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A helicopter cost analysis
PROGRAM MANAGEMENT
A Helicopter Cost Analysis by Howard M. Collett Question: In what industry can a company buy a piece of equipment, then turn around in five years and sell it for more than they paid for it? Answer: The helicopter industry. Case in point: In 1985 the price for a new, average-equipped BK 117 was $1,290,000. Today, that same 1985 u s e d h e l i c o p t e r will sell for $ 1 , 8 3 5 , 0 0 0 - - t o s h o w a gain of $545,000. That amounts to a used resale value 42% higher than the original purchase price, for an average increase of more than 8 percent per year! "Your mileage may v a r y . . . " goes the
635,000
Avg Single
445.000 540,000
standard EPA disclaimer, but the fact is that many helicopter models used for air medical services are worth more today in a previously-owned condition than they were five years ago (Table 1).
The five-year resale According to price data contained in The Official Helicopter Blue Book (published quarterly by HeliValue$, Inc., Lincolnshire, IL), the average resale for five-year-old helicopters shown in Table I ranges between 73% and 148% of the original purchase price. In the worst-case scenario, an owner of the lower-value helicopter would still r e c o u p far more than the depreciated value of his investment-not bad for a highly mechanical piece of equipment. "There are only two things that d e t e r m i n e value," says B a r r y Desfor, president of HellValueS. "First is market condition,
: ..... ; 7 6 0 , 0 0 0 6 5 9 , 0 0 0 ......
719,500
123% 148%
133%
Prices: Prices are for "Average Equ pped" aircraft and vary with pa~icular helicopter model. Prices stated do not include medical
tion. Changes of $50,000 or more have been seen within a
three-month period.
22
and second is the status of components"--where a given helicopter is in its service life cycle. Options and accessory kits are important and add value, but proportionally, their impact is miniscule compared to the market and time on components." Component status Barry's Blue Book prices show average resale price based on whether major components of the ship in question have low, medium or high flight time on them. As most of a helicopter's major parts are in constant motion and require exacting tolerances, they are limited to a finite number of hours. For example, a transmission might be rated at 2,400 flight hours, an engine at 2,000 hours, etc. With the cost of main rotor gear boxes and engines in the neighborhood of a quarter million dollars each, it doesn't take too many flight hours to reduce the value of a helicopter. Table 2 shows that high component time can easily reduce the value of a helicopter by 30 percent or more. Availability and cost The market condition that Barry refers to involves helicopter availability and cost. In recent years, fewer than 200 turbine helicopters have been delivered annually to commercial operaTable 2
Resale Values of 1985 Models Low vs. High-Time Components Model Low Time High Time Difference Percent 365N 2,500,000 1,900,000 (600,000) -24% BK 117 1,835,000 1,240,000 (595,0001 -32% 206L3 780,000 545,000 (235,000) -30% ........................................................ particular helicopter model. Prices stated do not include medical configuration. Source: Official He/icopter B/ue Book.
The Journal of Air Medical Transport • November 1990
PROGRAM MANAGEMENT
tors in the United States--down from a high of 566 in 1980. Divide that total by the fact that there are more than a dozen different models, and annual production for many models can be counted on the fingers of both hands. Costs for new helicopters utilized in the air medical market have increased at an annual rate between nine and 18 percent over the past ten years (Table 3). It doesn't take a rocket scientist to figure that the higher prices of new equipment drive up the price of used equipment. "rhe availability of just one or two helicopters for a given model may drastically affect resale price," cautions Desfor, "depending upon demand for and the availability of new, or comparable, used equipment." More than half the 1991 new production run is already sold out for some models. While annual new helicopter prices have increased at a rate higher than that of the general economy, they are about on a par with increases in health care costs. F u r t h e r , many price changes result from major improvements in equipment, such as more powerful engines or airframe modifications, or from a changing world monetary exchange rate. Two-thirds of the helicopters used for air medical services are imported from Germany, France and Italy. Patient benefits From a simplistic point of view, the larger twin-engine machines transport the patient at nearly the same speed back to the hospital compared to the much less expensive single-engine helicopters of ten years ago. But speed and the ability to go from point A to point B take a back seat to quality. The larger machines afford better quality in terms of both patient care and safety. When was the last time you heard of an air medical helicopter accident relating to an engine failure? (Try 1986.) And how many programs flew with two medical attendants years ago compared to now? (About 69 percent in 1984 compared to 97 percent this year.)
