational pilots generally fly 75 to 100 hours a year. Business
pilots from 100 to
150 hours annually. The next step is to break all costs into either Fixed or Direct
Operating costs. The items under Fixed and Direct Operating Costs are only
examples. One
must insert items that apply to their individual situation.
Fixed Costs: (Examples)
1. Pilot Salary.
2. Insurance. (Hull and Liability.) Call agent.
Tip: Shop around hard for
insurance. Can payoff big.
Use 4% Hull Rate and
$1500.00 for Liability annually until actual rates determined.
3. Hangar or Tiedown.
Tip: Hangaring can add to the
sales value.
4. Annual Inspection.
Use 16 hours X shop hourly
rate for single engine, fixed gear aircraft for the inspection.
19 hours X shop hourly rate
for retract, single engine for the inspection phase until actual
cost is determined.
Then double the cost of the inspection to include fixing discrepancies.
This is an
"estimation" technique until actual amounts are determined.
5. Miscellaneous. (i.e. subscriptions, Pilot medicals,
Bi-Annuals etc.)
Total Yearly Fixed Costs.
Divide Total
Estimated Fixed Costs by Estimated Annual Hours Flown to
get a Fixed Cost per Hour.
Direct Operating Costs: (Examples)
1. Fuel (Gallons per Hour X Cost per
Gallon)
Tip: The only
accurate way to determine fuel usage is to know exactly how much fuel
is on board at start up
(usually full tank) and then fill back up to that point at shutdown.
This is called
"block to block". Simply using book cruise figures in not good enough.
Don't trust fuel guages
and electronic measuring devices.
2. Oil (Changes per year X cost per change
/ Hours per year)
Be sure to figure
in the cost of the filter and labor. Use 1/2 pint per hour until actual
usage is
established. 25 hour changes are best. 50 hour changes at minimum.
3. Routine Maintenance (Use 0.5% of Annual
cost )
4. Miscellaneous Variable Expense ($2.
per hour until history)
Total Direct Operating Cost per Hour
Reserves per hour: (TBO = Recommended Time Between Overhauls).
1. Engine Overhaul (Average
cost of overhaul / Hours left till TBO). For
average piston engine overhaul cost
use $20,000. for planning.
2. Prop Overhaul
(Average cost of overhaul / Hours left till engine TBO) For
planning purposes use $1500.
average overhaul cost.
3. Avionics Reserve (Cost
of avionics X 10% / Hours per year)
Avionics Reserve applies after
1000 hours on the avionics.
Total Reserves per Hour
Total Cost of Operation per Flying Hour