Cost Of Operation

[Sisyphus]

Here is a rather rough estimate of the cost of operation an MD500E. It about the only information available on the Internet regarding operating costs for a particulat machine. The cost per hour taken from the MD website was figured in 2001, so the 2004 cost will be a few percent higher.

 

Little is available on the Internet regarding insurance costs. Figuring these costs is strictly a numbers game for insurance companies. If they know that on average every 5,000 flight hours a claim for a $1,000,000 hull is made, then the premium will be at least $200 an hour. If the know on average every 10,000 hours a claim for $2,000,000 liability is made, then the premuim will be at least $200 an hour. The real cost will be more because the insurance companies also have operating costs to pay. Quite frankly, these numbers have been pulled out of a hat. Never the less, they are probably pretty close. If anyone has refined knowledge of these costs, please advance it.

 

Depreciation is not a cost that an operator pays out in actual dollars, but if he could afford to put this much aside every revenue hour, then after 10,000 revenue hours he could buy himself another machine for $1,500,000.00.

 

The cost of the pilot has been apportioned partially to fixed and partially to variable costs.

 

The amounts for hangarage, office expenses and office salary are almost certainly understated and there are many more items that should be included here. What about the purchase of operations equipment? What about spares? The finance cost is essentially interest. It is easy to imagine that one would need $1 million to get into the helicopter business, half of which would be put up by the initial investors and the rest borrowed. Again, this is likely to be a conservative estimate.

 

Revenue hours are estimated to be 300 and 10% of that number is estimated to be nonrevenue time. Flying a helicopter nonrevenue costs a lot of money which the operator pays for one way or another.

 

It works out to be about $1,300 per hour to operate an MD500E. This is a staggering amount. It is a wonder that anyone gets into the helicopter business at all. There isn't even any profit figured into the equation. Even if the revenue hours are increased to 1000 the breakeven point doesn't change much. It must be miserable to be an operator who has invested everything he has into the business, is half a million in the hole and has to give his machine away for a fraction of what it costs him to operate it.

 

Reregulate.

 

Anyone who has some facility with spreadsheets can fiddle around with this sort of thing. If others contribute their knowledge to figuring costs, these estimates can be refined. As previously observed, these numbers are pretty rough.

 

Hourly (Variable) Costs

 

MD500E Direct Operating Costs (US $) $205.49

Exchange Rate 1.3

Cost in Can$ $267.14

Hull Insurance $200.00

Liability $200.00

Pilot $50.00

Depreciation $150.00

Total Variable $867.14

 

Monthly (Fixed) Costs

 

Hangarage $500.00

Office Expenses (Telephone etc.) $500.00

Office Wages $1,000.00

Finance Costs (8%/year on $500,000) $3,333.33

Pilot $3,000.00

Total Fixed per Month $8,333.33

Total Fixed per Year $100,000.00

 

Revenue Hours per Year 300

% Non Rev 10

Non RevCost per Year $26,014.11

 

Fixed Costs per Revenue Hour $420.05

 

Hourly Rate Required to Break Even @ 300 hrs/year $1,287.18

[Helilog56]

I am certainly glad you are not an accountant.....or an operator for that matter :down:

[widgeon]

I am certainly glad you are not an accountant.....or an operator for that matter :down:

<{POST_SNAPBACK}>

 

SIKORSKY web site gives calcs for S76 , unless the insurance rates have gone up significantly then your figures for insurance would seem to be way high.

 

http://www.sikorsky.com/file/popup/1,,176,00.pdf

 

Shows insurance rate of 2.5% per year.

 

If there was a hull loss every 5,000 hrs then there would be for the Canadian turbine fleet of 1,438 helicopters flying 500 hrs per year there would be total hull losses of 143 helicopters per year .

http://www.tsb.gc.ca/en/stats/air/2003/Sta...03.asp#figure_2

 

Shows 44 total helicopter accidents for 2003 (all helicopter types ) I am sure not all of these would have been total losses . Overall accident rate for all aircaft is 7.4 per 100,000 hrs.

 

Where do your figures of one total loss per 5,000 hours come from ?.

the would come out at 20 per 100,000 hrs.

[cap]

I have it from many sources that the cost of operation for a 206L3 is between $350-$400/hr. That includes the running maintenance only and does NOT INCLUDE aircrew wages or insurance. Now one can play with the figures all one wants to, but unless we have a disagreement on the first figure, someone explain how that a/c can make money 'going out the door' for $600-$650/hr? If it can't, then tell me what the rate should be and then tell me what perceantage of 206L3's you estimate would be getting that rate? Once that's all figured out, someone explain how everyone involved can get a 3% wage increase this year?

