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Five Steps to a Competitive Acquisition

by David Wyndham 1. October 2006 00:00
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In turbines, it is mostly a seller's market. Many of the manufacturers are sold out 18 – 24 months ahead. That doesn't mean that you can't negotiate, you just have to be willing to wait, or look at the pre-owned market which still has some great aircraft at reasonable prices.

Regardless of the market you are in, you need to follow some simple steps to ensure you are getting a good deal. The objective of a competitive acquisition is to get the best price for the right aircraft.

Step one is to do your homework. Have your performance parameters defined. What are your missions? What do you need in order to accomplish that mission? Be realistic – we all want more speed and more range. What do you truly need versus what would you like to have. Know the difference between the two.

I use "required" and "desired" criteria. Required criteria are those performance items that the aircraft must meet in order to be successful at accomplishing the mission. It may be a combination of payload, range, speed and take-off/landing capability. Desired criteria are the nice-to-have items that, although not necessary for mission accomplishment, will enhance the ability of the aircraft to perform the mission. Desired criteria enable you to better differentiate between the various aircraft.

What aircraft are capable of performing those missions? What do those aircraft cost to own and operate?

You need at least two types, and preferably three or more different types to set up a competition. If there is only one make/model that will do your job, then it is hard to expect much competition.

Step two is to get your in-house team together. You need technical expertise in aviation and finance. You also need legal and tax advice. Setting up a true competition takes time. Know what your options are before looking at aircraft. If you plan to get a loan, or to lease, what are the prices? If trading/selling one business aircraft for another can you take advantage of a tax-deferred exchange?

Step three: Separate Performance from Price. Be clear as to what performance parameters your aircraft must meet. All these specifications must be measurable - a 5 foot 9 inch cabin is measurable, a stand-up cabin is not. Make sure each specification ties into a mission parameter, i.e. is defensible as a requirement. Document these specifications for the seller.

In a separate document, have your pricing and delivery schedule. Set up the format that you want the price proposals to be in. You may specify the price proposals are to include life cycle costing, finance or lease options, and multiple delivery options. You may specify a base configuration with several options. Be realistic in your expectations. Don't plan to get an early delivery position on an extremely popular aircraft.

Once you have the performance and prices rules set forth, then its time to send them out. If you are dealing with both new and pre-owned aircraft, then you'll be dealing with multiple airframe manufacturers and perhaps an aircraft broker. Make sure they know that they are to return two separate items in response to your request, Performance and Price. Don't ask for proposals on Aircraft Model X, ask for a proposal on aircraft that meet the criteria you specify.

Step four: evaluate the proposals. First evaluate the performance without looking at price. For those that do not meet your required criteria – no more analysis is needed. Do not open the price proposal and be tempted by an aircraft that won't do the job for you. Rank order the remaining aircraft according to how well they meet or exceed your required and desired criteria.

Step five: Thank everyone for "coming to your party" and notify those that no longer are in competition. Of those remaining, whether there is room in the market for negotiations or not, ask them to improve their offer. Let the contenders know they are in a run-off. Acquisition price may be non-negotiable, but added equipment, delivery dates, training, etc. may be used to give you a better deal.

The goal is to get you the best value for the price. If you remove emotion and leave folks with the impression that not buying now is an option, and then even in a seller's market, you will still be able to get as good a deal as you can.

Gone through this process recently? Have any tips to share? Without naming names, let me know how it went.

PS: If you are attending the NBAA Convention down at Orlando, please drop by we are at Booth #2877

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David Wyndham


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