When to Consider Aircraft Management Solutions

An aircraft management solution offers plenty of advantages to the right type of aircraft owner. These include ‘peace of mind’ in terms of record-keeping and regulatory oversight, among others. Owners may also enjoy many of the same advantages of having an in-house flight department, without the same responsibilities and overhead costs.

Moreover, having an airplane registered on an aircraft management company’s certificate can bring operational flexibility in terms of access to supplemental lift should an unexpected maintenance issue occur, and the use of additional aircraft if more than one is required at the same time.

Aircraft management solutions not only take care of the aircraft’s management itself, but also provide benefits on the services side of aircraft ownership. With your aircraft placed on the certificate of a larger fleet operator, the management company can leverage bulk purchase discounts on fuel, parts, maintenance services and insurance (to name a few), passing those discounts on to you.

For all of the advantages, though, aircraft management solutions do not necessarily suit everybody. An analysis needs to be made on a case-by-case basis to determine how far the benefits would apply to specific operators’ needs.

When should an aircraft management solution be considered? What number of annual flight hours are ideal for you to consider placing your aircraft on the certificate of a management company? Let’s consider…

Aircraft Management & Co- or Joint-Ownership

The co-ownership and joint ownership options available in Business Aviation today do a tremendous job in bridging the gaps between charter and whole aircraft ownership. They often serve as a stepping-stone for owners to move into full aircraft ownership at a later time.

These solutions are gaining in popularity, but they can be complex – and if an owner fails to find the right partner to manage their aircraft, or is unable to be flexible, aircraft management solutions may create more problems than benefits.

Under a co-ownership structure, multiple entities can share ownership of the aircraft, and typically the flight crew is provided by the management company.

In a joint-ownership structure, registered owners can charge each other owner for certain operating costs. (This type of agreements is defined in 14 CFR §91.501(c)(1) of the Federal Aviation Regulations.)

Therefore, owners should be prepared to invest plenty of time and effort in identifying the best management company and solution for their needs.

Aircraft Management with Charter Revenue: This strategy works best for owners who typically fly between 75 and 150 hours per year. Since owning an aircraft can be logistically complex, most “concept buyers” prefer not to handle all of the operational details themselves.

A Part 135 charter management program run by the management company allows the owner to maximize the value of the aircraft when it is not in their use, generating charter revenue to help offset some of the aircraft’s operating and ownership costs. This may also sometimes yield certain tax benefits.

Scheduling conflicts may arise under this type of arrangement, so owners will need to be flexible if they are to maximize their return on investment and generate revenue when the aircraft is not being used (assuming the goal is to make the aircraft available for revenue flights).

Aircraft Management Program with a Dedicated Crew: This strategy tends to work well for owners typically flying 150 to 200 hours per year, and who require personalized service by a dedicated flight crew, often for security reasons. In this case, the management company sources and screens potential crew, before presenting them for the aircraft owner’s approval.

Alternatively, the owner may choose to run its flight department in-house, but outsource a number of services (such as the maintenance) to the third-party management company.

Fractional Ownership

Through this option, the aircraft is owned and managed by a large company that operates and manages a fleet of aircraft. Along with other owners, a fractional share owner will have the right to use any comparable aircraft from within the company's fleet, on demand, for a pre-determined number of hours each year.

Fractional Ownership is an ideal solution for those who are looking to avoid the many operational concerns associated with business aircraft operation, and who typically fly more than 75 hours, but less than 200 hours annually.

Whole Aircraft ownership

Aircraft Management with Charter Revenue: This strategy works best for whole aircraft owners who fly fewer than 200 hours per year. The owner will need to be flexible enough to allow a third-party management company to provide the pilots and maintenance personnel.

They will also need to be flexible enough to allow the aircraft to be used for Part 135 revenue-generating Charter flights, which will help offset some of the aircraft’s ownership and operating costs, and increase the aircraft’s utilization up to 250 hours, or more, per year.

Aircraft Management without Charter Revenue: This ownership structure works best for owners who fly between 200 to 250 hours per year, and need a third-party to manage the aircraft. The aircraft will primarily already be used as a productivity enhancer, but may not be considered an integral part of the business. Typically, a dedicated flight crew will be supplied by the management company.

