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Can You Make Money In Charter As the Owner?

by David Wyndham 19. March 2017 15:16
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I recently received a call from a past client. He’s looking to acquire a business jet with a partner. When they are not using it, they want to put it on their management company’s charter certificate. He was told that the charter would offset the costs making his aircraft “almost zero to operate.” He was wondering if that was feasible.

Before answering that (no), here’s how this can be set up. The aircraft owner who is looking to reduce the cost of operating their aircraft, places the aircraft onto a commercial Part 135 certificate. When the owner is not using their aircraft, it can be earning revenue by flying charter. You will generate revenue that will offset the cost of owning and operating the aircraft.  You will not “fly for free.”

As a rule of thumb, the aircraft owner typically gets 85% of the base charter rate while the certificate holder keeps the remaining 15%. The aircraft owner typically pays all the aircraft specific charter expenses such as fuel and maintenance. The excess of charter revenue over those expenses helps offset the fixed costs resulting in a net decrease in total cost to the owner.

Charter rates in the US are very low relative to what these aircraft cost to operate. An aircraft that charters for $3,200 per hour can cost about $1,700 pr hour for the variable expenses. Since the charter operator gets 15%, the owner gets $2,720. So far they are ahead $1,020 per hour. But there are fixed costs such as hangar, insurance, pilot fees, etc. that might run $400,000 per year.

Also, this jet costs the owner $3 million to acquire. Lease payments can run to $300,000 per year. If the owner paid cash, there is a cost of capital to the owner as they cannot invest this money elsewhere. Adding the lease expense plus the fixed expenses, you get $700,000 per year. At an income over operating expenses of $1,020 per hour, our owner needs 687 hours of charter revenue to break even before tax considerations. Very, very few charter operators can generate that much revenue flying in a year. 

If this were easy to do, the charter operator would buy the aircraft and keep 100% of the revenues. When you factor in the fixed costs and cost of capital or leasing, charter rates don’t pay enough. But, for the owner who flies infrequently or on a very fixed schedule, the revenues from charter can help reduce their cost of flying. 

If the jet in the example above generated 200 charter hours and the owner flew 200 hours personally, this works to everyone’s advantage. The owner gets $204,000 in income, in effect cutting their fixed expenses in half. They also get to use their aircraft about 25 times per year at eights hours per round trip. The charter operator get the use of an aircraft without the large capital investment. Thus, they get to provide a service and stay in business at today’s charter rates.

For an aircraft owner placing their aircraft onto someone else’s commercial certificate requires careful planning and compromise. The arrangement can be beneficial for both aircraft owner and charter operator, but only if both parties compromise, cooperate and communicate. 

 


 

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David Wyndham

Gulfstream Becomes a Business Aviation Icon

by Tori Williams 17. March 2017 16:14
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There’s no doubt that Gulfstream Aerospace has been getting a lot of attention lately. They debuted their brand new G500 model at NBAA last year, as well as continued to break world records for speed in their G650ER model. The attention is well earned, as they are quickly becoming one of the biggest icons in business aviation.

Gulfstream has had their focus on luxurious business aviation aircraft since the beginning. The company began in the late 1950s when Grumman Aircraft Engineering Co., known for their military aircraft production, developed their first business aircraft at the end of World War II. Grumman decided to split their military and civilian aircraft production to increase efficiency. The civilian branch moved to Savannah, Georgia and eventually came to be known as Gulfstream Aerospace. http://www.gulfstream.com/company/history

Their history is full of record-setting firsts in business aviation, beginning with the GII model, which became the first business jet to cross the Atlantic Ocean nonstop in 1968. Their innovation and pursuit of perfection continued as they developed and produced more business jet models, including the GIV featuring civil aviation’s first digital flight-management computers in the cockpit.

According to new market research, the global business-jet market was valued at $20.9 billion in 2013 and is expected to reach $33.8 billion by the end of 2020. http://www.marketsandmarkets.com/PressReleases/business-jet.asp With endless possibilities for innovation on the horizon, the market is sure to hold strong for many years to come. Companies like Beechcraft and Cessna provide steep competition, but Gulfstream has been able to continually stay ahead of the curb and produce quality, desirable aircraft.