[widgeon]

If you make the insurance figure 2.5 % and decide whether the pilot is a fixed or variable cost ( can't be both ) , a single ship operator would most likely work out of a home office so office rental and salaries are not applicable. With 500 revenue hours a year the cost is more like 484 cdn / hr. That is assuming you are an owner operator you pay yourself 50K a year. The going rate for a 206L is indicated below , what is the current market rate for a 206B or MD500. But is shows there is precious little margin to allow for investment in new equipment.

 

A couple of years ago I did an analysis of helicopter fleet in Canada

 

manf year total

before 1970 218

between 1970 1979 808

between 1980 1989 499

between 1990 2000 366

between 2000 2002 72

 

These figures are based on the TC site figures in 2002

Most helicopters were manufactured before 1980. So in most cases they are already paid for and fully depreciated. If any one would like the complete file in excel format PM me and I can send it.

[cap]

####........sorry sir, I pre-date "deregulation" and that's not how it was. Don't be concerned about the customer. At one time, whenever a Medium showed up, the price per hour 'blew everyone away". Short years later, it was no big deal. Also when the 407 first came on-scene everyone said "$1,450/hr? Christ, that thing will be sitting a long time before anyone uses it, especially Forestry". Check with 407 Driver on how much his 407 is utilized and how long that has been going on for. Ask BCFS what the most popular helicopter is with them.......a 206 maybe? They want an Intermediate and the price doesn't scare them anymore. Years before they would have choked at paying the same rates. The exact same thing was also said about the 206 when it first came out and everyone was still using Bell 47's of some sort. Yes, the Canadian fleet size would drop and so would the operators........that puts the "Demand" in line with the "Supply". Right now the "Supply" outstrips the "Demand" and the customer is well aware of that. Sometimes a "culling of the herde" is necessary.

 

 

Widgeon........How did you buy that a/c? How many can afford to drop that kind of money all at once? If you are 'dancing' with some financing firm, then where's that figure factored in there hourly, monthly or yearly? Are you leaving the 206L3 out in some snowbank during the winter or where are you parking it when it sits for awhile?

 

New equipment is not an option and if you 'ding' a T/R and gotta get a another T/R gearbox and blades, then you're trading in that 1/2 ton for a Yugo so you can get around. Last thing you also want is to have to hire some bitchin', snarlin' pilot who expects a 3% raise this coming year plus benefits.

[Sisyphus]

Pilot cost can be both fixed and variable as it is common for a pilot to be paid both by the hour and by the day or month.

 

There are some other costs to be figured in also. There are the costs of company vehicles. If the client doesn't pick up crew expenses, the operator is liable for these. Lost revenue is a factor if you ding something. Even with insurance, tens of thousands of dollars can vanish instantaneously. There can be many, many little details that cost money. It all adds up.

 

When figuring costs, it is best to overestimate, then add on 5% when you are done. Make the picture as dismal as you can and then if you can figure out a way to break even, you might make a little money.

 

Operating certificates should be very difficult to get. There are enough operators in Canada. Let the ones extant have what business there is left. Things are only going to get worse. Jet fuel could easily hit $10 a litre in a few years. The costs of everything, parts, insurance, labour, utilities, communications, rent, transportation, everything you can imagine are going up and going up fast.

 

And then there are those pesky, dispoditious pilots...

[cyclic monkey]

Sisyphus, there you go again...."dispoditious" is not a word in the english language.

 

You should try to get a grip on reality before that big rock you are pushing up the hill starts to roll down and squashs you.

It appears you might be attempting a challenge that is a little too big for your skills....

[Phil Croucher]

Widgeon

 

You still have to find the money to pay for the house in which you have your office (believe me I know!). Also, the fact that most aircraft are depreciated doesn't mean much when you are trying to buy one. This only applies to the companies that depreciated them, and even then they would be well advised to stick something in the pot for increases in the other things they have to allow for.

 

Off the top of my head, a prudent operator should set aside stuff for:

 

Depreciation/Replacement

Unsched maintenance

sched maintenance

Fuel/Oil

 

The trouble is that people don't - they assume all the income is spendable and survive on cashflow. Big mistake!

 

Let's not forget the operational equipment that most fire authorities insist you have before you even think of bidding.......

 

Phil

[Phil Croucher]

We were in a similar position here - but it's where saesmanship comes in - we point out that, although helicopters do cost a lot of money, that cost is a quarter of what it would cost for a lineman to check the power lines, and in a quarter of the time. We have no complaints about cost now, just more work!

 

I guess it all depends on how much an operator's time is worth, or whether they care

 

Phil