Aircraft True Cost of Ownership Spreadsheet
Posted: Sun Jun 24, 2012 8:49 pm
I developed a spreadsheet that calculates the cost of buying with cash versus buying with financing, and compares those two options to renting based upon user defined variables. I hope this is of some entertainment value to the users of this forum.
The user enters all of the following variables and the outputs are generated automatically:
Purchase Price, Sales Tax Rate, Pre Purchase Costs, Closing Costs, Downpayment Percentage, Amount Financed, Interest Rate on Loan, Loan Period in Years, Years of Ownership (1-7 years), Tach Hours per Year, Rental Cost Per Hobbs Hour, Hobbs/Tach Ratio, Wet versus Dry Rental Rate, Gallons Per Hour, Fuel Cost per Gallon, Oil and Misc per Hour, Annual Inflation Rate, Insurance % of Hull Value, Annual & Maintenance, Misc Annual Data Charges, Tie Down per Month, Hangar per Month, TBO, Overhaul Cost, Annual Depreciation Rate, After-Tax Return on Capital, Contingency Reserve
This sheet only works for years 1-7 of ownership. Why? Because calculations going out more than 7 years would have required a complex reworking of the sheet due to certain Excel limitations - had I known how complex this sheet was going to end up being I would have started it differently to have avoided this limitation. But, for my purposes 7 years is sufficient.
I developed this spreadsheet because I was frustrated with the common statement I have heard that goes something like "buying the airplane was way more expensive than I thought." That should not be the case. Nobody should be in a position where they enter a transaction without being able to figure out what a transaction might cost them, given reasonable assumptions that they are comfortable making. Also, the common statement I have heard like "aircraft ownership costs about 3 times the annual fuel cost" just never made any sense to me. Considering that there are many huge options with huge cost consequences to aircraft ownership, such as tie down versus hangaring, or cash purchase versus financing, I wanted something a little more tangible than the general information I found available.
Although I had seen many spreadsheets that calculated "total cost of ownership," each one that I had seen came with caveats like "this sheet does not take into consideration cost of capital." Also, I had never seen an analysis that took inflation into consideration, or took depreciation into consideration (other than tax-related depreciation - this sheet does not address tax issues other than sales tax as an operating cost). But, this spreadsheet also treats some costs as sunk costs where others may consider those costs capital items that should be reflected differently. Also, this sheet makes assumptions regarding capital returns (short terms returns versus long term returns) that the user might disagree with. USER BEWARE!
WARNING - THIS SHEET IS FOR ENTERTAINMENT PURPOSES ONLY! The methodologies used on this sheet are fundamentally flawed and may not be used for any purpose whatsoever. In other words, DO NOT RELY UPON OR USE THE INFORMATION ON THIS SHEET FOR ANY PURPOSE WHATSOEVER.
This sheet was not created with the intent to show that buying with cash is better than financing, or that renting is better than buying - this sheet generates no output or conclusion that says anything like that either way. All this sheet can do is calculate ballpark cost estimates regarding the true cost of ownership of an aircraft given assumptions the user makes (with built in flawed methodologies inherent in the sheet, of course!).
You are going to need Microsoft Excel in order for this spreadsheet to work. The spreadsheet is available for download here: http://bit.ly/ObXAd7
Enjoy.
The user enters all of the following variables and the outputs are generated automatically:
Purchase Price, Sales Tax Rate, Pre Purchase Costs, Closing Costs, Downpayment Percentage, Amount Financed, Interest Rate on Loan, Loan Period in Years, Years of Ownership (1-7 years), Tach Hours per Year, Rental Cost Per Hobbs Hour, Hobbs/Tach Ratio, Wet versus Dry Rental Rate, Gallons Per Hour, Fuel Cost per Gallon, Oil and Misc per Hour, Annual Inflation Rate, Insurance % of Hull Value, Annual & Maintenance, Misc Annual Data Charges, Tie Down per Month, Hangar per Month, TBO, Overhaul Cost, Annual Depreciation Rate, After-Tax Return on Capital, Contingency Reserve
This sheet only works for years 1-7 of ownership. Why? Because calculations going out more than 7 years would have required a complex reworking of the sheet due to certain Excel limitations - had I known how complex this sheet was going to end up being I would have started it differently to have avoided this limitation. But, for my purposes 7 years is sufficient.
I developed this spreadsheet because I was frustrated with the common statement I have heard that goes something like "buying the airplane was way more expensive than I thought." That should not be the case. Nobody should be in a position where they enter a transaction without being able to figure out what a transaction might cost them, given reasonable assumptions that they are comfortable making. Also, the common statement I have heard like "aircraft ownership costs about 3 times the annual fuel cost" just never made any sense to me. Considering that there are many huge options with huge cost consequences to aircraft ownership, such as tie down versus hangaring, or cash purchase versus financing, I wanted something a little more tangible than the general information I found available.
Although I had seen many spreadsheets that calculated "total cost of ownership," each one that I had seen came with caveats like "this sheet does not take into consideration cost of capital." Also, I had never seen an analysis that took inflation into consideration, or took depreciation into consideration (other than tax-related depreciation - this sheet does not address tax issues other than sales tax as an operating cost). But, this spreadsheet also treats some costs as sunk costs where others may consider those costs capital items that should be reflected differently. Also, this sheet makes assumptions regarding capital returns (short terms returns versus long term returns) that the user might disagree with. USER BEWARE!
WARNING - THIS SHEET IS FOR ENTERTAINMENT PURPOSES ONLY! The methodologies used on this sheet are fundamentally flawed and may not be used for any purpose whatsoever. In other words, DO NOT RELY UPON OR USE THE INFORMATION ON THIS SHEET FOR ANY PURPOSE WHATSOEVER.
This sheet was not created with the intent to show that buying with cash is better than financing, or that renting is better than buying - this sheet generates no output or conclusion that says anything like that either way. All this sheet can do is calculate ballpark cost estimates regarding the true cost of ownership of an aircraft given assumptions the user makes (with built in flawed methodologies inherent in the sheet, of course!).
You are going to need Microsoft Excel in order for this spreadsheet to work. The spreadsheet is available for download here: http://bit.ly/ObXAd7
Enjoy.