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Allocating Costs For Business Aviation
Cost accounting and allocation of a company aircraft is not uniform among users of Business Aviation- in part because Boards fail to treat such assets as one of many business tools available to the enterprise. Just as acquisition and depreciation costs of more familiar assets are spread throughout the corporation as overhead- so should similar costs associated with business aircraft- implies Jack Olcott.

In this month’s Business Aviation and the Boardroom- David Wyndham addresses the sensitive subject of allocating costs for use of the company aircraft (see preceding article). His research uncovered that only 44 percent of the companies owning or leasing business aircraft and belonging to the National Business Aviation Association have established policies regarding chargebacks—the term used to identify how aviation costs are allocated to the department or employee using the company aircraft. Even among larger companies (ones with assets over $5 billion) the use of charge-back allocations is less than 60 percent.

The chart below presents how those companies that do have chargeback policies determine what costs will be incurred by the department or executive using the aircraft.

Based upon recognition that business aircraft are highly effective tools for maximizing the value of people and time- Boards should establish policy that facilitates the use of Business Aviation where this unique form of safe and effective transportation provides maximum benefits to the company and its shareholders.

Chargebacks that allocate to users the total cost of owning and operating a business aircraft will guarantee that only executives at the highest level of company hierarchy will employ the asset- resulting in underutilization and inefficient use of company resources. Establishing a chargeback fee that is too low also is inefficient. Having no policy for cost allocation is simply poor governance.

One additional thought: Boards are wise to establish policy for use of Business Aviation that focuses on benefits to be gained by having the right person—be he or she an executive- specialist or technician—at the right place and at the right time to maximize sales and customer loyalty. Recognizing that chargebacks have a pivotal influence on aircraft use- policy must provide for extraordinary situations where cost should not stand in the way of opportunity

Do you have any questions or opinions on the above topic? Get them answered/published in World Aircraft Sales Magazine. Email feedback to:
Jack@avbuyer.com


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