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Recurring Thoughts

by David Wyndham 16. November 2016 11:33
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I have done some reflection on the past year. This was fueled by several conversations and sessions during the recent NBAA convention in Orlando. It has been supported by some of the consulting work I've done this year as well. I come to several recurring themes. I think all combined, they can help business aviation tell, and sell, our story.

Learn the language of business.We need to understand the languages of business as well as aviation.  Acronyms and jargon shorten the conversation for "insiders" but serve to confuse and exclude those not in the group. Aviation leaders  need to be bilingual in understanding the language and needs of aviation and business. An example of this is building the case to replace your aircraft. You need to explain the value of the new aircraft to the business in terms of being more effective and safe at accomplishing the mission. You better brush up on Net Present Value when talking to the CFO about the costs, too.

Run the aviation department like a business.The business aircraft adds value to the effectiveness of those who fly on it.  Your customers are the passengers and the product is the transportation. You are responsible to the shareholders (CEO, Board, etc). You know you need to develop a budget.  Use it like a "profit & loss."  The profit is the increased effectiveness and flexibility the aircraft provides. Take care of your people and look for ways to do a better job with the assets at your disposal. Develop meaningful metrics that tie into the effectiveness and efficiency of using the aircraft. Track and report them.

First, define and agree on the assumptions.This is for both developing a budget and for discussing options for the aviation department. Before you submit your budget, first have the discussion with the users and financial team about what they expect. If the users need 700 flight hours and expect simultaneous aircraft available one or two days per week, then get that agreement up front. Then you can provide the budget necessary to accomplish that mission. You can't do that with one aircraft and two pilots. If your flying is increasing, then it is reasonable to expect that your budget will, too. If the priority is that your budget must be reduced by 15%, then users need to understand how that affects your ability to deliver. If your budget is based on $3.50 per gallon fuel, what happens if fuel costs go up next year? This works for the mission as well.  If we agree that non-stop range with four passengers must be 2,300 NM, that will set up a set of requirements for the aircraft specifications. By agreeing on the assumptions, the discussion then becomes what resources are necessary to meet the obligations.

Use data, not opinions.If you need additional staffing, it can't be based on a feeling.  Likewise, justifying replacing your current aircraft needs to be supported by data. Gather your facts and be prepared to develop and explain the logic used.   If your assumptions are agreed to up front, and your recommendation is fact-based, then the discussion can be handled with reason.  When I consult with individuals and companies about their aircraft, I keep everything fact based. The  person signing the check can use emotion in the aircraft decision, but not me.

Listen actively.

Active listening is a communication technique that requires that the listener fully concentrate, understand, respond and then remember what is being said.  Two tips for you. Remember what mom said, "Look at me when I'm talking to you." Mom was right. No checking your email or multitasking of any kind. It does not work. Maintaining eye contact in a conversation tells the other person that they are important as well as is what they have to say. The second tip is to suspend judgment while you listen. Many of us start  forming our reply while the other person is talking. Talk the time to concentrate on what is being said and how the person is saying it. So often we jump to the conclusion before someone is finished talking and miss their point entirely. Think of listening like a checklist, you take each step in order and confirm that it was accomplished. 

Business aircraft are productive and efficient tools. Their main value is in enabling the face to face communication we humans need in order to understand and be understood. All the above can help us be better in justifying, selling, and communicating the value aircraft add to a business. 

 

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Aviation Technology | David Wyndham | Flight Department

Consultants Can't Make Your Decision

by David Wyndham 5. October 2016 14:32
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A consultant is just that—a consultant, not a decision maker. When we work with people on an analysis of their aircraft needs, acquisition or tax strategy, we give them options. Its up to the decision-maker to make the decisions. 

Recently a client asked, "If it were your money, which aircraft would you purchase?" I replied, "It is not my money, so you need to be happy with what you choose. All three aircraft under consideration will do the job. Take the demo flights and go from there."  If I really thought there was a clear best answer, I'd of pointed her in that direction, but since it is not my money, the final call is always the client’s to make. 

