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AIReport - Mar 09

A recent press release by ARG/US confirmed the obvious; the recession is deeply affecting general aviation. In December 2008, versus December 2007, flying in the US was down significantly: Part 91 flying was down 15.3%, charter was down one-third and fractional was down 32%.

David Wyndham   |   12th March 2009
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David Wyndham David Wyndham

As an Instructor Pilot in the U.S. Air Force- Dave's responsibilities included aircrew...
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Finding Ways To Save Money

A What are you doing to cut costs?

A recent press release by ARG/US confirmed the obvious; the recession is deeply affecting general aviation. In December 2008, versus December 2007, flying in the US was down significantly: Part 91 flying was down 15.3%, charter was down one-third and fractional was down 32%. And it crossed all lines of turbine travel with turboprops down 24.1%, small cabin jets down 22.1%, mid-size cabin jets down 19.9% and large cabin jet activity down 26%.

By most forecasts 2009 is going to be a down year for most of us. On the bright side, 2010 is forecast to see some growth and recovery. So how do we get through this down cycle? Here are a few ideas.

The fact that cash flow is king applies to for-hire and not-for-hire operators. If Cash In, less Cash Out is positive, you survive to see another day. In the case of the not-forhire it means living within your (reduced) budget and conserving cash whenever possible. In order to effectively manage cash, you need a system to capture data.

AN EFFECTIVE SYSTEM

You can't control what you don't measure. If your aviation operation has three or four big cost categories (fuel, maintenance, personnel, facilities) then you will have a tough time identifying the areas where savings can be had.

Too many times operators can focus on the wrong costs, or the right costs but for the wrong reasons. Everyone will focus attention on significant cash flow spikes or emotional events while other, more frequent, but less noticeable events can drain your cash resources.

An effective system, that is both detailed and easy to use, can help identify where those dollars are going. Here are a few areas:

Warranty: At first glance we may think warranty applies to new aircraft. True, but incomplete. Every aircraft has numerous parts that were purchased new. All those parts have some sort of warranty associated with them. A few years back, we reviewed one operator’s work orders and found $40,000 in lost cash from not aggressively tracking warranties.

You may be able to reduce your parts costs by 10% by tracking and pursuing warranty issues.

Inventory: We need inventory for our aircraft to improve the efficiency (availability) of our aircraft. Inventory is not just limited to spare parts but can also include such items as fuel, labor, aircraft and ramp space. Having inventory has its associated costs.

Storage and handling costs would include the actual space required to contain the inventory, the climate control, shelving and furniture (for the inventory personnel) and utility costs. Handling costs would include the personnel time associated with receiving and stocking parts, etc.

Insurance and taxes relating to the coverage of inventory is part of any general business insurance policy. If the inventory is significant enough in value, separate coverage may be required. Specific taxes on inventory and property taxes can vary by state.

Service bulletins and directives can, in some cases, render an item obsolete immediately. What if your fleet changes? Do you still have items associated with the old aircraft?

Have you considered what to do in the event of theft and damage? Parts can ‘walk’, and parts can be damaged by improper handling or storage.

Essentially, the cost to carry inventory runs from 15% to 25% of the inventory's value. So that $40,000 in spares can be costing you $10,000 per year. Do you need that entire inventory? Can the OEM deliver overnight? What are the most frequently replaced parts? Do you have those?

What do you do about the ‘once-in-a- Blue-Moon-part…’ do you really need to have one of those?

A careful review of what parts are used, what is easily available, and what items can be sold off can return money back to your organization.

What we’ve considered here is only the beginning. What areas are you finding to save money in your organization?

 

Read more about: Operating Costs

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