Peter Agur Jr. is Chairman and Founder of VanAllen - a business aviation consultancy firm with... Read More
BizAv Services Use Policies. How will you prioritise use of your Company’s airplane? Boards set policy- and Business Aviation must not be an exception to this ethos. But each policy should reflect the unique needs of the corporation- assert Pete Agur and his associate Don Henderson.
When I started my aviation consulting career- one of my first clients told me; “Once you’ve seen one company’s use of Business Aviation- you have seen one company’s use of Business Aviation.” His point was straightforward: The business- organizational and cultural challenge related to “who can use the company airplane” is unique to each user.
The “one-size-fits-all” approach to policies can degrade the benefits that business aircraft create. Before policies can be developed- it is critical to answer three questions:
1. What is your business’ Strategic Intent? 2. What is your corporate Organization and its resulting Culture? 3. How does Business Aviation support each?
STRATEGIC INTENT Is your business growing or maintaining? If you are maintaining (i.e.- focusing on holding cash) then cost management is a major part of your strategy- which may be mutually exclusive to the premium costs of Business Aviation. On the other hand- if your goal is growing- you are more focused on revenue development through offering new products or services- reaching underserved markets- or seeking horizontal or vertical acquisitions.
The impact of time on the key people making growth happen has a leveraging effect on your business’ success that far out-shadows the marginal cost of Business Aviation over the Airlines. The highest and best use of Business Aviation is- therefore- in support of accelerating and assuring the achievement of your enterprise’s Strategic Intent.
CORPORATE ORGANIZATION AND CULTURE The use of Business Aviation is an effective method to support the enterprise’s structure and to communicate its corporate culture. For example- if your company is organized around a small team of key executives- you will liberate them to make the most of their time by saving them three hours for every leg when you put them on business aircraft.
One Airline trip per week will cost over 300 hours per year (which is the equivalent of five executive work weeks or 10% of their work year- assuming the average hard-driving executive puts in 60 hours per week) of wasted time per executive. Business Aviation puts that time- and much more- back in the plus column for your company for each frequent-traveling key executive.
On the other hand if your organizational structure is flat- supported by a culture of collaboration- then egalitarian aircraft use policies that are based on highest and best business purpose- cost vs. benefit- and first-come- first-served- may be appropriate.
BUSINESS AVIATION SUPPORT Business Aviation services offer several significant benefits. They:
• Allow key individuals or teams to participate in multiple meetings at disparate destinations in days instead of weeks; • Provide access to communities and business sites that are not served by other forms of transportation; • Leverage senior leaders’ and other key individuals’ time; • Act as a powerful sales and branding tool; • Support a corporate culture committed to providing quality of life for employees; and • Recognize that respecting an executive’s wellbeing is an effective and appropriate incentive.
How you wish to address each of these questions shapes your Business Aviation use policies. As the competitive arena shifts or the corporate culture evolves- those use polices also may need to be adjusted.
WHAT USE POLICY SERVES YOUR CORPORATION? Regardless of culture- Business Aviation use policies should be thoughtful- clearly defined- and published. They should be endorsed or reviewed by the highest leadership group within the corporation (Board of Directors- owner- etc.). And they should address as a minimum the following:
• Access—who has the right to request the company aircraft? • Authorization—who approves use of the company aircraft? • Scheduling—who resolves conflicts for competing use of the company aircraft? • Justification—what method evaluates the benefit/cost issues of company aircraft use? • Purpose—a clear and concise statement of why Business Aviation serves shareholders. There are a number of other important policies that should be addressed overtly- including:
• Operational Standards – What standards will be expected of Business Aviation services? How will those be determined and measured? Will they emulate Airline standards? Will they be just regulatory compliant or Best Practices? How do we align the Business Aviation operational standards with our other corporate quality initiatives- strategic intent and Business Aviation Use Statements?
• Policy Exceptions – Policies cannot be written for every situation. It is important to declare if exceptions are allowed- and if so- under what circumstances- with whose authority and with what mitigating controls?
• Passenger Pairing or Co-Rider Issues – Are there passengers who should not ride together in the interest of business continuity? Tactically- passenger-pairing policies may be perceived as unnecessarily restrictive and not cost effective. Strategically- business continuity is a factor in passenger pairing policies and brand protection.
