Conklin & de Decker

  • Tracey Cheek posted an article
    When to Plan the Sale of Your Aircraft see more

    NAFA member David Wyndham, Vice President with Conklin & de Decker, shares tips on knowing when the time is right to sell your jet.

    Although it’s important for all owners to have a strategy on when to replace their aircraft, there are several important factors making an owner’s plan specific to their operation. David Wyndham offers insights on these.

    When you acquire an aircraft, whether it is your first or a replacement you may not be thinking about when you should sell. Though it may not be an immediate concern, a savvy owner should still have a strategy in place for when to sell.

    Unfortunately, there is no easy formula for this, nor is there a single tactic to follow. There are, however, two general reasons to dispose of your aircraft. The first is that it’s no longer capable of performing its mission. The second is that the aircraft is no longer economically feasible for the mission.

    Mission Situations

    One of the main reasons why people replace their aircraft is that their mission needs change and the aircraft no longer offers the capability required.

    A typical case is a requirement for greater range or passenger capacity. If you require additional range, your current aircraft could probably still perform the trip with a fuel stop. You should keep in mind that larger, longer range aircraft cost more to acquire and operate. Is avoiding that one-hour fuel stop worth spending $10m-$20m more for a larger aircraft?

    Another scenario might be the need to carry more passengers, more regularly. While adding more seats is not a viable option if you’re to preserve passenger comfort, some aircraft can add one or two more passenger seats with a simple reconfiguration. This may include using a belted lavatory as a passenger seat. (I had one client who used a typical eight-seat Hawker 800XP as a nine-seat shuttle by doing just that.)

    However, flying nine people 3,000 miles with an eight-seat aircraft is not a viable long-term solution, especially with baggage.

    High Utilization Operations

    I have worked with several clients who fly frequently. One has several Light Jets that average about 700 hours per year on 400–800nm legs.

    Maintaining a high utilization schedule such as this is easier with newer aircraft. Newer aircraft require less maintenance and spend less time in the shop for maintenance, which is a major reason why fractional companies have newer models in their fleets.

    Cost of Ownership

    If the cost of keeping your aircraft is outweighed by replacing it, then the best financial plan is to replace your aircraft.

    Operating Costs Increase with Age: As aircraft age, unscheduled maintenance tends to rise. Some components will wear out and other critical components may have a specific life limit.

    Engines are still going to be the biggest single cost item on most aircraft. Engine overhauls are infrequent but high cost, often exceeding $1m per engine on some large-cabin jets.

    At some point, the ability to support the aircraft will become difficult due to increased unscheduled maintenance and a growing scarcity of spare parts.

    Fleet size, the aircraft being out of production, and the average age of the fleet all factor into driving up the costs and availability of spares. This becomes a greater factor for aircraft in their mid-20s and older.

    Residual Values Decline with Age: Along with increased operating costs come declining values. The value of an aircraft is based partly on its age and partly on its maintenance status. For example, a 20-year-old business jet has much of its value associated with its maintenance status. That jet may be worth $2m with the engine in need of an overhaul but it will be worth $4m with freshly overhauled engines and a major inspection recently accomplished.

    Guaranteed hourly maintenance programs help to smooth the value curve by accruing for the maintenance and offering assurances that maintenance costs will remain predictable. But a 20-year-old aircraft on a guaranteed hourly maintenance program is still going to be worth more than a 22-year-old aircraft on a program.

    The Art of Life-Cycle Costing

    The financial planning for when to sell your jet is best done using life cycle costing. This analysis considers the total costs of acquisition, operation and disposition.

    Since you should be doing a maintenance and operating budget annually, the addition of resale value can also be done regularly and will ideally project values for the next three to five years at a minimum.

    While predicting future values is at best an educated guess, the life cycle cost of ‘keep versus replace’ over the next several years can give you a lead time to plan for the aircraft replacement as well as time to perform an analysis on future options.

    Planning for how long to own your aircraft is ultimately determined by your needs, your mission, and the life cycle costs. Consider all these at least annually and forward-plan.

    More information from www.conklindd.com.

    This article was originally published by AvBuyer on April 22, 2019.

  • Tracey Cheek posted an article
    How Long Should You Keep Your Business Jet? see more

    NAFA member, David Wyndham, Vice President with Conklin & de Decker, discusses your plan on how long you should keep your business jet.  