Consultants can be (more) objective. We all have preconceived concepts and ideas, and sometimes those ingrained opinions blind us to what is going on. Especially when the choice of outcome is important to us. A consultant should be objective. They don’t have a vested interest in any one outcome.  A good consultant looks at the issue from different angles and may offer fresh insights to a situation. Getting the complete picture and exploring competing points of view are reasons to work with consultants.

In a typical scenario, an Aviation Manager recommends to the CEO that they replace their current aircraft.  “Great,” said the CEO.  “Get me a report making the case for your recommendation, and do so as soon as you can.” The Aviation Manager had all the data—in his head, not in a document! He knew that with his busy schedule, he did not have the time to prepare a thorough report outlining the follow-on aircraft that was addressed all the concerns of the CEO and the Board of Directors. Furthermore, he felt that a second opinion from an independent third party added credibility to the recommendation./span>

He called us in, we asked the questions, listened intently and talked with the boss. Then we did the analysis, and in the end we delivered a report stating that the company indeed needed a new aircraft and confirmed that the selection the Aviation Manager suggested indeed was the best option. 

Did our client waste his money? The Aviation Manager saved himself a few weeks of his time, got a third party review of his requirements, and had all the documentation needed to secure the CFO’s and Board’s support for the new aircraft.  I think that was a good value.

When selecting a consultant, beyond the technical qualifications, remember it is a relationship.  Consultants need to relate to you and be able to understand what you and your company executives are really asking. In some ways, the consultant is your “aircraft therapist—one who listens, asks questions and keeps your best interests (and that of the company) in mind.  How far do you want the consultant to go in the analysis? Is it just an advisory consult or will this relationship extend all the way through contract negotiation and aircraft delivery?  You decide.

A consultant’s recommendations should be objective and focused on the choices you need to make. A consultant who also sells aircraft can be very knowledgeable and a source of valuable insight, but there is at the very least the appearance of conflict of interest in the relationship. If the consultant is also brokering a great mid-size business jet and your company’s need might be met by such a jet, maintaining objectivity is paramount.  Be sure the aircraft being offered is right for your firm.  Trust is the key issue in a successful engagement with a consultant, whether independent or part of a brokerage.    

When dealing with the Aviation Department and Executive team, the consultant must be “bilingual”.  They need to be able to talk with the pilots and discuss operational issues like runway lengths and range. Just as important as the “plane talk” is the need to speak the language of business to address the financial concerns and the business management decisions needed in making the aircraft decision. 

Consultants can add value in the acquisition process, but also can add value to the staffing, training, operations and safety of the operation. When done well, relationships with consultants give an impartial perspective, add value and save time.

 

 

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Aircraft Sales | David Wyndham | Flight Department

Budgeting - Tracking Costs Makes This Easier

by David Wyndham 3. August 2016 12:04
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My wife and I just made some changes in our investments for retirement. As part of the review was looking at all our expenses and estimated what we'll need to budget in our later years. Good news - I don't own a boat/airplane/antique car. Bad news, I do like my personal technology products and high-speed internet.  My new iPad is cheaper than a Waco UPF-7, even if less fun!

So with my recent financial planning exercise fresh in my mind, I'm visiting budgeting again. 

As a reminder: A budget is a best estimate looking forward at what you think expenses will be. At the corporate level, the aviation department budget may be buried deep within the Corporate HQ budget, or if attached to a group like Human Resources or Legal (I've seen both), then it is further down the visibility chain. One Fortune 100 company flight department reports their budget in three categories: Transportation, Facilities, Personnel. While that my be sufficient for a CFO to manage, you can't manage your flight operations on such broad data. You need to have more detail.

The key thing to having a usable budget from the point of view of the aviation manager is to track and report your costs in detail.  You need sufficient details in your costing and budgeting so that small variances in the budget versus actuals get your attentions before they become major financial issues. Tracking, reporting and understanding your costs are necessary to avoid financial surprises.

