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Does your aircraft make "cents"?

by David Wyndham 1. February 2016 12:14
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It used to be that the choice of what business aircraft to acquire was a decision made by the CEO and the Chief Pilot. The boss said "I want this aircraft" and the pilot either got it or tried to dissuade the boss for reasons of speed, cabin or range. Today, opportunities to use business aircraft are sufficient only if the numbers make sense, and make "cents."

Some years ago I did a study for a manufacturer who was expanding from the Americas into Asia, particularly China.  They already had a larger-cabin business jet, but the senior leaders were considering a much larger airplane with global range to better meet their expanded travel needs. The CEO and Senior VP were clear on what they needed—the  ability to go global.

The CFO was just as clear on what he needed—financial justification. There was no way would he stand for a what he called "A Royal Barge."  In other words,  the aircraft had to earn its keep, or he would recommend the board veto it. This is exactly why you hire a CFO. It is their job to make sure every dollar gets spent wisely.  Our goal then was to recommend an aircraft upgrade that could handle the global travel of the CFO and SVP, both as flying-office and as restful-space, so that these rainmakers could do business right after landing. But since, the the CFO and board were not going to write a blank check, we needed the financial justification for the global jet.

Going from the corporate headquarters to to Asia was two-stops with the aircraft available at the time. One-stop to Asia was technically feasible but only if the weather was perfect and the headwinds were light. Our analyses identified two sets of aircraft.  A 4,100 NM range aircraft  could get them to or from Asia with one-stop 95% of the time. A 6,000 NM range gave them the desirable non-stop capability. Aircraft in these categories all have comfortable cabins with the latest navigation and communication systems. The seats could fully recline allowing for the executive to rest, if necessary. The galley could prepare the meals needed to fuel people for a 10 to 14-hour trip.  The financial differences that had to be addressed were:

 

  • Any new aircraft would cost more to acquire than the sunk investment in their current, smaller business jet.
  • Operating costs would go up with a bigger jet. However, given the newer aircraft's more fuel efficient engines and advanced systems, the cost jump was minimal.
  • Acquisition had to make sense financially.

 

We were able to show the added days in the office and the business jet’s more productive travel environment en-route were valuable to the company. The reduced travel time and more restful experience en route was seen as significant by the CFO. The saved travel days, the productive work environment on the business jet, and the secure work environment were good financial reasons for the new aircraft. Still, the question remained— do they obtain the 4,100 NM jet or the 6,000 NM jet? 

Looking at the Asia trips, we compared the added costs to acquire and operate the larger jet with its 6,100nm range with the cost of the fuel stops and added travel time of the 4,100 NM jet. We looked at the difference in the ownership costs - acquisition and residual value after 10 years in this case.  Based on the trip frequency, we arrived at a cost savings of about $600,000 per year by accepting the one-hour fuel stop needed with the 4,100 NM jet on Asian trips. The CFO was not sold on the 6,100 NM aircraft as adding that much more value. The flight department, CEO and Senior VP were satisfied with the 4,100 NM jet, which is the aircraft they purchased.

Given the frequency of their Asia trips, the 6,000 NM jet was not financially justifiable.  Operationally, the flight department favored the shorter stage lengths with a break, even with the added crew member.  For this company, the numbers made send for the 4,100 NM jet. For another company with higher trip frequencies or greater passenger loads, the 6,000 NM jet would make better sense. In all cases, you have to look at the costs and the benefits to do what makes "cents" financially within the parameters of the mission requirements. 

 

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Aviation Technology | David Wyndham

Add Value or Leave

by David Wyndham 5. January 2016 10:51
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When you get down to the basics, we humans must cooperate with each other in order to survive and prosper. Each one of us takes up space and uses resources. If we don't add back more than we consume, we are draining or depleting resources needed by others. Read into that whatever resources you wish - food, money, relationships, etc. At work, we are the same. As employees we also are taking up the company's resources. We are provided space to work, heat/AC and light in that space, computers, telephones, etc. Periodically, we receive a paycheck. If we don't add back to the company at least what we consume, we may not be in that job very long. This holds true for janitors, engineers, and the CEO. This applies for all the assets of the company, like the business aircraft.

