All Aviation Articles By David Wyndham

Business Aircraft Should Not Be Just For The Senior Execs!

Senior executives at major forms do not need to be told the value of a business aircraft. But at many companies, the business aircraft seems to remain the private domain of a select few.

The tangible benefits to having an aircraft can include, but are not limited to:

Time Savings

Flexibility and Reliability of Operations

Productivity

Ability to support customers in an effective manner

This sort of utility can be and should be made to more than just a select few. While your current CEO may understand this, does the new one? What about the various departments in your firm? Who can use the aircraft? Is it just the top two or three in the company?

No one will deny the ability of the business aircraft to save time, but the question that still gets asked is “Is it worth the cost?” In justifying the cost, we often look to the highly compensated senior executive. But this type of justification can also work for less senior workers, too.

As an example, assume a trip is needed from San Antonio to Reno. Via the airlines, you can make the trip in 5.5 hours flying, plus airport time, for about an 8-hour travel day.  Business airfare for last minute travel may run $1,200 per person, or $4,800 for four persons. On the business jet, a charter may take less than 4 hours total time and cost may be about $12,000 for up to six persons. In your company light jet the variable cost for the trip may be $6,000. What is the value of that time saved?

In order to determine the value of the business jet over the airline, you need to understand both the total time needed for the travel and the lost opportunity cost, of that travel. 

Business aircraft offer the ultimate in time flexibility. The airlines have set schedules in order to try and fulfill most travelers’ schedules. How can we compare the time and cost of both alternatives?

The National Business Aviation Association (NBAA) has a tool called Travel$ense. It is software that calculates the actual hours spent in travel, productivity and trip expenses. Travel$Sense uses actual airline data to allow your travel specialist to look at the time it takes for the aircraft travel as flown on your schedule with the business aircraft, and on the airlines’ schedule. In addition to calculation the total travel time, it also has user-defined inputs for productivity and salary.

Using such a tool, you may find out the San Antonio to Reno total travel time away from the office takes 40 hours round trip while the business jet takes 16 hours. But the next step is the critical one, the value of the time.

Time can never be saved. It can only be spent wisely.

This type of value consideration can also work for mid-level executives’ time. Fill up the plane with four or five people and not only does the cost of the plane come closer to the cost of five airline tickets, but the ability of those people to work and be productive can make the business aircraft use a “no brainer.” Those people can be a sales team, customer support, or even just four people within your company who all need to be in Reno this week.

Business-hours spent in the office, with a client, or working somewhere quietly without disruption are more productive than business hours spent waiting at the airport. Whether it is Travel$ense or a spreadsheet, such an analysis can show that the time spent not in the business aircraft can be put to productive use that can offset the added cost of the business aircraft option. This type of analysis may show that further use of the business aircraft to more than just a select few senior executives is indeed money well spent.

BizAv Gets Another Black mark Against It, But Who Isn’t Responding?

As summer made its way into the Northern Hemisphere, business aviation once again found itself under an “eclipse” of darkness. This time it was the President and the Wall Street Journal. 

First up was the Wall Street Journal with a front-page article June 16 describing the personal (ab)use of business aircraft with reports of frequent travels by some corporate jets to resort destinations. While the report's data is not in question (full disclosure, Conklin & de Decker supplied WSJ with accurate hourly costs for the aircraft models), many felt that the article was sensationalized. While the WSJ did state “Corporate jets are vital business tools...” their analysis of the flights were supporting that personal use of business aircraft is far underreported. 

WSJ followed that up with a second article on June 20th about the former IBM chief, Louis Gerstner, and the number of trips IBM aircraft currently make to destinations where Mr. Gerstner has vacation homes.

Then on June 29, the President on June 29 was talking on the economy and the deficit when he stated, “I think it’s only fair to ask an oil company or a corporate jet owner that has done so well to give up a tax break that no other business enjoys.” One sentence, but it was enough.

