Aircraft management

Aircraft management costs can vary from ‘free’ (buyer beware) to between $5,000 and $15,000 a month depending on the aircraft size and how you wish to use the aircraft.  Your monthly fee will typically take care of all the regulatory and logistic requirements required to operate the aircraft with variable costs and direct operating costs being in addition to the fee.

It is your choice whether you choose the ‘free model’ however be aware that this often comes with hidden charges for example a % handling fee on costs, inflated ForEx fees, commission or other devices that create a revenue stream.  As in life, their is no such thing as a free lunch, so be aware particularly if this is your first aircraft.

Aside of your aircraft management fee the following costs will be payable:

Variable costs

• Airport & aircraft handling fees
• Aircraft catering
• Crew travel & subsistence (on occasion the crew will need to travel to & from your aircraft)

Direct operating costs

• Fuel (the majority of the cost of ownership)
• Navigation
• Maintenance
• Engine programs
• Operational support

Fixed costs

• Continued airworthiness fees
• Air crew costs
• Provision for scheduled maintenance
• Provision for parts and engines shortfall
• Insurance
• Parking / hangarage
• Air crew training
• Other fees (CAA fees, etc.)

In total the above (depending on aircraft type and its use) will cost between $1.5 million and up to $4.5 million a year.  Major changes to this are only usually seen if the aircraft requires a major check which may add anything up to another $500 to $1.5 million to the annual operating costs of your business jet.

There are many factors to take into account when choosing an aircraft management company that vary from ensuring their competency to whether you can work with them or not. We’ve written a number of articles on this subject however here are five rules that may help (obviously we would like to welcome you to our family!)

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.

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).

Rule #3. Big or small? Which offers the best service?
Big companies say ‘scale’; small companies say ‘boutique’. In real terms these claims 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 leverage their scale. If you’re not convinced, ask them to demonstrate how they can safely save you money while maintaining service,

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 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.

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.

If you’re in doubt ask us
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.

A number of our clients do provide their aircraft to list on our charter fleet. This allows you to defray some of the costs of ownership as well as making sure that technical items such as engine and maintenance minimum contracts (typically 400 hours) are being adhered to.  To help, some of the pros & cons of doing this are listed below:

Pros

• Revenue from the charter flights can be used defray some of the ownership costs
• You can avoid minimum hours programme penalties

Cons

• The charter market is saturated with aircraft with supply exceeding demand
• You will not make a profit on charter
• You cannot fly in your aircraft if it is on a charter flight (an obvious point but…)
• You may require more crew (particularly for the larger aircraft with intercontinental capability)
• The aircraft will experience some wear and tear

In the current market context the ‘cons’ may outweigh the ‘pros’ simply because the charter margin is so small.

Once again we are happy to guide you or your team through this process using industry information and real world examples to determine what the right course of action would be for you.