The corporate aircraft and flight department use resources. If they are not adding value to the corporation, they are not needed and should be gone. It is up to you to maximize the value of yourself and the business aircraft your operate.

Organizations and groups like NBAA, GAMA, AOPA, No Plane No Gain and others all provide us with great examples justifying and proving the worth of business aircraft. They start with the obvious, that use of an aircraft maximizes use of time. Most touch on the value of that time to the corporation. But as members of the aviation department, you need to take that generalization and make it apply to your corporation. 

Understand how the use of business aircraft adds value to your company. What are the unique benefits that your business aircraft adds to the accomplishment of your company's goals?  Yes, the aircraft allows for more usable time. But who's usable time is being increased and what does the aircraft enable them to do with that time?  Time is a nonrenewable resource. Employees are often called a company's most valued asset. The effective use of an aircraft allows valued employees to effectively use their limited time to drive the profitability of the company. 

Develop ways to measure and document how the aviation department adds value. There are many ways to accomplish this. They need too apply to your situation. If your business is EMS, the measures are different than for a corporate shuttle. If the company is using the aircraft to reach new clients,  can you document this and assign some value? Does your aircraft utilization strategy support the corporate goals and mission?

You need to also understand your costs. What are the costs to operate and own the aircraft? Are you able to minimize the market depreciation on the aircraft by keeping the aircraft updated and in a "ready to sell" condition? Use this to develop a Cost-Benefit Analysis for the aircraft and the aviation department. You may calculate the aviation department has an annual operating budget of $1.75 million. Can you calculate the value to the corporation? If the aircraft use was critical in winning a billion dollar contract, some of the value of that contract can be "awarded" to having the aircraft, no?

Things to consider trying to quantify regarding the contributions of the business aircraft:

- Adding to the company's market share

- Adding to the profitability of the company

- Enabling the (key) employees to maximize use of their time

- Increasing employee and customer satisfaction or loyalty

- Keeping senior leadership secure 

Whether it is business courses at the local university, online education, or the NBAA CAM program, find and use resources that help you to understand and communicate the "business" part of business aviation. Become a marketer of the aviation department both within the company and within the community. Develop your leadership skills and people skills. Add back more than you consume.

 

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David Wyndham | Flight Department

Planning Ahead For Your Aircraft Replacement

by David Wyndham 2. December 2015 11:04
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How long does it take to acquire an aircraft? For a cash deal, with very straight forward tax and ownership structures, and allowing for the due diligence and pre-buy inspection, you could close the deal with everything going perfect within a month or less. Add in real-world delays, financing, and ownership and tax planning, a more realistic minimum may be six months. Want to spec out a new aircraft, choosing your paint, interior, and other options? Six months if all goes well, but plan for longer, especially for in-demand models. Trying to sell your current aircraft, too? Could take even longer. I think the real answer to "how long" is two to three years. 

I have one prospect who has an aircraft lease expiring in 2019. They are looking for a study to help them identify and cost out their next aircraft. They have had their current aircraft for 13 years. Another active client has been looking at replacing their aircraft for the past eight years, with a hiatus from 2008 to 2012. 

Many corporations look out at least five years in their detailed planning with some, famously Toyota, having a 100-year business plan sketched out. For the corporate flight department to be an effective team member, they to need to plan with the same detail and discipline as their corporate parent. The aviation department needs to be proactive in meeting the air transportation needs of the company. Yes, events like a recession or major catastrophe will throw all those plans out. Good plans, whether for the company or aviation department, look at these key areas:

  1. The current situation and how well you are meeting the short-term goals.
  2. Clearly identifying the long term goals
  3. Identifying current and future needs and requirements to meet the long term goals
  4. Best and worst case scenarios
  5. Creating or identifying milestones and performance metrics to indicate how well goals are being met
  6. Having actionable steps to move in the direction of the goal

The third item, needs and requirements, is where the two to three year planning comes into play. Planning for a major acquisition should be done methodically. Budgeting and detailed travel planning really can only look out two years for most companies. The aviation department needs to be head of the corporation in identifying what its equipment needs will be. Waiting until the current aircraft is not capable of meeting the changing air transportation role, or is costing too much to operate, falls short on the aviation department's service goal.