It is very likely they will continue their reign as an icon in the business jet world for years to come. The diversity of their fleet, the wonderful craftsmanship of their designs, and the innovation of their technologies are all factors that critics rave about with each new model. Gulfstream truly has a bright future, and an enormously impressive past.

For the current market and trends see https://www.globalair.com/aircraft-for-sale/Private-Jet/Gulfstream-Aerospace

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Tori Williams

Tales from the Red River Valley

by Lydia Wiff 15. March 2017 08:00
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At UND Aerospace, the sense of community and family is strong among the current students and faculty, but even more so among the alumni.  My first opportunity to connect with my interviewee was through my work with the UND Air Race Classic Team when Mr. Leppke sent me a brief message relating his time in the UND Flying Club which preceded the School of Aerospace Sciences.  I have been wanting to share Mr. Leppke’s story for some time, and I was excited when he and I could exchange emails and read his tales from the Red River Valley. 

Bob Leppke, a UND alumnus, studied in John Odegard’s first aviation class.  Retired, he lives in Seattle where he enjoys his grandkids and the area’s aviation culture. 

Lydia Wiff (LW): Tell me how you ended up at UND.

Bob Leppke (BL): I grew up on a farm southwest of Carrington, North Dakota.  Prior to UND, my education included 8 years in a one room school house close to our family farm and 4 years at the Carrington High School.  In high school, I became interested in business.  Through my older brother, a UND graduate, I became familiar with the university. Because of the strong reputation of the College of Business, I decided to attend UND. 

LW: Tell me about your degree program at UND and how you got involved in the Flying Club (precursor to UND Aerospace).

BL: I selected the Business Administration BS/BA degree program in the College of Business.  I enjoyed the business curriculum especially, the courses on management.   The four years went by quickly.   Not only did I gain an education, I gained a wife two years into my college career.

In the spring of my senior year, I needed an elective to fill out the semester. I wanted something different, so I ended up enrolling in the Introduction to Aviation course.  I did not have any aviation experience but always loved airplanes. As a kid, I loved to build model airplanes and watch a neighbor fly his Piper Cub over our farm. 

It was the first time the course was offered at UND.  The class included 11 other students and was held in one of the basement rooms in the UND Law building.  I can still remember the first day.    John Odegard, our instructor gave us a summary of what he would cover and what materials we would need.  The goal of the class was to prepare students for the FAA private pilot written exam.  I did not know where it would lead, but I was thrilled with the course material and was especially impressed with John Odegard’s instruction.  I studied harder for this class than the business-related classes and it paid dividends because I ended up with an “A” and passed the FAA exam.  

Since I had to stay in Grand Forks for the summer, I talked to John about flight lessons.  I was concerned whether I would have time to complete the requirements for the PPL before I needed to leave Grand Forks for the military.  The Vietnam War was in progress and I ended up being drafted after graduation.  John laid out a schedule that convinced me I could complete the training in time.  I joined the UND Flying Club and scheduled lessons with one of the club instructors.  There is no doubt that John’s enthusiasm had rubbed off.  I could not wait to get started.  At that time the club had a Cessna 150, Piper Cherokee 180 and a Mooney.   

LW: Tell me about your flight instructors.

BL: My first flight instructor was Ann Ross Anderson. I met her at the UND Flying Club hanger and she took me on my first flight using the Flying Club’s 1967 Cessna 150 (6232S).    John Odegard’s course had already planted the desire to fly, but after the first flight, I was really hooked.  I reached around 10 hours of dual instruction when Ann told me she accepted a job with the FAA in Grand Rapids, MI and was leaving Grand Forks. During my time with Ann, I learned that she served our country during WWII as a member of the WASP’s (WWII   1942-1944 Women’s Auxiliary Service Pilots).  She was awarded the Congressional Gold Medal in 2009.  I was ready for my first solo but Ann felt it would be best to get started with another instructor before I soloed. 

