Understanding aircraft operating costs is an essential step when planning an aircraft purchase, no matter what your budget is. There are both fixed and variable costs to consider. Variable costs change with the number of hours flown, and fixed costs are costs you will incur regardless of how much you fly.
Aircraft Acquisition Costs:
In addition to the purchase price (or down payment if you are financing), you should budget for the following costs during the acquisition/shopping phase:
- Travel costs to visit any aircraft you are serious about
- Pre-buy inspection costs
- 15% down payment (if financing), minimum
- Escrow-title costs (escrow title agencies that specialize in aviation handle FAA filings that register the transfer of title. These agencies also handle escrow of funds, ensuring the terms of any purchase agreement are adhered to, prior to closing.
- Insurance – you will want to have the aircraft insured at closing. (This is required when financing an aircraft)
- Bank and any other closing fees
Fixed Ownership Costs:
These costs are akin to the overhead expenses in any business operation and are incurred irrespective of whether the aircraft is regularly flown or sits parked in a hangar.
- Acquisition Cost: The initial purchase price of an aircraft is one of the most significant fixed costs. It includes the negotiated price of the aircraft, taxes, and any associated fees.
- Hangar Fees: Storing an aircraft in a hangar protects it from the elements and ensures its longevity. Hangar rental fees vary depending on factors such as location, size, and amenities.
- Insurance: Aircraft insurance covers a range of risks, including damage, liability, and hull loss. Premiums are determined by factors such as the aircraft’s value, intended use, pilot experience, and safety record.
- Financing Costs: If the aircraft is purchased through financing, interest and principal payments should be budgeted for.
- Pilot costs: if you are not flying the aircraft yourself. Some people hire pilots on a per-trip basis, while others may employ full time pilots on a salary.
- Maintenance: There are annual and phase inspections that must be done on aircraft regardless of how much you have been flying
Variable costs:
Variable costs are related to how much flying time the aircraft gets. These include:
- Fuel: This is one of the most significant variable costs for aircraft ownership. The amount of fuel consumed depends on factors such as the aircraft’s size, speed, and distance traveled.
- Maintenance and repairs: Regular maintenance and inspections will occur more frequently the more often you fly, as aircraft maintenance intervals are based both on calendar time and hourly usage.
- Engine reserves: Owners often set aside a certain amount of funds per hour for eventual engine overhauls.
- Engine maintenance programs: Some turbine aircraft are enrolled in engine maintenance programs. These programs require that you pay a fee to them for every hour you fly. In return, required engine overhauls are covered. There are many levels of coverage available.
Options for Aircraft Loan Financing – Financing Costs
Aircraft financing costs should be considered. Those can include the down payment, and closing costs, such as loan origination fees, which are more common at higher price points. Closing costs can be as low as $289 with some lenders.
Airplane Loan Options
Term loans are the most popular aircraft financing structure, and are the most flexible. These are offered by traditional banks that have aviation financing programs. Not all banks finance aircraft, however. Whether your own bank will finance aircraft or not, it’s a good idea to check the market for the rates and terms offered by lenders who routinely offer aircraft loans. The easiest way to do that is through an aircraft financing broker such as The Aircraft Lenders. They can advise on the best market rates and terms for your aircraft and mission.
There are a few different types of aircraft financing you can consider:
- Traditional Term Loans: This is the most popular aircraft finance option, wherein you borrow money and pay back over a fixed period. Common term lengths are 15 or even 20 years, but those are usually only available for aircraft purchases of $5mm and under, for Part 91 use.
- Term Loans with a Balloon: In many cases, especially for charter aircraft or $5- million-plus purchases, lenders will structure loans with a 5-year term and a longer amortization. After the 5th year, the borrower will need to pay off the balloon or refinance.
- Refinancing Options: Primarily used to leverage better interest rates or loan terms, or to finance a balloon payment or even an upgrade to the aircraft such as an engine overhaul, avionics upgrades, installation of wi-fi, or paint and interior.
- Leases: These are usually reserved for businesses. They offer 100% financing, and require that all payments on the lease be made if you want to pay off the lease.
- With leases, the lender often retains title, so that impacts depreciation possibilities. Terms and amortizations are typically shorter than for term loans.
- 100% financing means leases can be a good choice for those trying to preserve capital expenditures.
- Operating leases are another option. These are equivalent to “renting” the aircraft for a monthly fee for a fixed time period. The lessor retains title.
The Aircraft Lenders is Here to Help
There are many things to consider when acquiring an aircraft. The Aircraft Lenders can help you navigate these considerations. Let us do the work of shopping rates and terms for you. We will get you approved and guide you through the process until your deal is closed.
