All posts tagged 'aircraft evaluation'

Metrics - Measuring What’s Important

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.



 

JETNET Offers Commercial Airliner Fleet Subscription Services

UTICA, NY – JETNET LLC, the world leader in aviation market intelligence, is now offering their new Commercial Airliner fleet subscription service, also know as “Big Planes”. JETNET Commercial Airliner will complement their business aircraft and helicopter subscription services, bringing together the “complete trio” of aviation fleet information.

Since acquiring Aviation Data Services, Inc. (AvData) in 2004, JETNET has continued to research worldwide commercial airline fleet data. AvData had its beginnings in October 1966 in Wichita, Kansas, and was one of the early pioneers that started the capture, analysis and dissemination of aviation fleet information and intelligence through the use of a worldwide reporting system.

“We are very pleased to present our “Big Planes” service to the worldwide commercial aviation marketplace,” said Vincent Esposito, JETNET President. “That includes widebody (twin aisle), narrowbody (single aisle), freighter and regional (under 100 seat) jet airliners, along with commuter turboprops.”

Since 2004 the commercial airline fleet data has been maintained under an annual single-source contract services agreement. JETNET is now offering the airliner aircraft fleet data through its real-time internet-accessed Evolution program, combined with both business aircraft and helicopters. The total fleet is comprised of nearly 100,000 in-operation airframes, 35,000 of which are airliners. 

JETNET’s services meet and exceed the industry’s requirements to provide timely, accurate data and information on these dynamic fleets, a critical service for aircraft professionals. The company routinely assists its clients, whether airframe manufacturers, maintenance and repair shops or financial institutions with special studies. These include services such as market analysis, product and business plan evaluation, fleet aging and ownership trends, and market projections.

Current JETNET clients include major airframe and powerplant manufacturers, service and maintenance organizations, aircraft finance and leasing companies, and dealers and brokers. JETNET is a resource employed by various aviation regulatory agencies throughout the world, and many others who require data on these aircraft populations. They are also regularly cited by trade and national media outlets.

The ways in which JETNET can assist you and your organization are virtually limitless”, said Lucia Frontera, JETNET’s Director of Market Research. “We recognize that each client has a unique set of requirements. What they share is the need for timely, accurate, complete fleet information, backed by the best aviation research organization in the world.”

The heart of JETNET’s market research is their 45 

person multilingual research team in Utica, NY, actively calling aircraft operators in order to maintain real-time updates to JETNET’s nearly 100,000 aircraft database.

For more than 20 years, JETNET has delivered the most comprehensive and reliable business and commercial aircraft research to its exclusive clientele of aviation professionals worldwide. In 2004, JETNET acquired Aviation Data Services, Inc. (AvData), founded in October 1966. JETNET is the ultimate source for fleet and marketplace information and intelligence. The company offers services for aviation professionals over the full spectrum of business and commercial aviation, including business jets and turboprops; fixed wing and helicopter aircraft; and commercial airliners; as well as management and networking tools for business aviation professionals and executives. Headquartered in its state-of-the-art facility in Utica, NY, JETNET provides multichannel access to real-time, userfriendly, comprehensive aircraft data.

For more information on JETNET Commercial Airliner, log on to www.jetnet.com or contact Michael Chase, JETNET Director, Special Projects at 214-226-9882 or mike@jetnet.com. For more information on JETNET LLC log on to jetnet.com or contact Paul Cardarelli, JETNET Director of Sales and Marketing, at 800-553-8638 (USA) or paul@jetnet.com or International inquiries, contact Karim Derbala, JETNET Exclusive Agent, EMEA, at 41.0.43.243.7056 or karim@jetnet.com

Aircraft Technical Analysis Tips

When evaluating aircraft, we tend to focus in on the things we know best. Once we get a feel for those, we then hope the other information we turn up is OK as well. When I’m working with a financial type, she’s interested not in how fast the aircraft flies, but in the costs, how we account for major maintenance, what we show for the acquisition price, etc. With the pilots, we focus in on the specs and performance, the technical analysis.
 
With the pilot, we focus in on size, features, range, and performance. The mission drives these requirements. Many of the aircraft acquisition plans we do focus on requirements such as passenger seating, cabin size and range. The general way we approach this is to:
 
* Determine the most (likely) demanding payload, range, cabin size and/or passenger seating requirement as defined by your key mission.
 
* Compare those mandatory requirements against the capabilities of a range of aircraft from the sources of information you have gathered.
 
* Eliminate all those that do not meet the requirements.
 
* Eliminate those aircraft that are vastly more capable than required. The cost of acquisition and ownership does up dramatically as size, range and speed increase.
 
Here is where it can get tough. Just how are the numbers derived? I’ve had pilots distrust our data initially until we’ve discussed the ground rules used.
 
