How to calculate total cost of ownership/lease (TCO)?

[sleepypig]

Hi Everyone,

I've started playing AWS maybe a month ago and got totally addicted 

One of the things I tried to do was figure out total cost of ownership, especially when considering buying up airframes at the used market (UM).

How does everyone calculate the total cost of airframe ownership, especially when comparing one aircraft with another for purchase?

I can see the following dynamic variables simulated in the game that I'm trying to consider when buying aircraft:

- A & B checks
   In one year, a lessee/owner will carry out a total of 52 weeks (- 2 weeks for a C check, - 12 which are B checks)
   So around 52.14 weeks - 12 - 2 =~ 38.14 A checks per year.
   Therefore a yearly cost would be 38.14*A check + 12*B check
   
- C checks
   How long does a C check expire?  I'm guessing a C check is required every 1 year?
   If so a yearly cost would be the C-check value itself

- D check
   Does a D check always occur every 8th year?
   If so, the yearly cost to consider this would be (D check price)/8  --- is this correct?

- Depreciation / lease price.
   I have no idea how this works, the weekly depreciation value just automagically appear in my aircraft stats.
   For example, one of my flying 17 year old ATR-42 600 weekly depreciation is 13440, when I compare it with the recommended sale price, it turns out to last 10 years until 0 value.
   Another idle 13 yo ATR-72 500 had a weekly depreciation cost of 17970, it turns out to 18 years until 0 value.
   So I'm guessing, maybe one way to forecast depreciation value is to target depreciation at a total aircraft age of ~30 years old?
   What I don't know is if or how this is dependent on book value, the numbers of landings/hours of flight, etc.


So the total cost of ownership per year would be something like:

(38.14 * A check price) +
(11 * B check price) +
(C check price) +
(D check price / 8 ) - 1  +
(aircraft median price cost / (30 - aircraft age)

...while the total cost of leasing per year would be (assuming we skip D checks):

(38.14 * A check price) +
(11 * B check price) +
(C check price) +
(lease price * 12)

(all this disregards landings/flight hours which I don't know how it will affect aircraft value)

From this, it shows that leasing the lowest cost lease aircraft may often not be the most cost-effective choice when choosing an airframe from the used market, a more costly lease price may be offset by a lower maintenance old aircraft.

Plus, it seems like (at least for b737-600-max) the ownership costs starts to become higher than the leasing costs of an aircraft after about 18-24 years.

Any thoughts on what I could be missing?

Cheers!




ps. here's a sample table from my used aircraft market (beginner's world 2):


