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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.

Metrics - Measuring What’s Important

by David Wyndham 3. June 2013 10:00
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Metrics are a simply set of measurements that we use to quantify results. In business, they are commonly used to measure important, limited resources. A metric can be used as a measurement of success — how well we are using what is being measured.

If you are operating an aircraft for business, you should have some metrics that show the value of the aircraft to your organization. Some measurements are easy: hours flown and passengers carried. Many metrics involve costs to operate the aircraft, whether that is done via a budget or by other means. Those measurements are all important, especially costs are I’ve discussed before. But, which of those help establish the value of the aircraft to your organization?

Seth Godin writes a blog that deals with being productive and creating value in your work. He comes from a tech background, but the topics he covers apply to all sorts of skilled work. In a recent blog post, Seth brings up two important things about measurements:

  1. The thing that you measure should be something that you want to improve.
  2. Many organizations measure what is easy, not what is important.

He makes the point that many organizations pick an easy metric and then that becomes their focus. Be wary that the easy metric may have the unintended consequence of improving something that has little value to the organization.

The use of an aircraft for business most often involves a finite resource: time. The richest person in the world and the poorest all have only 24 hours in their day. The value to the organization of the individual’s time is in relation to the impact they have within the organization. The business aircraft can help reduce the low value use of time spent traveling and allow for the high value time spent being with important customers or in creating things that add value to the business.

So time could be a good metric. But is hours flown the metric you want to measure? If we are focusing on “improving” this metric, would a decrease in hours flown represent an improvement? Maybe, but maybe not. If you are a commercial operator who is being payed a fixed price to deliver something, reducing the time needed is one good metric. 

In aviation, we have to measure the hours flown. But the use of those hours flown may not be a good measure of how well your operation is accomplishing its mission. If you are involved in the transportation of senior executives, more valuable but harder to measure metrics might include:

  • Time avoided traveling by less productive means (airlines for example).
  • The value of that time (based on the executive’s salary and worth to the company).
  • The number of high value trips that the aircraft enables.


These are not easy measurements, but they can be used to clearly show the value of the aircraft. Then the cost metrics of how much this service costs can be placed into its proper perspective. The improvement focus can be in increasing the use of the aircraft in flying those most valued trips in a cost effective manner. 

The value of the executives’ time is a difficult measure and one that the aviation department has no authority to declare. But, successful companies do value their employees’ time and should be making efforts to increase their productivity. This is where the business aircraft has no equal.

There are many more metrics that can be used (dispatch reliability, aircraft availability to throw out but two). What metrics do you report and how many are being used to generate improvements in your services?  Click reply and let us know.



 

Jetcraft Opens New Office In Hong Kong To Better Serve Growing Market For New and Pre-owned Business Aircraft

by GlobalAir.com 28. February 2012 14:38
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New business unit Jetcraft Asia to best serve clients by blending industry expertise with regional market knowledge
 
RALEIGH, NC, Feb. 28, 2012 – Jetcraft Corporation, a provider of business aircraft sales, acquisitions, trading and brokerage services, today announced the opening of a new office in Hong Kong, China, under the Jetcraft Asia banner.

“We believe that this is the right time to establish a permanent presence in Asia,” says Chad Anderson, President, Jetcraft Corporation. “While we have been active in the region for years, we have done so without a formal presence. Based on the projected growth of the Asian – and particularly the Chinese – market, we are now directly serving the region. By blending our proven approach to business aircraft sales with a team of Hong Kong-based industry professionals, we believe that Jetcraft Asia will offer buyers and sellers superior market intelligence and an in-depth understanding of regional business and regulatory issues. Speaking for the entire Jetcraft team, we are very excited about this latest step in our company’s growth and evolution,” adds Mr. Anderson.
 
“From our new office in Hong Kong, we will be able to best represent client interests in Asia,” continues Jahid Fazal-Karim, Co-Owner and Board Member, Jetcraft Corporation. “Traditionally, the Asian market has favored new business aircraft. However, we predict a growing market for pre-owned aircraft, particularly in China, within the next five years. Locally-registered aircraft are likely to remain in China since transferring registration in-country is generally simpler than importing and registering aircraft. Given Jetcraft’s commitment to offer comprehensive services in multiple markets with consistent quality, establishing a permanent presence in Asia was the next logical step for us. Jetcraft Asia will leverage regional market knowledge and our proven approach to remarketing aircraft in order to tailor solutions for our clients globally, both within the region and from elsewhere – whether selling into or buying from Asia,” concludes Mr. Fazal-Karim.
 
For more information or to contact the Jetcraft Asia team, please visit
http://jetcraft.com/company/international-operations/

About Jetcraft Corporation
 
Jetcraft Corporation is an international leader in new and pre-owned business aircraft sales, acquisitions and trades. Headquartered in Raleigh, NC, Jetcraft has sales offices/representation in five US cities; Basel and Zurich, Switzerland; Dubai, UAE, Moscow, Russia and Hong Kong, China. The company’s 50-year-plus track record in aircraft transactions has earned it a world class customer base and one of the strongest global networks in the industry. Jetcraft Avionics LLC, a subsidiary of Jetcraft Corporation, provides distribution of Enhanced Flight Vision Systems (EFVS) for aftermarket business and wide body aircraft using Elbit-Kollsman’s state-of-the-art EVS-II and AT-HUD. For more information, please visit
www.jetcraft.com.

How Decreased Utilization Can "Increase" Costs

by David Wyndham 1. April 2010 16:55
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A user of our cost database asked about the effect of utilization on total cost per hour. His question was with higher utilization do the fixed and total costs decrease on a per hour basis?