15;000
103 0 0 0 ~ 601.000
More interfaces
492,000 2,741,000 pdcedoes not include added engine or airframe options or ntedicalconfiguration, which are stated separately. Source: Rocky Mountain Helicopters, Inc. (In1983, the AStarwas one of the most popular air medical helicopters. In 1990, the BK 117 is one of the most popular models. The cost for other helicopter models in each class is comparable.}
The Journal of Air Medical Transport • November 1990
23
PROGRAM MANAGEMENT
Table 4 shows the five-year price instance show the comparison beescalation of turbine helicopters seven tween a new 1990 helicopter and a to ten years ago. The inflation rate was used 1987 model. With the exception about half of what it is today--4 to 9% of Table 5, none of our charts or tables compared to the current 9 to 18%. Part include medical configuration. of the difference may be that current annual deliveries of helicopters are Configuration much lower than a decade ago. The next cost to consider is configDesfor cautions that what is good uration. In 1983 the average cost to for the new helicopter market is also completely configure an AStar (one of good for used equipment. "Helicop- the more popular helicopter models) ters, like cars, tend to resell in direct was about $94,000. This included airproportion--both in rate of transac- frame options and basic flight instrutions and dollar volumes--to how they ments at $30,500, avionics and FM sold when new," said Desfor. "Better communications at $33,500, and medical interior and installation at $30,000. new sales equals better resales." (HospitalAviation, Feb '83, pp14-15.) Comparative prices To transport that same patient Price stability The sixty-four dollar question is, Figure 1 charts the 1990 cost of new today in a medium twin-engine heli"are rapid price increases a fluke in an and used helicopters common to the copter like the BK 117 (the most popotherwise stable market?" I can only air medical industry in the United ular model today), the configuration answer that such price increases are States. The prices charted are "aver- cost has increased six times, to more not a new phenomenon. age-equipped" figures, and in this than $600,000 (Table 5). Much of the price increase, however, is for larger and more functional medical interiors, Figure 1 better avionics and more cockpit and airframe options required for larger New vs Three-Year-Old Helicopter Prices aircraft. 4.0 "1 The new and resale commercial helicopter market, by its limited production nature, is most sensitive to 3.5-1 changing conditions in the market. PRICE Add exclusive-use mission configuration requirements, life-limited compo3.0-1 1990 PriceNew, Avg Equlppod n e n t s and its w o r l d w i d e manufacturing and marketing scope, and Currents 1987 Model 2.5-1 cost planning can be reduced to nothing less than professional management and analysis. D 2.0-1
But it's more than the number of attendants or engine failures. It's the ability to have the room to work on a coding patient using two sets of eyes, ears and hands. It's the ability to navigate more safely with improved avionics. It's the capability to get in and out of scenes with a power available margin. It's the room to carry more specialized medical equipment. It's the ability to fly a second pilot or a third medical attendant for orientation and training. It's the space to fly two patients and actually being able to work on both of them.
1.5-1
/
1.0-1
O.S-t
0.0
I
i
412
365N1
876
BKl17
B0105
365F
350B
2061.,3
1990 "Equipped" prices estimated using historical information for average equipment options. Source: Aerospatiale Helicopter Corporation, Agusta Aerospace Corporation, Bell Helicopter Corporation, MBB Helicopter Corporation, Sikorsky Aircraft, Official Helicopter Blue Book.
24
Author's note: Prices quoted in this article reflect a given model's "$ase" price (no factory options) and "average equipped price" (limited options) for both new and used helicopters. In addition, several different years are used for price comparisons. Further, as the number of used helicopters per model is relatively small, a change in just a few units can significantly affect the price of used hdicopters. Therefore, the reader must use caution when comparing prices from different tables.
