- 07 Nov 2018
- Dave Higdon
- Ownership
How to Own and Operate a Disposable Jet
While it’s not an option for every operator, for those considering owning and operating a much older, ‘disposable’ business jet, David Wyndham and Jim Sellers offer tips on how to manage the process…
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David Wyndham
David Wyndham has extensive expertise in aircraft sales and acquisitions, asset management, cost an1
While it’s not an option for every operator, for those considering owning and operating a much older, ‘disposable’ business jet, David Wyndham and Jim Sellers offer tips on how to manage the process…
Last month we considered why anyone would want to buy and operate a very old business jet. The maintenance costs are high, spare parts can be difficult to find, and total time spent in the shop will impact the aircraft’s availability. So why would you want to go down this route?
The answer is simple: value. You can buy a very old business jet for relatively little money, operate it for a few years until you face a major maintenance bill (i.e. an engine overhaul), then sell it for parts to one of several salvage companies (including JSSI Parts). The net cost is less than the market depreciation of a new jet.
Following is an example featuring a client who owns a 1988-model Light jet. According to Vref and Aircraft Bluebook, this aircraft – with engines half-way to an overhaul – retails for $600k. However, our candidate aircraft has the following maintenance coming due in the next 12–18 months:
- A major airframe inspection: $60k
- Avionics updates, including ADS-B: $100k
- Paint and interior refurbishment: $130k
- Two engine overhauls with significant life-limited parts replacement: $1.6m
The total upcoming maintenance costs, excluding routine checks and unscheduled problems will total $1.89m, more than three times the typical retail value of this model jet, leaving the operator with three options…
Option 1: Spend the money and do the work. This option is not recommended because even with the upgrades the residual value history suggests the aircraft value may only be $1.2m–$1.4m.
Option 2: Sell the aircraft for salvage. This specific jet could be worth $300k for its parts if the airframe is in good condition.
Option 3: If you love this particular model and it suits your needs, scrap the current jet and buy a younger one. Looking at other models currently offered for sale on the used market our owner could spend $1.7m for a newer model that was upgraded with brand new engines a few years ago, including them being on a guaranteed hourly maintenance program.
Alternatively, a similar model could be purchased with more hours left on its engines for the same $600k that the current jet is worth. It might require $50k–$100k of interior or paint work to suit your tastes/needs, but the total cost would still be significantly less than the maintenance bill to keep the current jet flying.
Buying & Operating Disposable Aircraft
Though buying and operating a disposable aircraft is certainly not the right option for everybody, following are some tips for general guidance if it is a viable option for your operation.
Tip 1: These older aircraft will require a lot more maintenance and TLC than their newer counterparts. If this is a viable option for you, you’ll need a maintenance director that not only knows the aircraft extremely well, but also knows where to find spare parts. Without the right maintenance director to care for your disposable aircraft, including sourcing what it needs to maintain airworthiness, you shouldn’t consider acquiring one.
Tip 2: Plan-ahead and be prepared for the downtime. Your aircraft is likely to spend half its remaining life in the shop awaiting parts or undergoing maintenance. Subsequently, your annual maintenance budget will be the most significant part of your hourly costs (expect it to exceed 50% of the variable cost). That estimate excludes the major maintenance items like engine overhauls.
The larger portion of time the aircraft spends in the maintenance shop can still work if your travel needs are booked well in advance and if your total usage is relatively low. Nevertheless, you will need to have patience and be prepared to change your travel plans or arrange alternative lift when your aircraft is unexpectedly grounded when you need it.
Tip 3: Use an aftermarket resource to evaluate exchange options. The salvage value of an aircraft is not always a simple equation. You will need to work with experts (such as JSSI Parts) who know the market, and your model of aircraft.
Tip 4: Look for an aircraft with no major maintenance due in the next three-to-five years. Engines are a big part of the planning in this regard. If you anticipate flying 150 hours annually, look for an aircraft with 450+ hours remaining before the scheduled overhaul is due.
Bonus Tip: In 2020, the FAA will require all aircraft to be ADS-B Out equipped. ADS-B Out is mandatory for position reporting in most of the US airspace, and swathes of the rest of the world. The cost of this upgrade varies depending on the make and model of aircraft and what avionics system updates are installed.
If you are looking at any used aircraft for purchase in the next two years, make sure it is either already ADS-B Out equipped, or at the least has a date set for the installation. If it doesn’t you may not be flying in US airspace at all come January 1, 2020.
Disposable Aircraft Shopping Tips
In terms of specific models to consider, ensure that they were built in significant numbers over a long period. For example, more than 1,200 Citation IIs were produced between 1978 and 1994. Similarly, hundreds of Learjet 35s were built between 1974 and 1992.
More than 50% of both fleets remain active, and while maintenance costs are quite high, there are several third-party maintenance shops working to support them.
There are specific areas of concern for both jets in terms of spares, however, and that (as mentioned previously) will require knowledgeable maintenance personnel to manage.
In Summary…
As a rule, these very old aircraft are not recommended unless you have a plan and the right partners for spares support who can help keep operational costs down. In addition to JSSI Parts, there are various smaller firms that specialize in specific makes and models.
Should you proceed, you should be in no doubt what you are in for and be prepared to spend some time and, relative to the acquisition price, substantial cost to keep your aircraft flying. Inevitably, you must also be prepared to say goodbye when the time comes sooner rather than later…
David Wyndham
David Wyndham has extensive expertise in aircraft sales and acquisitions, asset management, cost and budget analysis and finance fundamentals. With several decades supporting aircraft owners and operators in making fully-informed decisions about their aircraft needs, his expertise spans from the flight department to the executive boardroom.
David is the founder of David Wyndham + Associates, and previously he was a Co-owner and President of Conklin & de Decker where he consulted with large corporations, individuals, and government agencies on their aircraft needs.
