Based on many years dealing with aviation professionals, Jay Mesinger offers practical perspectives for those facing preparation of the annual budget…
It is often said that a budget can be the noose around your neck. Build it and then find yourself constricted by the numbers you prepared. We can find many metaphors for the pain of budgeting, but the process can be the best thing a person can do to manage effectively. Budgets, however, are of little value when produced just to satisfy a need to look good.
A budget must be built on facts, and those facts might not always look impressive in everyone’s view. Furthermore, sometimes the facts and circumstances change during the course of the budget period. Thus variances must be noted and explained, and adjustments made. The inability to meet a budget does not mean your flight department has failed completely. It only fails when it has variances that cannot be explained or costs that from day one are inaccurately represented.
It should be built as an operating guide as well as a framework for analyzing anticipated expenses with actuals. The success or failure of your flight department’s budgeting process should be judged by how well it has tracked expenses and explained variances from budget. Judgement should not be based on a quick look by someone who simply declares that the actuals are way off.
Budgeting, Buying and Selling
Let’s explore the concept of budget variances as it applies to a corporate Flight Department. First consider cost of fuel, which is often the Flight Department’s highest variable expense and the one that could have large swings. We are experiencing some of the lowest per-gallon costs in almost a decade. Contingencies should be accounted for by the flight department when budgeting based on the current per-gallon prices, since they are likely to fluctuate. The operator has little control over fuel expense except for making sure to shop carefully when away from the home base.
The next budget area typically subject to variances is pass-through costs associated with your management company’s fixed and variable costs (assuming your company uses the services of a aircraft management firm). If you are building your budget and you are being managed, be very sure to bring your management company partner into the annual discussion. That firm may have a more immediate knowledge of cost swings on individual line items.
The area of budgeting that is very difficult today deals with regulatory compliance, particularly with regard to avionics.
ADS-B Out, Fans 1/A, CPDLC and TCAS 7.1 are items that are going to be mandated, based on calendar dates and areas of operation. Unfortunately not all the manufacturers have developed solutions yet, so the cost of compliance has not been fully established. This is complicated because literally every specific make and model of aircraft can be different with respect to compliance costs. Also the mandated timeline for compliance may still be shifting to the right.
Other aircraft upgrades and modernization costs are much more quantifiable. Aircraft paint and interior costs are well established, and timelines are totally subjective. These costs will be placed in an annual budget based on need, personal tastes or convenient times for having the work accomplished. A major inspection such as a “C” check is often a great time for the flight department to schedule aircraft painting, interior refurbishment or connectivity upgrades. Taking advantage of an interior needing to be removed for inspections can always cut the cost of other instillations. Being smart and using good advanced planning will always save money.
Budgets can be your ally, not your adversary. They can help develop the justification the Board needs to grant approval for buying jets or upgrades. If you can trust the accuracy of the annual costs and believable explorations for variances, your Flight Department is far more likely to excel and create a sustainability that is sorely needed in our industry.
Too often there is fear or insecurity in the department. These feelings can lead to unsafe operations and employee agitation. With careful budgeting, there should be no need for those feelings of uncertainty. A well-built budget—one that is adhered to, modified by explainable variances and proactively managed—is not your enemy. Quite to the contrary, it is your friendly guide.
Utilization of the company aircraft can increase or decrease, so your flight department should budget thoughtfully and with confidence. Whatever happens, don’t accept budgets that are meant to please; accept budgets that are tools for great management.