The Journal of Air Medical Transport • November 1990
A Helicopter Cost Analysis by Howard M. Collett Question: In what industry can a company buy a piece of equipment, then turn around in five years and sell it for more than they paid for it? Answer: The helicopter industry. Case in point: In 1985 the price for a new, average-equipped BK 117 was $1,290,000. Today, that same 1985 u s e d h e l i c o p t e r will sell for $ 1 , 8 3 5 , 0 0 0 - - t o s h o w a gain of $545,000. That amounts to a used resale value 42% higher than the original purchase price, for an average increase of more than 8 percent per year! "Your mileage may v a r y . . . " goes the
635,000
Avg Single
445.000 540,000
standard EPA disclaimer, but the fact is that many helicopter models used for air medical services are worth more today in a previously-owned condition than they were five years ago (Table 1).
The five-year resale According to price data contained in The Official Helicopter Blue Book (published quarterly by HeliValue$, Inc., Lincolnshire, IL), the average resale for five-year-old helicopters shown in Table I ranges between 73% and 148% of the original purchase price. In the worst-case scenario, an owner of the lower-value helicopter would still r e c o u p far more than the depreciated value of his investment-not bad for a highly mechanical piece of equipment. "There are only two things that d e t e r m i n e value," says B a r r y Desfor, president of HellValueS. "First is market condition,
: ..... ; 7 6 0 , 0 0 0 6 5 9 , 0 0 0 ......
719,500
123% 148%
133%
Prices: Prices are for "Average Equ pped" aircraft and vary with pa~icular helicopter model. Prices stated do not include medical
tion. Changes of $50,000 or more have been seen within a
three-month period.
22
and second is the status of components"--where a given helicopter is in its service life cycle. Options and accessory kits are important and add value, but proportionally, their impact is miniscule compared to the market and time on components." Component status Barry's Blue Book prices show average resale price based on whether major components of the ship in question have low, medium or high flight time on them. As most of a helicopter's major parts are in constant motion and require exacting tolerances, they are limited to a finite number of hours. For example, a transmission might be rated at 2,400 flight hours, an engine at 2,000 hours, etc. With the cost of main rotor gear boxes and engines in the neighborhood of a quarter million dollars each, it doesn't take too many flight hours to reduce the value of a helicopter. Table 2 shows that high component time can easily reduce the value of a helicopter by 30 percent or more. Availability and cost The market condition that Barry refers to involves helicopter availability and cost. In recent years, fewer than 200 turbine helicopters have been delivered annually to commercial operaTable 2
Resale Values of 1985 Models Low vs. High-Time Components Model Low Time High Time Difference Percent 365N 2,500,000 1,900,000 (600,000) -24% BK 117 1,835,000 1,240,000 (595,0001 -32% 206L3 780,000 545,000 (235,000) -30% ........................................................ particular helicopter model. Prices stated do not include medical configuration. Source: Official He/icopter B/ue Book.
The Journal of Air Medical Transport • November 1990
PROGRAM MANAGEMENT
tors in the United States--down from a high of 566 in 1980. Divide that total by the fact that there are more than a dozen different models, and annual production for many models can be counted on the fingers of both hands. Costs for new helicopters utilized in the air medical market have increased at an annual rate between nine and 18 percent over the past ten years (Table 3). It doesn't take a rocket scientist to figure that the higher prices of new equipment drive up the price of used equipment. "rhe availability of just one or two helicopters for a given model may drastically affect resale price," cautions Desfor, "depending upon demand for and the availability of new, or comparable, used equipment." More than half the 1991 new production run is already sold out for some models. While annual new helicopter prices have increased at a rate higher than that of the general economy, they are about on a par with increases in health care costs. F u r t h e r , many price changes result from major improvements in equipment, such as more powerful engines or airframe modifications, or from a changing world monetary exchange rate. Two-thirds of the helicopters used for air medical services are imported from Germany, France and Italy. Patient benefits From a simplistic point of view, the larger twin-engine machines transport the patient at nearly the same speed back to the hospital compared to the much less expensive single-engine helicopters of ten years ago. But speed and the ability to go from point A to point B take a back seat to quality. The larger machines afford better quality in terms of both patient care and safety. When was the last time you heard of an air medical helicopter accident relating to an engine failure? (Try 1986.) And how many programs flew with two medical attendants years ago compared to now? (About 69 percent in 1984 compared to 97 percent this year.)
