Aircraft Ownership: Your Aircraft Fixed Costs

Money
Getty/Oliver Burston

Definition:

The cost of aircraft ownership can be divided into fixed costs and variable costs. Determining which ownership costs are fixed and which are variable is essential to successful aircraft ownership, and can help potential aircraft buyers or operators determine if they will be able to afford an airplane.

Fixed costs, as opposed to variable costs, are defined as costs that remain the same over a period of time.

Variable costs change, as the name implies, and include things like fuel, oil, maintenance, landing fees, etc. An aircraft’s fixed costs are the same no matter how many hours the airplane flies. The cost per unit of a fixed cost, however, will increase or decrease depending on the level of activity of the airplane. For example, if your fixed cost is insurance, you'll pay the same rate no matter how much the airplane flies each year. If your insurance costs $1200 dollars per year, and you fly the airplane for 100 hours each year, your hourly insurance cost is $12 per hour. But if you fly the airplane more often — 200 hours, perhaps — then your insurance cost per hour would be $6.  This is the reason that aircraft owners are always saying that their airplane needs to fly more to keep costs down. 

Examples: 

Some examples of fixed costs include the following:

  • Aircraft financing (lease or loan payment)
  • Insurance
  • Books, charts, and materials
  • Hangar rental
  • Taxes and FAA registration fees
  • Aircraft accessories
  • Crewmember salaries (if paid a fixed annual salary). Sometimes crew members are paid an annual salary; in this case, the salary is a fixed cost. If the crew member is paid by the flight hour, however, it’s considered a variable cost, as it is dependent upon the activity level of the airplane.

     

    The cost per unit, or per flight hour, can be decreased with an increase in aircraft utilization. You get more “bang for your buck” when you fly more hours. For example, if you rent hangar space for $6,000 per year and fly your airplane 100 hours per year, your cost per hour for hangar rental is $60. If you rent the same hangar but fly 500 hours per year (that's a lot!), your cost per flight hour decreases to $12 per hour.

    It's important to recognize and plan for both fixed and variable costs when you're an aircraft owner or operator. Likewise, if you're interested in buying an airplane, it's important to think about all of the costs of ownership and not just the purchase price. Often, aircraft owners are surprised by all of the additional costs they are faced with after purchasing an airplane. By knowing both the fixed and variable costs of the airplane, you'll minimize surprises and keep your budget in check.