What’s Your Plane’s “Charterability” Factor?

December 7, 2009 | Posted by Scott Cutshall

As an aircraft owner or someone considering buying a plane, you may have heard you can charter your aircraft to the public and earn revenue and potential tax benefits. But have you ever wondered if some aircraft are more successful in the charter market than others? Which models provide higher revenue margins, are more attractive to charter clients, and are easier and less expensive to maintain? In short, which aircraft have what I call a good “charterability” factor?

First, it’s important to know that chartering out your plane is not a profitable business venture. I am often asked, “How many hours does my aircraft need to charter to pay for itself?” The answer is that it can never pay for itself since charter rates are too low and supply greatly exceeds demand. So, what’s a realistic goal? In most instances, charter revenue can cover 30 percent to 70 percent of your fixed costs, not including the mortgage payment.

Now that we’ve addressed how charter revenue can reduce ownership costs, let’s review the key factors that contribute to an aircraft’s charterability. There are three key criteria: low direct operating cost, versatility, and current charter rates.

1. Direct Operating Cost (DOC). This is the variable hourly cost associated with the operation of the jet—in other words, the total of fuel plus maintenance. Fuel is the single largest variable cost, so the more fuel-efficient the aircraft the better. Let’s compare two popular large-cabin models, the Gulfstream III and the Gulfstream G450. The GIII burns 600gph compared with the G450, which burns 500/gph. Assuming an average fuel price of $4.00/gallon, that is a difference of $400 per hour.

Older aircraft also have higher maintenance costs. For a GIII, the sum of maintenance parts, labor, and engine costs averages $1,385/hr. Compare that to the G450 with its average cost of only $514/hr. That means a GIII costs $1,271/hr more per hour to operate then the G450. Worse, while the GIII charters for less per hour than a G450, due to its age and relative desirability. This makes it practically impossible to earn a reasonable return offering a GIII for charter.

2. Versatility. This most commonly applies to light and midsize jets. Most light jets offer seating for six passengers, accommodate four large and two small suitcases, and have a range of 1,000-1,700 nautical miles. The true versatility of a jet is judged by how far it can fly when full of passengers and luggage. Most aircraft must reduce the amount of fuel they carry in order to accommodate the weight of passengers and luggage. Some aircraft must begin reducing the amount of fuel they can carry with as little as three passengers on board, reducing the nonstop range. When deciding between aircraft, select the plane that can carry the most passengers and luggage while sacrificing the least amount of performance and range. This makes your aircraft a viable option for a wider variety of short- and longer-range flights. No one likes stopping for fuel when there is another like size aircraft capable of nonstop flight.

3. Charter Rates. Market forces determine charter rates. However, some aircraft models are more popular with charter clients and tend to command slightly higher rates. Presently, a 2009 Cessna CJ3 enjoys only a small premium, perhaps $100, over a 2000 Citation Bravo, even though the Bravo is nine years older.

Here are the main criteria that are important to charter clients. First, the newer the aircraft the better, many charter clients prefer an aircraft to be no older then 5-10 years. Second, a larger passenger cabin with individual seats is favored over a smaller one with divans, since everyone prefers having their own seat rather then three people sitting sideways on a couch. Third, a large luggage compartment and fully enclosed lavatory attract more customers. A fully enclosed lavatory is defined as having a hard door separating it from the rest of the cabin. Some aircraft have a soft-leather curtain affording very little privacy.

What’s the bottom line? You should purchase the aircraft that best fits your needs and use charter as a way to reduce at least some portion of the cost of ownership. If you are deciding between two or three different models, and charter is going to play a key role in reducing costs, these tips above can help you select an aircraft with a high charterability factor and put you on the right track to achieve your goals.

Categories: Management | Tags: aircraft charter, aircraft management | 1 Comment »