15;000
103 0 0 0 ~ 601.000
More interfaces
492,000 2,741,000 pdcedoes not include added engine or airframe options or ntedicalconfiguration, which are stated separately. Source: Rocky Mountain Helicopters, Inc. (In1983, the AStarwas one of the most popular air medical helicopters. In 1990, the BK 117 is one of the most popular models. The cost for other helicopter models in each class is comparable.}
The Journal of Air Medical Transport • November 1990
23
PROGRAM MANAGEMENT
Table 4 shows the five-year price instance show the comparison beescalation of turbine helicopters seven tween a new 1990 helicopter and a to ten years ago. The inflation rate was used 1987 model. With the exception about half of what it is today--4 to 9% of Table 5, none of our charts or tables compared to the current 9 to 18%. Part include medical configuration. of the difference may be that current annual deliveries of helicopters are Configuration much lower than a decade ago. The next cost to consider is configDesfor cautions that what is good uration. In 1983 the average cost to for the new helicopter market is also completely configure an AStar (one of good for used equipment. "Helicop- the more popular helicopter models) ters, like cars, tend to resell in direct was about $94,000. This included airproportion--both in rate of transac- frame options and basic flight instrutions and dollar volumes--to how they ments at $30,500, avionics and FM sold when new," said Desfor. "Better communications at $33,500, and medical interior and installation at $30,000. new sales equals better resales." (HospitalAviation, Feb '83, pp14-15.) Comparative prices To transport that same patient Price stability The sixty-four dollar question is, Figure 1 charts the 1990 cost of new today in a medium twin-engine heli"are rapid price increases a fluke in an and used helicopters common to the copter like the BK 117 (the most popotherwise stable market?" I can only air medical industry in the United ular model today), the configuration answer that such price increases are States. The prices charted are "aver- cost has increased six times, to more not a new phenomenon. age-equipped" figures, and in this than $600,000 (Table 5). Much of the price increase, however, is for larger and more functional medical interiors, Figure 1 better avionics and more cockpit and airframe options required for larger New vs Three-Year-Old Helicopter Prices aircraft. 4.0 "1 The new and resale commercial helicopter market, by its limited production nature, is most sensitive to 3.5-1 changing conditions in the market. PRICE Add exclusive-use mission configuration requirements, life-limited compo3.0-1 1990 PriceNew, Avg Equlppod n e n t s and its w o r l d w i d e manufacturing and marketing scope, and Currents 1987 Model 2.5-1 cost planning can be reduced to nothing less than professional management and analysis. D 2.0-1
But it's more than the number of attendants or engine failures. It's the ability to have the room to work on a coding patient using two sets of eyes, ears and hands. It's the ability to navigate more safely with improved avionics. It's the capability to get in and out of scenes with a power available margin. It's the room to carry more specialized medical equipment. It's the ability to fly a second pilot or a third medical attendant for orientation and training. It's the space to fly two patients and actually being able to work on both of them.
1.5-1
/
1.0-1
O.S-t
0.0
I
i
412
365N1
876
BKl17
B0105
365F
350B
2061.,3
1990 "Equipped" prices estimated using historical information for average equipment options. Source: Aerospatiale Helicopter Corporation, Agusta Aerospace Corporation, Bell Helicopter Corporation, MBB Helicopter Corporation, Sikorsky Aircraft, Official Helicopter Blue Book.
24
Author's note: Prices quoted in this article reflect a given model's "$ase" price (no factory options) and "average equipped price" (limited options) for both new and used helicopters. In addition, several different years are used for price comparisons. Further, as the number of used helicopters per model is relatively small, a change in just a few units can significantly affect the price of used hdicopters. Therefore, the reader must use caution when comparing prices from different tables.
The Journal of Air Medical Transport • November 1990