Choosing a Company for Aircraft Management

If you own a private jet or are planning to purchase one, choosing a management company for your aircraft can be one of the most important decisions y

Choosing a Company for Aircraft Management

Nick Coply, January 30, 2015

If you own a private jet or are planning to acquire one, choosing a company to manage it can be one of the most critical decisions you make. This article will discuss what to consider when making that choice.

First and foremost, it’s essential to understand what you want to achieve from the management company, striking an optimal balance between charter revenue and the level of oversight you desire.

“Some people buy jets solely for personal use and don’t want anyone else flying them or damaging the interior,” noted Kyle Slouwer, COO of Volo Aviation. “Others may fly only 40-50 hours a year and want to maximize their charter opportunities.”

According to Kyle, finding an aircraft management company involves three main steps:

1. Consult with a specialist (possibly a lawyer, banker, or auditor) who can explain the intricacies of aircraft operation in detail. In other words, you need to determine whether purchasing a jet truly makes sense for you. From Kyle's experience, people understand the initial costs of buying a jet but often overlook ongoing and long-term expenses and typically do not recognize any tax implications.

2. Evaluate management companies based on service level and quality. Some may excel or specialize in:

a. Part 91 regulations

b. Turboprop aircraft

c. International flights

d. Charter load management

Be sure to find a manager with experience in the area you wish to operate your jet. Independent audits are a critical indicator of quality. “They keep us on our toes and are very valuable,” said Kyle, whose company has achieved Argus Platinum and Wyvern Wingman certifications. He further noted that “compliance with International Standards for Private Jet Operations is one of the most rigorous checks we have undergone, allowing American operators to exceed the basic requirements of the Federal Aviation Administration.”

3. Examine the company’s industry experience. The length of service in key management positions, especially as senior pilots and maintenance directors, is crucial. Additionally, look for a manager who has experience with your type of aircraft. The specific make and model may differ, but if you have, for example, a Gulfstream V, it’s beneficial to work with a manager experienced with King Air aircraft.

Let’s delve into some key points:

Charter Revenue

A capable management company can generate up to 600 charter hours for an aircraft. “This is quite a dense but entirely achievable charter program if that’s what the client desires,” said Kyle. However, such intensive usage also leads to increased overhead and other costs, including the potential hiring of additional pilots.

In terms of net costs, this additional revenue will undoubtedly reduce them, but bringing them to zero is nearly impossible. “The break-even point is almost never achieved,” stated Kyle. It’s better to consider how this affects your (the owner's) hourly operating costs. Therefore, it’s advisable to discuss with your manager what financial metrics you aim to achieve. For instance, if the aircraft's depreciation is accounted for in the company's financial reporting, you may need to maintain a commercial utilization level of 51% to maximize depreciation benefits.

Some owners have their own pilots and training coordinators, as well as their own arrangements for hangar storage and fuel, so they only need the management company for charter load organization. All they really require is a license to conduct charter flights.

Pilots

There are several models of relationships that can develop between aircraft owners and their managers. Typically, each pilot is assigned to a specific aircraft, but the management company may also cross-train pilots on different aircraft. This training is beneficial for all parties involved, as it means that your plane can be flown by other pilots if necessary. The management company pays the pilots and passes the costs directly to the owner.

In other relationship models, pilots are hired by the aircraft owner. Some owners place a high value on crew loyalty. “They want to see the same faces in the cockpit,” noted Kyle, so retaining the flight crew and providing proper training and other incentives is very important.

Maintenance

When something goes wrong with your aircraft, especially right before an important flight, it can become a significant issue for the management company. They may not be able to simply provide you with another aircraft for the flight. Consequently, you will need to address financial problems, including costs for chartering or re-preparing the aircraft.

“More experienced owners usually have a better understanding of mechanical devices, and the longer they own the aircraft, the more they understand,” said Kyle. A good management company will offer you options. For example, they could develop a repair schedule for your aircraft and provide a range of charter pricing options for you to choose from. You may be willing to wait one day for your jet to be repaired and fly on your aircraft rather than waiting for it to catch up with you mid-journey.

“This is usually not a pleasant conversation, but with a professional approach, mutual understanding can be achieved,” said Kyle.

By the way, to stay informed about industry news, you must be able to trust your manager to be aware of upcoming changes. A good manager will know about regulations and discuss them with you in advance so you can plan maintenance schedules – after all, you don’t want your aircraft grounded due to non-compliance with standards.

Costs

The size of the aircraft is irrelevant when it comes to management service costs. What matters more is how busy the aircraft will be and how much it will fly. Given the multitude of conditions and the unique nature of each agreement, total amounts can vary significantly.

Here are the key components of a standard management agreement or pricing list:

1. Monthly management fee. This covers all types of flight service operations.

2. Crew – pilots, benefits, etc.

3. Insurance – based on hull value and required liability coverage

4. Flight training

5. Hangar, fuel

A good manager should be able to demonstrate fuel savings, and you should not be paying for maintenance at standard market rates. Examples of costs for various aircraft are provided in these articles on Phenom 300, Challenger 605, and Cessna CJ3.

Below is our complete list of considerations when choosing a manager.

1. Operations

a. Conducting all flight operations and managing crew activities

b. Theoretical and simulator training for crew members

c. Scheduling flights for crews and aircraft

d. Providing support for crew members during flights

e. Catering and ground transportation

2. Crew

a. Recruitment, hiring, training, and retraining

b. Payroll calculations

c. Managing workplace relationships

3. Maintenance

a. Oversight

b. Repairs, including emergency repairs

c. Planning/reporting

d. In-house/outsource

4. Aircraft Upgrades

a. Assessment

b. Planning

5. Charter Load Management

a. Marketing/attraction

b. Planning

6. Finance

a. Expenses for fuel, maintenance, crew training, insurance

b. Invoice review and auditing, both incoming and outgoing

c. Reporting

7. Size and Location

a. Small, boutique

b. Large, more established

c. Management of your type of aircraft

8. Safety

a. Safety records

b. Independent ratings

c. Specialized monitoring systems

9. Ensuring compliance with national and international regulations, including:

a. Federal Aviation Administration

b. International Civil Aviation Organization

c. Occupational Safety Administration

d. Department of Transportation

10. Additional Transportation

11. Commission

As you can see, there is no one-size-fits-all aircraft manager. Have detailed discussions with the managers you are considering to ensure they fully understand your goals and requirements. Given the importance of the situation, you should be confident that you are working with a company that meets your needs.