Purchase Lease Rent Maintenance and Insurance for Aircraft Capstone Project

Pages: 6 (1718 words)  ·  Bibliography Sources: 8  ·  File: .docx  ·  Level: College Senior  ·  Topic: Transportation

Aircraft Ownership Considerations

The world of aircraft ownership can be very rewarding. It also comes with many specific and hidden costs that many people fail to recognize or plan for. There are many different options for ownership or accessing an aircraft as well as options for financing and insuring a craft. Maintenance costs and insurance are also major parts of the rental and ownership equations. The costs and energy involved in aircraft ownership and maintenance are quite complex and should be well understood before a purchase is made.

Aircraft Rental

Renting an aircraft is perhaps the most trouble-free method of utilizing a craft. While the initial cost can be quite high relative to owning the same aircraft, a renter does not need to worry about considerations such as fuel, maintenance, hangar, or insurance costs on the aircraft themselves. They also don't have to worry about regular upkeep and the aircraft is usually available on an as-needed basis. The renter may chose to purchase his or her own renter's insurance to cover themselves incase of an accident or incase the rental facility does not have adequate insurance or has no insurance at all.

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There are some major drawbacks to aircraft rental though as well. First and foremost, the renter is at the mercy of the renter's and maintenance schedules. The aircraft may go down for maintenance at any time and sometimes the aircraft is booked for days during prime days or times of the day. Renters have to learn to compromise in this respect as the rental aircraft is typically shared between multiple renters. Rental aircraft also are not often equipped as well as a privately-owned aircraft. Many rental operations keep their rentals in decent shape but fail to splurge on costly upgrades. This can be frustrating for some people since they may be accustomed to specific equipment or upkeep standards that are well above the normal maintenance requirements.

Capstone Project on Purchase Lease Rent Maintenance and Insurance for Aircraft Assignment

Some rental facilities require renters to be checked out in a specific aircraft, sometimes in all of their aircraft before a renter can rent. This can be time consuming and costly, especially if the facility requires the renter to retest every year on a regular basis. But this can be offset by the fact that rentals typically cost a fraction of the price that ownership would. A typical newer Cessna 172 rental may cost $175 per hour, but ownership would be 1000 times that, and the cost to maintain it would add more to that figure.

Aircraft Leasing

Leasing an aircraft is an excellent option for someone who does not want to pay for an aircraft up front and who wants to upgrade or change aircraft every year or few years. Aircraft leases can be beneficial to pilots who prefer to fly the aircraft without having to share it. Some lease options allow for lessee's to build equity on an airframe but most do not. The maintenance is typically taken care of by the leasing agent but this depends on the terms of the lease contract. Some contracts specify that the lessee be responsible for maintenance. This can vary from preventative maintenance and inspections to every aspect of maintenance including Airworthiness Directives and parts that may fail or be life limited. There are many different kinds of aircraft leases to suit the needs of different pilots and owners. Lease rates can run from under $100 per hour to thousands per hour, depending on the aircraft and the lease arrangements. One of the nice things about an aircraft lease is the fact that the aircraft can be traded in for a newer model after a year or two, or a different lease contract. This allows the lessee the option to upgrade or keep their current aircraft. This flexibility is partially what the lessee is paying for; the ability to select a different aircraft from time to time.

Aircraft Ownership/Fractional Ownership

Fractional ownership is an excellent opportunity for a person or business to utilize an aircraft without bearing the entire burden of maintenance, storage, and operational costs. Many higher-end aircraft are owned fractionally, where multiple companies buy a "share" of the aircraft over a one-year time period, much like a time share in a condominium. These shares can range between 1/2 ownership to 1/100th ownership, depending on the needs and the budget of the company or individual. Typically, fractional ownerships are for people and businesses who do not intend to use the aircraft on a very regular basis, or a basis where complete ownership is required. For instance, if a company has a bi-annual meeting they wish to fly their executives to and from, they may chose to purchase a share in a corporate jet that allows them to utilize the aircraft during these times. That way, they don't have to pay for the entire cost of the aircraft as well as the upkeep and they can use it when they see fit, up to the number of days or hours they own within the whole.

Depending on the ownership contract, fractional ownership can also mean shared maintenance and storage costs as well. This is attractive to people who could not afford the maintenance or storage costs on their own and who are willing to not just share these costs with others, but share the aircraft's availability as well. If four fractional owners decide to buy a newer Piper Warrior, spending $50,000 for the initial purchase and budgeting approximately $5,000 per year for maintenance and upgrades, they would all be responsible for one quarter of that cost. This is an easy and affordable way to obtain a 1/4 share of an aircraft that is relatively reliable and versatile.

Aircraft Maintenance and Operating Costs Considerations

Aircraft maintenance is much more involved than automobiles or any other type of machinery because of FAA and Federal regulations relative to inspections and life limited parts. For an owner, maintenance costs can vary depending on the aircraft and how it is equipped. Old aircraft often require more maintenance as Airworthiness Directives and mandated maintenance upgrades and changes occur more frequently with these aircraft due to their age and materials used in construction. At the very least, owners should plan on spending a few thousand dollars a year on an annual inspection, which takes place every 12 calendar months. These annual inspections have to be performed by an a&P mechanic that possesses an IA, or inspection authorization. Typically, IA certified a&P mechanics charge a premium for their services, which take place at least during every annual inspection.

Beyond this annual inspection, some airframes and operation require further inspections every so many hours. These can include 25-hour, 50-hour, 100-hour inspections and so on. These are not required for all types of aircraft or operations, but the owner should be familiar with these inspections. Also, aircraft have to have certain specialized inspections performed regularly as well on their transponders, emergency locator transmitters, pitot-static instruments, and any IFR equipment as well. These inspection times vary from every 12 to 24 calendar months and can be accomplished during the annual or 100 inspections, depending on equipment considerations. Aircraft owners should be aware that aircraft are very expensive to maintain, and many facilities and individuals chose to factor maintenance costs into their rental or lease rates.

The cost of aircraft maintenance varies from shop to shop, and many pilots and aviation enthusiasts are also certified a&P mechanics. If an aircraft is taken in for work to a shop, an owner should expect to pay around $100 per hour of shop labor or more. This is not including parts as well, which are often very costly due to the nature of the industry an the certification and insurance requirements that are heaped on to all parts being used in the industry. These costs can add up quickly, and most owners of light single-engine aircraft should expect to spend a few thousand dollars each year at the very least, for an annual inspection.

Aircraft Insurance Considerations

Aircraft insurance is a huge business and can be quite confusing for renters, leasers, and owners. There are two basic types of insurance for aircraft, hull insurance and liability. Hull insurance is insurance that covers damage or loss of the aircraft itself. This is usually much more expensive than liability, which only usually covers damage to other aircraft or property in the event of an accident or incident. Hull insurance, like comprehensive automobile insurance, comes with the responsibility of a deductible. If an aircraft is totaled, and the owner has hull insurance, the insurance company will cover the loss after the deductible is paid. Some deductibles can be as high as 20% of the aircraft's fair market value, but deductible rates depend on many factors, just like automobile insurance deductibles.

Pilots and renters have the ability to purchase their own renter's insurance to help supplement existing aircraft insurance. This type of insurance is relatively inexpensive and can also help cover the deductible for the hull in the event that an aircraft… [END OF PREVIEW] . . . READ MORE

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