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.