    When buying a business jet, it’s important to have an idea of how long you will own the aircraft. But where do you begin your analysis? David Wyndham assesses not only why, but how you should build a plan…

    A client was recently looking at how the cost of owning their first business jet compares to a jet card or block charter. Their expected annual utilization is 350 hours and they plan to operate between two continents, requiring a Large Jet. They ultimately chose not to purchase the aircraft.

    Why did they choose not to own an aircraft? In short, their expected utilization period only covered the next two-to-three years. After that the client expected to retire and fly substantially fewer hours. In this case, a very short-term of ownership, combined with the projected decline in the aircraft’s residual value, meant the total ownership costs favored a well-structured jet card program over outright ownership.

    There is no ideal length of time to own a business aircraft, however. The ideal will differ from one prospective owner to the next. So what are the key considerations that a buyer should take into account when determining the length of ownership?

    Mission Changes

    Changes in the primary mission will often dictate a change of aircraft to one that is a better fit. For example, one flight department suddenly needed to fly much longer trips following a merger. The existing aircraft lacked the necessary non-stop range, creating the need for a replacement aircraft.

    Likewise, if the need to carry a certain number of passengers changes then an equipment change could be required. Mission requirements could dictate a smaller aircraft or a larger one. 

    For example, there's no need for a 12-passenger Long Range Jet if the primary mission changes to short hops with fewer passengers.

    When the mission changes, it's important to establish if these are for the short-term or will be more permanent. A short-term change in mission or hours to be flown might be well-served by charter or a jet card. As a part of your acquisition process, you will need to see if any foreseeable mission changes are likely to occur, and if so, when and for how long.

    Changing Costs

    As an aircraft ages, it requires more maintenance to stay reliable. The time needed to perform that maintenance tends to increase. The costs of operating a newer aircraft are therefore lower than older examples. If the economics of the newer aircraft are lower than the older one, it can further support a change.

    For business-use aircraft, taxes may be another consideration when deciding how long to keep the aircraft. There are some companies that maximize the tax depreciation of the aircraft as aggressively as the tax law allows and, once depreciated, these companies often elect to replace the aircraft.

    Part of this discussion depends on the profits of the corporation and the need for tax deductions. Taxes should never be the sole reason to buy or sell your jet, but they can be a significant decision point. It's always a good idea to consult with a tax expert for further guidance.

    Maintenance, Technology and Parts

    Maintenance Factors: Calendar requirements for travel, advances in technology and the ability to obtain spare parts after an aircraft has been out of production for many years are among the other considerations for determining how long you should plan on keeping your jet.

    If the aircraft is flown a lot, the increased calendar availability of a newer aircraft needs to be factored into the equation. Older aircraft can be down for maintenance more than 50% of the time, which necessitates significant supplemental lift. 

    How might an aging aircraft fit with your projected mission needs five years from the time of purchase?

    Technology Factors: New technology that is required for ATC, navigation and increasing safety may not be cost-effective when modifying older aircraft. For some business jets, updating systems to a modern ‘glass cockpit’ suitable for global navigation can exceed $1m or more. For the older global jet, it may not be worth spending that money. This must be assessed at the time you’re buying a jet.

    Parts Availability: For much older aircraft with fewer left flying, the ability to find spare parts, irrespective of cost, makes the aircraft less able to meet its schedule. A rule of thumb is that if less than half the fleet is still flying, the aircraft can be considered an ‘end-of-life’ model – in which case, you may need to develop a plan for the aircraft’s scrappage once your planned term of ownership is finished.

    In Summary

    If the long-term mission needs are not likely to change, then the decision should center on costs. The costs of keeping or replacing the aircraft should be calculated using a life-cycle cost approach to arrive at the best financial solution.

    This approach considers not only the operating costs but also current and future values. It may also include taxes and the cost of capital.

    In summary, there is not one right answer for how long to own a business aircraft. The timing depends on the age of your aircraft and on the costs of owning and operating it. I’ve seen owners who change aircraft every five-to-seven years and some who keep an aircraft 20 years or longer.

    This article was originally published by AvBuyer on March 6, 2019.

  • Tracey Cheek posted an article
    JSSI Advisory Services Joins National Aircraft Finance Association see more

    FOR IMMEDIATE RELEASE

    EDGEWATER, Md.Feb. 14, 2019 - National Aircraft Finance Association (NAFA) is pleased to announce that JSSI Advisory Services has joined its professional network of aviation lenders as a stand-alone member. This Jet Support Services, Inc. (JSSI®) company supports a global customer base with ad hoc services and is a leading provider of aircraft services to lenders, insurance companies and operators worldwide. 