My second flight instructor was Col. Lincoln L. White.  He was serving in the US Air Force at the Grand Forks Airbase as a B-52 navigator.  He told me many stories about his love for flying and his time in the military. Because of his military background, he expected perfection in my flying, navigation and knowledge of the airplane.  I looked forward to each lesson with him.   Thankfully, he was able to stay in Grand Forks until I was ready for the PPL check ride. 

Five days before I was scheduled to begin my US Army training at FT Lewis, WA, Col. White gave me my last review and scheduled me for the PPL check ride with Elton Lee Barnum.  After an hour and half in the air, Mr. Barnum shook my hand and said I passed.  I was thrilled and could not wait to tell my wife who was waiting in the Club hanger.   I took my wife for a short flight and then called John Odegard to thank him for all the instruction and encouragement.   I could not think of a better way to cap off my time at UND.  That night we left Grand Forks. I did not know at the time that two years later I would be back. 

LW: Tell me about your experience interacting with John Odegard.

BL: During the spring semester Introduction to Aviation class, my contact with John was primarily in the classroom.  But something was different.   His passion for aviation was rubbing off.  He made learning fun and brought a high level of enthusiasm to the class.  

After I found out that I had passed the FAA written exam, I went to his office to talk to him.  He congratulated me and asked me questions about the exam.  During the discussion, he expressed a disappointment that a number of students had failed the exam.  He told me that he felt he had not included some topics in his instruction.  He did not blame the students.  It was after I completed the course that I started to have more contact with John. His help in getting me started on flight lessons was greatly appreciated.  The relationship changed from instructor to mentor.    

During my second year in the Army, I found out that I could get discharged two months early if I went back to college.  The timing was excellent because I could leave the Army with just enough time to start a fall semester.  I had been in contact with John Odegard during my time in the Army and learned that he was able to implement curriculum for a full aviation administration major within the School of Business.  After some back and forth mail and encouragement from John I decided to return to UND. 

I left Ft Lewis, Washington August 15th, my last day in the Army and returned to Grand Forks.   It was great to see the expansion of the aviation program.  John had also managed to obtain two new Cessna 150’s. I enrolled in 24 semester hours of junior and senior-level aviation courses over the 70-71 school year.  The classes included Advanced Aeronautics, Air Transportation, Airline Operations, Airport Management, Advanced Instrument, Intro to Air Traffic Control, and Aerospace Law.  I also enrolled in one Advanced Aero Lab and flew 44 hours toward a commercial license.  Classes were held in the rooms on the first floor of Gamble Hall.   John’s office was located next to the classrooms. 

It was like coming back home.   I ended up have both John Odegard and Mr. Barnum for instructors.  John taught the airport management class.   I remember two projects that I worked on, one was picking an airport and writing a paper about it.  I picked the new Houston International Airport in TX.  I also built a model of one of the terminal buildings.  The second study was on airport snow removal.   One milestone during the class was John taking us on a tour of the Winnipeg Airport in the UND DC 3.  (No Passports, customs.  Can you imagine what it would take today) It was my first and only ride in a DC3.   Mr.  Barnum taught the Advanced Instrument course.  There were new instructors teaching the other courses.   One instructor would fly to Grand Forks from North Central Airlines in Minneapolis.   He would later open the door for me to interview with North Central Airlines.

Things had changed at the airport.  UND had a small trailer used as a pilot lounge on the west side of the large Quonset hanger. The airport was now controlled by a tower.   The Cessna 150s were tied up outside the Quonset. The DC 3 was parked inside the Quonset.  They also had a maintenance shop in the Quonset and had one mechanic on staff.

As I was getting close to the end of the 1971 spring semester I started looking for a job in aviation.  John helped by creating a booklet with information about those of us that were completing the major.   He also helped arrange an interview at Republic Airline in Minneapolis.   

Through the years I have always been grateful for John’s impact on my life during those years at UND.   John’s approach to learning and pursuit of excellence was a major help during my career in software engineering and IT.   The fact that John is the only classroom instructor that I remember from my college days tells a lot. 

