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The Business Mission Drives The Aircraft Mission

by David Wyndham 24. March 2014 15:24
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Image: Gulfstream G650

The Gulfstream G650 and Citation Ten vie for the world’s fastest business jet. But if you need to get an accident victim from the accident scene to a hospital fast, you most likely need a helicopter. Business jets are not designed to land beside the highway and helicopters won't do for a long cross-country flight. I'm stating the obvious, but how many aircraft choices seem to ignore this?

"To execute the corporate mission" is the answer to the business question "Why do we have an aircraft?" If the aircraft is a personal aircraft, the "why" may be "to enjoy flying." What type of flying is fun to one person can be very different from another. In the world of business aircraft, whether the business is high tech, services, hospitality, acute care, etc., the why of the aircraft must be tied into the why of the company. If it isn't, then the aircraft may be a mismatch to the company mission.

The closer the aircraft's mission can be tied into the reason for the corporation's existence, the more secure the aircraft (and aviation employees' jobs) will be. If IBM were having a tough year financially, no one would ever suggest that they get rid of all their computers! How close does the mission of your business aircraft fit into the reason your company exists? If the aircraft went away, would it have a negative impact on the ability of its users to successfully execute the company's mission?

Our own company mission is: The mission of Conklin & de Decker is to enable the general aviation industry to make more informed decisions when dealing with the purchase, operation and disposition of aircraft by furnishing objective and impartial information.

We are much too small to afford a corporate aircraft, but if/when we get there, the aircraft better directly support our ability to "enable the general aviation industry to make more informed decisions." The added value to the business from the person(s) using the corporate aircraft must exceed the costs of having that aircraft. If the leader of a corporation is worth $1 billion dollars to the corporation, and their use of the company aircraft enhances that value, then the $1 million budget for the aircraft should be easily defensible. If the mission of the health services company includes providing critical care to a large community, then the EMS helicopter should be easily defensible.

A company has a written mission statement that is used to guide its daily business. The aviation department should also have a written mission statement. That mission statement should support the mission of the corporation. The aviation department should be part of the corporate structure just as legal, human resources, IT and other departments. Your may not be making widgets, but you are making the making and selling of the widgets easier and more productive.

After that, the next step is developing the measurement criteria for the aircraft to enable management to determine how well the aircraft is at meeting its mission needs. Then, and only then, can you start the analysis of speed, range, payload, cabin, and performance needed to make a wise aircraft choice.

What you then end up with is measureable criteria that can be used to evaluate the aircraft choices. Each of those criteria stem from the assigned mission of the aircraft. The assigned mission of the aircraft is directly supporting the mission of the corporation. Thus, the answer to the question of why do we need eight seats and 2,400 NM range, is to support the corporate mission.

A caution here is that in some situations, supporting the senior leadership can be mistaken for NOT supporting the corporation. There are no easy answers to the “big boss uses company jet for private retreat” headline. But, that personal use of the corporate aircraft better be documented and reported.

Business aircraft of all types can be used to further the successful mission accomplishment of the corporation. These missions need to be in writing and clear enough so that the justification of the use of a business aircraft can easily be done.

What is your mission statement? Does your choice of transportation reflect it? Let us know in the comments section below!

How Do You Measure the Success of a Business Aircraft?

by David Wyndham 4. March 2014 11:02
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Many years ago, our company founder, Al Conklin, sold a new twin-engine business aircraft to a very successful entrepreneur. He had established a bit of a rapport with the individual and, after the sale, asked him straight out, “How can you justify the cost of this airplane?”  His reply? “What is the cost of a divorce?”

Business aircraft enable your passengers to manage their time in the most productive manner. They enable face-to-face contact within your company, with prospects and your customers. How to you measure the success of your aircraft in accomplishing this role for your company? Here are some places to start. 

Key Employee Travel Time Saved. If the aircraft saves travel time, then how much time? Increased time spent traveling is decreased productive time or decreased rest/recuperation time. You should have some data and a good feel for when the time saved is worth the use of the business aircraft. How do you measure the worth of the time saved?

Time has value. If using the business aircraft saved three senior executives eight hours’ apiece, then the total time saved was 24 person-hours. If those hours were spent with a major customer, what is the value of that customer? At a minimum, what is the value of the executive’s time to the corporation?  The executives' time is worth well over their salary and benefits, but this is a minimum value.  Calculating the time saved should not be a big project for the flight department. It can be just another blank in the travel documentation. It can be estimated, tracked and reported on a regular basis.

Customer Travel. One study at UCLA indicated that up to 93 percent of communication effectiveness is determined by nonverbal cues. These cues can mean the success or failure of a contract negotiation or new business venture. Who are the company’s largest customers? How often do they receive visits from senior executives? How often does the company bring them to the corporate headquarters for meetings? Do you track this?

