Reducing Aircraft Ownership Expenses
Reducing Private Jet Ownership Expenses
Fixed vs. Variable Costs
Private Aircraft Ownership expenses are the total operating expenses of aircraft ownership and always include the sum total of both the fixed operating costs and the variable operating costs.
Fixed costs are those aircraft costs that remain constant over a given period of time regardless of the number of hours flown or the number of takeoffs and landings. The fixed costs for owning a Private Aircraft over any specific period of time remain constant regardless of usage.
Fixed costs of aircraft ownership include the following:
- Hangar fees
- Crew salaries
- Insurance premiums
- Financing costs
Variable costs are those that change over time and are not accurately predictable in advance of when they are actually incurred. Variable operating costs are directly dependent on the amount of time the aircraft is operated, the distance flown and flight conditions experienced. Examples of aircraft variable costs are:
- Fuel cost.
- Engine Programs
- Landing fees
- De-Icing fees
Since the fixed costs of an aircraft’s l operating costs remains constant regardless of how many hours the aircraft is flown in a given period of time, this provides an opportunity to reduce the total per hour costs of operations by increasing the hours flown in any period of time. Therefor the more hours an aircraft is flown, the lower the fixed costs component will become for each hour of flight time.
Offset Aircraft Fixed Costs with Charter Revenue
Charter revenue generated by an aircraft, when not being operated by the Owner, can materially reduce the fixed operating costs per flight hour.
The revenue received from chartering a private jet aircraft, when not in use by the Owner, can significantly lower the Owner’s fixed costs. How significantly? That answer varies for every Owner based on the make and model of plane, how many hours of charter time is being made available, and what kinds of charters the owner is willing to accept. Charter revenue will always lower the flight hours available to the owner, but always increase revenue and reduce both ownership expenses and pre-hour overhead costs of aircraft ownership.
Offset Aircraft Fixed Costs AND Maintenance Variable Costs with a Triple Net Lease
An aircraft Triple Net Lease is a lease agreement on an aircraft where the Owner (Lessor) leases the aircraft to a charter company (Lessee) and the Lessee agrees to pay all aircrew, maintenance and insurance costs for the aircraft. The Lessee retains all charter revenue generated and pays the Lessor a monthly Lease fee. The Lessor and Lessee negotiate an Agreement defining how many hours the Owner may fly the aircraft annually and at what cost to the Owner (typically a flat rate equal to the direct operating cost for that aircraft plus a day rate to cover the Lessee’s costs for the lost revenue day the Owner is flying).
The demand for private jet aircraft charter in late 2019 is high and is expected to increase in the foreseeable future. There is strong current Worldwide demand in late 2019 for charter aircraft as more high-income individuals and International Businesses and Governments need fast long-distance travel. Finding the right balance between operating an aircraft for convenience and operating it in charter service can provide a material reduction in an aircraft owner’s expenses.