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NAFA member, David Wyndham with Conklin & de Decker, highlights the benefits of sole ownership of a business aircraft.
If control over your company’s transportation is paramount, sole ownership of a business aircraft is particularly attractive. With high enough utilization, it is also very cost effective.
As a generalization, when your flying needs come close to (or exceed 200 annual hours), whole aircraft ownership can be more cost effective than fractional, charter or membership programs. Whole aircraft ownership offers the following benefits.
Freedom: With whole aircraft ownership a company has the freedom to select the best aircraft to satisfy its needs. Within safety and operating regulations, that aircraft can be operated as the owner requires.
Customization: When a company acquires its own aircraft, the outfitting of the aircraft can be done to suit its operational and travel requirements.
Options for colors, seating, carpeting materials (and more) are able to be matched to your needs and preferences. The larger the cabin size, the more flexibility there is in how the interior can be configured.
Service Levels: The aviation department personnel are the owning company’s employees. Not only is that company able to shape their training and manage their competence, it can affect how they interface personally with passengers.
The ability to hire the employees that fit the organization can be invaluable, and this service level generates a rapport that is effortless and comforting.
Control: In the US, Federal Aviation Regulations (FARs) allow the most flexibility and opportunity for control to not-for-hire operations flown on behalf of the aircraft owner. A company-owned aircraft that is used in support of the business of the company falls under these rules.
While all aircraft must be operated safely, the sole owner of a business aircraft has greater influence over operations than either a charter customer or a fractional owner. Factors influencing safety and security are within the operator’s control.
A whole-aircraft owner has the highest levels of privacy. You can discuss sensitive business, or leave important corporate documents and personal items on board the aircraft.
Responsibility: With this high degree of control comes an equally high level of responsibility. While the FARs state that the pilot in command is the ultimate person responsible for the safe operation of the aircraft, the owner is responsible for the hiring and training of that pilot. The owner has liability for the actions of its employees, and this extends to the aircraft operation.
The owner can manage this risk via high-quality training and insurance. The crew should be trained to the highest appropriate levels of competence. Maintenance engineers (if applicable) also require regular training.
An individual or company owning or leasing their own hangar is also responsible for ground safety. The owner shares the risk by properly insuring the aircraft and crew.
Managing and directing the detailed operation of aviation activities requires individuals versed in management and Business Aviation - a skillset commonly accomplished either by having an in-house aviation manager/director, or by contracting the management of the aviation operation to a management company.
The Role of Management Companies
A management company can offer a turn-key approach of contracting the function and oversight of the aviation operation. These companies specialize in flight operations.
For a first-time owner of a business aircraft, we usually recommend contracted management for starting the aviation operation. In additional to providing flight crews and functional oversight, the management company can provide economic benefits as well:
- Fuel can be purchased in bulk on behalf of multiple aircraft owners;
- Discounts can extend to maintenance (the management company with multiple aircraft should be able to negotiate discounts for spare parts);
- The management company can purchase insurance for its group of owners at rates that can be lower than for a single aircraft.
While management companies tailor their services to meet an owner’s unique requirements, they typically offer the following oversight:
- Hangaring the aircraft
- Managing the aircraft records
- Hiring and training the flight crews
- Managing the maintenance of the aircraft
- Handling the billing and verification of all variable operating expenses (including fuel, maintenance, etc.)
- Ensuring that all regulatory requirements are met by the aircraft and crew
- Refueling the aircraft
- Cleaning and cosmetic upkeep of the managed aircraft.
Offsetting the Costs of Whole Ownership
If you, as the owner, desire to further reduce your total costs, a management company can charter the aircraft when you’re not using it, provided the firm has authorization under FAA Part 135 (or its equivalent in non US countries).
This relationship is complicated as there are regulatory restrictions governing operational control of any aircraft used for commercial service. The general terms are as follows:
- The aircraft owner pays all the operating costs (fuel, maintenance and other aircraft operating expenses).
- The crew may be billed as salaries or as an hourly fee.
- The aircraft owner gets a set percentage of the charter revenue.
The charter revenue the owner receives should be more than enough to cover the operating costs, but will not be enough to cover all of the fixed expenses, debt service and depreciation. The charter revenue is shared between the charter operator and aircraft owner. Rarely, however, does a chartering arrangement with a management company produce a profit for the aircraft owner.
The relationship with the management company is as much a personal relationship as a business relationship. Communication and shared goals are important. If you want control, fly enough hours and accept the responsibility, whole aircraft ownership can be very rewarding.
This article was originally published in AvBuyer on May 14, 2018.