LW: Where did you end up after graduation and where are you at today?

BL: After adding the Aviation Administration major to my degree I left Grand Forks to look for a position in Airline management.  It was bad timing because the airline industry was in one of its deepest recessions.   I needed work so I fell back on my business major and ended up with an IT management position in Chicago.   I stayed in Chicago for 10 years and then moved to Boston where I managed a software engineering group. After 14 years in Boston I moved to Seattle to work as an IT Project Management Professional until I retired in 2010.

LW: What are some important lessons you learned at UND?

BL: One of the lessons I learned while at UND was to set goals and be persistent in pursuing the goals.  It is interesting that after all the business courses it was the aviation training that added the most valuable aspects in pursuing a successful career.  Being a pilot there is structure and discipline that you learn that is so important in life.   It also is a great confidence builder.   Every time I was faced with something difficult in my career, I would think back to my aviation days at UND.

LW: What have been some of your networking experiences with UND alumni? 

BL: In my business travels, I started to run into aviation graduates and loved to share those early days of aviation at UND with them.  I have enjoyed the Alumni get-together in Seattle where I have met a number of UND aviation graduates.  Through my 40 year career in IT and Software Engineering, I told countless people about the program.  My co-workers in Chicago, Boston, and Seattle all heard about UND Aviation.  If I ran into anyone looking for a career in aviation, I always directed them to UND.

I noticed as the years went by that more people, especially those connected to aviation, knew about the aviation program at UND.   In 2010 I got to know the CEO of Alaska Airlines.   He talked about hiring from UND.   I also have found out that some of the graduates from the air traffic control program are now working in Seattle.

LW What is your advice to UND students and recent graduates?

BL: Do not be afraid to take risks.  Try new things.   All your experiences are building blocks in your career path.  With hard work, you will find success in all that you do.

LW: What’s one thing you’ll always take away from UND?

BL: I have always been proud to have my degree from a university in my home state.  It was a solid stepping stone to start a career.  The aviation training was a plus in that it gave me confidence that I could do new things.  I accomplished more than I could have imagined than when I started college at UND.  Most of this I owe to the aviation training and my relationship with John Odegard.

I have always enjoyed the statement from Leonardo da Vinci.  I have displayed it in my offices over the past 45 years.  Once you have tasted flight, you will forever walk the earth with your eyes turned skyward, for there you have been, and there you will always long to return.”   Leonardo da Vinci

 

 Image courtesy of Bob Leppke.

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Aviation History | GlobalAir.com | Lydia Wiff | UND

How Does The FAA Calculate A Civil Penalty?

by Greg Reigel 28. February 2017 08:16
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Every so often the Federal Aviation Administration ("FAA") will issue a press release about its proposed assessment of a civil penalty action against an air carrier, maintenance facility or some other business. In some instances the penalties proposed by the FAA may be millions of dollars. And while the FAA’s press release may cite to some of the violations the carrier or facility allegedly committed, the FAA never explains exactly how it arrived at the amount of the civil penalty it proposes to assess.

To provide a little background, when the FAA believes a certificate holder (whether an airman, air carrier, repair station or otherwise) has violated a regulation, it may pursue legal enforcement action against the alleged violator. The action can be against the party's certificate, also known as a "certificate action." In this situation the FAA seeks to suspend or revoke the party's certificate. Alternatively, the FAA could seek to impose a civil penalty or fine against the alleged violator, also known as a "civil penalty action."

Civil penalty actions are typically used against companies or entities, as opposed to individuals, that hold FAA certificates. The FAA may also pursue civil penalty actions against companies or individuals who do not hold FAA certificates (e.g. companies or individuals who violate hazmat regulations or individuals who violate passenger regulations such as interfering with a flight crewmember).

Sometimes, the FAA will bring a civil penalty action to avoid the six month limitation of the NTSB's stale complaint rule in a certificate action, and benefit from the longer two year limitation applicable to civil penalty actions. For example, if the FAA fails to initiate a certificate action within six months of discovering an alleged violation, it will resort to a civil penalty action which allows the FAA two years within which to initiate the action.

