Managing Your Aircraft Management Company
Hiring an experienced and highly regarded management company to operate your company’s business aircraft makes good sense in many circumstances - but responsibility for their actions remains with the Board of Directors- cautions Gil Wolin.
The technical knowledge required to operate and maintain business jets has made aircraft management more popular than ever before. When you add 24/7 availability of trained personnel to schedule and complete each flight- along with fleet purchasing power and the option to generate revenue from outside charter- the advantages for first time aircraft owners become very appealing indeed.
Placing the company aircraft with an outside agency for management does not absolve Directors from all responsibilities – or the associated liabilities – of aircraft operation- however. The contractual relationship with your management company is based on trust: you trust it with the lives of your executives- to operate the aircraft cost effectively- and to preserve the asset value.
You need to be aware that according to FAA regulations- unless the aircraft is flying a charter trip under the management company’s FAR Part 135 charter certificate- your company – and its Board – ultimately are responsible for the aircraft’s operational safety. Consequently you- as a corporate officer- have both fiduciary and safety responsibilities regarding aircraft operations. That means you must make sure that the management company is performing as per your contract and its commitments.
Most non-aviation executives and Board Members do not have the technical know-how to evaluate and select the management company best suited for their specific requirements- but the professional aviation consultant or broker who helped select and purchase your aircraft does. He or she can vet and recommend the right professional aircraft management company for you- and determine whether it operates in accordance with industry-best practices standards- such as IS-BAO.
Once you have selected a management company- an experienced aviation lawyer should review the contract and make sure that the terms and conditions of the relationship meet your legal- fiscal and risk management requirements. While you may opt to have that consultant conduct periodic reviews of the management company’s operational and fiscal performance- the bottom line is that the day-to-day oversight of the management company remains with you.
By defining your aircraft operational goals up-front- you build tools by which you can measure the management company’s performance going forward. Following are the critical performance parameters.
Budget: Establish an annual budget- and use it for quarterly reviews. Be prepared to make adjustments for fuel costs or unexpected maintenance items. Also- if the crew assigned to your aircraft is not satisfactory for any reason and needs to be replaced- then you may have to pay for additional training of new pilots.
Charter: Do you want the aircraft on a charter certificate- and if so- why? Your answers to these questions will define some of the management company’s performance measures- as well as affect aircraft availability and operational flexibility. Is it for tax or cost allocation purposes- or to generate revenue to defray the cost of your own flying? Are you trying to maximize outside revenue- or simply lowering operating cost via fleet discounts?
Purchasing and Accounting: Most management companies require an operating deposit equal to one or two months’ budgeted operating costs- to pay expenses as incurred.
Monitor the management company’s purchasing behavior and review monthly statements with their accounting personnel. New software programs increase financial transparency as well as expedite invoice review and the payment approval process.
Major Maintenance: When it comes to controlling costs- maintenance is a far more significant portion of the annual budget than is fuel purchasing and consumption. Establish a maintenance bid review and approval process. This is critical not only for cost control but also to ensure asset value preservation and safety.
Scheduling: Regardless of how many executives have access to the aircraft- you must select a single point of control for flight scheduling. Determine priorities – who can bump whom – as well as who can request a charter if the aircraft is not available. This procedure helps avoid conflicts as well as maintain accurate records to measure the management company’s reliability.
Third-Party Charter Requests: Establish a streamlined charter approval process if you want the aircraft to generate outside revenue. When the management company receives a request for charter- it needs a rapid response from you accepting or declining the trip.
While the industry traditionally has relied on email- fax or telephone to secure such approvals- new PDA communications apps like Trip-Speed are surfacing- to help expedite the approval process and provide real-time activity records for charter requests.
Scheduled Reviews: Conduct in-depth quarterly and annual reviews of both operational and financial performance (versus budget) and operating parameters. These include crew performance- as well as the service provided to you and your passengers in the air and on the ground. A combination of the above pointers should help you keep abreast of your responsibilities and get a better grasp on managing the aircraft management company operating your company aircraft.
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