- 11 Oct 2018
- Andre Fodor
What are the dangers of not having the right expertise to manage your business jet operation? How can the right manager enhance an aircraft owner’s choices? Aviation Director Andre Fodor illustrates with a real-life scenario…Back to Articles
What are the dangers of not having the right expertise to manage your business jet operation? How can the right manager enhance an aircraft owner’s choices? Aviation Director Andre Fodor illustrates with a real-life scenario…
Not long ago, I received a call from a concerned client asking me to intercede on a deal he felt would turn bad. His friend was preparing to make an offer on an older Large Cabin Jet. Being a newcomer to aircraft ownership, the friend thought he could get the deal done by himself.
Spotting the danger, his friend, a seasoned aircraft owner, contacted me to look at the proposed acquisition and make sure it passed muster. In this case, the buyer was lucky to have such a great friend!
We were able to avert disaster right before the buyer wrote the check for a non-refundable deposit, which would have legally bound him to a poorly-written purchase agreement.
The client’s appointed chief pilot was of little help having had no previous management experience. He was blinkered by the idea of flying some heavy iron.
There was no acquisition plan and no study accounting for the operational cost of an older aircraft, the need for (and cost of) an engine program, or the cost of APU coverage.
The buyer hadn’t understood that early engine serial numbers are subject to hard TBOs (as opposed to being on-condition), so a correction between residual TBO and the overhaul cost would have to be applied towards the operational cost and the aircraft acquisition price.
Blissfully unaware that an upcoming main landing gear inspection would be valued at 12% of the acquisition price, the buyer and his chief pilot were only looking at the cost to buy without any knowledge of the items that could impact the value.
With no knowledge of planning a pre-buy inspection, no inquiry regarding the availability of required (NextGen) avionics upgrades, and no structured acquisition plan there was just money, metal with wings and a sizable headache heading the way of the buyer.
The Reality CheckAfter a short discussion and a basic Q&A session to understand the buyer’s net worth, it was clear that he was purchasing more aircraft than he could afford.
We built a simple spreadsheet containing fixed-costs and variable costs that showed the buyer he would be spending $2.4m to operate 300 hours annually. His expression confirmed that he was uncomfortable with such costs.
Instead, we identified where compromises could be made on a slightly smaller but newer jet.
The smaller aircraft came with some residual warranty, was already enrolled on an engine maintenance program, and cleared the hurdle of expensive buy-ins. It was a nice corporate aircraft with two previous owners. It had been well-loved and boasted a strong pedigree.
After an extensive pre-buy inspection, the buyer had an airplane that fitted his budget and need, and more importantly had a plan of action on how best to operate it.
Rules for Buying a Jet
Following are four basic rules for would-be aircraft owners to consider when hiring the right management and avoiding making similar mistakes.
Rule 1: Bigger does not equal better. A big, cheap aircraft will tend to mean it is on the wrong side of the viability curve. There is certainly value in this type of acquisition for some owners, but it will require good experience and a strong stomach for the costs associated with older aircraft.
‘Big ticket’ items may be found during future inspections and flight operations. Replacement parts may be scarce. It should go without saying that where an older aircraft is concerned you must have expertise when buying and operating.
Rule 2: Successful operations are managed professionally. There are great pilots and great managers. Some can be both. But not every pilot has the experience and management acumen to get the best value for your dollar.
There’s nothing wrong with a pilot wanting to become involved in management. If that’s the case, find an advisor that can mentor the new manager until they can operate solo with confidence. Retaining advisors for projects where there is a lack of expertise is a valuable decision for your operation.
Rule 3: An experienced manager will help owners find the right balance. An experienced manager should not hesitate in vetoing a prospective aircraft purchase and be able to clearly communicate why. They should ultimately place the principal’s business interests ahead of their own. For this, the manager should be well compensated.
Rule 4: Wealth comes from being an expert at something. Hire the best talent to support you in structuring the aircraft purchase and its operation. That’s the recipe for success in any business, and especially in aircraft ownership.
Everybody must start their management career somewhere. I learned by shadowing experienced professionals, learning from the best and then from the worst. But there is always something new to learn – managers never stop learning throughout their careers.
An effective manager’s greatest asset should be their ability to effectively network and communicate. While they can’t be experts on everything, they should know who to call when they need to.
Meanwhile, anyone buying a corporate aircraft should do so through a process of excellent decisions. That can happen as they assemble a team of experts that includes their flight department managers.
It’s puzzling that so many mistakes are made in aircraft purchases owing to a lack of expertise. A prospective buyer can’t afford not to hire the best management and ensure a synergy between the parties. It’s good business, it’s effective, and it’s the right choice for a successful aircraft ownership experience.