The $1M airplane might end being worth $500K also if the market goes down. Much more downside risk in the more expensive airplane. The $300K airplane can't lose $500K value and it has salvage value at some point.


Maybe, but it usually isn't when you fully account for the cost of capital. The $1M tied up in the airplane is on average $100K lost investment income every year.

Mike C.

Maybe we should all add our “cost of capital” number to our profiles and posts so it’s clear where on the spectrum we are, since there seems to be a clear spectrum from Mike C at 10% buying the creative project planes and getting massive value and Mike R wanting to have a more pristine, lower risk option at a higher CapEx.

I’m at 5% for that number which makes sense if I’m also a Mike R lol.

During the nearly 5 years I have owned my current plane, the SP500 has returned an average of 13.5% per year, 15% if you included dividends like you would get with an SP500 ETF.

If I had bought a plane $1M more, which was what I would have needed to spend to get a prime example at the time, that would be $150K per year in capital expenses on the lost return on that money, or roughly $960K more I have now than I would have had. That's more than I have spent on operating the airplane in that time.

You may say the SP500 investment is at risk. But if the SP500 suddenly lost half its value, any airplane you own probably lost at least that much, too, since that would be a economic downturn of such proportions as to make airplanes far less valuable given they are a "luxury" good. So the $1M you have in the airplane is just as much at risk as the $1M in an SP500 ETF, perhaps more so. The SP500 doesn't suffer the "expensive new AD" risk, for example, or other regulatory risks. Airplane hull value is not safe money.

Besides cost of capital, a more expensive airplane suffers other added costs like higher insurance and taxes.

It is very common for owners not to recognize the true costs of capital and their downside risks. it isn't something you see on a day to day basis.

Mike C.

"I've heard stories about Honeywell increasing the cost of these wheels from $40K to almost $400K over the last 10 years. Is that accurate?[/quote]"

This is the comment that I am most interested in hearing feedback on. I have heard similar rumors as well. However, I have not had it confirmed. Has anyone gone through an overhaul in the last year or two who can confirm?

TAE told us last year that they were having a hard time getting planetary gears and that Honeywell wasn't making them anymore.

I heard this as well at the recent MU2 PROP (Pilot's Review of Proficiency), but I think it was for a complete OH and several wheels had to be replaced.

The three turbine wheels in the HOT section are limited to 15-20,000 cycles, something most of us will never see, even when flying 100-200 hours a year. Secondly the wheels rarely need replacing in-between, they usually go up to their life limit.

I talked with Neil James from ICJS, the premier MU2 and engine shop in Tulsa at PROP. He stated Hot section and OH prices as noted in this thread: ~$25-$150K for Hot section and ~$200-$250K for OH.

Hilgard

Thanks guys- On the same lines of TPE overhauls/ Hot sections - How do you feel about TPE -6 going beyond TBO?

There is an M model at our local MU-2 Service Center (Air 1st Aiken, SC) thats generally well equiped and 525/140 SHSI but is over TBO (5735 hrs). This seems unusual compared to seeing most TPE operators overhauling at the recommended times. Its not too uncommon with PT6's, though. Should I be thinking about this as a $400k aircraft that can fly a while or an aircraaft that needs 500k + in overhauls.

I think not overhauling a continuing to perform required inspections will be more and more common. Even in commercial applications there are programs to run the engines to 7000hrs. They are just paperwork programs.

Pilots don’t really understand what an *overhaul* really is. It’s going through a checklist and then testing to confirm the part conforms to specification. Stripping off perfect cadmium platin then replating doesn’t accomplish anything. The new large turbines are never overhauled based on time.

Is it still possible to do a -10 upgrade on M and that era MU2s?

Is it economically feasible? Who holds the STC?

During the nearly 5 years I have owned my current plane, the SP500 has returned an average of 13.5% per year, 15% if you included dividends like you would get with an SP500 ETF.

If I had bought a plane $1M more, which was what I would have needed to spend to get a prime example at the time, that would be $150K per year in capital expenses on the lost return on that money, or roughly $960K more I have now than I would have had. That's more than I have spent on operating the airplane in that time.

You may say the SP500 investment is at risk. But if the SP500 suddenly lost half its value, any airplane you own probably lost at least that much, too, since that would be a economic downturn of such proportions as to make airplanes far less valuable given they are a "luxury" good. So the $1M you have in the airplane is just as much at risk as the $1M in an SP500 ETF, perhaps more so. The SP500 doesn't suffer the "expensive new AD" risk, for example, or other regulatory risks. Airplane hull value is not safe money.

Besides cost of capital, a more expensive airplane suffers other added costs like higher insurance and taxes.

It is very common for owners not to recognize the true costs of capital and their downside risks. it isn't something you see on a day to day basis.

Mike C.

I have looked at N383TX early on in my search for an MU2, from memory I recall it had good maintenance history and decent avionics. If it is priced correctly, to factor in the engines being past TBO, I would not hesitate to buy it and forget about the fact that the engines are past TBO.

With the Hot section times you have 1300 hours left before you need engine work again, that amounts to 10-15 years of flying at 270-280kts. It would be foolish IMO to OH those engines now.

Hilgard

Yes, I believe you can still do it, however the cost is north of $500k total. ICJS has the STC as far as I know.

Hilgard

It is an overhaul as well, so that helps justify the cost.

The cheapest way to get it is to buy one already done, of course.

Mike C.

$550k seems very low if we are talking about going from 5400hr -6 engines to freshly overhauled -10 engines