    “NAFA members proudly finance, support, or enable the financing of general and business aviation aircraft throughout the world, and we’re happy to add JSSI Advisory Services to our association,” said Ford von Weise, President of NAFA.

    JSSI Advisory Services leverages 30 years of JSSI expertise and data to deliver technical advice and consulting services to clients. As an independent provider of maintenance support to virtually all makes and models of business aircraft, JSSI oversees 8,000 maintenance events per year with a global network of over 70 technical advisors. This depth and breadth of resources, along with its 2018 acquisition of Conklin & de Decker, have allowed JSSI Advisory Services to gain market share and position itself as a “one-stop shop” for aircraft owners, operators and financiers seeking guidance on often complex aviation matters. 

    “We’re proud to officially join NAFA and look forward to serving members with an unparalleled suite of services,” said Jason Schwab, President of JSSI Advisory Services and Conklin & de Decker. “We can help members in any location at every stage of the aircraft life cycle, from acquisition to operation to retirement,” Schwab added. 

    JSSI Advisory Services delivers many high-level professional services, including maintenance event management, ASA- and USPAP-certified appraisals, and on-site technical inspections of aircraft, records, and flight operations. Additional services include maintenance cost forecasting, completion inspections, fleet monitoring, delivery acceptance and ad hoc consulting engagements.

    For three decades, JSSI has been the leading independent provider of maintenance programs to the aviation industry, covering airframes, engines and APUs. JSSI provides comprehensive, flexible and affordable financial programs and tools for managing the often unpredictable costs of operating and maintaining business and commercial jets, turboprops and helicopters.  

    Much like NAFA, JSSI Advisory Services is shaped by a culture of collaboration, innovation and integrity, striving for excellence in the aviation industry. JSSI and NAFA continue to foster the highest standards in service and safety through their support of business and community. For more information about JSSI Advisory Services, visit www.jetsupport.com/advisory-services.  

    About NAFA: 

    The National Aircraft Finance Association (NAFA) is a non-profit corporation dedicated to promoting the general welfare of individuals and organizations providing aircraft financing and loans secured by aircraft; to improving the industry's service to the public; and to providing our members with a forum for education and the sharing of information and knowledge to encourage the financing, leasing and insuring of general aviation aircraft. For more information about NAFA, visit www.NAFA.aero.

  • Tracey Cheek posted an article
    Three Myths About Business Aircraft Ownership see more

    NAFA member, David Wyndham, Vice President with Conklin & de Decker, discusses the myths about business aircraft ownership. 

    David Wyndham speaks to people who are new to Business Aviation on a regular basis, and also hears some recurrent myths about business aircraft ownership. Following he sets straight three of the more common misunderstandings…

    I tend to help clients select the appropriate aircraft for their flying needs and to cost out the various ways to achieve that. Along the way is the need and opportunity to educate and inform.

    Quite often the decision-maker is informed, but others (perhaps a board member or a CFO) are not. My first task is to listen to, and understand the client’s concerns and then, after validating them, provide answers – or at least a different point of view – for their consideration.

    But what are some of the common myths I hear relating to business aircraft ownership? Let's dive in…

     

    Myth 1: You can Make Money Chartering Your Aircraft

    One client operates a transcontinental business jet. When it’s in for scheduled maintenance, he often uses charter. After seeing the charter bills, however, he wanted to buy a second transcontinental business jet for his backup and to charter it while he was not flying.

    I worked with his aviation manager to find the break-even utilization. When accounting for the acquisition cost as well as the operating costs, there would be a need to fly over 2,000 charter hours annually. Why? There are two parts to the answer:

    First: Charter rates are a relative bargain. While $8,000 per hour to charter a Long-Range Jet may seem like a lot, the operating expenses are significant: The variable expenses of fuel and maintenance alone average about $4,000 per hour. The annual fixed costs, including items such as crew, hangar, insurance, training and airborne internet run to $1.4m.

    A typical charter payback to the owner is 85% of the listed hourly rate, and the owner pays for the aircraft expenses. So on that basis, our $8,000-per-hour charter provides the owner $6,800 per hour. 

    Deducting the $4,000 variable hourly costs leaves $2,800 per hour. To accumulate the $1.4m fixed costs takes 500 charter hours.