Furthermore- the highly remote possibility of a mishap may have an impact on market capitalization for publically traded companies. Even an aircraft incident without injuries can disrupt investor confidence if too many leaders are on the same aircraft. Co-rider policy exceptions may be allowed in predetermined circumstances where risks are deliberately mitigated. Routine exceptions- or variances- indicate the policy is either being ignored or needs to be reviewed. There are additional supporting Business Aviation policies that deserve top leadership review and approval to assure the effective support of the enterprise:
• Business Aviation service limitations and distribution can be accomplished by a number of methods constrain the number of aircraft available: Ideally this leads to a negotiation for highest and best use- especially challenging for companies with only one or two aircraft and little or no supplemental support from fractional/ charter aircraft services. User negotiations for access requires open and adult dialogue and is least effective in organizations with substantial internal politics or an informal power structure.
Elevate the point of trip authorization: The higher the executive to whom trip requests go- the greater the political visibility (and liability) there is. This situation acts as an effective constraint on use in most organizations- and it usually is in place because one or more top executive feels a high need to control Business Aviation services for all potential users.
Use an internal transfer fee for the aircraft use (typically called a chargeback): Internal chargebacks can meter the use of the aircraft- depending upon their costs versus commercial alternatives as well as the latitude the requestors have within their budgets.
This method may have a high administrative costs- but it can reduce the need for senior executives being burdened with managing aircraft use. Tactically- it may allow the company to subsidize the expense of the aircraft for lines of business that are under time and performance pressures. Internal charge rates range from artificially nominal to full cost recovery.
Personal Use: Is personal use allowed? How is it documented? How will imputed income be calculated- and who is responsible for reporting that income to the IRS? Is the impact of personal use on the company’s tax treatment of aircraft depreciation considered?
• Public Officials – What is the policy for the transportation of public officials?
• Charter Aircraft Use – Are all on-demand forms of transportation subject to the same procedures and standards as the corporate aircraft? What are the corporation’s quality assurance standards- processes and practices for charter aircraft services?
• Charitable Use – Is charitable use allowed? Is the business expense risk (loss of depreciation expense) considered? How are requests handled?
• Empty Seats – Are the unused seats available to other traveling employees? Does the user of the aircraft have the authority to not allow others on the aircraft? Is the expense shared- or do the “add-ons” ride for free?
Your use of Business Aviation is unique because your business is unique. That requires you to develop your own policies. Even so- a dialog with other owners and operators as well as with outside experts can ensure the development of a robust- yet efficient policy structure. The graphics overleaf present a framework for aligning corporate characteristics with Business Aviation benefits.
ACCESS POLICY Who has the right to request the use of the aircraft? Is there a specific role (i.e- the CEO) or group (the Senior Leadership Team) who should always have access? Are specific individuals or lines of businesses excluded from Business Aircraft use? Are specific types of trips or individuals provided preferred or denied access?
APPROVAL POLICY Will aircraft access be controlled by a specific individual or will multiple layers of approval be required to use the aircraft? Will any individual or position have the authority to use the aircraft without any additional approval (self-approval)?
SCHEDULING CONFLICT If there are competing requests to use the aircraft- who will get priority? Will individuals or teams have the authority to “bump” others off the aircraft? If someone is bumped from the aircraft- will their needs be satisfied by another form of on-demand air travel (e.g.- charter aircraft service- fractional aircraft service)- and who will be responsible for the incremental expense?
JUSTIFICATION Justification and documentation should be part of any policy- regardless of the traveler’s position on a cultural spectrum. It is imperative to be able to substantiate to the IRS the business purpose of each passenger on each leg. Otherwise the company’s ability to deduct the aircraft as a business expense could be jeopardized. Why the aircraft was used in comparison to another form of transportation is not an issue to the IRS- but it is relevant to the company’s internal culture. Value of time for key individuals or accelerating the business cycle can easily outweigh a clinical analysis of business aircraft vs. other transportation expense.
PURPOSE POLICY A Business Use Statement that declares the alignment of the Business Aviation services with the corporate strategic intent reduces uncertainty about the purpose and value of the use of business aircraft. In the absence of specificity in policy- a broad statement may provide sufficient guidance.
Examples of a Business Use Statement might be as simple as: ‘The use of Business Aviation services will be a primary tool to maximize the Senior Leadership Team’s time and impact for the enterprise’- or ‘Business Aviation is our primary method of reaching our customers. It helps us sell trust and demonstrate our uncompromised commitment to excellence’.