Q: Why does airplane X cost $95/hour to rent? Where does all that money go? It doesn't seem like it should be that much. A: When we talk about airplane costs, there are two types of costs: fixed costs and variable costs. Fixed costs are those things that an airplane owner must pay for whether that airplane flies or not. These are things like insurance, tiedown fees, and some kinds of maintenance. Variable costs are things like fuel, oil, or time-in-service maintenance. In order to talk strictly in terms of dollars per hour, we must make an assumption about how many hours per year an airplane will fly and then divide both the hourly and fixed costs by this figure. Also, we must take into account the major expenses that only come around every 5 or 10 years, such as required engine overhauls. A common number of operating hours outlined for engine overhauls is 2000 hours, so we will use that in our figures below. Let's assume we're talking about a Model XYZ airplane (fictitious) that rents for $95/hour and burns 6 gallons of fuel per hour during normal operation. Let's assume it flies 300 hours per year, is relatively well treated, and is parked on the airfield at Palo Alto. Let's assume it's engine is good for 2000 hours and an overhaul of the engine is $12,000 (in line with what an overhaul on a Cessna 172 or Piper Warrior might cost). Here's the math foroneyear of ownership under the above conditions: Engine overhaul reserve: (300/2000) * $12000 = $1800 (variable) Monthly outdoor tiedown: ($120 per month) = $1440 (fixed) Yearly insurance cost: = $4000 (fixed) Fuel costs (300 hours * 6 gal = 1800 gallons) (As of 4/27/08, fuel is $5.40/gallon) (1800 * 5.40) = $9720 (variable) 100 hour maintenances (preventative, every 100 hours. $1000/each) = $2000 (variable) Annual maintenance/inspection = $1200 (fixed) (The annual counts for a 100 hour and must be done once per year regardless of how often the aircraft flies) Flying club management fee (they promote the airplane, manage it's scheduling, and take care of minor things as they come up.) $12/hour = $3600 (variable) ======================================================= Total $23760 We're at almost $24k for one year and we haven't actually had to fix anything on the plane yet! Tires, brakes, avionics, carpet, corrosion, paint, instruments - these all wear out and need to be replaced eventually. If we lump all those items together into a $15/hour maintenance reserve, that adds $4500/year. And that's probably not enough of a reserve. Adding this reserve to $23760, we get$28,260. Divide that by 300 and you get$94.20as a total hourly operating cost. The owner then publishes a $95/hour rental rate and hopes that the airplane flies that much. Now let's assume the airplane only flew 200 hours in that year. What changes? The fixed costs do not, the variable ones do. Here's the same table, but at 200 hours/year: Engine overhaul reserve: (200/2000) * $12000 = $1200 (variable) Monthly outdoor tiedown: ($120 per month) = $1440 (fixed) Yearly insurance cost: = $4000 (fixed) Fuel costs (200 hours * 6 gal = 1200 gallons) (As of 4/27/08, fuel is $5.40/gallon) (1200 * 5.40) = $6480 (variable) 100 hour maintenances (preventative, every 100 hours. $1000/each) = $1000 (variable) Annual maintenance/inspection = $1200 (fixed) (The annual counts for a 100 hour) Flying club management fee (they promote the airplane, manage it's scheduling, and take care of minor things as they come up. $12/hour = $2400 (variable) ======================================================= Total $17720 Plus $15/hour maintenance reserve: (15*200) $3000 For a grand total of$20,720. But wait, we only had 200 hours of rental income at $95/hour. That's $19,000 in rental income, and $20,720 in expenses - a loss of $1720. The 200 hour/year rental rate should be $104/hour. Now things like competition come into play. Market forces dictate what is fair, and the same plane may rent at one club for $95/hour and at another club $110/hour. One must watch the rental market and be competitive in order to keep the aircraft flying, given a resonable comparison of aircraft condition and comparable rental aircraft elsewhere. So what's the takeaway from this exercise? It is very unlikely that the owner of the airplane you are renting is making any profit from your hourly rental costs. Back to the FAQs