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The Aircraft Acquisition Plan - Sources Of Information

by David Wyndham 12. February 2018 11:00
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In the two previous issues, I discussed that the foundation of the Aircraft Acquisition Plan is to understand the aviation mission. That understanding leads to identifying the key missions of the aviation function. Those most important missions are what allow you to derive a set of objective evaluation parameters. Those mission-specific parameters can include payload, passenger seats, range, runway performance etc.

Given a set of parameters, you will need to find out which aircraft are capable of meeting those parameters. For example, if you are an Emergency Medical Services (EMS) operator, you may need to carry 2 liter patients plus two attendants. You may also need to lift that load from a 3,000 foot elevation on an 86F (30C) day. You know the capabilities of your current EMS helicopter. Where do you get the information about possible replacement helicopters? What about performance on specific trips such as London City airport to Cairo, Egypt? What about the maximum payload you can depart Eagle, Colorado and make Charlotte, North Carolina non-stop? There is generally available data and specific data calculations. 

There are three generally available categories of published sources of information and data. Trade publications, off-the-shelf databases and the manufacturer published data.

Trade Publications. There are a number of excellent publications that publish surveys, list performance reviews/pilot reports, and have new aircraft pricing. These magazines are readily available via subscription. In addition to hard copy, many have electronic copies and some maintain past issues on their website. The cost to receive them is nominal. This is a good first step to get general information. The ones with pilot reports may have more technical information versus general product reviews. These articles may not answer your detailed questions or cover all the aircraft models you are interested in.

Published Databases. There are a number of databases published in the US that can provide a great deal of useful information. They cover four areas: acquisition costs, operating costs, performance and specifications, and specialized data. While trade magazines usually do a good lob of listing new aircraft process, they don't have a lot of information on pre-owned process. Information that is published on acquisition costs relies on sellers or buyers reporting their transactions to the publisher. Not every transaction is reported and there is a time lag in the reporting of a transaction and the ability of a publisher to analyze and publish their data. When markets are changing rapidly, this data has less value than in a stable used market.

Operating cost databases focus on the day-to-day costs of owning and operating aircraft, including taxes and fixed costs such as insurance.  Operating cost databases also have limitations. No two operators operate their aircraft in the exact same way.  Some operators do much of the routine maintenance in-house while others use a service center. Unscheduled maintenance is just that, unscheduled. There is no way to predict unscheduled maintenance save for using generalities and defining assumptions. Guaranteed hourly maintenance programs may help, but each manufacturer or program seller will use different assumptions and many allow for some variability in charging based on utilization. As they say with automobiles, “your mileage may vary.” These databases can be a valuable tools for comparing relative costs, but aircraft costing is not an exact science!

Performance and specification databases are useful provided that the person using them is knowledgeable about aircraft performance.  They go into more detail than many magazine articles and they tend to have standardized formats for each category of aircraft. These generally come in software versions. Unless you buy the flight manuals or subscribe to a database that offers that level of detail, the ability to change the data for your exact mission can be limited. Again, as a relative comparison tool, they can be invaluable. 

Costs of the above databases vary from several hundred dollars to over $1,000 for complete sets. They tend to offer a fair amount of detail, are impartial, and given the time involved in gathering each bit of information on your own, a very worthwhile investment. Our company has published a number of these types of databases for over 30 years.

Other specialized databases do exist. They can be for things such as charter listings, aircraft for sale listings, airport databases, and en route winds and temperature statistics. Depending on your mission, they still may not answer the very specific question that you may have.

Manufacturer's Data. The information from the aircraft manufacturer can range from the sales brochures' optimistic, best case information, to very specific performance analyses. Be cautious reading generalized sales information as they may or may not conform to standardized criteria. They may also be out of date. The flight manuals are the best source for specific calculations. Buying them for one-off comparisons can be quite expensive, especially when researching a number of different aircraft models. 

Detailed performance questions can be easily answered by the manufacturer. Contacting the manufacturer does inform them of your interest and usually generates sales calls and perhaps a visit form your local aircraft sales person.  If you wish to maintain your anonymity, you may wish to order a technical manual through the product support group. 