First a quick review. Variable Costs are those costs that as activity increases, the total cost will increase but the cost per unit of time will remain constant. An easy example is fuel cost per hour. The next hour you fly will consume so much fuel. If you don't fly, then there is no fuel consumed and thus, no cost.

Fixed Costs are costs that for a given level of activity or period, remain essentially constant. Hangar rent is an example of a fixed cost. You pay so much per year to rent a hangar regardless of how much you fly.

For our discussion, we assumed that Total Cost per Hour was the Variable Cost per Hour plus the Annual Fixed Cost divided by the Annual Hours flown. The example I used was an aircraft with a variable cost of $1,250 per hour and fixed costs of $400,000 per year.

For 200 hours per year = 200 x $1,250 + $400,000 = $650,000 per year divided by 200 hours = $3,250 per hour average.

For 400 hours per year = 400 x $1,250 + $400,000 = $900,000 per year divided by 400 hours = $2,250 per hour average.

You spread the annual costs over more and more hours so the total average cost per hour decreases as utilization increases.

The reverse is also true. Decreasing utilization by a certain percentage will not drive down total costs by the same percentage. If your aviation budget were reduced by 15%, you'd have to reduce flying by a lot more than 15% to make your savings. From our earlier numbers:

400 hours per year = 400 x $1,250 + $400,000 = $900,000 per year divided by 400 hours = $2,250 per hour average.

To reduce our $900,000 budget by 15% to $765,000 by only reducing flight hours, we'd need to reduce flying to 292 hours - a 27% reduction:

292 hours per year = 292 x $1,250 + $400,000 = $765,000 per year divided by 292 hours = $2,620 per hour average.

Also note that our average cost per hour went up by 16%. So if you were tracking that metric too, things would look bad. Decreased flying and increased average cost per hour.

This can result in the "flight department death spiral" of reduce hours, average cost per hour increases, reduce hours some more because the cost per hour goes up, average cost per hour increases again... until at some point the aircraft is sold for being too expensive.

In some cases this cannot be avoided as the company is in dire straits and simply cannot afford the expense regardless. However, as aviation managers you need to be aware of the perception of your aircraft costs and be prepared to both defend and explain them so as to avoid a knee-jerk "the planes too expensive" reaction to reduced flying.

I hate to ask, but have you been there?

Aircraft Asset Management 101

by David Wyndham 1. December 2009 00:00
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Do you own a car? Your home? A boat or a plane? If so, then like it or not, you have become an asset manager. Most asset management discussions tend to look at financial assets such as stocks, bonds, and mutual funds. But physical assets are also included. Asset management includes the management of the physical asset from acquisition, through its use and dispossession. As an aircraft operator, pilot, or maintainer, you are responsible, in whole or in part, for the value of that asset. How you operate, care for and maintain that asset will have a significant impact on its value. Regarding an aircraft, anyone who touches that aircraft has a part in maintaining its value.

When should you sell your aircraft?
Parts - repair/overhaul or replace?
Install that optional service bulletin?
Is it time to refurbish the paint and interior?

These are just a few questions that involve asset management of an aircraft.

Aircraft Asset Management has four main components:

  1. Regulatory - Is the aircraft compliant with applicable airworthiness regulations?
  2. Operational - What is needed to keep the aircraft reliable and safe?
  3. Financial - What is the market value of the aircraft?
  4. Owner - What is the return on the investment and what is the quality of the experience?

Proper maintenance is essential. This involves more than just meeting the regulations to have a safe, airworthy aircraft. If you just meet what the regulations require, then you have met the minimum standards. To maintain its value, the aircraft must be kept in top operating condition. This means both in the routine care and in the major maintenance of the aircraft. Anyone how has gone through a pre-buy can tell you that the aircraft in impeccable condition goes through smoothly. Find something amiss in the pre-buy and you keep looking. An aircraft that is clean looks well maintained. Or, an aircraft that is well maintained and looks well maintained will command the higher price (value). Who does the maintenance is just as important as what was done.

Proper maintenance records. What would be the value of an aircraft if it were missing all of its maintenance records? Again, the regulations specify what records must be kept and in some cases, for how long. This meets the spirit and letter of the law, but does not sufficiently maintain the aircraft's value. The more complete and thorough the maintenance record, the more secure is the value of the aircraft. Uncertainty causes a loss of value. Proper maintenance records detail the entire maintenance history of the aircraft and what is on paper should accurately reflect what is in the hangar.

If there is damage history, how was it documented and corrected? Was the damage repaired or replaced with new? Has the aircraft been returned to service is the same or perhaps better condition? Damage history, if fully documented and accounted for need not be the kiss of death.

Proper record keeping also means proper security of those records. You should have some sort of back up of the records, stored off site. With many operators maintaining their records on computer, this should be easy. Even paper records can be scanned, indexed, and stored off site. When the aircraft and records go off to a maintenance facility, you'd better have a backup copy. While rare, aircraft do leave the maintenance facility missing some of their records. If that happens, you can get into some expensive arguments about who was responsible and how much that the lost records are worth. How much can lost records cost? How much is that aircraft worth if is was not able to be proven as airworthy?

Proper upgrades and enhancements. What is the service bulletin status of your aircraft? Beyond the mandatory service bulletin lie a number of optional service bulletins. Which ones add value to your aircraft (i.e. are popular for your model)? Have you added or upgrades the avionics? If so, is the aircraft a unique design or is it brought up to newer standards? In art, a one of a kind piece is essential to its value. With aircraft, it is not. Non-standard modifications do not add value. They may be essential to the mission, but uniqueness in an aircraft is not a selling point.

Asset management should be part of the aircraft planning from the start. All too often, asset management is only considered when the decision to sell the aircraft is made. This just touches the tip of the asset management game.

What are your thoughts or tips on your current asset management program? Your feedback is what we need to learn more.



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