- 28 Jan 2022
- René Armas Maes
- Aircraft Ownership
When a business airplane owner flies more than 250 hours annually, the economics tend to favor an in-house flight department. If that describes you, and you’re seeking to establish your own flight operations, René Armas Maes shares tips on setting up for success…
Maintaining an in-house flight department provides aircraft owners with the best levels of flexibility, security and control over their aircraft’s operation. But with these benefits comes responsibility for all aspects of the operation, including the paperwork and regulatory compliance.
When planning to buy a business aircraft the options are simple: Either you control the process, or you let someone else (i.e. an aircraft management company) do it for you. Both options offer pros and cons, as discussed previously in Flight Department or Management Company: Which is Best?
Should you decide the pros of operating an in-house flight department outweigh the cons, you’ll want to set up correctly, right from the start. Here’s how…
Budget, Aircraft Selection & Timeline
Begin by establishing the operation’s annual budget, including the number of hours to be flown, the typical mission length, and estimates of the hourly variable and fixed costs, including fuel and maintenance costs.
There are several software solutions available to help analyze fixed and variable cost data. According to AMSTAT, for example, a 12-year-old pre-owned Dassault Falcon 7X, capable of flying 6,000 nautical miles, sells for approximately $16m.
In addition, flight crew salaries and benefits for two pilots are estimated to be $335k, annually, and recurrent training is $105k annually. Annual hangar and office rental are estimated at $38k (varying, depending on airport location), while hull and liability insurance costs $45k, maintenance tracking and subscriptions are $40k, and navigation charts and aviation weather services all bring the total annual fixed costs to approximately $575k.
At an assumed $5 per gallon, fuel costs also need to be factored, along with maintenance costs, engine upkeep, and miscellaneous trip expenses, which accumulate at approximately $4,900 per hour. For the flight operation requiring 250 flight hours per year, the annual budget for that 12-year-old Falcon 7X comes to almost $1.8m, or $7,160 per hour, excluding any financing costs you may have agreed in order to purchase the aircraft.
The costs vary, of course, depending on the size of aircraft you’re considering. For example, a brand new 3,500nm Super Mid-size Citation Longitude costing almost $30m (2021 prices) has fixed costs estimated to be in the region of $336k per year, and $3,132/hour.
Assuming 250 flight hours per year, the annual budget is close to $1.1m, or $4,476 per hour. If whole aircraft ownership is the chosen avenue, you should compare suitable aircraft, including preowned versus factory-new aircraft options.
While pre-owned aircraft can seem the more affordable option, and in many cases they are, OEM warranties and other benefits associated with a new aircraft should be factored into the analysis.
Factor depreciation into your budget, too, and estimate the resale value of the aircraft (if it is wholly-owned). For this, you will need to have a plan for how long you will own the aircraft before selling it, and upgrading.
The budget should be comprehensive, projecting costs as far in advance as three to five years. Similarly, the budget should be reviewed at least twice yearly. Finally, what do you need the aircraft to do? In addition to range and payload requirements, what level of comfort and equipment do you need for passengers and crew in the cabin and cockpit?
It’s important to get this right so that you don’t buy too large, or too small for your operation (an expensive error to make), or require unnecessary downtime and expense upgrading your jet.
New to Aircraft Ownership?
As part of setting up a new in-house flight department properly, you will have two options. Besides whole ownership, an operating lease may suit a first-time aircraft owner. This way, you can start lean, while you learn the ropes of aircraft ownership (new or pre-owned).
Within the context of your own flight operation, this is likely to be a dry lease, in which the aircraft will be supplied without flight crew or management services. It will therefore be your responsibility to contract pilots, as required, to run your operation.
Your operation can hire a third-party company to recruit personnel, if necessary, including the flight crew. And similarly, compensation and payroll can be offered through a third party. If you hire internally, though, plan to provide workers’ compensation,
including benefits such as a retirement plans, health insurance, and remit payroll taxes. Managerial and/or technical qualification requirements for flight department personnel will vary, depending on the type of operation and aircraft.
To set your operation up to succeed, it should be staffed with full-time, dedicated employees, including a Director of Operations/Chief Pilot; Director of Safety and Quality Assurance; Director of Maintenance; and a Chief Cabin Attendant. The larger the operation, the more pilots, maintenance personnel, and flight attendants will be needed (see Charts A and B).
Chief Pilot: The person you hire as your Chief Pilot should not only have enough hours on the aircraft type, but also have experience of recruiting personnel and managing assets like aircraft and the related ground equipment.
The candidate should be qualified to assist with aircraft selection, pre-purchase inspection, and manage the department expenses (including contracts, maintenance, and travel experience).
Director of Maintenance: Hiring a suitable Director of Maintenance (and licensed mechanics) boils down to how remote your intended operation base is.
For example, if your home airport offers maintenance capabilities for your aircraft type, you may elect not to hire a dedicated mechanic, instead hiring a qualified pilot who can take care of flying and basic maintenance tasks and upkeep.
For more remotely-located flight operations at airports with fewer (if any) dedicated maintenance facilities on site, hiring a Director of Maintenance/Mechanic makes good sense. Likewise, if shipping spare parts to your home airport will be difficult, due to location, consider having a minimum stock of critical parts on site.
To help operate with a lean management structure, supplemental contractors (i.e. contract pilots) can be hired to meet specific peak demand times, or cover sickness and vacations.
And Don’t Forget...
Processes and procedures will need to be implemented, including Standard Operating Procedures (SOPs), or standardization rules to enable a professional operation, and a Safety Management System (SMS), Risk Mitigation Plan (RMP), and more.
As in any other business, and for any industry, the success of your flight department will depend on finding, attracting, and retaining the right people with the right qualifications and soft skills to operate the right tool(s).
Next time, we will focus on facilities, infrastructure and training, safety and quality assurance, start-up costs, sustainability, and how to measure flight department success.
Read In-House Flight Ops: Set Up for Success (Part 2)