The tough part of getting approval for the next aircraft is often that the aviation department is doing a great job with what they already operate.  "If it ain't broke, don't fix it" along with the magnitude of the acquisition price gets balanced against the short-term profitability goals of the company. This is where the people and management skills of the aviation manager can be tested. How well have you done your job of being known as a team player for the executive team? Is aviation just "the boss' plane" or is it seen as serving the corporate mission? Along with the two-minute elevator pitch for why you need to replace the aircraft, do you have the details the CFO or Board of Directors may need?

Doing detailed planning for the aircraft within the scope of your five-year plan allows you to identify and prepare management for those infrequent, high cost, maintenance inspections, overhauls, and upgrades needed. During the acquisition process, being prepared also aids in the aircraft price negotiations.  Negotiations from a position of strength, and a willingness to walk away from a deal that doesn't work will get you a fair price easier than being seen as needing an aircraft right away.

Having a plan and updating as you go is far easier than always being reactive and shooting the closest alligator. Sometimes things go awry, but when you have a plan, you at least know how far off course you are and the direction needed to get back.  Last tip, a plan is not worth much unless it identifies at least the next major action needed to accomplish the plan. 

I hope you all are ready for 2016 to 2020 (FAA NextGen anyone?). 

 

 

 

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David Wyndham

Need more personnel? Document first!

by David Wyndham 10. November 2015 14:59
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"I think we need another pilot" 

"I think an A&P would be helpful in maintaining our aircraft availability." 

I hear this a lot from aviation managers, but when pressed for the data by their boss, it may not be ready to hand over.  A really savvy manager knows this: intuition is wrong more that it is right. You need the data to back up your gut feel! In fact, when your gut feel turns out correct, it is usually based on a well reasoned approach from your personal experiences and education. To put it another way:

You Can't Manage What You Don't Measure

When it comes to justifying additional personnel, you must have the data to support your position. Personal costs can be a business' highest single cost. One place to start is the NBAA Management Guide. It has the general approach to calculating now many pilots your flight operation needs. It involves how frequently the aircraft flies, and how much standby and duty time is needed to meet a schedule. At one extreme is the Emergency Medical Services operation which must have crew available 24/7. At the other extreme was a pair of helicopter pilots whose job was to fly the prince from his home on the coast to his yacht. They were scheduled weeks ahead of time and much of their "duty" time was sitting on the yacht at sea! The rule of thumb of three pilots per aircraft is a starting point. The NBAA Management Guide takes you down the path.

Another great reference is the NBAA Benchmark and Compensation Survey. It contains member information on not only salaries, but also utilization and days/hours worked by aviation department job titles. A lot of times just showing that you are working more hours than 95% of your peers is validation enough for another employee.

Adding an extra pilot takes a bit more calculation. An on-demand pilot such as a charter pilot may not be able to fly a lot of hours. The scheduled pilot, like for an airline, can get a lot more flying hours. You need to look at the schedule variability and duty days, plus non-flying responsibilities. Also take into account the availability of part-time or contract pilots.  One thing that is important in your calculation for an extra pilot involves what the current pilots' duty time is like. Here are a few things to look at:

  • Total duty days
  • Total duty hours
  • Days away from home for flying
  • Non-flying duties and hours required
  • Days away for training, vacation, sick leave, etc.

For maintenance personnel, the list of considerations center around they aircraft types and and maintenance philosophy. Items to consider include:

  • Aircraft trip profiles - on the road a week at a time or back every night?
  • Aircraft utilization, and whether it is driven by calendar limits or hourly limits
  • How close are you to overhaul and repair facilities? Is there support on the field?
  • How old is the aircraft? Aircraft require more maintenance as they age.
  • Do you perform maintenance while the aircraft is not being scheduled for flights? i.e. Do you fly by day and maintain by night (or weekend)?

