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Are You Getting Your Flight Department Budget Right?

How effective is the budgeting process in your flight department? What are the methods of predicting and monitoring operating costs? Aviation director Andre Fodor discusses…

Andre Fodor   |   22nd May 2019
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Andre Fodor Andre Fodor

With a focused approach on global excellence and creativity, Andre Fodor has managed flight...
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How effective is the budgeting process in your flight department? What are the methods of predicting and monitoring operating costs? Andre Fodor, Aviation Director for Johnsonville Sausage, provides some tips…
 
As manager of a flight department, the recollection of my mother’s accounting has served as a helpful reminder of what would be required to balance the expenses, provide transparency, manage costs, and fairly and accurately account for our flight activities.
 
In a low-income household, she kept very precise accounting of family expenses, payments and future obligations. Neatly written numbers accounted for every penny of that tight monthly income, enabling a forecast of how much money would be needed to keep the family dressed and fed.
 
Since I am not an accountant, over the following paragraphs we’ll explore budgeting in layman’s terms. The following has been drawn from many years in aircraft and wealth management regarding matters of taxation, depreciation and structuring acquisitions.
 
It all started with the basics — the ABC (Active gathering of; Becoming organized with; and Consistently administering) of data that could be used for gain. Following is a primer.
 
 
Aircraft Operating Costs: Two Methods of Budgeting

Budgeting can be approached using two different methods. First, a ‘Predicted’ budget could be developed (described here as an educated approximation of what the operation will cost).
 
Then, as time progresses in a flight operation, it is possible to develop a ‘Real Costs Derived’ budget. The ‘Real Costs Derived’ method delivers accurate accounting of true costs and provides the real data to generate future budgets.
 
When starting a budgeting exercise, it’s necessary to establish how many hours of flying are anticipated annually, and this will become the anchor of the budget.
 
Personally, I use ‘hours contracted in the engine program’ as my annual goal for flying. Regardless of how many hours are flown in a year we are obligated to pay for the hours negotiated in the engine program contract. It is therefore important to negotiate program terms that realistically reflects the anticipated hours.
 
If this benchmark is not part of your operation, it is possible to use other estimates (such as historical trip demands, or the remaining hours until a major maintenance event).
 
 
Aircraft Operating Costs: Accurate Data Gathering

Budgeting is about accurate data gathering. The best place to start is with a list of predictable aircraft operating costs. To help, there will be existing cost benchmarks and business publications that can yield approximations from which you can begin to fill in the blanks on your fixed and variable costs.
 
Items such as salaries and benefits are known factors within an operation. By using salary surveys among your network of contacts, it is possible to establish a competitive and balanced compensation package that eliminates turnover.
 
You’ll also need to consider the fact that hiring and training team members has a significant impact on a healthy budget, while reducing dispatch availability.
 
When gathering data for your operating cost budget, it’s sensible to start with the costlier items that represent the largest costs and refine later with smaller percentage cost items.
 
So, for example, some of the first items on your fixed costs spreadsheet would be engine and fixed cost maintenance programs, salaries and benefits, hangar rental, recurrent training, and navigational databases.
 
In the ‘variable costs’ column items should include an average cost of fuel per gallon (ideally rounded to a higher amount), contract pilot allowances, and APU hourly programs.
 
 
Aircraft Operating Cost: Those Hard-to-Predict Items

Naturally, there will be items in the budget that are hard to predict. Those with regular international travel needs will appreciate that international airspace permits, navigational charges, and foreign airport fees usually require ‘educated’ allocations.
 
If I really need a clearer idea of the costs for a specific trip I tend to find an international handler that can provide one. However, since this represents one of my lower percentages in the total cost of operations, it’s acceptable to use an estimated budget allocation for this cost group.
 
Typically, after the first year of operations, it becomes possible to establish a highly accurate, fine-tuned working budget from which a ‘true cost per hour flown’ budget can be built.
 
 
Budgeting for New Aircraft Operations

At least one additional spreadsheet will need to be generated for new operations: The ‘Initial Upstart’ budget is where new operations will list the cost to set up that operation.
 
As part of this budget, items such as aircraft tooling, spare parts, heart defibrillators, cabin amenities (blankets, pillows and decorations), noise-cancelling headphones, crew iPads, and every other conceivable item needed for the operation, should be included. These are typically one-time or long-term purchases.
 
 
Different Aircraft Operations, Different Budgets…

I’ve analyzed budgets that were so complex I could make no practical use of the data, and I’ve seen flight departments that just kept the credit card statements and utilized a pay as you go approach. Both extremes left room for gross and negligent errors and inefficiencies.
 
For every operation there’s a balance between how much detail is sufficient to satisfy the CFO and sustaining an accountable operation.
 
Assuming your operation isn’t part of a public traded company (where accounting is governed by strict, legal guidelines) it’s really up to you and your CFO to decide which budgeting practice works in your operation.
 
Budgets need to be tailored for each operation. Nevertheless, the insights above should provide the fundamentals to help ensure you get the best out of your flight operation’s budgeting process.
 
 
 
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Read more about: Operating Costs | Flight Department Budgeting | Flight Department Cost | Flight Department metrics

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