Many costs in your budget are outside your direct control.  While you can join fuel discount programs and negotiate a discount at home base, neither you nor the FBO can accurately state that the price per barrel of oil will remain at current levels for the next year. You can query your users to estimate how much flying there will be next year, but you can't control the Board's decision to aggressively pursue a merger opportunity that pops up. You need to make a number of assumptions regarding things like utilization, fuel costs, etc that factor into those costs. While guaranteed hourly maintenance programs make maintenance budgeting easier, the annual cost of those programs varies with utilization. 

Document these assumptions so that if fuel goes up $1 per gallon during the next year, our your utilization goes up 10%, that you can revise the budget accordingly.  Your budget should be reviewed and updated as the year progresses. Planned versus actual should be a standard metric. A Revising the budget with clear explanations should be allowed. If not, do it internally so that at least you maintain some sense of control.

As an example, take fuel. Just tracking a single fuel amount for costs and budgeting leave you with little insight as to what is going on. At a minimum, what is fuel at home verse fuel purchased on the road? Usage and cost per gallon, and gallons per hour per aircraft  type versus trip length are much more helpful. If a fuel farm is involved, does the cost of the facility fall under fuel or another account, such as facilities or hangar? 

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.

Start the budgeting process early, or better yet, keep track and keep a running budget that gets updated periodically. While the formal budget presented to management may be fixed for 12-months, your management budget for running the aviation department needs to change with your operational changes. 


 

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Aviation Fuel | David Wyndham | Flight Department

What does it cost, really?

by David Wyndham 5. July 2016 10:24
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I had a call from a customer who's flight department flies a popular mid-size business jet. He was looking at the variable cost we publish and comparing it with his own. After adjusting for fuel cost, his variable cost was almost double what we publish. He called me to try and figure out the cause of the diffrence.

My company specializes in understanding and explaining the costs associated with owning and operating an aircraft. One of our published databases calculates an average hourly operating cost. Many in our industry and in Government use these numbers as benchmarks or as should-cost figures. We do publish an explanation of terms defining the ground rules we use, and I've spent many a phone call like the one above  discussing and explaining what we did it that way, or how to adjust them for your situation. 

My call that day led to a fruitful discussion that identified the discrepancy in costs as the maintenance costs. After a couple questions, we figured it out. His aircraft has predominantly calendar based inspections. Much of the scheduled maintenance inspections were based on the number of days since last accomplished and not the hours flown. For our costs, we were showing about 380 flight hours per year. His utilization was about 130 to 175 hours per year - less than half of our assumption. A quick bit of math showed his maintenance cost average per flight hour were more than double what we published. He was also on a parts by the hour program that also had hourly billing minimums. Knowing how much he flew and the fact the jet's maintenance was calendar based  led us to understand that there can be significant variability is the cost to operate that aircraft.

When did you last ask the question, “How much does our aircraft cost to operate?” The answer will vary in relation to where you are between scheduled inspection and maintenance work. Sometimes significantly.

Required maintenance schedules vary, but a typical one might look like this:

- Routine airframe & engine checks every 500 hours or 12 months.

- More complicated airframe checks every 1,500 hours or three years. 

- Engine mid-life inspection every 2,500 hours. 

- Airframe heavy maintenance every eight years. Often, while undergoing heavy maintenance, the aircraft gets paint and interior refurbishment, maybe some new avionics and cabin upgrades. Costs can be $500,000 to $1.5 million depending on the “extras” added.

- Engine overhaul at 5,000 hours. Cost could be $500,000 per engine unless engines are on a guaranteed maintenance program.

- Aging aircraft inspections once the aircraft reached 12 years of age or older.

If you fly the above aircraft under 500 annual hours, much of your scheduled inspections will be determined by the calendar. Fly 500 or more annual hours and the hours flown drive the maintenance.  Where the aircraft is in age and hours will also impact its costs.  What if at age eight the aircraft just had a major maintenance inspection, avionics upgrades, and refurbished paint and interior adding to the cost of an additional $1.0 million? Due to the downtime to accomplish all that, the hours flown that year might have been only 250 hours. That cost for this one year will have just consequently ballooned to $2.25 million, or $9,000 per hour! If the CFO were doing a cursory review of your aviation costs with an eye to reduces expenses, you'd better be prepared to explain all this!

