- 24 Jan 2022
- Chris Kjelgaard
- Aircraft Ownership
Is it better to have your aircraft operated by an Aircraft Management company, or should you have an in-house flight department structure? The option that works best for you will typically be determined by a variety of factors, says René Armas Maes…
The factors that determine whether you should use an aircraft management company or establish an in-house flight department for your aircraft’s operations are many, and include the projected number of annual flight hours, your requirement for privacy, economies of scale, asset control, team expertise, and more...
If you fly more than 225 hours annually, having an inhouse flight department to operate your business jet can make financial and operational sense under the right circumstances. If you fly between 150 hours and 200 hours per year, the economics will tend to favor a management company.
This creates a gray area for those with annual utilization between 200 and 225 hours per year. Either option could make sense, based on individual criteria including service level and asset control needs. With this in mind, we’ll consider the pros and cons of each option…
The Aircraft Management Company Option
The Pros: Owning and managing a business aircraft is logistically complex. Perhaps the biggest value an Aircraft Management company offers an aircraft owner is its ability to handle these complexities, relieving the owner of the burden of managing their own business aircraft.
Management companies also offer operational flexibility in terms of sourcing flight crews, aircraft maintenance, flight planning, and more. And the use of an Aircraft Management company will increase flexibility in terms of supplemental lift, and provision of aircraft on ground (AOG) support.
If your aircraft becomes unavailable (due, for example to a maintenance event), an Aircraft Management company can provide a replacement jet, since they typically have a large fleet of aircraft available to them.
Likewise, if an aircraft owner occasionally requires the use of multiple aircraft on a single day, the management company will be able to accommodate the need. And then there are the ‘economies of scale’ to consider. Larger Aircraft Management companies buy in larger quantities than individual aircraft owners, so their buying-power is stronger and cost savings can be leveraged.
An Aircraft Management company can pre-screen and hire dedicated personnel to operate your aircraft, and many will also involve you in shortlisting and recruiting dedicated flight and cabin crew personnel.
Operating under strict policies and procedures – including risk management, safety, and standard operational procedures – an Aircraft Management company may well raise the bar on safety and operational readiness for the aircraft owner.
Ultimately, an Aircraft Management company offers the possibility of a turn-key solution, bringing peace of mind to the aircraft owner, whether payroll-related, record-keeping, regulatory oversight, aircraft planning, scheduling, maintenance, or concierge services.
And an Aircraft Management company can assist owners with offsetting the cost of owning a business aircraft by marketing the aircraft for charter flights under an FAA Part 135 charter certificate (see Is it Worth Chartering Out Your Jet). They will bring independent expertise and advice, including knowledge and skills that may be difficult to match with an in-house flight department.
The Cons: Although they offer many benefits, Aircraft Management solutions do not suit every owner. For example, ‘privacy’ and ‘asset control’ are the most common deterrents for aircraft owners.
If an aircraft is enrolled on a Part 135 charter management program run by the management company, scheduling conflicts will potentially arise, and flexibility will be needed on both sides for the arrangement to work.
The cost of aircraft management should be factored in an aircraft owner’s decision, too. If the owner flies more than 225 hours per year, the cost, surcharges, and fees of having the aircraft managed by a third party might not be worth considering.
Finally, a lack of transparency in billing, surcharges, and accounting is sometimes cited by aircraft owners as an area that creates conflicts between them and an Aircraft Management company – especially when additional service fees are added to invoices without adequate explanation.
The In-house Flight Department Option
The Pros: Arguably the four most important benefits of operating your own flight department are:
If an aircraft owner requires strong control over the running of their aircraft, and exclusive use of the asset, an in-house flight department is the best – and most likely only – option.
Similarly, personalization, specific security requirements, and privacy needs are accommodated to the highest level with an in-house flight department.
Furthermore, many aircraft owners believe that having dedicated flight crew and cabin crew on their payrolls brings a greater sense of employee pride, job security, and loyalty to the company. The pilots and flight crew are engaged in managing the end-to-end operation and its costs, which can bring further job involvement and satisfaction.
The Cons: As with Aircraft Management companies, an in-house flight operation is not suitable for everyone. For example, an in-house flight department may not be cost-effective if the aircraft is not being flown enough.
An in-house flight department may also not be able to offer the same variety of in-house services as an aircraft management company, including avionics, interiors, MRO, onsite parts inventory, repairs and upgrades that allow an aircraft operator to optimize dispatch reliability.
And an in-house flight department will require more up-front capital expenditure, including resources for a hangar rental and crew. Sourcing appropriate scheduling and flight planning tools might also prove time-consuming and expensive.
Ultimately, the long-term cost savings of operating an in-house flight department, as opposed to an Aircraft Management company, may only materialize over a longer timeframe.
As demonstrated, both third-party aircraft management companies and in-house flight departments offer benefits. Aircraft owners need to do their homework, defining what operational and financial criteria they value the most while choosing a solution. Table A offers a high-level criteria summary for this.
It is worth noting that I have seen multiple aircraft owners choose to join forces and set up dedicated in-house flight departments between them. The idea of shared cost for hangar and office space, ground support equipment, and other sundry items is appealing in such cases.
The down-side of having multiple aircraft owners under one flight department roof is the extra complexity – particularly when the criteria one owner values the most differs substantially from the others.
Ultimately, the question of whether an aircraft owner should go down the flight department or aircraft management company route is not only strategic, but also highly tailored and individualized.