Aviation groups like NBAA, NATA, AOPA and others were quick to respond.  Their responses tried to focus in of the contributions that business and general aviation make to the US economy and that most “fat cats” are really medium sized business flying in smaller aircraft trying to do everything they can to survive in todays markets. 

While some responses seemed a bit quick to take offense, they did a good job of trying to show the value of business aviation to the US economy.

What is mostly absent is a coordinated response. No, not from those of us whose livelihoods depend on aviation, but from those who directly use and benefit from these aircraft. What I would like to see is business CEOs and owners get together with an open letter sent to the major news outlets describing the importance of aircraft in their ability to conduct business. It should come from small to medium business that uses an aircraft. Not the top mega-corporations (see “fat cat” above), but those companies flying aircraft representing the other 85% of business aviation. I’m talking of companies with annual sales in the tens of millions or hundreds of millions, not large, global firms with billions in sales. 

I think a response from those companies would be far more compelling. People might see them are more “regular folks” versus the titans we regularly see in the business news headlines. Sorry, Donald Trump, business aviation won’t benefit from your defense. 

But who can talk to these folks and ask them to respond? How about their trusted pilots and mechanics!  Let me know how I can help.

Meanwhile, here are links to get you started:

NBAA Advocacy

US Senate Directory

US House of Representatives Directory



Three Reasons to Upgrade From Twin Piston to Turbine

If you operate your high performance piston twin for business and are looking at a follow on aircraft, I recommend that you seriously consider the advantages of a single engine turbine airplane.

Please note that I am specifically referring to business use. If you fly for pleasure then you fly what pleases you.  The reasons for selecting a pleasure aircraft can, and should be, based upon emotion. (Provided that you can afford the emotions of course!). Business use aircraft are tools first, fun tools, but tools. They must meet the needs of the business. 

The first reason is performance. No questions there. The turbine engine gives you far superior performance at altitude. Step into a turbine airplane and you get pressurized comfort. Yes, you can get your piston twin up to 14,000, 15,000 feet or even higher. But that pressure altitude has you breathing oxygen through a tube. That and the altitude itself are far more fatiguing than a cabin altitude of 6,000 or 8,000 feet.

Turbine aircraft can also get you to higher altitudes than pistons. The mid 20s are easily reached by most modern turbine airplanes, be they singles or twins. The ride is often much smoother than in the teens and you have many more options open for the avoidance of poor weather, be it convective activity or even icing conditions. 

Turbine speeds beat piston speeds.  You get 50 knots to 150 knots advantage due to the added power of a turbine engine. High speed cruise in a modern piston twin is 170 to 200 knots true. With a turbine single or light twin you can see 250 to 320 knots true. All these performance attributes in favor of the turbine airplane add up to increased productivity. Get there sooner, get there less tired, and get home sooner. That means a better use of business time.

Turbine aircraft are also more reliable. The engines themselves tend to be far more reliable than high-powered piston engines. "Dependable engines" is more than marketing lingo. Turbine singles have an excellent safety record and personally, I'd prefer a turbine single at night, IFR, than a piston twin. Give me two turbine engines and we are all set!  

Turbine engines, if maintained properly, have far longer intervals between overhauls than piston engines. High powered pistons tend to have 1,700 to 2,000 hour overhaul intervals whereas turbine overhaul intervals start at 3,500 to 4,000 hours. Again, for a business, the airplane must be productive. Waiting for an overhaul to be done is not productive. The longer overhaul intervals combined with the speed advantage of a turbine means the turbine engine is on wing for 2.5 to three times the number of miles as the piston engine.

Lastly is operating cost. Wait! We all know that turbine engines both consume more fuel and cost a lot more than piston engines to overhaul. First thing is to adjust that for the speed and overhaul interval of the turbine. As a comparison, the Baron G58 has a maximum payload of 1,195 lbs and cruise at up to 200 knots. A close competitor is a Piper Meridian with a maximum payload of 1,173 lbs and a max cruise of about 257 knots. At high speed cruise the Baron has a specific range of 1.053 NM/lb fuel whereas the Meridian has a specific range of 1.066 NM/lb fuel. So in this comparison, the cost per NM for fuel slightly favors the Meridian. Add to that the lower cost per gallon on Jet-A versus 100LL.

