Planning Ahead For Your Aircraft Replacement

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?).