Getting new customers typically takes more effort than retaining the ones you have. Show up for the big presentation with a team of two or a team of seven? Is the business aircraft used to facilitate these meetings? Again, it should be easy to track what the business purpose is for the aircraft: new client visit, sales visit, engineering support, etc.

Travel Between Corporate Locations. Many companies have operating locations in hard to reach areas. One company that I’ve done a study for has four major operating locations is four non-airline-hub locations. The business aircraft keeps the senior executives at each of these locations connected in person with the headquarters. It also enables short-notice travel for a vital meeting. This company tracks the number of overnights executives spend away from their home office (or how many overnights were saved by the business aircraft). Another client uses a helicopter to visit multiple job-sites that cannot be done in a day via ground transport.

Non-tangible Rewards. Many of the rewards we value are non-monetary. The buyer at the beginning of this article had not really estimated the cost of getting a divorce in dollars, but in the loss of a valued relationship with his wife and family. Turnover in key positions means a loss of continuity, a loss of the team’s effectiveness and time spend searching for the new executive that cannot be spent elsewhere. The business aircraft saves on the wear and tear of travel and yes, enables the spouse to make it home for the child’s soccer game on Friday afternoon. Zappos founder, Tony Hsieh is well known for his rise to the top. He’s well known for his corporate culture of happiness. Tony Hsieh also uses business aircraft.

There are many uses for the business aircraft. They all center around making the most effective use of the time available. There needs to be some measures of how the business aircraft is contributing to the success of your company’s mission. What to measures are depend on your use of the business aircraft.

 

 

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When was the last time you went "Downtown"?

by David Wyndham 5. February 2014 09:38
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How do you know what's going on downtown?

Save for a helicopter, business aviation happens exclusively at the airport, correct? Wrong. Aviation happens at the airport, business happens everywhere. To be effective, a business aviation manager needs to be wherever the company business is conducted. Having the ear of the CEO is great.  But, the average length of tenure of a Fortune 500 CEO is 4.6 years. What happens when there is a new CEO?

No Plane No Gain has great resources and user stories about the value of business aviation.  We need that support, but it is mostly advocacy for business aviation directed to people like the press or local community. But what about within your own company? How is the business aircraft viewed? As an essential business tool or as a royal barge?

A recent client was facing a second round of layoffs. Their sales were down. They operated a business aircraft to access many of their distant operating locations. None of those locations could be easily reached by commercial air. A review of their use of the aircraft revealed that this aircraft was effectively and efficiently being used to manage their operations. But they were acutely aware that if their employees were facing a layoff and saw the senior leadership climbing aboard the corporate jet, that could have a negative impression. The board was concerned and fortunately, I provided them with the report supporting continued use of the business aircraft as the most efficient means of transporting the senior leadership. But still remaining was the optics.

Business aviation needs to be marketed and sold within the companies it serves. One way this can be done is for the aviation manager to be directly involved downtown. That's where the business is. The more successful business aviation departments have that access to the senior leadership through regular contact at the corporate locations. 

In spending time at the corporate headquarters, the aviation manager can be seen as a team member, part of the company. They also have the opportunity to soft-sell the value of the business aircraft to senior leadership, and even their staffers and support employees. The aviation manager can be proactive in anticipating the future air travel needs, and also have more of an impact into the policies and use of the business aircraft. 

I cannot say how many times I have heard this from the department head or Senior VP who has the flight department as part of their responsibilities: "I don't use the aircraft myself, and I really don't understand it. But, the CEO is happy."  Does any aviation manager want their immediate boss not knowing what value they add to the corporation?  CEO's will come and go. Board of Directors get new members with new ideas and opinions. Rather than aviation being politically connected to one CEO, it is far better in the long run to be connected to the corporation's mission and goals.

If you are not there now, start with a review of your corporation's vision and mission statement. Then develop ones for aviation that directly tie into the corporate goals. Run them by your senior leadership and users for inputs. Get this in writing and, along with the rules for use of the aircraft, have it for the CEO or other senior leader signature. Spend time downtown. It may not seem like much at first, but it can pay off for the aviation department, and corporation, in the long run.

 

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David Wyndham

Budget Tips for your aircraft

by David Wyndham 3. January 2014 10:36
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As 2014 rolls into the Northeast with a big snow storm, this is as good a time as any to look ahead while waiting for the snow plow. A big part of looking ahead is your aircraft's annual operating budget.

If you operate on a calendar budget, you should have already completed your aircraft operating budget for the year. If this is the last time you look at your budget until the end of the year, you are not taking advantage of the work you have done.

