Family offices: selecting an aircraft management advisor
Five tips to select an aircraft management company.
First, let’s declare some self-interest here. I work for a company that offers aircraft management services, globally and has done for over 36 years.
Like other aircraft management companies, our services are offered at the same high standard as most of our peer group. We’ll provide your crew, make sure the aircraft is compliant with the relevant regulations, plan your flights, order catering and a whole host of other tasks so that the client can enjoy the benefit of owning an aircraft. We’ll conduct this work for a monthly fee which is broadly similar to our competitors but seen as expensive when compared to those who charge little or nothing.
Free (or low cost) is a powerful incentive. Who doesn’t love a bargain? It’s tempting to go for the lowest cost or the ’boutique’ that claims the best service with a low management fee (the double whammy). However here are five rules that may make you stop and think before you make that all important decision.:
Rule #1. Understand the financial stability of your aircraft management company.
With any other provider of asset management services, you will have run some form of due diligence into the financial fitness of your provider. It’s a common sense thing to do, but when was the last time you undertook this check when selecting an aircraft management company? As any owner knows, private jets run up large bills quickly, ones that can soon overtake any deposit kept by the operator on account. Unless rigorously managed, the impact on a management company’s cash flow can be terminal with consequences which may result in the temporary grounding of your aircraft. Companies running under 10 aircraft are particularly vulnerable as they often don’t have the provisions or bank facilities to overcome bad debt exposure.
Make sure your aircraft management company passes your own financial fitness test. If it doesn’t then please be aware of the risks to your aircraft if the management company becomes insolvent.
Rule #2. Free management fees where’s the catch?
The word ‘free’ seduces many. Don’t believe it. Companies never offer free services; they are not charities. What you aren’t charged for up front you will almost certainly be charged for somewhere along the lines usually in the form of transaction, handling fees. We’ve heard horror stories of some clients being charged 15% mark-ups which, if true, is borderline robbery and serves as no incentive to safely reduce operational costs (always ask to see the invoices and where costs are being originated from to avoid this scenario).
Don’t believe you are getting a free service. Nothing in life is free and viable businesses don’t work without a form of revenue. That revenue stream is likely to be a percentage on top of your operational costs which means there is no incentive for that aircraft operator to attempt to reduce your costs. (also see Rule #1)
Rule #3. Big or small? Which offers the best service?
Big companies say ‘scale’; small companies say ‘boutique’. In real terms they are not mutually exclusive. Great aircraft management companies deliver outstanding service, with passionate people who are focused on you, they also should actively manage your operational costs. If you’re not convinced, ask them to demonstrate how they can safely save you money while maintaining service,
We live in a ‘show me’ not ‘trust me’ world where proof is everything. Get to know your team, their background, their capabilities and get them to show you the numbers. Do you want great service with poor cost management or great service with a team on a crusade to get the best deal for you? The choice is yours (also see Rule #4).
Rule #4. Plan scenarios not hours flown.
Typically, as an aircraft management company you’re asked to pitch with an operational budget for a certain number of hours a year, typically 3/400. Unfortunately, this offers very little helpful data to make decisions as it bares no relationship to the use of the aircraft (when was the last time you booked a flight based on hours? Probably never.) For your Principal, the most reliable operational budget is achieved through scenario planning based on their typical flight profile for example Hong Kong – Las Vegas or London – Teterboro.
These scenarios will provide a far more accurate budget and cost per hour for the trip. Why? 10 flights to Moscow in winter will cost more than 10 flights in the summer but both will have the same number of flight hours.
Scenario planning is the most effective way of demonstrating operational costs. Working this way is far more realistic, far more meaningful and you can far more easily see the quality of the aircraft management company’s ability to negotiate fuel, ground handling and FBO rates for those trips.
Rule #5. Marginal gains make big differences.
We’ll admit some editorial bias here, but it is important. Scale operators buy substantial volumes of fuel, training and other high cost items. It is a reality of their day-to-day business, with purchasing team’s set-up specifically to do this. Smaller operators don’t have this luxury and they don’t have direct to vendor relationships. On occasion it is true that costs can be beaten (nobody is perfect), in which case let your aircraft management team know. After all, they will want the intelligence to make sure they get a better deal for you in the future.
Let scale and marginal gains work in your favour. There is no point spending more than is needed on consumables. In this case big can be beautiful
Choosing a new aircraft management company is no easy task however I hope the rules above can help you. If you are in any doubt, why not ask us? We’d be happy to advise you and indicate where you can save operational cost. After all it’s what we do, day in and day out, worldwide.
Group Chief Marketing Officer
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