Under these two options, an individual or entity owns 100% of the aircraft. In addition, it completely relieves itself of the burden of managing the business aircraft.

The aircraft management company will provide regulatory oversight, and 24/7 monitoring of every aspect involving the aircraft’s operation – from flight planning, to maintenance.

In-House Flight Department: The economics will tend to favor this ownership and management structure if the owner typically flies more than 250 hours per year.

Maintaining an in-house flight department provides the greatest level of flexibility and control over the aircraft’s operation, but the owner will also be responsible for all aspects of its operation.

Plentiful Choices

As shown in Figure 1, first-time buyers (i.e. “concept buyers”) who are entering the market have a number of options available, when it comes to Business Aviation, in terms of ownership and management structures.

The best option will ultimately depend on what the potential owner’s objectives are, and how well they can work together if a shared ownership structure is being considered.

FIGURE 1: Annual Flying Hours & Ideal Ownership and Aircraft Management Structures

Source: Consultant analysis

Other Aircraft Management Considerations

Use of an aircraft management evaluation software that provides five- to ten-year asset management, cost information and life cycle data will enable a potential owner to conduct a thorough analysis of every option and cost, including which type of aircraft, ownership and management solution offers the highest return, based on the investment planned.

The analysis should include:

• The annual variable and fixed cost
• Acquisition cost
• Finance/lease costs
• Eventual resale value of the aircraft (if owned)
• Estimated annual revenues (generated from Part 135 charter management)
• Taxes
• After-tax cash flow and Net Present Value (NPV)
• Average variable and fixed cost per hour, and 
• Other costs (total per nautical mile, cost per seat.

Software is available to help you understand the cost of operating an aircraft under certain ownership and management structures, while reviewing what the impact is to your bottom-line impact.

The user-friendly platforms use a series of in-built databases that help minimize the required user-input. To execute a thorough evaluation, though, the following information will be needed:

1. Date of the analysis (for reference purposes) and the numbers of years the analysis should run, the type of aircraft, aircraft status (factory new or pre-owned?). In the case of a pre-owned asset, the software should allow entry of key data such as the airframe total time, age, total landing cycles, and more.
2. Currency type and conversion rate (where required).
3. Aircraft’s home base (sales and use tax implications).
4. Total fixed and variable cost information.
5. Yearly inflation escalation.
6. Type of acquisition (i.e. cash purchase, debt financing, operating lease, including monthly rate and balloon payment information, etc.).
7. The full acquisition price, and down-payment (where applicable).
8. Tax depreciation method.
9. Type of operation (corporate, government, charter, etc.).

In the case of a Co-ownership or Joint Ownership structure, the evaluation software should allow you to specify what percentage of the aircraft’s operation will be used by you. How much of that will be for personal use, how much for business use (taxation implications), and how much for revenue-generating – charter – trips annually (operational implications)?

What are the number of cycles projected for the engines/airframe, and how many landings that are projected for the operation annually.

What is the anticipated cost of spare parts, ground support equipment, and pilot and mechanics training? How about the cost of insurance? Or the cost of enrolling the aircraft’s engines, avionics and airframe on an hourly maintenance program?

Extra consideration should be given when it comes to evaluating a fractional ownership aircraft management strategy:

• What is the size of the share being acquired?
• How long is the share purchased for (in years)?
• What are the annual ‘occupied hours’ available to you?
• What is the share cost/down payment (is it a cash purchase, or is it financed – including a down payment)?
• At the end of the agreement, will there be a trade-in value?
• What will the monthly fixed cost and occupied flight hour charge be? 

In Summary…

The facts should speak for themselves: There are many options available to aircraft owners today. Each is tailored to the needs of a slightly different group of aircraft owner. Only by conducting a thorough analysis of the options and costs, will you truly ascertain the type of aircraft management solution (outsourced or in-house) that is right for your planned usage.

Fortunately, in addition to the highly sophisticated software available, there are some highly-knowledgeable and skilled aviation consultants available to help. Their fees will be well justified once you have tailored the right type of operation and management structure for your Business Aviation need.