General considerations for both need to look at what the future demand for flights is. Are you anticipating increased flying activity? Are you unable to meet the current demand for trips? Are you having to turn down trip requests on a more frequent basis? Consider a survey of your aircraft users to ask if they have more demand and to see if there is a requirement for the use of more than a single aircraft at one time. The users of your aircraft will learn what your limitations are and will adjust their schedule. Ask them if they need to fly more but cannot.  You need to be tracking this. If you can quantify that the unmet demand is based on lack of available personnel (or needing to overwork people) , then your justification for the added personnel is complete.

Most organizations like to stay lean. But that does not mean working your people to bare bones on a regular basis. Aviation has a very strong safety component that extends beyond the cockpit to anyone who has a physical impact on the aircraft. Even so, adding additional personnel takes solid data. 

 

 

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David Wyndham | Flight Department

2015 Business Jet Traveler Readers Expect to Fly More in 2016

by David Wyndham 2. October 2015 16:17
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The October/November issue of Business Traveler Magazine contains the results of the 5th Annual Readers' Choice Awards.  As with previous surveys, they let the results speak for themselves. Go read it, but first, my observations.

 

Good news for 2016, their readers expect to fly more in 2016 than in 2015 (37.9%) with just over half flying about the same next year. Only 7.3% expect to fly less. This is encouraging since more than one in five (22.7%) reported flying less in 2015 than in 2014. I'd say this is more of a sign of stability or slow growth. Still, slow growth beats a slow decline.

Why people fly is as you think. These private aircraft "save time" by getting people to airports that are not served by the airlines and all the travelers to be productive while en route. These simply spell productivity.  Comfort, privacy and security round out that list. Those last three imply quality of life to me. 

What people fly remains consistent with previous years. It's the economics. That, along with range and cabin are the big three drivers in the aircraft the reader flies. A slight change from 2014 is economics is now the top driver, slightly more than range. Interesting was the number four response: Aircraft Manufacturer. The OEMs try to get brand loyalty and this indicates some level of success in that effort. Aircraft age and speed round off the top half of the list. 

Among the readers using fractional, charter and jet cards, customer service rated top for all three. Overall satisfaction also rated consistently as ver good with no clear advantage to any of them. Value for price paid rated best for Jet Cards. Fractional rated lowest for value which ties into their ranking for residual value terms. That was the lowest average score among all the fractional rating categories. If the reader had not used the provider previously, the biggest factor in selecting the provider was a recommendation of a friend or colleague. Step aside Internet, word of mouth from someone you trust is still the number one reason to buy.

Speaking of value for price paid, for the fixed-wing aircraft, Embraer rated quite well in that category. They also rated very well in cost of maintenance and were close to survey-leader Gulfstream in product support. Kudos to them. Overall, the strongest fixed-wing OEMs were Embraer, Gulfstream, Dassault, and Pilatus. 

Regarding aircraft reliability, Pilatus and Gulfstream received the highest marks. Al the OEMs did well, with Hawker (as in the 800 series) and Bombardier receiving more "fair" ratings and fewer very good to excellent ratings. Regardless, all the fixed-wing OEMs having from 87% to 100% ratings when adding the very good and excellent scores. The wireless and cable providers would love rating like that.

On the helicopter aircraft, Business jet traveler only had sufficient data for Airbus (nee Eurocopter) and Bell. I was surprised that Sikorsky had too few responses. Like last year, neither helicopter OEM received greater than a 40% excellent rating in any category except for reliability, where Bell had 52.4% excellent ratings. That would be last place if put in with the fixed-wing. I'm not sure why the expectations aren't being met.

BJT did ask its reader's that if they could get a year of complimentary flying, which would it be for various categories of aircraft? Read the article to see what folks favored. Most choices were the popular new aircraft for each category. Of note, 6.5% of the Super Mid-Size Cabin Jet readers wanted a Hawker 4000 over the current production offerings. As with last year, no one listed a P51 Mustang. 

2016 looks promising from this survey. It's a small list, but here's hoping its representative. How about you, will you be flying more next year? Let us know if the replies.

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AIRCRAFT SALES | David Wyndham | Flying





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