A few comments from a previous owner of two different airplanes...
300 hrs/yr is a ton of flying. For most people, that rate is not sustainable. The AOPA says the average privately owned airplane flies less than 50 hrs per year. A common tendency among first-time buyers is to over-estimate the amount of time they will use it. That holds true for airplanes, boats, tread mills, mountain bikes, etc. When you first buy a new toy, you use it all the time. By the second year, you use it half that much. By the third year you use it half as much again and you begin to question why you still own it. (Ever see exercise equipment advertised as "barely used"?)
Now, if you are buying it for a short-term goal of getting 300 hrs worth of experience and then selling it, that changes the equation somewhat -- both good and bad. However, it does beg a question: Did you buy a house when you were in college? I didn't. Most people don't. The reason why is that home ownership is a lifestyle. When I was in college I needed a cheap roof over my head while going to school. I didn't want to spend Sat afternoons fixing the plumbing, mowing the grass or changing the wall paper (all things that I have spent endless Saturdays doing since buying a house). I used to cringe every time I wrote a rent check because I felt like I was "wasting money" but now that I understand how much it truly costs to own a house, I realize I really had a bargain. I rented for $xxx/mo for as many months as I wanted to live there. The day I graduated, I packed and moved and that was the end of it. I didn't have to worry about unloading my house and how much I could get for it and how long it would take to sell it while I continue to make payments.
A better analogy may be like renting a car when you go on vacation. How long do you have to stay on vacation before it makes more sense to buy a car instead of rent?
Just like JHR said, buying a plane is much, much more than how much it will cost per flight hour. In that sense, it's much more akin to buying a house than buying a car. I strongly recommend you read Airplane
Ownership if you are considering this option.
http://www.amazon.com/Airplane-Ownership-Ronald-J-Wanttaja/dp/0070681589 You don't have to read very far before Ron says plainly that buying is more expensive than renting. I bought an airplane because I wanted to own one, not because I was trying to save money. I wanted the lifestyle that came with having a plane of my own.
I was interested in the discussion on engine reserves. There are two ways to look at it: One is that you should save a certain dollar amount every flight hour for the overhaul, or the other is to plan to sell it prior to OH, but realize that there is a loss of value for every hour you fly the airplane. Personally, I had one plane in private use and one on a lease-back. The lease-back (Seneca) I saved a dollar amount for every flight hour and set it aside (along with reserves for propellers, avionics, paint, and interior -- all those things wear out. The engine I did by flight hour, the rest I did by calender month.) My personal airplane (Grumman Yankee) I didn't save for the reserves. I just paid for updates to paint, interior and avionics. I didn't keep it long enough to need an engine overhaul, but I planned to. I decided that I would just accept a loss of value for every hour instead of save additional money for the OH. This worked well for me because I paid cash for the airplane, so I never got "upside down" on a loan. The way to figure the amount per hour you should save or accept in loss of value, is to determine the replacement value and the remaining life of that item:
Let's say you buy a PA-28-140 with a mid-time engine, paint, avionics, interior.
Engine: 2000 hrs / 12 yrs TBO (whichever comes first) for an O-320-E2A. Let's say your engine was last overhauled 10 yrs and 700 flight hours ago. (You might make it to 2000, but odds are you won't. However that's a whole different thread, so let's
assume your engine will make it to TBO.) A quick scan of the Piper's Owner web site reveals that an OH for a -140 is ~$20K, as reported by one owner. If you divide the price of the overhaul by hours remaining (1300), you get $15.38. That's the amount your engine will depreciate each hour it's operated.
The same process works for the prop. A fixed pitch prop probably doesn't have a TBO. I had mine done when I painted my plane (mostly to change the color of the prop so it would match the new paint job). I think it was about $500 to inspect, dress, re-balance and paint it. ($500/1300 hrs = $0.38)
If you fly 300 hrs / yr, that's 25 hrs/month. Engine & prop depreciation will be $15.76 x 25 = $394/month
Paint & interior: Figure out how much it is to repaint and redo the interior, then estimate how many months before you have to do them. Divide one by the other and that's the amount the P&I depreciate every month. A regular two-tone paint job should run about $5K. A four-place interior could be half of that, depending on the condition you start with. For argument's sake, let's say your plane is average, and mid-way to needing P&I redone. If the life expectancy of P&I is 7 yrs, then you have 42 months before you need to spend $7500 to replace them. $7500/42=$177/month depreciation of P&I.