What are the other sources? Consultants can be paid to do all or part of the work in the Aircraft Acquisition Plan. When we do a study for someone, we work closely with both the aviation professionals and well as the end user to make sure all the right questions are asked, and answered. Other operators can be a wealth of "inside" information, as are maintenance facilities and training companies. When asking questions, be specific. Ask a general question, get a general answer. List price is not necessarily selling price, nor does a flat-rate cost for an inspection tell you what to allow for unscheduled and “over and above” maintenance.  

When gathering data, keep in mind the following:

What is the reliability of the source?

What assumptions went into the data?

How would specific information apply to your situation?

In general, starting with the publicly available data allows you to develop a short-list of candidate aircraft. If you want an aircraft with 2,800 nautical mile (NM) range, an aircraft with 2,300 NM is probably not going to be your top choice. Next time I’ll get into the analysis of the numbers.


 

 

 

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Aircraft Sales | Aviation Technology | David Wyndham | Flight Department

Key Missions & Evaluation Parameters

by David Wyndham 4. January 2018 13:05
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In the two previous issues, I introduced the Aircraft Acquisition Plan and your Acquisition Team. To be effective, your acquisition plan should consist of the following elements: - The organization's real aircraft needs. - Key missions and evaluation parameters. - Sources of information. - Technical analysis and ranking. - Fleet size. - Financial alternatives. - Financial analysis and ranking. - Tax Planning. This issue, I’ll focus on the first two items. 

“Mission drives requirements”

The foundation of the plan is to understand the mission assigned to the aviation function. Where does the aircraft add value to your company or owner? Yes, it makes better use of time. To what end? What is the importance of that time, and more over, the value of that time? Connecting the corporate goals and aspirations with the use of the aircraft enables you to define (and defend) the use of the aircraft as a valued business tool. Identify the most important mission for the aircraft as it relates to the achieving the corporations goals and vision. That is the mission which enables the aviation department to select the right aircraft by defining the parameters the aircraft must meet in order to help the corporation succeed. 

In defining the mission, we get to the importance of quantifying the mission. While a decision maker may select an aircraft from emotion, we need to make sure that they have the information needed to quantify their decision.  We need to quantify the mission, the aircraft requirements, and the costs. The decision maker can allow emotions in the process, as advisors, we cannot. Quantify every requirement to the greatest extent possible. 

Be proactive. If today’s mission is likely to change, focus your planning on what will come. While during times of rapid change, it is difficult to forecast, do it anyway. Ask the major users and decision makers for their inputs. Try to get a “probable” and a “best case” scenario. Or, if things are looking poorly, a “worst case” scenario.

Evaluation Parameters (Quantify!)

Evaluation parameters include cabin size, door size, cargo capacity, range, payload, etc. A key mission such as West Cost of the US to Asia could allow for a stop en route. If you can make it to Hawaii, every other over water leg can be made with less range.  The distance from the West Coast of the US to Hawaii is about 2,300 nautical miles (NM). Allowing for headwinds, you need at least 2,500 NM range to make it most of the time and 3,000 NM range to make it under almost any conditions. That Asia mission may require non-stop capability, but be aware of the available options.

Key missions allows you to define with the evaluation parameters needed to evaluate the possible aircraft. Identify aircraft that meet all the requirements and those that fall short in one or more areas. Include your current aircraft in this list as a baseline for judging other aircraft.  Once you have your aircraft criteria, it is usually good to list those in terms of “required” and “desired.” Required criteria are those which you must have to perform the key missions. Desired criteria are nice to have criteria that enhance the ability to perform the mission, but aren’t crucial to its success. 

If you don’t do your homework, you either end up with too much aircraft, or worse, end up with an aircraft that fails to do what was required. There is nothing worse than explaining to the boss why you can’t do the trip that was justification for the aircraft in the first place. Do this work up front and the rest of the analysis just falls into place. You’ll see. 

