Fred Haap, former Aviation Director for a major industrial corporation and current IS-BAO auditor, continues his series with Jack Olcott on how to create a flight department from scratch...
Let’s assume that in responding to management’s request to examine the benefits of forming a Flight Department, you have interviewed or otherwise surveyed potential users of Business Aviation. Based on their input, you have generated a concise and directive set of governing documents that included the proposed department’s Vision, Mission and Guiding Principles. Those directives were used to shape a draft Business Plan for the department (as outlined in the June 2015 issue of AvBuyer).
Knowing that the definitive Business Plan requires a detailed examination of how a business aircraft would be used, your management has given the OK to proceed with formulating a final proposal. Now consider the following scenario:
Your survey indicated that 90 percent of the firm’s trips involving a business aircraft would be to locations not well served by the Scheduled Airlines and within 1,000 statute miles or less of the firm’s headquarters. About 50 percent of Business Aviation travel would be to destinations between 250-750sm from home base; 25 percent would be between 750-1,000sm; and 25 percent would be less than 250sm. (Note: statute miles are used since management is more familiar with that metric).
Your plan should state a minimum trip length that would be anticipated—say 100sm—but make provisions for addressing very short distances if a person with appropriate authorization requires such travel as an extraordinary or emergency action.
The Business Plan should clearly identify the maximum radius of action and the complement of passengers that the business aircraft will serve. Far too many firms feel they need to fly non-stop to destinations that are rarely required or carry far more passengers than typical. While business travel involving multiple legs might exceed the recommended planning radius, the Flight Department should address the geography to be serviced and the anticipated trip length per travel segment.
Furthermore, the department should be structured to deal with the occasional ‘outlier’ trip (one of extraordinary length, or a passenger load exceeding the norm) via a pre-audited and vetted charter provider, or timesharing arrangement with a suitable source.
Interpreting the Data
For our example here, we assert that survey data revealed that 90 percent of the firm’s use of Business Aviation could be satisfied by one aircraft capable of carrying six to eight passengers over non-stop distances of 1,000sm or less with NBAA IFR reserves. (The survey data established a minimum passenger load of four adult passengers with luggage. In practice, this requirement dictates a need for a six to eight passenger aircraft. To average four passengers per flight, approximately half of the trips will have six to eight passengers. The four-passenger survey data will increase due to last minute add-ons and a host of other variables.)
Flight usage was estimated to be 400 flight hours per year, requiring only one flight crew consisting of two pilots approved to serve as aircraft captain plus a part-time co-pilot. Subsequent analysis might indicate that a full-time co-pilot should be hired while retaining access to a part-time crew member. Also, as stated earlier, provisions to obtain additional lift via charter or timesharing will be addressed in the Business Plan.
Assessing Choices, Seeking Advice
Our survey resulted in the assumption that one business jet with an operational range of 1,000sm was suitable, but there are several ways in which such a business aircraft can be acquired, ranging from outright purchase of a new or pre-owned model to various financing and leasing options. Expertise is required to decide what route to take.
Your firm’s financial advisors should be consulted to access the ramifications of depreciation and the impact of a company aircraft on the corporation’s balance sheet. A pre-owned aircraft may present a great purchase opportunity, but new-aircraft warranties and accelerated depreciation also have a significant appeal to firms with strong profits.
Financing presents sophisticated possibilities. Unless you are an expert in sources and uses of funds, seek advice from someone with relevant knowledge of your company’s financial situation. His or her assistance will help identify the funds available for acquisition and add credibility to your Flight Department Business Plan.
Experts are available and beneficial for accessing which models of aircraft are suitable for meeting a company travel needs.
The marketing departments of OEMs are staffed with capable performance engineers who are primed to answer all your questions, and brokers within the pre-owned arena also have the ability to provide knowledgeable insights. If those sources are not sufficiently transparent, there are firms that are unaffiliated with OEMs or brokers; they can provide objective third-party evaluations of aircraft selection and availability.
While many aviation professionals feel they are well suited to select an appropriate aircraft, checking with an expert in acquisition is an option to be considered seriously.
Experts are also available in designing the structure of the flight department, although the party authoring the business plan probably has ample credentials to recommend where the aircraft will be based for operational efficiency and how flights will be scheduled. It is essential, however, to seek input from a tax expert regarding sales and use taxes for the state where the aircraft will be purchased and hangared.
Deciding how and where the aircraft will be maintained may also require expert advice from a knowledgeable consultant. Effective maintenance is essential for safety and cost containment. Poor maintenance decisions, even if they do not impact safe operations, can be very costly. Many a flight department has been shut down because costs soared out of control.
A flight department should be a business unit within the firm’s organizational structure, with the same requirements for budgeting, reporting and accountability as other business units. Thus the departmental business plan must address how those routine managerial functions will be accomplished. When developing your Flight Department Business Plan, talk to those within your company who can assist in structuring an acceptable reporting system. Since most aviation leaders report to a member of senior management, it is essential to consult with that person as you proceed.
More so than other business units, the flight department must satisfy procedural requirements, some dictated by the FAA and others by industry-derived standards and best practices. Those procedures are incorporated in the department’s Operations Manual. It is not unusual to seek outside expertise in generating such documentation.
At the end of the day, creation of a compelling Flight Department Business Plan is a process of irritation, starting with a survey of needs, assuming a geographical area to be covered, considering aircraft well suited to accommodate the passengers to be served and the cities to be reached, and deciding on a departmental structure that works effectively as a business tool for the corporation.
As elements of the plan unfold, adjustments become necessary and are made. Eventually, you zero-in on a plan that meets the needs of your company and provides a basis for effective management of a flight department.
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