Avionics: How much is it to replace the instruments and avionics you have installed. Radios wear out, instruments fail, old things need overhauled/replaced with new things. (Don't confuse this with an upgrade. Try to keep this an "apples-to-apples comparison. When the time comes it may make sense to upgrade, but that's a different decision process.) Divide the replacement cost by the expected remaining life of the panel, that's the depreciation number. My NARCO VOR failed and the avionics shop suggested I pull out both my MX radios and NARCO VOR/ILS and replace them with Bendix Kings. They estimated it would be $13K for the whole job. (This was 4 yrs ago). Since I only paid $14K for the plane in '99, I wasn't willing to invest that kind of coin since I knew I would be selling it in a few months. I had my AI overhauled once for about $850. I would think $5K would be a good figure to overhaul basic IFR & steam guages. If your panel is average, then you're half-way through the life of these items. If they all need attention every 5 yrs, then $5K/30 months = $167/mo.
Recap:
Engine & prop: $394/mo (at 25 hrs per month)
Paint & Interior: $177/mo
Avionics: $167/mo
Total: $738 per month your plane will depreciate from use and age.
If you fly those 300 hrs in 12 months, it will cost you $8856 in depreciation before you ever put one drop of gas in it, tie it down, or insure it. That works out to be $29/hr, which may or may not be bad, depending on the other factors.
The value of the hull is more subjective. I tend to agree that the rising price of fuel will have a negative impact on the value of airplanes. As planes become more expensive to operate, less people want them which makes their value trend downward. This is not to say that you won't see an increase in value of an airplane over several years of ownership, but I do think that given the current economy, you could do better with your money in a different investment and come out farther ahead. (Opportunity cost should be part of your decision process.) You might be able to offset some of that $29/hr depreciation cost with the appreciation of the airplane as a whole, but I don't think you will see it go up much. If it rises along with inflation, then let's say it goes up 3%. Again, a quick scan of the net reveals several in the $25-30K range for an average copy. If you bought yours for $27K, then a 3% increase would be $810. That would reduce your $8856 depreciation to $8046 and work out to ~$27/hr.
Disclaimer: you may argue with the value I've assigned to the above items, and I freely admit that they are based on my gut feeling and experiences owning airplanes. My figures may be out of line high or low, but the process is what you need to consider. Do your own research and assign your own values in both dollar value and expected life of the items and you'll come up with a number that will work for the plane you are considering. If you consider a different airplane, the figures will change, but the process will be the same.
One last caution. My Yankee didn't have any major issues for 5 years, then one day the FBO manager called to say there was a fuel spill under my plane. Both wings had to come off to reseal the fuel tanks: $3000. The second plane I owned was a Seneca I had in a lease-back. One day a pilot was preflighting it and found oil on top of one of the engines. The mechanic found a small crack under it. 6 weeks and $10K later the plane was returned to service. Both of my planes had maintenance funds that I saved money in for every hour they were flown, and I paid cash for both of these repairs. The guy who preflighted my Seneca was a renter. I'm sure he complained about "wasting" $175/hr on rent, but when he found the crack it didn't cost him a dime. It nearly broke my company. What is your plan to pay for a catastrophic event like one of these? If you can't pay for a $1,000 repair at any given moment, then I'd suggest you can't really afford to own and airplane, no matter what the numbers say. I broke my tail tie-down once and it cost $700 to repair. If that's the difference between your plan saving you money or not, then you should just rent and be happy that you know exactly how much your flight training will cost you per hour. You have the added benefit of being able to fly a variety of airplanes in a variety of locations. You won't be tied to just one make & model & registration number. (That's two of the benefits of renting.)
I hope buying an airplane is in your future because it is a wonderful experience. But if you buy for the wrong reasons, then you will be one of the guys who describes his experience as the two greatest days of airplane ownership: 1. The day you buy it, 2. The day you sell it.
Blue skies,
Rob