    So, after that isn’t it all profit? In short, no. Our owner paid $60m for his global business jet. Current market depreciation is about 7% per year (or a loss in value of $4.2m per year). And that would require another 1,500 charter hours to make the deficit up. Hence our 2,000-hour break-even point.

    Second: Money is not free. Our owner has a cost of capital, or an opportunity cost. If he paid $60m in cash for the jet, he can’t invest that money in his company or other ventures. If you add in a 10% return on capital, there is $6m per year in the lost opportunity of having his money tied-up in the jet.

    He could opt to decrease that up front with an operating lease or a loan, but then his fixed expenses increase. To verify this, look at the financial reports of the airlines: An airline needs to fly between 2,500 to 3,000 hours per year per airplane in order to make a profit.

    There is almost no way an on-demand charter operator can book enough charter to cover the costs of owning their own business jet. When an aircraft owner utilizes a charter operator to charter their aircraft when not in use, both parties can win.

    The charter operator gets the use of a business aircraft without the cost to acquire it. The owner gets some revenues to offset their operating costs.

     

    Myth 2: You Should Focus on Only one Cost… ‘Acquisition’

    Every pilot report and airplane review article mentions three things:

    1. Cabin and amenities;
    2. How far the airplane flies;
    3. Acquisition cost.

    Whenever I do an analysis of costs, I look at the total life cycle cost. This includes not only the acquisition cost, but the operating costs, and disposition.

    While the acquisition cost – less the recovery at resale – is significant, the operating costs can amount to just as much over time.

     

    Myth 3: Operating Costs are Consistent

    At least a couple of times each year I have a client who is shocked when confronted with their maintenance costs. A recent situation involved the owner of a large-cabin business jet. The management company had told the owner to budget $3,500 per hour for fuel and maintenance, yet when they looked at their total expenses for 2018 those items averaged over $5,000 per hour.

    Working through the management company’s reports, while also running our own “should-cost” analysis, we found a cost listed under maintenance for international travel, for which the mechanic accompanied the jet on a multi-week trip overseas. 

    Though this was smart planning, it was not necessarily a ‘routine’ maintenance expense.

    The owner also had an inspection every 2,400 flight hours. They flew less than 300 hours in 2018 and averaged the cost of the 2,400-hour inspection over the 300 hours they flew, not the 2,400 hours it took to accrue the expense.

    In my should-cost analysis the accruals for the maintenance from Conklin & de Decker’s data, adjusting for the cost of fuel, came to approximately $3,600 per hour over time. In any given year, the average for that year varied from about $2,400 to over $7,000 per hour.

    The bottom line is that maintenance costs are cyclical. Unless you are on a guaranteed hourly maintenance program provided by the OEM or a third-party provider like Jet Support Services, Inc., the cost in any given year can fluctuate greatly.

     

    In Summary…

    All of the above misconceptions can be cleared up by listening, explaining and budgeting correctly. It also helps to have someone who understands both the costs and the operation to assist in the understanding.

    More information from www.conklindd.com.

    This article was originally published by AvBuyer on August 19, 2019.

  • Tracey Cheek posted an article
    Supplemental Lift for Your Business Jet: What's Best for You? (Pt 1) see more

    NAFA member David Wyndham, Vice President with Conklin & de Decker, discusses whether Charter, Jet Card or Fractional Ownership is better option for your supplemental lift. 

    Are there some business travel needs your aircraft can’t fulfill? David Wyndham explores the option of supplemental lift. What is supplemental lift, and how can you use it as an appropriate add-on in your current aircraft operations?

    Supplemental lift may be a logical alternative to your current aircraft. As the term implies, supplemental lift is an add-on to your current operation – it is not a replacement for your current aircraft. What it does is to achieve a means of expanding your operation without adding another aircraft, extra crew, and support.

    It may be that you have a specific need for short-term lift if an aircraft in your operation is undergoing a major maintenance event. Or you may need extra flight hours beyond what your current aircraft can support.

    Alternatively, there may be several unique missions on the horizon for which your current aircraft is unsuitable. Perhaps you simply wish to bridge the gap before acquiring another aircraft as your flight operation grows.

    Thankfully, there is a range of supplemental lift options available that offer a modest number of additional flight hours without the costs associated with actually owning an extra aircraft.

    Within this article, we will consider the following questions:

    • What are aircraft charter, jet cards and fractional ownership?
    • When does supplemental lift make sense?