If you need a range of 1,450 nautical miles (NM) with four passengers, what exactly do you mean? For the range, do you mean VFR range? IFR range? IFR range with what sort of alternate airport? 100 NM alternate, 200 NM alternate, something else? In general, literature on turboprops and very light and light jets refer to ranges with a 100 NM alternate that follows the NBAA IFR Fuel Reserve format. Somewhere in the light jet category, the 200 NM alternate becomes “standard.”  Our numbers for an aircraft such as the PC 12 are with a 200 NM NBAA IFR Fuel Reserves. Very different than IFR 45-minutes that an owner-pilot may be thinking about.
 
Passengers are passengers, right? No. Most published data assumes each passenger (with bags) weights 200 lbs. But some data may refer to 170 lb passengers, while the FAA and airline data suggest the average American airline passenger with bags runs well over 200 lbs. So when we discuss how far with how many passengers, I like to make sure that we are talking about 800 lbs instead of four passengers.
 
The same passenger weight comment applies to the Basic Operating Weight (BOW) of the aircraft as well. BOW includes crew. Is your aircraft to be flown single pilot or with two pilots? That 200 lb difference in weight can, when carrying near full loads, mean 200 lbs plus or minus on the fuel load, or almost 30 gallons. If your aircraft burns 120 gallons/hour at 240 knots, 30 gallons is 20 minutes or 80 NM. That may be enough to move the aircraft from acceptable to not acceptable due to its range.
 
The last area where things can be confusing is that much of the published data on aircraft are “maximums” and may not be achievable under most conditions. As an example, the Certified Ceiling is the maximum ceiling the aircraft is certified to be able to operate safety. That does not mean that the aircraft can climb that high on an everyday basis. Just because the aircraft has a Service Ceiling of 51,000 feet does not mean that the aircraft routinely flies there.
 
We look at Service Ceiling at max take-off weight. How high can the aircraft initially climb? The 51,000 certified jet may initially climb to 43,000 feet, where it sits until it can step climb the FL450, then FL470. That initial figure is a good basis for comparison, one I favor over an absolute maximum.
 
When evaluating aircraft performance and technical specifications, you need to understand the assumptions that went into the number. Especially as they relate to your aircraft requirements. When comparing data for different aircraft, you need to have the data based on the same assumptions – the old “apples-to-apples” comparison.

You Need A Methodology For Comparing Aircraft Costs

When comparing aircraft costs, it is important to understand what costs are included and what aren't. Otherwise, you can end up comparing "apples and oranges." This can lead to making a decision with wrong or incomplete information. What we often see if that the "number" is smaller than the total cost. The big items are usually included, but adding up a lot of smaller numbers can alter the total cost considerably.

What is a good methodology to use when analyzing the cost of an aircraft? I’m glad you asked. Life Cycle Costing can ensure that all appropriate costs are considered.

Life Cycle Costing includes acquisition, operating costs, depreciation, and the cost of capital.

Amortization, interest, depreciation, and taxes also play a part in what it costs to own and operate an aircraft and can be included in the Life Cycle Costing as appropriate. As the term Life Cycle implies, it looks at a length of time versus a snapshot in time.

How long of a cycle depends on how long you plan on operating the aircraft.

If you plan on keeping the aircraft 10 years, then that is the length of the Life Cycle to use.

The costs should cover the period of ownership and take into account an expected aircraft value at the end of the term. Comparisons of two or more options should also cover the same period of time and utilization. Taxes should be included. Depending on where and how the aircraft is operated will determine the tax impact.

Leases, loans and cash purchases also change the cash flow and total cost.

If you are looking at those options, then you should account for the time-value of money. A Life Cycle Cost can also account for this in a Net Present Value (NPV) analysis. This way, the differing cash flows form two or more options that can be compared and analyzed from a fair and complete perspective.

As an aside, what is NPV? An NPV analysis takes into account the time value of money, as well as income and expense cash flows, type of depreciation, tax consequences, and residual value of the various options under consideration. When an expense (or revenue) occurs can be as important as the total amount of that item. Paying cash is cheaper in total dollars, except that you have all that cash tied up in the aircraft. A lease or loan allows the cash to flow out over time. NPV runs on the assumption that a dollar today can be worth more than a dollar a year from now. Thus, implicit in the NPV is a time cost of money, called an internal rate of return (IRR) or return on investment (ROI).

Life Cycle Costing allows you to compare different aircraft, or different types of acquiring and operating an aircraft. Using the same period and general assumptions with the analysis of different options gives you a balanced comparison of those options. Regardless of the complexity of the aircraft deal, the Life Cycle Cost method should yield a useful result provided you populate it with as accurate a data as you can.

What sort of tool(s) do you use to compare aircraft costs?

 

How Decreased Utilization Can "Increase" Costs

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?

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