How to Better Control and Manage Your Operating Costs

David Wyndham provides an outline of the basis for flight departments to track and budget costs, minimizing the risks of nasty surprises...

David Wyndham  |  28th April 2022
Back to Articles
David Wyndham
David Wyndham

David Wyndham has extensive expertise in aircraft sales and acquisitions, asset management, cost an1

Private jets - how can your operating costs be better controlled?


There is an old aphorism about aviation: When the pile of money is equal to the size of the aircraft, then you have enough money to fly. Certainly, in the world of Business Aviation, costs must be justified internally, and to the board of directors.

If the aircraft is managed, the management company has a fiduciary responsibility as well as a contractual obligation to spend the owner’s money wisely. Where an aircraft is not managed externally, there is a need for you to control and manage your aircraft operating costs. For this, you need to be the master of two interrelated areas:

  • Tracking your costs; and
  • Budgeting your costs.

Tracking Your Costs

A company’s executive leadership, Board and CFO tend to focus on asset management, and their review may only consider a few major categories. One former client used three cost categories for its flight department: Facilities, Travel, and Personnel. While sufficient for reporting at executive level, such trifurcation is far too broad for management of Business Aviation costs.

Except for overhauls and refurbishments, most of the operating costs are incurred in small enough increments that managers don’t realize their total magnitude, unless the company has a specific way to measure them.

Thus, the aviation management team needs much more detail to effectively manage its costs. (Remember, you can’t manage what you can’t measure.) The basic minimum requirement is to collect and organize the costs in a way that is useful to the Aviation Manager and Maintenance Manager.

The measurement system should be flexible enough to allow differentiation in costs between aircraft tail numbers and, if needed, operating locations.

Ideally, your maintenance tracking software should include cost tracking. If not, hopefully the comptroller’s office can set up something specific for the Flight Department. The Aviation Department should be run like a business unit with tracking, accountability, and responsibility for the costs.

There needs to be enough detail so that you can see changes and explain deviations from your budget with ease. Too many categories can result in a work overload, so whatever you choose, make sure it’s useful in managing the operation.

Detailed costs at the Flight Department level must roll up into the reporting categories needed by the CFO. For example, categories such as hangar rent, insurance, utilities, communications, and cleaning services will all role up into the “Facilities” high-level report.

Budgeting Your Costs

The first step in budgeting, namely to agree on the assumptions, will, if done well, make the rest of the process a simple exercise. The mission of the flight department should align with the goals and objectives of the company. That mission defines assumptions for its success, for example:

  • How much flying are you expected to do in the coming year?
  • Where?
  • Do you have enough staff, or will you need to hire more people?

Once you agree with the executive leadership what the mission requirements and expectations are, then the budget flows from what it costs for the resources needed to accomplish the mission. Think of their budget from three levels: tactical, operational, and strategic.

Tactical: This is the lowest level of budgeting. For example, it pertains to what the head of maintenance needs to manage the department’s parts inventory or prepare for the next inspection. Or the scheduler may use this level of budgeting to manage catering costs.

Essentially, these costs provide the background for building the department’s operational budget.

Operational: The level of budgeting provides the aviation manager with the best tool for overseeing day-to-day fiscal issues. It covers the main areas of functional responsibility.

For an aviation operation, maintenance is one of the largest expenses, and one in which the aviation organization can have the most control. Fuel and training are two more categories. In order to effectively manage those expenses, the aviation manager needs to measure and track them during the year.

Strategic: The CFO strategically examines the Flight Department budget to see how well that business unit is aligned with the company’s goals and objectives. The final product is one document — the flight department budget.

Budgets are Adaptable

The budget is usually prepared annually and should be monitored monthly. When assumptions change, so must the budget. If jet fuel goes up 20%, your annual fuel budget must change, or the assumption for how much flying is needed must be adjusted. Variances between budgeted and actual expenses are noted and addressed as needed.

Aviation and maintenance managers need to understand how costs behave, and how to use the company’s cost tools to manage their use of funds.

For aviation-specific cost management, I recommend looking at courses offered by NBAA’s Certified Aviation Manager program. Collect costs appropriately, understand the assumptions, and prepare your budget accordingly.

Related Articles

David Wyndham

David Wyndham

Editor, Ownership & Operating Costs

David Wyndham has extensive expertise in aircraft sales and acquisitions, asset management, cost and budget analysis and finance fundamentals. With several decades supporting aircraft owners and operators in making fully-informed decisions about their aircraft needs, his expertise spans from the flight department to the executive boardroom.

David is the founder of David Wyndham + Associates, and previously he was a Co-owner and President of Conklin & de Decker where he consulted with large corporations, individuals, and government agencies on their aircraft needs.


SHARE THIS ARTICLE

Print

Other Articles

Sabreliner 40
Price: €51,000 No VAT
Italy
Piaggio Avanti EVO
NEW
Germany
Bombardier Global 5000
Make offer
United States - NC
loder image