    What are Aircraft Charter, Jet Cards & Fractional Ownership?

    Aircraft charter enables you to rent an aircraft for a trip. With charter, you pay the entire time the aircraft is flying (including any unoccupied i.e. ‘deadhead’ legs without you aboard). Therefore, charter costs are minimized with round-trip travel. Aircraft charter tends to work particularly well if one or more well-qualified providers operate the aircraft type you need close to your location.

    Jet cards are a form of pre-purchased charter. Some jet card programs are aligned with a major fractional ownership company (such as NetJets). Other providers offer a broker arrangement where they sell you the time and find the qualified operator for you. Most jet card providers offer both one-way and round-trip pricing.

    Fractional ownership enables you to purchase or lease a share of an aircraft in proportion to the additional flying that you plan to do. This may be a good way to bridge the gap between insufficient current aircraft availability and developing sufficient need to justify buying an additional aircraft outright. Operators who purchase a fractional share can choose to sell it back to the provider at the end of the contract.

    When Does Supplemental Lift Make Sense?

    As highlighted through the different options, supplemental lift can be a short- or long-term solution. The hours can vary with your needs. To illustrate, and also highlight how and when supplemental lift makes sense, following are some real-life examples.

    Extended Downtime: One operator I work with has an aircraft that’s almost 12 years old. They fly regularly and the aircraft is fast approaching a major maintenance check and engine overhauls. The avionics suite is outdated and the principal wants to add in-flight cabin connectivity. Additionally, the paint and interior are in need of a refresh.

    Having conducted a financial analysis, the operator concluded that the aircraft value prior to the work being done is lower than they would sell it for. Moreover, the cost of a newer replacement aircraft is more than they wish to spend. The plan, therefore, is for them to complete the overhauls and upgrades at the same time, with an expected downtime of at least four months.

    This means a temporary solution is required that effectively replaces their aircraft for the time it will take to complete the maintenance and upgrades.

    An estimated 120 flight hours will be needed over those four months, and the operator has chosen aircraft charter as the right option to fulfil this demand.

    Fortunately, they’re located in a city with several large charter operators nearby and were able to negotiate a block of hours with a local provider with a top safety rating.

    Expanding Mission Need: A different corporate client recently expanded operations to a distant city and their current aircraft cannot make that trip non-stop. The client estimates flying one trip per month for approximately eight flight hours, representing a 20% increase in their flying activity. To upsize to a larger aircraft would increase the operating budget by almost 90%.

    The cost to buy the larger business jet is nearly three times what their current jet is worth. Over the course of a year, the client would need less than 100 hours flying a longer-range jet and their demand analysis indicates this utilization is likely to remain steady and long-term.

    In addition, avoiding a fuel stop on 20% of the trips wouldn’t be worth the added investment in a new, larger jet. But what if the client were to supplement their operations with added lift?

    The client was able to find a fractional ownership solution to meet their needs at a fraction of the cost of replacing their current aircraft. When they near the end of their current contract, they will reassess their need and budget, revisiting the question of acquiring a larger business jet.

    Growing Operation: One last example is of a flight operation growing at 15% per year. Corporate projections indicate that this rate of growth will continue and there are new departments asking for use of the aircraft.

    In their analysis, the client’s aviation department estimates that they can meet the additional demand for the next 18–24 months by hiring a new pilot and combining a few trips each month. Acquiring another aircraft may take between six and nine months.

    The company hired a consultant who performed an aircraft needs analysis. The report confirmed the aviation department’s internal findings and recommended that a second aircraft be purchased within the year. The report also recommended adding supplemental lift within the next six months to maintain the department’s ability to meet trip requests without any disruption.

    Accordingly, they purchased a jet card offering them the additional projected flight hours. The card program includes price guarantees for 12 months with the initial purchase.

    Simultaneous Travel Needs: One more consideration might be the scenario where you occasionally need simultaneous aircraft. If you anticipate multiple overlapping requests for the aircraft, a supplemental option, such as a charter, jet card or fractional ownership might make sense.

    Next month we will continue our discussion with consideration of how to choose the right aircraft, and then manage the supplemental lift as you grow into another aircraft.

    This article was originally published on AvBuyer on June 21, 2019.

  • Tracey Cheek posted an article
    Supplemental Lift - What's Best For You? see more

    NAFA member David Wyndham, Vice President with Conklin & de Decker, shares what supplemental lift is and how it can benefit you.

