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Budgeting and Reducing Costs

by David Wyndham 1. September 2008 00:00
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Most of us are back from summer vacations, the kids are heading back to school, and 2008 is two-thirds finished. Now is a good time to take a look at your aircraft expenses and start planning for next year. Costs are going up, inflation might be 3.5% - more than in past years, and our economy isn't exactly firing on all cylinders. Managing and reducing costs are likely at the forefront of the budget process. Here are a few ideas the help you reduce your costs as you budget for 2009.

As discussed before, you can't control what you can't measure. How do you track your costs? We've worked with operators who only have a few categories of costs. They typically find it hard to manage their costs effectively with a few large-dollar categories. Those we've helped set up with more detailed accounts find it easier to manage and control their costs as they have the detail needed to understand their costs. Once you know where your dollars are flowing, then you can begin to examine ways to reduce those costs.

How much will you fly next year? Ask those who your aircraft for inputs. Remember, changes in your utilization will impact your variable costs, but your fixed costs will remain essentially unchanged. If prices remain unchanged, a 5% reduction in flying hours will mean maybe a 2.5% reduction in your total budget as the fixed costs (hangar, training, salaries, etc) won't change.

Next, is to have a feel what some of your cost drivers will be for next year. Fuel is a big one. Fuel cost amounts to somewhere around half of your variable operating cost. Don't plan on fuel prices dropping. We'll be fortunate if they stabilize. If there are no changes in your utilization, figure on fuel increasing maybe 5% to 10% next year and hope to get lucky.

If you've read the GAN newsletters, you know about different ways to save on fuel. Continue to work with your FBO's to arrange for fuel discounts. If you don't ask for a discount, you won't get one! Shop around for prices and take advantage of fuel discount programs when they make sense for your operation. Even five cents per gallon savings will add up. Tanker fuel when it makes sense, and evaluate the total cost of a stop - fuel plus all services needed.

Reduce the amount of deadhead, or unoccupied trips. Combine trips when able. This may mean opening up the business aircraft to more than just the top executives. If it doesn't affect your mission, the savings can be significant.

You know your aircraft's maintenance requirements and planned utilization. So now you need to budget for the next year's maintenance events. You need to research those costs. Review past costs. If you are facing a major cost event, consider soliciting bids from two or more well qualified shops. Both cost and schedule need to be considered. If your aircraft is under warranty, make sure the shops you use are equipped to handle any warranty claims, something the manufacturer's facility should do well.

Evaluate the costs of exchanges versus overhauling your own. Using loaner parts while yours are repaired may be less costly than exchanging for new. But with your own part, you'll know the history of that part. Your maintenance folks will have the knowledge in this area.

Don't overlook warranty. On a new aircraft, we all keep very careful track of what repairs are in warranty. But even older aircraft have many new parts installed. Those parts typically carry some sort of warranty. Tracking that warranty might save money when they need replacement.

The use of a spreadsheet or life cycle costing tool can be valuable in making the budgeting process go smoothly. Ask for help. We all can't specialize in all areas of aviation. Lastly, start the process early. Budgeting is not something done well at the last minute.

If you have some tips I can pass along to folks, click reply and let me know.


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