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First:Charter rates are a relative bargain. While
$8,000 per hour to charter a Long-Range Jet may
seem like a lot, the operating expenses are
significant: The variable expenses of fuel and
maintenance alone average about $4,000 per hour.
The annual fixed costs, including items such as crew,
hangar, insurance, training and airborne internet run
to $1.4m.
A typical charter payback to the owner is 85% of
the listed hourly rate, and the owner pays for the
aircraft expenses. So on that basis, our $8,000-per-
hour charter provides the owner $6,800 per hour.
Deducting the $4,000 variable hourly costs leaves
$2,800 per hour. To accumulate the $1.4m fixed
costs takes 500 charter hours.
So, after that isn’t it all profit? In short, no. Our
owner paid $60m for his global business jet. Current
market depreciation is about 7% per year (or a loss in
value of $4.2m per year). And that would require
another 1,500 charter hours to make the deficit up.
Hence our 2,000-hour break-even point.Second:Money is not free. Our owner has a cost of
capital, or an opportunity cost. If he paid $60m in
cash for the jet, he can’t invest that money in his
company or other ventures. If you add in a 10%
return on capital, there is $6m per year in the lost
opportunity of having his money tied-up in the jet.
He could opt to decrease that up front with an
operating lease or a loan, but then his fixed
expenses increase. To verify this, look at the
financial reports of the airlines: An airline needs to
fly between 2,500 to 3,000 hours per year per
airplane in order to make a profit.
There is almost no way an on-demand charter
operator can book enough charter to cover the
costs of owning their own business jet. When an
aircraft owner utilizes a charter operator to charter
their aircraft when not in use, both parties can win.
The charter operator gets the use of a
business aircraft without the cost to acquire it.
The owner gets some revenues to offset their
operating costshttp://www.AVBUYER.com AVBUYERMAGAZINEVol 23 Issue 8 2019 69David Wyndham is vice president of
Conklin & de Decker, a JSSI Company,
where his expertise in cost and
performance analyses, fleet planning
and life cycle costing are invaluable.
He’s formerly an instructor pilot with
the US Air Force. Contact him via
[email protected]Ownership 1.qxp_Finance 16/07/2019 09:41 Page 2