Answering To answer the question "How much does the aircraft cost" really depends on who you ask and when you ask. Give someone a very broad question and you will get a wide range of answers depending on the individual's perspective and timeframe.  You need to track these costs at a level of detail that leads to understanding. You need to be able to communicate these costs, in plain words, to the management or financial executive.

None of the answers are "wrong" or "right," only they are merely different. Knowing this, when you are talking about aviation costs with various professionals, you should keep in mind who you're talking with (and their unique perspective) so that you can understand their needs when they ask "What does the aircraft cost to operate?"


 

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David Wyndham | Flight Department | Maintenance

There Must Be A Pony In Here Somewhere

by David Wyndham 31. May 2016 16:35
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A parent had twin boys. One was a pessimist and the other, an optimist. For their birthdays, dad gave the pessimist-twin a room filled with toys. The pessimist-twin was sad. When asked why, he replied that if he played with the toys, he'd surely break them all. For the optimist-twin, dad gave him a big pile of horse manure. The optimist grabbed a shovel and dove right into the pile exclaiming, "With all this manure, there has to be a pony in here somewhere!"  

Ronald Reagan was fond of this joke. And for the 2016 state of business aviation, I think it might be apropos. Three major new aircraft forecasts, two of which were related in the past month, all point to a healthy business aircraft market for new aircraft over the next decade. The forecasts expect from 7,900 to 8,300 new aircraft deliveries. Growth is expected to be solid in North America as it retains its title as the dominant business aircraft market fro at least 10 more years. But, still there are cracks.

Brian Foley recently released his look at the pre-owned business jet aircraft market. His prediction is for declining activity in the pre-owned market for the next five years. He thinks we have entered a slowdown in the pre-owned market. He's developing a pre-owned forecast model to get to the model and cabin-class level of detail. Lest you forget, Brian's firm, BRIFO, predicted a severe and lengthy downturn in the business jet market in September 2008. He has the input of some significant players in global business investing, so heed his call. 

In two recent events, at one of our Conklin & de Decker seminars, and again at the National Aircraft Finance Association annual meeting, forecasters and financiers were pretty flat on the state of the global economy.  A quarterly survey of leading CFO's by Duke University said these individuals think there is a 31percent chance of a recession in the US by year end 2016. Interestingly, 61% of the firms in the survey expect to increase employment in 2016. Top concerns in the U.S. include economic uncertainty, the cost of benefits, difficulty finding qualified employees and regulatory requirements. Don't forget, every four years, we worry with the uncertainty about the outcome of the Presidential election. Other concerns in the global economy include the price of energy and oil markets, China's slowing economic growth and currency problems,  terrorism in the Middle East, and economic and political turmoil in Brazil. 

Regardless of the forecast and opinions, aircraft will remain a vital tool for communicating and conducting business. You ned to have a plan, and a budget, and keep both up to date. Control what you can: your costs, your mission, your skills. Never miss an opportunity to market the effectiveness of the business aircraft. Buy now if you are in the market to do so. New aircraft manufacturers will be looking to make the year-end targets. As Brian Foley surmised, the pre-owned market will remain soft.  If you are selling, you are fine if you are upgrading. What you may "loose" in the value of your current aircraft will be made up in the value of a larger aircraft. If you are selling, and downgrading, might as well do it sooner rather than later. Don't walk away from qualified offers. Pick your broker carefully. Find one who is making deals and knows the market for your aircraft.  Communicate and listed to your customers. For the flight department, every person on your aircraft is a customer. And everyone in your company is important to your success.  Consider upgrading your aircraft if you are keeping it. Is your aircraft ready for ADS-B?

Last item, got a shovel?

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David Wyndham | Flight Department | Press Release



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