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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

Saudia Albayraq - Launch New FBO to FBO Business Jet Service

by Joe McDermott 29. February 2016 15:41
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Co-author & photographer Michael Kelly.


Will other operators team up with FBOs?
Is this a new FBO business model?

Saudia Private Aviation Jeddah FBO

A new exclusive scheduled domestic all business class service is to be launched in March by Saudi Arabian Airlines (Saudia) owned subsidiary Saudia Albayraq. Saudia Albayraq will fly between King Abdulaziz International Airport, Jeddah/OEJN and King Khaled International Airport, Riyadh/OERK and will use the privacy and convenience of the Saudia Private Aviation (SPA) Fixed Base Operator (FBO) VIP terminals at each airport. The SPA is an FBO (with 28 stations across the kingdom), aircraft management and private aircraft charter specialist and their FBO facilities offer world class private lounges and fast track security screening.

Saudia Albayraq will employ three Airbus 319-112 aircraft on the route in an all business class configuration of 48 seats aimed to rival even the comfort of private jet aircraft.

The new operator, using two of the aircraft will offer six daily scheduled flights between Riyadh and Jeddah each way, starting at 6am until 9 pm, providing a flight every 3 hours to each city. The third aircraft will be rotated into the schedule as the maintenance program requires. Every flight will have a corporate chef onboard to provide a unique dining experience.

The FBO involvement means the business or VIP passenger gets the full “corporate jet experience” while the onboard chef offers something very new for in-flight catering!

Fares are expected to be higher than business class on Saudia flights but come with the premium onboard service and the comfort, efficiency and privacy of the SPA VIP facilities and a dedicated Saudia Albayraq client support centre.

SPA Jeddah reception

Saudia Private Aviation was founded in Jeddah in 2009 by Saudia Arabian Airlines and became a separate entity in 2012. Future developments at SPA include a planned new MRO facility in the next five to seven years.

A real eye catcher at Saudia Private Aviations’ FBOs is their use of Porsche 911 Pininfarinas or other high performance cars for ramp transfers where required! At Jeddah, SPA has their own airside hotel at the FBO for engineering crews who may arrive with no visa to work on AOG aircraft. SPA handles all flights for the Saudi Arabian Royal Flight.

The company owns a fleet of ten aircraft, four Dassault 7X and six Hawker 400XP. SPA has an experienced OCC team of flight dispatchers located in Jeddah in support of client and their own operations.

Saudia Albayraqs’ format is an interesting evolution of existing services provided by British Airways (London City – New York with A319 aircraft), KLM (Amsterdam – Houston operated by PrivatAir, B738) & Lufthansa (Frankfurt – Dammam, also operated by PrivatAir, B738).

Scheduled FBO to FBO service

The real stand out differences offered by Saudia Albayraq being the use of an FBO facility at each airport and it is pushing its culinary limits, bringing in onboard chefs to create a high-flying in-flight dining experience. The in-flight chefs will create and plate meals to the standards of a fine-dining experience. With a chef on board, passengers will also enjoy greater flexibility in terms of their meal preference and service. All the in-flight chefs are fully qualified and have a minimum of five years of experience in noted restaurants and hotels from around the world.

And it is with PrivatAir Saudia the Saudia Albayraq have chosen to work closely with in launching the new service.

PrivatAir SA is a leading international business aviation group with headquarters in Geneva, Switzerland and operating bases in Frankfurt (PrivatAir GmbH) Germany), Geneva (Switzerland) and Brazzaville (Congo). From its beginnings as the corporate aviation division of global conglomerate The Latsis Group, PrivatAir has matured today into an independent, world-renowned, full service commercial operator, with a track record of growth and safety spanning 36 years.

PrivatAir is a comprehensive aviation group with three divisions delivering service excellence both in the air and on the ground: Scheduled Services, Business Aviation (Aircraft Management, Aircraft Charter, Aircraft Sales, PrivatJetFuel / Fuel Management, Ground Services) and PrivatTraining.

The company’s wide range of clients includes royalty, heads of state, public officials, celebrities from the arts, sports and entertainment industries, captains of industry and private aircraft owners.

PrivatAir aims to take the best practices of the commercial airline industry and to add the flexibility of business aviation, as well as its exceptional standards of service.

The company has experience in operating the full range of business jet types from the Cessna Citation, Bombardier Learjets, Gulfstream and Dassault Falcon jets, to bizliners like the Airbus A319 and Boeings BBJ, BBJ2 , 757 and 767.

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Fixed Based Operators (FBO) | Flight Department | Flying | Airports | Joe McDermott | News

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

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



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