Start with the engine, then keep going
Most partnerships set a reserve rate by dividing overhaul cost by TBO, then stop. That covers the engine and nothing else, which is why the propeller overhaul, the vacuum pump and the alternator all arrive as unpleasant surprises.
A complete reserve has four components. Work through them in order.
1. Engine
Realistic overhaul cost ÷ TBO hours. On a $32,000 O-360 with a 2,000-hour TBO, that is $16.00 an hour. Use a real quote from a shop you would actually use, plus about 15% for the work that gets discovered once the case is open.
2. Propeller
Constant-speed propellers need overhauling on a calendar or hours basis, commonly six years, at $2,500 to $6,000. Convert to an hourly figure using your actual annual utilisation, not a hoped-for one. A group flying 100 hours a year facing a $4,000 prop overhaul every six years needs $4,000 ÷ 600 = $6.67 an hour.
Fixed-pitch propellers are cheaper and less frequent, but not free — budget a nominal $1 to $2 an hour for dressing and eventual replacement.
3. Accessories and avionics
Magnetos at 500-hour inspections, vacuum pump, alternator, starter, hoses on a condition basis, and increasingly the avionics stack. Groups commonly allow $4 to $8 an hour. A little high in a good year, roughly right across a decade.
4. Airframe contingency
Corrosion, a hard landing, an AD that turns out to require parts. Not everyone reserves for this, and those who do sleep better. $3 to $5 an hour is typical.
Putting it together
A Cessna 182 flying 100 hours a year:
- Engine — $38,000 ÷ 1,500 hr = $25.33
- Propeller — $4,500 over 6 yr at 100 hr/yr = $7.50
- Accessories and avionics = $6.00
- Airframe contingency = $4.00
- Total reserve: $42.83/hr
That number is higher than most partnerships charge, and that is the point. Groups that reserve $15 an hour on a 182 are not saving money; they are deferring a bill and adding the risk that it lands on whoever happens to be a partner when it does.
The utilisation trap
Every calendar-based item — the prop, the annual, insurance, hangar — becomes more expensive per hour the less you fly. A group flying 50 hours a year carries double the per-hour calendar cost of a group flying 100.
This is why comparing your rate to another partnership's is close to meaningless unless you fly similar hours in a similar aircraft. Do the arithmetic for your group and your actual utilisation. Then redo it annually, because utilisation drifts — usually downward, as partners' lives get busier.
Reserve rate versus hourly rate
Keep these separate in your head and in your books. The reserve rate is money moving into a fund for future work. The hourly rate a partner pays typically includes fuel, the reserve, and a small allowance for consumables.
Collapsing them into one number is how reserves get raided. When flying revenue and reserve accrual are the same pot, an expensive annual gets paid out of "the account" and nobody notices the fund went backwards.
Sanity-check against the fund
Once a year, ask one question: at the current rate and current utilisation, will the fund cover the next overhaul when it falls due?
Projected balance = current balance + (hours to TBO × reserve rate)If that is less than the expected overhaul cost, you have a shortfall and you now know its size while you still have hours in which to fix it. Finding out at 200 hours to run is a rate increase. Finding out at overhaul is a capital call and an argument.
When to revise
Review the reserve rate annually, and immediately after: an overhaul quote that differs materially from your assumption, a change in how much the group flies, a new partner joining or leaving, or any major unscheduled work. Write the review date into the agreement so it happens by default rather than when someone remembers.