Yes, the overhaul of a turbine engine far exceeds the cost of the piston on a cost per hour (or per mile) basis. The Baron's two engines run about $66,000 for an overhaul at 1,700 hours ($39/hour) while the Meridian's PT6A overhaul is about $150,000 every 3,600 hours ($42/hour). On a per NM basis the Meridian actually comes out ahead due to its speed advantage (about 2%)

.Piper Merdian PA46-500T Beechcraft Baron G58

Selling price (List) of the new Baron G58 is $1.35 million while the Meridian sells for $2.1 million new. Current used price for a 2004 Baron is about $590,000 (44% of its new price). The 2004 Meridian sells for about $1 million 48% of new). Selling price new and used are lower for the Baron. But as a percentage of new, the turbine airplane tends to have a smaller loss in value. So that is where the "advantage" favors the piston twin. However, it is up to you, the buyer, to determine whether the value of the turbine airplane in terms of productivity and performance is worth the additional acquisition cost. 

A turbine airplane, especially a single, is worthy competitor to the piston twin and under close inspection, offers many advantages but at a less than anticipated expense.

Understanding this will open a huge debate, I would really llike to hear your view point (agree or disagree) but give us reasons not a vote!


 

 

Taking The Emotion Out Of The Aircraft Sale & Pre-buy

Last month I attended the NBAA Maintenance Manager's Conference in San Diego. It was an excellent opportunity to meet some of our industry's maintenance leaders as well as to sit in on many excellent presentations geared toward the maintenance professional.  One of the topics that struck me particularly was in the area of the aircraft sale and pre-buy process. Listening to several folks comments about the good and bad experiences they had it became evident that even among the professionals in attendance, emotion plays a factor in aircraft deals.

We've heard stories about the owner buying a particular aircraft solely because it looks sexy or because their spouse liked the color, not because it was a best fit or a great deal.  Even among we professionals, emotion comes into play. When we are in the process of buying or selling an aircraft we need to pay attention to those emotional cues. The aircraft deal is a business process, not a marriage courtship. 

As a  professional, we take pride in our work. Our aircraft is a reflection of that professionalism, especially to a maintainer. That person works daily on the upkeep and safety of the aircraft. If during a pre-buy the prospect provides a list of squawks or issues, it is very easy to feel our pride being wounded. "How dare they talk about MY airplane that way!" Our defenses come up and we seek to dismiss their issues or to minimize them as meaningless or even as an attempt to screw us out of money. We need to take a deep breath and reflect on each of those pre-buy issues, evaluate them in a neutral manner, and to put ourselves in the buyer's shoes. 

In the 1980s the US was in negotiations with the Soviet Union regarding nuclear arms reductions. Then President Reagan used the term "trust but verify" to describe the negotiation process. It is the same with the  aircraft. Whatever we agree to must be verifiable.  The buyer is seeking to verify the status of the aircraft. The fact that the deal is in pre-buy indicates a level of trust that the aircraft is what they want. The pre-buy inspection is to verify the state of the aircraft so that the deal can be completed with no surprises.

One way to minimize the emotional issues of a pre-buy as a seller is to understand that we no longer own the aircraft. The day you list the aircraft for sale, you have relinquished ownership and are acting as caretaker for the next owner.  Remember when you first took delivery of the aircraft, whether from the factory or a dealer or wherever. You did (or should have done) a pre-buy and acceptance of the aircraft. You trusted the aircraft was as advertised, but you just wanted to check everything over for yourself. At the resale, you need to take a close look at the aircraft as if you were evaluating it for purchase all over again. 

