- 16 Jul 2018
- David Wyndham
- Operating Costs
If you own your own aircraft or if you're considering buying one, the choice of an aircraft management company is probably one of the most important decisions you'll need to make. Nick Copley takes us through the key things buyers need to consider when making this selection.
By Nick Copley,
As a starting point you'll need to assess what you want to achieve from your aircraft management company, optimizing between charter income and reducing hassles.
"Some people buy an aircraft purely for their own use and don't want anyone else to fly in their plane, take it anywhere different or get it dirty," noted Kyle Slover, COO of Volo Aviation. "Others may only fly 40-50 hours per year and want to charter out their plane for as much time as possible."
According to Kyle there are three key steps to find an aircraft management company:
1. Speak to an advisor
Maybe an attorney, banker or CPA who can walk you through the ramifications of owning an aircraft. In other words, does owning an aircraft really make sense for you?
In Kyle's experience people understand the initial upfront costs of buying a plane, but often don't see the ongoing and long term costs and usually don't understand any tax implications.
2. Qualify management companies by their service and quality.
Some may specialize or be better at :
Be sure to find a match with a manager who has strengths in an area that you want for your aircraft.
Independent audits are an important indicator of the quality of the operation.
" They do keep us on our toes and do a good job" said Kyle who company has reached Argus Platinum and Wyvern Wingman. He also noted that "ISBAO is one of stronger audits we have been through, and a chance for US operators to go above and beyond what the FAA require"
3. Look at experience in the industry
The longevity in major management and staff particularly in positions such as chief pilots and director of maintenance is very important. Plus, look for a manager who has experience managing the type of aircraft that you have. It doesn't have to be the exact make and model, but if for instance you have a Gulfstream V then you can do better than working with a manager who is used to KingAirs.
Digging a little deeper into some of the key areas:
A good active manager could put up to 600 hours per year on a plane through charter.
"This would be a busy charter program, but is certainly realistic is that's what a client wants" said Kyle. However this higher utilization also means that there will be more overhead and more costs, potentially including hiring more pilots.
In terms of what this additional revenue does to your net costs it will certainly reduce them, but realistically it is hard to breakeven.
"There's almost never a breakeven point" stated Kyle. The better way to think of it, is, what does it do to my (the owners) occupied hourly rate. So discuss with your management provider what the financial metrics are that you are trying to reach. For instance if the depreciation on the aircraft is being taken through a company financial statements, you may have to maintain at least 51% qualified business use in order to deduct the highest depreciation.
Some owners have their own pilots and training provider, and may have a hanger and fuel arrangement and so only want the charter revenue. All they really require is to be put on the certificate for charter.
There are several models that can be found between aircraft owners and managers.
Typically pilots are dedicated to the aircraft, but the management company may also cross-train the pilot on other equipment. This training benefits everybody involved, since it means that there are other pilots who can fly an owners aircraft if needed. The management company pays the pilots and passes the costs directly back to the owner.
In other models the pilots are employees of the aircraft owner. For some owners, crew loyalty is very important. "They want to see the same two guys upfront" noted Kyle, and it's very important to retain the flight crew and have them properly trained and taken care of.
Mechanicals & Maintenance
When something goes wrong with your aircraft, particularly at short notice before an important trip, it can create some of the biggest challenges with your aircraft manager. They may not be able to just move another aircraft for you to use. So between the two of you, there will be a need to figure out the financials, including any chartering or repositioning costs.
"More experienced owners tend to be more understanding of mechanicals and the longer they own the more they understand" said Kyle. A good aircraft management company will demonstrate that they give you options. For instance they could provide the timetable to fix your own aircraft and offer several charter quotes so that you can decide which best fits your plans. It may be that as the owner you are willing to wait another day for your plane to be fixed and fly in your own aircraft, rather than waiting for it to catch up with you later.
"It's usually never a very pleasant conversation, but if done professionally then people understand" said Kyle.
On a somewhat related note, for any aircraft upgrades you need to be able to trust that your manager is aware of any mandates coming down the road. A good manager will be aware of regulations and have an early discussion about these to allow you to plan the timing of maintenance. You certainly don't want your aircraft grounded because it does not comply with regulations.
The size of the aircraft doesn't really matter in terms of aircraft management pricing. It's more important how busy the aircraft will be and how much it will be flying. With so many inputs and the custom nature of each agreement the overall amounts can vary quite a bit.
Here are the components that you could expect to see in a standard management agreement or quote:
A good manager should be able to demonstrate savings on fuel and similarly you should not expect to pay retail pricing for maintenance.
Here's our full checklist of things to consider in selecting a manager.
Ensuring compliance with domestic and international regulations, including:
10. Supplemental Lift
As you'll realize, there's no "one size fits all" in aircraft management. Have a good conversation with the managers that you're assessing, to make sure they fully understand your goals and requirements. Given everything that's involved, you want to be sure that you're working with a company that matches your needs.
Find the world's best Aircraft Management Companies on AvBuyer
This article was originally published on Sherpa Report - the source for in-depth information about the burgeoning shared luxury market.
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