In order to determine the appropriate amount of the civil penalty for a given regulatory violation, the FAA uses the Sanction Guidance Table in FAA Order 2150.3B, Appendix B. If the amount of the proposed civil penalty is less than $50,000, then the FAA handles the action. However, if the proposed civil penalty is more than $50,000, then the United States Attorney's office handles prosecution of the action.

The Sanction Guidance Table provides a range of penalties based upon the type and size of the violator, the type of alleged violation and the number of alleged violations. The sanction guidance indicates a minimum and maximum range civil penalty for each instance of a violation of various regulations. And while the Sanction Guidance Table’s sanction ranges generally account for different types of violations, as well as the nature, extent and gravity of each general type of violation, a sanction isn’t calculated through a “strict mathematical formula”, but rather is determined based upon a judgment “of where a case lies along a spectrum of gravity.”

To calculate a civil penalty sanction, the FAA first determines the type and size of the violator and also whether the violator is a Small Business Concern. Next, the FAA starts with the middle of the range for the particular act or omission that caused the violation. It then specifically looks at a variety of factors that may be considered aggravating factors, which would result in increase in sanction, or mitigating factors which would decrease the sanction. These factors include:

  1. the nature of the violation;

  2. whether the violation was inadvertent and not deliberate;

  3. the certificate holder’s level of experience;

  4. the attitude of the violator (Note: The FAA does not consider a good compliance attitude, by itself, a basis for reducing a sanction. Fortunately, the FAA also does not consider a violator’s failure to respond to a letter of investigation, representation by counsel or contesting of a violation a poor compliance attitude);

  5. the degree of hazard;

  6. whether an employer or other authority has taken any action (i.e. if the employer took disciplinary action or criminal prosecution was involved);

  7. use of a certificate;

  8. violation history (i.e. a history of prior violations. Since compliance is expected, a violation-free history is not considered a mitigating factor);

  9. decisional law;

  10. the violator’s ability to absorb the sanction (i.e. whether the violator is able to pay a civil penalty and the effect the civil penalty will have on the violator’s ability to continue in business);

  11. consistency of sanction;

  12. whether the violation was reported voluntarily (this takes into consideration whether the violator reported the violation through a program such as the Aviation Safety Reporting Program, the Voluntary Disclosure Reporting Program or the Aviation Safety Action Program); and

  13. corrective action (e.g. corrective action that exceeds the minimum regulatory or statutory requirements. Corrective action taken after the violator becomes aware of the deficiency and before the FAA learns of the violation warrants greater mitigation than if the action is taken after the FAA takes enforcement action).

In some cases, where the degree of the violator’s fault is minimal, the potential hazard is very low, and no aggravating circumstances are present, the FAA may select a civil penalty amount that is below the range specified in the Sanction Guidance Table. Conversely, the FAA may select a civil penalty above the range if the violator’s fault was significant, the violation involved significant safety risks, the violator failed to take corrective action over an extended period of time, the violator has a poor compliance attitude or history, or the FAA feels it needs to make an example of the violator (or, as the FAA puts it, “to provide an economic disincentive or regulatory noncompliance”).

What happens if the case involves multiple violations (e.g. multiple violations of a single regulation, a single violation of multiple regulations, or multiple violations of multiple regulations)? Fortunately, the FAA doesn’t just determine the amount for each violation and then add them up. Rather, the FAA is required to consider the totality of the circumstances relating to the multiple violations, paying special attention to the seriousness of the potential hazard caused by the violations as well as the degree of the violator’s fault for the multiple violations.

At the end of the day, the Sanction Guidance Table is just that, guidance. And while the FAA, and its inspectors and attorneys, are required to follow the guidance, the FAA still has prosecutorial discretion. That is, the FAA ultimately has the discretion and authority to determine not only whether to pursue a civil penalty action, but also the type and amount of the sanction. But at least the Sanction Guidance Table provides some insight as to how the FAA may have arrived at a proposed sanction and what aggravating or mitigating circumstances it may, or should, have considered.