 

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Aircraft Sales | Aviation Technology | David Wyndham | Flight Department

The "Acquisition" Team

by David Wyndham 11. December 2017 13:37
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Remember the old TV show called the A-Team? A rag-tag bunch of former soldiers travel around fighting criminals and righting wrongs. The A-Team was borderline psychopathic (especially their pilot), but they were always on the side of good. Regarding an aircraft acquisition, it takes your own A-Team: an Acquisition Team. You need to know these people and, if they are not within your organization, know where to find them! 

As the leader of this team, you are responsible for defining the mission. What is the key mission of the aircraft? What defines success for the aviation operation? Does everyone on your team know what this mission is? Most importantly, will the decision maker agree to the definition of this mission. This is used to define the minimum deliverable product in terms of capability and performance.

The next team member is the technical analysis person. This person is responsible for developing the measurable criteria for judging the ability of the aircraft to perform its key mission. If you are the pilot, this will be you. That person should be familiar with aircraft performance measures, and have available information that enables them to predict passenger loads, trip lengths, etc. There may need to be runway analyses, equipment needs, and for helicopters, the vertical performance measures necessary for the operation. The technical person needs to be able to have the data needed for this comparison. This person will help to identify candidate aircraft and then to analyze the aircraft against the mission.

Part of the technical analysis deals with maintenance requiorements. If purchasing a pre-owned aircraft, what may be required in terms of upcoming maintenance or upgrades? Where and who can do the pre-buy? If you have in-house maintenance, they are the best as they already know your operation. 

The next person to get on the team is the financial analysis person. That individual needs access to what it costs to own and operate aircraft. There are different ways to finance an aircraft, and if it is for business use, different tax ramifications. This person needs to understand Life Cycle 

Costing and be able to look at the total cost of owning and operating the aircraft.  If leasing, what are the return and buy-out options? Many leases have significant penalties for early returns, and most have specific return conditions that can add cost. Leases can be a great way to acquire an aircraft, but they aren’t for everyone. This person needs to understand the nature of operating costs and be able to communicate with the maintenance professionals regarding the costs of upcoming maintenance as well as then communicate and understand the costs as looked at by the Chief Financial Office or accountant.

A close ally of the financial analysis person is the tax/ownership advisor. Tax planning should begin well before the purchase, not after the closing. Aircraft, by the nature of their mobility, may be exposed to taxes in multiple states. You need someone familiar with taxes as they apply to aviation. How do you plan to structure the ownership of the aircraft? Things to plan for are where and when will you take delivery? Are there sales or use taxes due and if so, who is responsible for collecting and remitting them? 

With the aviation tax person should be an aviation attorney. This person will  need to be consulted to ensure that the contracts are appropriate and that the various regulatory issues are addressed. Are there leases, timeshare agreements, charter? A document that looks good from a basic business perspective may not be legal in the eyes of the FAA or other aviation authority. The FAA can be strict in enforcing the regulations regarding "for-hire" operators and you need to make sure that you are operating legally. 

Don't forget your insurance broker. They need to be kept informed as to what, when and how the aircraft is to be used. If you don't mention all the uses for the aircraft you may not be insured. What are your insurance company's requirements for the training and currency? Will it be different if you acquire a different aircraft? If the aircraft is to be on a management agreement, who and how are each of the parties to that agreement covered?

Next is the aircraft sales professional. This individual needs to know the state of the aircraft sales market, what the availability and lead times are for various models, who to contact about pre-buy inspections and appraisals, and what sort of time it could take to dispose of your current aircraft. Anyone with Internet access can "find" aircraft for sale. The aircraft sales professional needs to act in an advisory role and as a facilitator to make sure the deal closes with all parties happy as a result. 

Lastly, don’t forget the a title search for used aircraft. They can also provide title insurance and provide the escrow entity for the closing as well as register the aircraft. The minor cost of this is well worth the piece of mind. 

If your are looking at large cabin jets, you may have requirements for crew rest, galley equipment, and internal baggage. If you have a cabin attendant, they need to be on the team. Same with the scheduler or dispatcher. Anyone with an interest in the successful outcome of the acquisition needs to be at least informed as to what is happening. Everyone has a different perspective and will see things that others may miss.