Model   Condition   Age   Flight Time   Landings   lease/ownership TCO   Price    
Boeing 737-800   98%   19.93 y   40 915   21 642   lease: 263800 tcolease: 539508.33 tco own 8y: 513081.00   21 366 874 USD
Boeing 737-900   91%   21.5 y   56 003   23 769   lease: 285200 tcolease: 588006.67 tco own 8y: 595750.89   23 096 780 USD
Boeing 737-600   90%   18.36 y   34 049   20 338   lease: 292200 tcolease: 512452.50 tco own 8y: 438071.82   23 667 837 USD
Boeing 737-800   60%   19.81 y   31 911   21 405   lease: 327800 tcolease: 703208.33 tco own 8y: 675026.24   27 952 000 USD
Boeing 737-900   98%   18.52 y   45 327   25 960   lease: 347000 tcolease: 585832.50 tco own 8y: 495285.61   28 103 038 USD
Boeing 737-800   95%   20.63 y   43 365   20 385   lease: 356100 tcolease: 647544.17 tco own 8y: 612009.05   28 846 750 USD
Boeing 737-600   96%   14.61 y   25 880   12 504   lease: 388500 tcolease: 540804.17 tco own 8y: 356241.08   31 464 950 USD
Boeing 737-900   94%   14.07 y   29 837   8 560   lease: 371800 tcolease: 545709.17 tco own 8y: 369636.34   31 699 000 USD
Boeing 737-700   93%   14.66 y   44 499   19 848   lease: 414000 tcolease: 572437.50 tco own 8y: 375417.62   33 536 138 USD
Boeing 737-800   92%   15.76 y   38 763   18 667   lease: 423500 tcolease: 610410.00 tco own 8y: 428835.33   34 301 650 USD
Boeing 737-600   100%   12.12 y   13 083   11 194   lease: 428400 tcolease: 555392.50 tco own 8y: 316689.22   34 696 604 USD
Boeing 737-800   95%   16.3 y   31 329   21 575   lease: 429400 tcolease: 624317.50 tco own 8y: 449297.03   34 781 448 USD
Boeing 737-900   60%   10.84 y   19 963   8 853   lease: 440800 tcolease: 632552.50 tco own 8y: 389141.79   35 701 000 USD
Boeing 737-900   95%   19.5 y   42 668   35 097   lease: 448800 tcolease: 715302.50 tco own 8y: 613837.81   36 354 000 USD
Boeing 737-900   93%   17.35 y   40 852   15 550   lease: 451900 tcolease: 676340.00 tco own 8y: 514862.85   36 603 397 USD
Boeing 737-800   95%   16.46 y   44 480   19 426   lease: 452100 tcolease: 660235.00 tco own 8y: 479387.31   36 617 629 USD
Boeing 737-900   93%   13.32 y   33 307   16 386   lease: 460000 tcolease: 619530.00 tco own 8y: 380733.99   37 263 147 USD
Boeing 737-800   93%   12.44 y   30 476   23 666   lease: 466000 tcolease: 611751.67 tco own 8y: 356908.90   37 749 510 USD
Boeing 737-600   94%   12.89 y   26 252   13 349   lease: 479300 tcolease: 624309.17 tco own 8y: 366049.39   38 821 855 USD
Boeing 737-700   93%   14.77 y   41 764   13 101   lease: 480100 tcolease: 639832.50 tco own 8y: 407614.60   38 891 388 USD
Boeing 737-800   95%   10.77 y   25 964   16 586   lease: 489000 tcolease: 619391.67 tco own 8y: 330683.16   39 610 468 USD
Boeing 737-900   96%   16.9 y   40 537   30 817   lease: 489100 tcolease: 699065.00 tco own 8y: 508092.89   39 616 000 USD
Boeing 737-900   99%   11.52 y   27 638   12 334   lease: 493000 tcolease: 638010.00 tco own 8y: 356929.42   39 932 241 USD
Boeing 737-900   97%   16.88 y   37 769   13 493   lease: 495900 tcolease: 712048.33 tco own 8y: 518744.67   40 166 304 USD
Boeing 737-600   94%   14.05 y   26 463   19 114   lease: 503100 tcolease: 661013.33 tco own 8y: 405642.18   40 751 485 USD
Boeing 737-900   93%   15.17 y   49 204   14 994   lease: 513300 tcolease: 696685.83 tco own 8y: 457296.16   41 577 372 USD
Boeing 737-800   93%   14.12 y   37 311   17 224   lease: 521100 tcolease: 685789.17 tco own 8y: 422346.33   42 206 257 USD
Boeing 737-600   95%   11.62 y   31 381   8 406   lease: 521700 tcolease: 654425.83 tco own 8y: 353468.20   42 257 957 USD
Boeing 737-700   76%   16.53 y   26 566   15 940   lease: 496100 tcolease: 722404.17 tco own 8y: 524787.57   42 297 000 USD
Boeing 737-900   97%   15.78 y   25 309   14 867   lease: 498300 tcolease: 696606.67 tco own 8y: 478379.46   42 484 285 USD
Boeing 737-700   95%   13.62 y   41 801   17 289   lease: 530200 tcolease: 676719.17 tco own 8y: 397199.45   42 948 170 USD

[tyteen4a03]

D check also includes a C-check.

[sleepypig]

Oh, you're right!
Thanks!

So can I assume C check also includes B check (and B check includes an A check)?

If so the formula becomes:

Cost of ownership (8 years including 1 D check):

(38.14 * A check price) +
(11 * B check price) +
(C check price) * ( 7/8 ) +
(D check price / 8 )  +
(aircraft median price cost / (30 - aircraft age)

...while the total cost of leasing per year would be (assuming we skip D checks):

(38.14 * A check price) +
(11 * B check price) +
(C check price) +
(lease price * 12)

[schro]

So... maintenance costs for all checks increase as a plane ages, so... you'll not be able to actually answer the question you've set out to solve...