Unchecked emotions have wrecked more deals than they have made. The best deals are made when both parties prosper: the seller gets an amount for the sale that is satisfying and the buyer gets the aircraft that expect. My grandmother's adage of "When you are angry, count to ten before your respond" holds true. The Aircraft sale/purchase process is stressful and needs to be done with a level head. Had a deal go south due to emotions getting out of hand? Click reply and let us know (keeping the names of the guilty anonymous!), we would love to hear about the ridiculous and the serious. 

The Time Value of Money - A powerful tool in evaluating different cash flows

Aviation is an expensive pursuit. When looking at various options for air transport alternatives, we need a way to compare the costs of those alternatives.

One way that many get caught on is just looking at a single cost, such as the acquisition cost. Aircraft A costs $1 million while Aircraft B costs $1.5 million. So buy Aircraft A.  The US Government got into using that as the sole determinant on picking between various acquisitions. Once bidders knew the rules, they underbid the acquisition cost and grossly overpriced the costs of support, spare parts and upgrades.  In the early 1960s Secretary of Defense McNamera put an end to that practice and specified that they would look at the total cost of a project, including the cost to acquire, operate, and dispose of the asset.  This was called Life Cycle Costing.

In aircraft life cycle costing, you attempt to consider all of the costs associated with the aircraft. While acquisition cost is important, so too are the operating costs of the aircraft. In fact, after a while, the total costs of operation exceed the initial acquisition expense. 

When you finally dispose of the aircraft by selling the aircraft, that residual value reduces the total costs of ownership.  So a simple life cycle cost might look like:

 

               Aircraft A.         Aircraft B.

Acquisition     $1 Million          $1.5 Million

Op. Costs       $1.4                $1.2

Residual Value ($0.5)              ($0.85)

Total:         $1.9 Million         $1.85 Million

In this simplification, Aircraft B actually has a lower life cycle cost. While this is a far superior method than just acquisition cost alone, we need, or should, do more of an analysis. Allow me a diversion for a moment.

Suppose that Jeremy Cox owes you $10,000.  He offers to either pay you now, or in 5 years. Jeremy is a man of his word, but yet, any of us would choose to get paid now. 

What if the reverse were the case. One of you owes Jeremy Cox $10,000.  If you had the same terms of paying now or in 5 years, again I think all of us would tell poor Jeremy to wait it out the full 5 years to get his money.

What we have just done is assigned a Time Value to money. In both cases, $10,000 is the sum. But we correctly chose to pay our debt as far into the future as we can while asking for our income or revenue up front. 

In the case of the debt, in order to pay Jeremy now, I need the full $10,000. But if I can wait 5 years to pay him, I can put about $6,800 into an investment that returns 8% per year.  After 5 years, I will have the $10,000 for Jeremy.

So with an 8% cost of money or rate of return, my future value of $10,000 is really $6,800 today. The Time Value of money assigns not only the cost, but assigns a time cost or value to when the money is paid out or comes in.  If you do this sort of analysis with every cost and revenue involving our Life Cycle Cost, you end up with a financial analysis that not only tells what the total costs are, but also assigns a time value to each of those costs.  Summing these time values up and considering our initial investment (aircraft acquisition) gives us what is called the Net Present Value of the proposition.  This is the tool to use when considering high dollar, complex proposals such as aircraft. 

With a business use aircraft, the analysis will include things such as tax depreciation, the cost of a lease or loan and the opportunity to use the money for the aircraft in other areas.  A high net worth individual may make more money with their investments than the cost of a loan.  If the aircraft is for personal use, that same individual cannot use the tax depreciation of a business, so a lease may be a better deal in terms of the Net Present Value.

To calculate a Net Present Value, a spreadsheet can be used.  Inputs are the costs, revenues, time, and the cost of money (also called rate of return or desired return on investment). 

The Time Value of money is a powerful tool in evaluating different cash flows. It need not be for a business. It can help you to evaluate complex finances and be used as a tool to evaluate the true costs of owning and operating an aircraft.

Have any of you been involved in the financial analysis of an aircraft acquisition (or any high dollar acquisition such as a costly computer network for a business)? If so please reply and tell us your experiences.  We all learn if you share.

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