Acquiring an aircraft should never be done in a hurry. There are many issues to cover and remember the PPPPPP rule! (Prior Planning Prevents Pitifully Poor Performance). 


 

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Aircraft Sales | David Wyndham | Flight Department | Aircraft For Sale

The Aircraft Acquisition Plan

by David Wyndham 8. November 2017 09:52
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There are two fundamental reasons for acquiring new or different aircraft: (1) the current aircraft can no longer perform the mission and/or (2) the current aircraft is no longer the most cost effective solution.

Changes in mission need to be both quantified and qualified. For example, one client in the Southwest US was looking at significantly more travel to the West Coast. Their turboprop could not do the trip nonstop with the required passenger load. Their travel pattern was changing. Another client was looking at non-stop from the US to Asia. But this client was only flying that trip four to six times per year. 

If your company downsized or just sold the international division, then why continue to operate a long range aircraft? Maybe the mission has grown in a different direction. Rather than carrying a family of four on a heli-tour, you have an opportunity for electronic news gathering or have won a contract to haul a geological team to a remote site. The aircraft is a tool that enables you to get the job done. Sometimes, you need a different tool. 

You need to quantify to magnitude of the change. And, for the purchaser, what sort of value will changing aircraft the ability of the company (or individual) to be  successful? How important is non-stop versus one-stop? How much value is added by having a couple ore passenger seats? 

Economics also come into play. While the mission remains essentially the same, maybe your current aircraft is facing significant costs. Our studies and many others indicate that as aircraft age, the costs to maintain it increase. Along with the increase in cost comes an increase in the number of days per year the aircraft is in for maintenance. Additionally, for out of production aircraft, especially those with limited production runs or from manufacturers who no longer build aircraft, the availability and pricing of spares can be a serious issue. For a commercial operator, the loss of revenue from not being able to fly as many days can be worse than the added cost of maintenance. 

What is the long term cost of keeping the current aircraft versus replacing it with a newer one? I’ll discuss how to do this costing in a future article.

Whatever the reason for suggesting an equipment change and before making recommendations to senior management it pays to have a good Aircraft Acquisition Plan

To build up justification for changing or even acquiring an aircraft, you must have a plan. An aircraft acquisition plan must at a minimum:

- Identify and quantify the air transportation needs.

- Differentiate between "required" (or must have) criteria and "desired" (or nice to have) criteria.

>- Identify the aircraft best capable of meeting the transportation needs.

- Compare each of the aircraft against the requirements and rank order them.

- Contain an analysis of all the costs involved with acquiring an aircraft: acquisition, operating, and residual values. Also needed to be considered are taxes and market depreciation.

Just as a successful business has a plan for the future, so should the aviation operation. Once an aircraft is in operation, it usually is there for at least five years and often for much longer. Therefore your Aircraft Acquisition Plan should look out for at least a minimum of five years, or as long as you expect to operate that model. 

Your plan should be void of emotional issues and stay as far from subjective criteria as possible. Having firm numbers doesn't remove all questions, but it does offer a justification based on reasoned thought. If someone wants to adjust the numbers, it is far easier to reflect that change in an updated plan and to see the effect on the results. 

The final decision maker may make a final decision that leaves us pondering the result. Those emotion-led decisions are are fine to those who can accept 100% of the risk and 100% of the reward. As an advisor, we need to have a well thought out, analytical plan. 

In detail, an effective plan consists of the following elements:

- The organization's real aircraft needs.

- Key missions and evaluation parameters.

- Sources of information.

- Technical analysis and ranking.

- Fleet size.

- Financial alternatives.

- Financial analysis and ranking.

- Tax Planning.

I'll address all these over the next months as a continuing series. 

