There are a multitude of aircraft operating cost articles written over the years including the occasional quarterly or annual reports describing current states of affairs for a variety of aircraft. If I’ve heard it once, I’ve heard it a thousand times, “no one offers a product that really captures the true cost to operate my aircraft.” I couldn’t agree with this sentiment more, but that’s about to change.
The fact of the matter is there is no one set cost benchmark for any aircraft model on the planet. There are many reasons why operating cost subscription service providers, OEMs or economic cost guides don’t capture true operating costs that can be universally applied to a particular model aircraft. Here are the five key reasons why:
1. Geographical operational expenses point in case: In Asia landing and parking fees are exorbitant to the point that they can exceed the aircraft variable operating cost per flight hour. Additionally, they are subject to change without notice impacting Operators and their cost to travel in these regions. South America is also a little tricky. North America and Europe are much more predictable but, there are differences regionally that demand attention to details. I’ve look at hangar and crew expenses in different parts of the country. There are huge variations. Most operating cost reporting tools do not address geographical differences. Stay tuned though because AirPower sees a solution to the problem.
2. Aircraft age and condition are also significant cost drivers: As aircraft have evolved, so too have technologies to improve overall maintainability, fuel consumption and navigational capabilities. Let’s face it, if you’re buying new aircraft you’re not overly concerned about maintenance expenses. But, if you are buying or currently operating a 10 year or older aircraft you’re faced with the whole aging airframe dilemma. Here too geographical conditions can have huge impact on maintenance expense.
I’ve managed fleets of aircraft spanning 23 countries and 4 continents. Every one of them were affected differently due to environmental and local economic conditions. As we brought aircraft back from remote locations for extensive condition inspections we were confronted head on with the effects of sea air induced corrosion, high temperatures effecting interiors and exteriors, and poor conditions on the ground for maintenance teams impeding their ability to effectively maintain the aircraft.
There are also many opportunities to spend money on retrofits, modifications and upgrades to improve operational efficiencies of aging aircraft. Just be sure you understand the return on investment (ROI) before performing upgrades. Other considerations are how long you plan to retain the aircraft, or, if you’re planning to sell the asset how much of an impact the upgrade expense will have on resale value. There’s a high degree of likelihood you will not enjoy a 100% recapture rate on expenditures.
3. The human factor: Yep, the quality of flight crews and ground crews can have a major impact on annual expenses. My hat is off to all of them. Their jobs are tough and sometimes thankless. But, there’s no question skills, capabilities and knowledge can move the needle financially due to how they operate and maintain the aircraft. For example, it’s not necessary to wait for a major inspection to take time and examine problem areas on aircraft while it sits in the hangar. Aircraft all have maintenance idiosyncrasies.
A knowledgeable maintenance technician can easily look for signs of trouble before they turn into six figure maintenance headaches. Flight crews exercise care operating aircraft at the limits of performance and report possible problems before they turn into expensive AOGs. The bottom line flight crews and maintenance staff are not prohibited from application of internally prepared best practices in addition to SOPs when it comes to maintaining and flying the aircraft. There’s no regulatory requirement that says you can’t look at an attach point for corrosion, or dial back the throttles to something between high speed and long range cruise. The CFO will be most thankful.
4. Annual OEM spare parts pricing escalations: As someone that spent 18 years working for a fortune 100 aerospace company that built everything from avionics to engines, mechanical systems and APUs; and as the Director of Sales, Inventory, and Operations Planning for the aftermarket business segment including annual pricing escalation recommendations, I can tell you your aging aircraft is viewed as a margin expansion or upgrade opportunity. That flight deck installed in your aircraft was type certified and is likely not coming out anytime soon unless you go with a full blown cockpit upgrade. In all likelihood you’re going to be living with your systems and subsystems for years.
If your aircraft has been well maintained, and is relatively free of system component failures you’re probably in good shape from an operating cost perspective. But, the first time you have to repair or replace a DEEC, autopilot computer or primary flight display out of warranty or one that is 10 years old or older, ensure you buckle up before getting the quote. Why you ask? Because pricing is the single best mechanism to drive upgrades and the aerospace industry does not drive consumer electronics designs.
Obsolescence is the enemy of aircraft systems. Manufacturers fight a continuous battle of making component lifetime buys to sustain the R&O pipeline and keep customers happy. This activity also comes with redesigning out components that are no longer available. Indeed, a costly proposition for equipment OEMs and there’s nowhere to pass these costs on except to the Operator. With any budgetary planning scenario for your flight department, ensure you’re taking pricing escalation into to account when preparing your annual budgets.
5. Planning for TBO and other life cycle change events: This is another area where failing to reserve for all events will eventually come back and bite you financially. If you had a great few years of operations with relatively minor unscheduled maintenance events, great! So, did you set aside enough to cover that landing gear overhaul? Or heavy maintenance event? Whether you fall into the owner flown flight department category, or you’re a multiple aircraft corporate operation, ensure you plan far enough ahead financially to cover those big expenses.
At this point you may be asking yourself where I’m going with all this. Simple, plan your annual expenses using a good set of tools, get buy-in from the boss, and watch for regional operating cost reports from AirPower. Build out annual budgets that take into account the unexpected as well as the maintenance events you see coming your way. And of course AirPower has designed budgetary planning tools to help you accomplish these tasks easily and present them in a way that the boss will appreciate not to mention you can get ahead of the curve by demonstrating you have a cogent plan to optimize.
This isn’t the end of the message. Next time I’ll cover how you can get your arms around some of the topics above to give you some leverage. Some things you may already know about, and some you may not. What are the best practices you can use to help optimize operating expenses? Check back soon for a follow-on update. We’re just getting started here.