A budget is a best estimate looking forward at what you think expenses will be. As such, you made a number of assumptions regarding things like utilization, fuel costs, etc that factor into those costs. As you advance through the year, you will learn how accurate those assumptions were. Is your budget capped? If you were planning on fuel prices remaining stable, what happens if they increase? Where does the money come from if you exceed your allotted budget amounts?

Maintenance costs will depend on the utilization. What if, having planned on 360 annual hours, which puts the next major inspection into 2015, you end up flying 400? If a major maintenance bill comes due earlier than expected, will you be ready for this? You should be plotting major, know expenses, forward at least two to three years. Things like engine overhauls, paint & interior, major checks, hangar rents, even training and insurance costs are coming on a predictable schedule. 

Your budget should be reviewed and updated as the year progresses. Planned versus actual should be a standard metric. If you have a tight budget with little room for overages, you'd better know early if there will be unforeseen issues. As you start seeing variances in your budget, have the explanation ready as to why. No one really knows what the price of fuel will be next month, let alone at the end of the year. When that cost of fuel changes from what you anticipated, note it and any possible explanations if you know of them.

The key thing is to track and report your costs in detail. Then when there are small variances in the budget actuals, you can see them (hopefully) before they become a major event. Save for a significant unscheduled maintenance event, this is doable. Then  you need to communicate to those with the money what is going on, and what actions that you recommend. If at 360 hours, the major inspection would be due in January 2015, but flying jumps to 400 annual hours: (1) major expenses in outlying years should already be noted and (2) the inspection costs need to be planned for well in advance. Tracking, reporting and understanding your costs are necessary to avoid financial surprises.

Budgets should be a financial tool that you use to manage the fiscal resources of your operation. It should not be a once and done exercise. Used appropriately, a budget should provide you with operating cost metrics that you can use to measure and manage your aircraft throughout the year.

Yearend Aircraft Purchases - A Good Deal?

by David Wyndham 3. December 2013 14:46
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There is less than a month left in 2013. For many businesses, this is a time to look at yearend capital purchases. Buying in December can get a business a nice tax deduction for the year while spending the money as late as December 31. With new business aircraft, you commonly see strong sales and deliveries in the last quarter, December especially. To see if this makes sense from a tax perspective, consult an aviation tax authority, not me. Here are three tips if you find yourself in an airplane-buying mood.

Tip #1. Take the time to plan on what aircraft to acquire. If this article is your first inkling that you want to buy, wait until next year. Buying on impulse often leaves you disappointed. What looked or sounded great in the moment can turn out not to be what you thought you were getting.

When looking at what aircraft to acquire, be objective. Objective means choosing criteria that can be measured. Objective criteria should also be specific to the mission assigned to the aircraft. That way you can avoid over-buying - getting far too much aircraft than you really need. If you are clear about what you need, it is easier to set up your criteria. “Go anywhere, anytime” might set you up for a supersonic tilt-rotor amphibian, but can you afford that? Make sure that whatever aircraft you acquire, that it meets objective criteria for meeting your business’s air transportation needs.

Tip #2. Get your acquisition team together. To get the tax deduction for a business aircraft for 2013, you will generally need to take delivery and place the aircraft into service by year’s end. Ownership involves the title, insurance, sales tax planning, and possibly financing. The bigger the aircraft, the more complexity these deals seem to have. Make sure that your team: legal, tax, insurance, finance, etc. are informed and prepared in advance. Note: in advance is not the day prior to delivery. These professionals are quite busy in December.

Tip #3. Evaluate all of the costs involved in the owning, and operating, of the proposed aircraft. You may be getting a sizeable discount on the aircraft you are looking to purchase, but if it is going to eat up a lot of money in operating expenses, then the deal may not be the best one financially. Look at the total Life Cycle Costs: acquisition, operating costs, finance or lease costs, and potential resale value after a period of use.

Being able to get another tax deduction in 2013 with the acquisition of an aircraft may be great in 2013, but may not be as helpful to your company in 2014 and beyond. As part of the aircraft life cycle costing, you may want to look at your company’s projected profits over the next few years. 2013 may be a profitable year (congratulations), but having a larger write-off next year may be better.

Bonus tip #4. Good things come to those who will wait. When the new aircraft manufacturer makes a lot of year-end deliveries, many of them will come with a trade-in. So Early 2014 should see these same folks with some good deals on pre-owned aircraft. Maybe, just maybe, the deal on the older aircraft might exceed to deal on the new model.

I did not see any “Black Friday” deals on new aircraft. But, depending on the manufacturer and model, there may be some great deals to be had prior to yearend. If you have planned for this in advance, you should be able to make things happen. P.S. - cash is king here as the deal would be guaranteed to close.

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