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Greg Reigel

The Top 3 Reasons to Network

by Lydia Wiff 27. February 2017 10:31
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Over a year ago, I wrote two posts about networking at a business aviation conference.  While networking seems like a no-brainer to those already in the industry, I found that it is difficult to break into the different groups as a student (and still do as a young professional).  While some professors and advisors push networking, or provide different opportunities, I feel that many students do not network at all.  For example: four years of higher level education, and many students have very few industry contacts outside of their university.  This to me is a worrying situation as our entire industry is often based on the connections you hold with others, after they look at your resume, transcript, etc.  In today’s post, I will discuss my top three reasons to network, no matter what industry you are in.

#3: Networking is Easy

For all the introverts, extroverts, skeptics, and everyone else in-between, I promise you it is not as intimidating as it seems.  Sure, you say I have been networking several years and that it does not scare me.  I am going to tell you a secret: I am an introvert and it scares me to death every time I go to a networking event.  By nature, big crowds are not my thing and I would rather talk to a person one-on-one. 

The key to making networking easy is practice.  Simple ways of doing this are talking with new classmates each semester, getting to know your academic advisor, or other professors.  You can even extend this into your personal life by engaging with friends, family, the community, or people in your church.  Conversation is all about passing the ball back and forth.  A good way to start is to say “Hi, my name is ‘x’”.  They will usually respond with their name and what their title is, etc.  This is a good time to ask them about how they got to where they are, about their airport/company/airline, and what they enjoy about their job.  The key is to get the conversation rolling and you will find out what you have much in common.

Other ways of making networking easier is to smile, be friendly, use positive body language, and of course, PRACTICE! 

#2: Networking is (Almost) Free

One day, you are sitting in class and your professor walks in with a visitor.  This visitor works in your industry in a job that closely relates to your class and you are drawn in to their presentation about their position, the company they work for, and more.  Maybe on another occasion, you find yourself traveling and while doing your homework, someone inquires about your field of study.  Perhaps you’re at your favorite coffee shop and a fellow customer asks about your presentation.

These “happy accidents” happen at almost no cost to you as a student.  They are often the by-products of classes you are already taking, professors and peers you interact with, or as simple as a passing comment to a fellow traveler as you are on vacation.  Students are always on a budget, so it is important to realize that networking can cost you very little in the short term, but the intangible benefits are massive in the long term.

Let me give an example: Last week, I had the opportunity to attend a strategic planning session for the Great Lakes Region (GLC) Chapter of the American Association of Airport Executives (AAAE).  This even was a happy accident as Grand Forks International Airport happens to be hosting their Winter Board Meeting in preparation to hosting the GLC Regional Conference.  Our professor for Advanced Airport Operations knows many members of the chapter and arranged for us to attend a one-hour session during our normal class period.  Many students carpooled and it only cost us the gas to get to the hotel.  We met at least 20 different people in management positions at airports in the GLC Region.

My point is that networking can be very affordable for students.

#1: Networking is Always a Good Idea

Now, I am probably being obvious here, but getting to know those in your industry and field is always a good idea.  It builds professional relationships that will last for years and you end up with a network that you can contact at any point. 

For instance, I am working on a portfolio for my Advanced Airport Operations class that involves me answering various questions related to my field.  In some cases, it requires a lot of research and personal interviews.  I reached out to an individual who runs a small airport in the western part of the United States and interviewed him.  This was all because I had applied for a job there and even though I did not get the position, he told me to contact whenever I needed something. 

As my professor writes in her syllabus about attending class, networking: “it’s a good idea…”

Final Thoughts…

I believe that networking is a valuable tool that we need to instill into our professional lives, but also encourage it in those around us whether a fellow coworker, a student, or a family member.  I would not be able to network as well without the encouragement (and sometimes prodding) from those around me in many areas of my life.

I attribute my network to the individuals who are willing to just to have a conversation.  And really, sometimes networking is as simple as a cup of coffee with a coworker – it is easy, cheap and always a good idea.

 

Happy Networking!

Image courtesy of Google.com

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