[Talentz]

So... maintenance costs for all checks increase as a plane ages, so... you'll not be able to actually answer the question you've set out to solve...

Remember to smile schro 


Talentz

[sleepypig]

You're absolutely right,
all checks increase, but by how much over time?  Without it we won't know how to add it in the TCO forecast.
And does the number of flight time/landings affect it as well, just like they seem to affect aircraft valuation?

[Tha_Ape]

Every alliance probably has one or two analysts that tear their hair out on those matters. And nobody has the answer.
The increase comes both from the age on the one plane, from the age of the model, and from the inflation.
But as inflation has various effects and values on different fields, it's quite hard to measure it.
I guess you're one of those analysts
Good luck, and welcome!

[Cardinal]

The increase comes both from the age on the one plane, from the age of the model, and from the inflation.

Flying hours also factors in to the cost of maintenance.

[sleepypig]

Thanks for all the input!

I appreciate the info on model age, plane age and inflation.

For plane age, I tried looking at the UM listings again, and plotted the xy relationship of plane age vs. abcd costs.
Since this is mostly from the plane broker, the plot turned out very smoothly exponential.

Interestingly the maintenance costs seems to double at the ~16 years point, and increases exponentially more rapidly further down.

So at least I have a guess on how to forecast the cost down the road (ignoring inflation and model age, because this is different aged planes at the same time)

Cheers!

[Tha_Ape]

Well, rule of thumb says that:
if you own your planes and given they are good ones, you can:
- fly western models until right before the 3rd D-check
- fly soviet ones until right before the 2nd D-check
But this pace is usually higher during the 50s and 60s, begins to stabilize during the 70s.
And there are obviously some exceptions: for instance, the 737-300 is so good that it can even be flown until game end (given you completely renew your fleet somewhere around 2010): you'd sure spare some more money w/ 800-MAX, but this could also avoid you a renewal and they are still worth flying.

Owning a plane has approximatively the same cost of a 7-8 years lease, so better lease if you just use this model to start with, or as a transition between 2 other models.

A starting airline should always lease old (10+ yrs) models to get started, as they usually are the cheapest way to have a head start.
Example: in my last GW, I started in 88 w/ 737-200 Adv and kept them until 96 or so, and I had around 200 by then.

[sleepypig]

Thanks for the great pointers, especially coming from experience.

You're absolutely right, my UM sample shows that leasing is almost always too expensive for newer aircraft, and the 10 year mark seems a good rule of thumb.
Then leasing (avoiding D checks) approaches the same cost of owning an airframe at around the ~18 year timeframe.

But yes, if you own 200+ aircraft this matters less because I'd be very busy juggling all those planes to keep up revenue, so I guess these comparison napkin tco calculations may only be good for newer airlines which absolutely want the best costing aircraft for their 5th to 10th new leased plane.


Meanwhile I fiddled with the figures again, from my Convair used market sample from the game plane brokers.
What I found was the maintenance checks correlates directly with age:

a checks = 32% of b checks
b checks = 6.58% of c checks
c checks = 22.35% of d checks

From my UM list an a check formula fits this curve:
a check = ( <aircraft age> age ^ 2.5 ) * 2.59 + <initial a check at 0 years>

I haven't checked if it changes for other planes/eras.

So I guess to calculate TCO I'd have to somehow discover the curve for each plane, calculate the costs for each future a/b/c/d checks with the discovered formula.
Plus inflation makes the entire set of results change over time, so it looks like it's going to be much more difficult to forecast TCO without writing some program/script to do it.

Another find is I also found a break in correlation between maintenance costs with aircraft pricing, it seems the fair price from my aircraft price advisor is flat for the first 10 years, only starting to decrease exponentially after 10-12 years.  So maintenance costs and aircraft fair price is not directly related, at least in terms of forecasting costs in this game for this sample.

So I guess the conclusion is for now my tco formulas above may only be good for comparing which planes to buy from the UM for a short time, but not really to calculate the total cost of ownership over a longer time period.
Plus don't own a plane after ~18-20 years old and lease them instead before the next D check (although most airlines who can afford to own planes probably can afford newer airframes at that time - which works perfectly for a system where newer airlines don't compete with the established elephants for the UM leased plane market)