Plane Conversations

Charter (rent) versus Owning a Private Jet
Part 1: Aircraft Ownership Economics 101

There are varying reasons why people choose to charter or rent aircraft versus buying them. Not all reasons are purely economic, but let’s start at the most basic level of the economics of these choices.

There are two basic components of aircraft operating costs.

1. Fixed Costs include the capital investment in the aircraft, insurance, storage of the aircraft, property taxes, salaries for those employed to fly and maintain the aircraft and, in some cases, certain maintenance requirements for an aircraft since they are driven by the calendar rather than by aircraft utilization.

2.  Variable Costs: These costs happen only when the aircraft flies. They include things like fuel, engine costs, maintenance requirements that are driven by utilization (flight hours on an aircraft versus miles driven on an auto). Other variable costs could be landing fees, in-flight catering, and pilot / crew expenses when the aircraft is out on trips.

In most cases these costs, both fixed and variable, remain fairly constant whether you own the aircraft or you are chartering it from someone else who either owns or manages it for its owner. The aircraft burns the same amount of fuel and requires the same maintenance regardless of the ownership. There are some economies of scale that can be obtained by larger operators to reduce the variable side of the equation, but let’s set that aside for now to talk about the relationship between fixed and variable costs of operating an aircraft.

Variable costs are a constant and the measure to use is dollars per flight hour. For example, let’s say that the variable costs per flight hour for your favorite jet are $1000 per flight hour. Every hour you fly the aircraft on trips whether business or pleasure costs $1000. Simple enough!

Fixed costs for your favorite jet are measured in dollars per calendar time. You can use a month or a year, whichever works best for you. If your favorite jet costs $300,000 per year for all of the fixed costs mentioned above, that expense happens whether you fly one hour or 300 hours. For simplicity’s sake, let’s say you use the jet 300 hours per year. If I spread the fixed costs over those 300 hours of use then the fixed costs are costing me $1000 per flight hour.

At this rate of use it is costing the owner $2000 per flight hour to own and operate the aircraft.  Double the use to 600 hours per year and the costs go from $2000 to $1500 per flight hour.
The aircraft doesn’t really care who owns it and who uses it. Those of us in the business get emotionally attached to these flying machines but the secret is out - they are just machines. The cost side of the economics only changes with the utilization and possibly some economy of scale.

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