 

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Aircraft Sales | David Wyndham | Flight Department | Aircraft For Sale

Who is your boss? (For the Aviation Department)

by David Wyndham 12. September 2017 13:44
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If you are a new first officer, its obvious that your boss, on any given flight, is the Captain, the pilot in command. Then the day comes that you are on your first trip as a Captain. Yet, you still have a boss. Now it is whoever is sitting in the back of the aircraft, or the person who authorized the trip. You also have another boss, the aviation manager. That individual has a boss, typically the CEO. Even the CEO does not escape having a boss, someone to whom they are responsible. They have many bosses.

A CEO needs to be concerned with the shareholders and their returns.  He or she must listen to the Board of Directors, yet communicate effectively with employees.  The CEO who cannot inspire employees to further the corporation’s Vision and pursue its Mission will face difficulties in meeting corporate goals. For officials of public corporations, there are regulators who also have oversight.   Yes, a corporate CEO has many masters.

Like the CEO, the Aviation Manager also has many bosses, even if the Aviation Department’s sole purpose is to be the CEO’s transportation.  At the end of the day, it is the corporation and its shareholders who must be served. It is where they meet that the Aviation Manager can add value.

The Aviation Department must integrate with the corporate structure and understand how it supports external and internal business units within the entire enterprise.  While it is tempting to cater to the CEO, the enlightened Aviation Manager focuses on addressing the goals and objectives of the company as a whole.  Woe be the Aviation Manager who seeks only the favor of a single executive. A key to longevity of the Aviation Department is how well it is enmeshed into the activity of the corporation.

The Aviation Department benefit the entire corporation at three levels.

- The Shareholder Level: profits, market share, returns are examples.

- The Enterprise Level: quality, asset management, cost control.

- Executive/Employee Level: productivity, team collaboration, product development

One recent client’s experience shows all three levels being met by the effective utilization of the corporate aircraft. The company had a goal to double the number of retail locations in the Northeast US.  The Aviation Department used the corporate aircraft to transport corporate teams to the Northeast to oversee and manage the opening of the new locations and to coordinate the training needed for the new mangers and employees. It flew senior management to speak at the regional meetings. Other times they flew sales and marketing teams to train new employees at multiple sites over a few days.  

The aviation department benefited the corporation at all three levels. They helped meet Shareholder expectations by: increasing market share by opening new stores. At the Enterprise Level they helped the management teams maintain quality of service at the new locations. For the Employees, they helped maintain executive staff productivity while training new staff.

Here are a few tips.

Focus on Corporate Goals and consider how Aviation can help achieve those goals: Relate trip fulfillment to corporate goals.  For the retailer cited above, the utilization strategy was supporting trips to the Northeast US during the corporation’s expansion in that region.  The Aviation Department knew the corporate goals and developed tactics for how aviation personal and resources would support the company. Not all executives may readily see how aviation is able to help.

Use Key Performance Indicators (KPIs) to measure the efficacy and value-added nature of the Aviation Department. As a quick review, for a KPI to be valuable, it must be understandable, meaningful and measurable. In general, a KPI can follow the SMART criteria: Specific, Measurable, Achievable, Relevant, Time-based. Tie KPI’s into the utilization strategy to aid in the measuring of the benefits to the company. 

Beware of measuring activity rather than productivity. One client managed the flight schedule to maximize filling the seats on the aircraft traveling to their main operating locations. Sometimes that strategy meant coordinating trips to fill the aircraft seats. For the Aviation Department, they maximized the productivity of each trip (passengers carried), knowing that the productivity benefit to the company was maintained while managing costs. While hours flown is an important metric, the Aviation Department maximized measures of productivity that supported the executive team and thus the corporation.

With respect to costs, be sure to include costs that are avoided in terms of travel expenses such as overnight stays, lost worked time/productivity and other elements of inefficiency. Time saved results in money saved.

Throughout the process of helping met the company’s strategic goals, the Aviation Department will need feedback from the corporation’s executive leadership. In addition to focusing on corporate goals, feedback is essential to guide the Aviation Department in its quest to serve the many bosses who demand satisfaction. Doing so benefits the company, the shareholders, the employees, and of course, the aviation department.

 

 

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David Wyndham | Flight Department



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