Friday, October 27, 2017

Corporate aircraft (operation) acquisition process

A few years back, when I was heading a corporate jet charter and management company in the Middle East, I developed this ‘checklist’ for internal use within our sales department. At the time, I realized that most sales executives were excellent deal negotiators but often lacked in-depth knowledge of the actual operations they were trying to sell. Of course, in the days of the World Wide Web, one easily gets caught off guard by demanding customers that themselves know quite a bit about your product or service. Since I have always believed in expanding one’s own horizon as much as possible, I initiated trans-departmental training courses – or is it inter-departmental, I never seem to get those two correctly apart – where each department was charged with developing and presenting a basic course on its scope. I am still proud of the success these courses had and it certainly showed what fine team I was working with!

Anyway, without too many supporting words, here is the checklist. Remember, it was specifically tailored to our operations at the time but I believe it might still prove to be useful for operational laymen of today. Of course, I developed the checklist not all by myself, so, as always, praise should go to many excellent professionals while criticism would only reflect on my poor research!

Define the process as aircraft OPERATION acquisition. Being presented with the opportunity to buy an aircraft often seems to force people into making rash, biased decisions. However, the mind always should prevail over heart in these matters (especially, since large amounts of cash are required to buy/lease aircraft seats in any form)!

The process:
  1. Define the requirement:
    1. Internal and external meetings, on-site inspections, consulting
    2. Who is going to utilize the aircraft
  2. Incorporate corporate culture
    1. Aggressive marketing, cautious approach?
    2. Analyze the air transportation culture (have it done by unbiased professionals):
    3. Historical view of travel (at least 12 months)
      1. i.e. most popular destinations
      2. trip frequencies
      3. level and number of personnel, cost per seat-mile
    4. planned travel needs for the future
    5. City Pair analysis
  3. travel solutions based on the before; focus on alternatives to own aircraft since buying an aircraft is a matter often ruled by the heart
    1. evaluation of aircraft types
      1. ex: the time difference between a 500 knots and a 400 knots aircraft is - over a flight of 350NM (i.e. KWI – DXB) - 11 minutes; the difference in purchasing price USD 13Mio, however.
      2. Don’t forget to incorporate NEEDED amenities, such as an APU in a hot, remote environment
  4. However, the price difference between a Be90 (able to operate into smaller airports and has lower operating costs (ATC, crewing etc.) and a GLEX is approx. USD 30Mio!
  5. Choose the operation acquisition method based on service quality, crew quality, security, operating costs, liability etc. only (i.e. tangibles):
    1. In-house flight department
    2. Management company
    3. Joint ownership
    4. Charter
    5. Fractional ownership
    6. Combination of the above
Next steps (in case an own aircraft is the best solution):

  1. Determine the actual acquisition process, i.e. purchase or lease:
    1. In solid economic times, popular aircraft actually APPRECIATE in value over the first 10 years of ownership
    2. easing protects cash reserves
  2. Draft the aviation policy, including:
    1. Who can utilize the aircraft
    2. Special cases
    3. Operating restrictions
    4. Pricing structure (internal and external utilization)
  3. Establish the required personnel pool (legally and based on existing work schedules)
  4. Get insurance quotes (hull, liability for passengers and property, war risk)
  5. Get maintenance provider quotes, assuming that maintenance of the aircraft will be outsourced, which is almost always the way forward (always check with the aircraft OEM)
    1. Do the same for line maintenance that often can be done in-house, however.
  6. Who is to keep the aircraft records and how are these records going to be kept? Check with the authorities’ requirements, get external and internal (software) solutions quotes.
  7. Establish a realistic and firm budget
  8. Where is the aircraft going to be registered – tax issues (check local authorities’ restrictions). Is an AOC needed (commercial operations)?
  9. Get quotes from training providers for:
    1. crew (check legal requirements)
    2. ground personnel
  10. Where is the aircraft going to be parked (base) and what services is the local FBO capable of offering?

Aircraft management company:
  • Aircraft is ‘given’ to the management company to operate as a turnkey operation
  • The management company charges a monthly fee and provides personnel, training, a base of operations, passenger scheduling and aircraft maintenance services (i.e. not the aircraft and its potentially needed AOC)
  • Salaries, maintenance costs, operating costs (ex. fuel) are paid for by the management company and periodically invoiced to the aircraft’s owner.

Chartering the aircraft out (AOC needed, additional insurance requirements):
  • Broker needed that is also capable of:
    • Aircraft marketing
  • Strict budget control
  • Strategic planning

Or, as my old flight instructor used to say: Plan the flight – fly the plan