    Are there some business travel needs your aircraft can’t fulfill? David Wyndham explores the option of supplemental lift. What is supplemental lift, and how can you use it as an appropriate add-on in your current aircraft operations?

    Supplemental lift may be a logical alternative to your current aircraft. As the term implies, supplemental lift is an add-on to your current operation – it is not a replacement for your current aircraft. What it does is to achieve a means of expanding your operation without adding another aircraft, extra crew, and support.

    It may be that you have a specific need for short-term lift if an aircraft in your operation is undergoing a major maintenance event. Or you may need extra flight hours beyond what your current aircraft can support.

    Alternatively, there may be several unique missions on the horizon for which your current aircraft is unsuitable. Perhaps you simply wish to bridge the gap before acquiring another aircraft as your flight operation grows. Thankfully, there is a range of supplemental lift options available that offer a modest number of additional flight hours without the costs associated with actually owning an extra aircraft.

    Within this article, we will consider the following questions:

    • What are aircraft charter, jet cards and fractional ownership?
    • When does supplemental lift make sense?

    What are Aircraft Charter, Jet Cards and Fractional Ownership?

    Aircraft charter enables you to rent an aircraft for a trip. With charter, you pay the entire time the aircraft is flying (including any unoccupied i.e. ‘deadhead’ legs without you aboard). Therefore, charter costs are minimized with round-trip travel. Aircraft charter tends to work particularly well if one or more well-qualified providers operate the aircraft type you need close to your location.

    Jet cards are a form of pre-purchased charter. Some jet card programs are aligned with a major fractional ownership company (such as NetJets).

    Other providers offer a broker arrangement where they sell you the time and find the qualified operator for you. Most jet card providers offer both one-way and round-trip pricing.

    Fractional ownership enables you to purchase or lease a share of an aircraft in proportion to the additional flying that you plan to do. This may be a good way to bridge the gap between insufficient current aircraft availability and developing sufficient need to justify buying an additional aircraft outright. Operators who purchase a fractional share can choose to sell it back to the provider at the end of the contract.

    When Does Supplemental Lift Make Sense?

    As highlighted through the different options, supplemental lift can be a short- or long-term solution. The hours can vary with your needs. To illustrate, and also highlight how and when supplemental lift makes sense, following are some real-life examples.

    Extended Downtime: One operator I work with has an aircraft that’s almost 12 years old. They fly regularly and the aircraft is fast approaching a major maintenance check and engine overhauls. The avionics suite is outdated and the principal wants to add in-flight cabin connectivity. Additionally, the paint and interior are in need of a refresh.

    Having conducted a financial analysis, the operator concluded that the aircraft value prior to the work being done is lower than they would sell it for. Moreover, the cost of a newer replacement aircraft is more than they wish to spend. The plan, therefore, is for them to complete the overhauls and upgrades at the same time, with an expected downtime of at least four months. This means a temporary solution is required that effectively replaces their aircraft for the time it will take to complete the maintenance and upgrades.

    An estimated 120 flight hours will be needed over those four months, and the operator has chosen aircraft charter as the right option to fulfill this demand.

    Fortunately, they’re located in a city with several large charter operators nearby and were able to negotiate a block of hours with a local provider with a top safety rating.

    Expanding Mission Need: A different corporate client recently expanded operations to a distant city and their current aircraft cannot make that trip non-stop. The client estimates flying one trip per month for approximately eight flight hours, representing a 20% increase in their flying activity. To upsize to a larger aircraft would increase the operating budget by almost 90%.

    The cost to buy the larger business jet is nearly three times what their current jet is worth. Over the course of a year, the client would need less than 100 hours flying a longer-range jet and their demand analysis indicates this utilization is likely to remain steady and long-term. In addition, avoiding a fuel stop on 20% of the trips wouldn’t be worth the added investment in a new, larger jet.

    But what if the client were to supplement their operations with added lift?

    The client was able to find a fractional ownership solution to meet their needs at a fraction of the cost of replacing their current aircraft. When they near the end of their current contract, they will reassess their need and budget, revisiting the question of acquiring a larger business jet.

    Growing Operation: One last example is of a flight operation growing at 15% per year. Corporate projections indicate that this rate of growth will continue and there are new departments asking for use of the aircraft.

    In their analysis, the client’s aviation department estimates that they can meet the additional demand for the next 18–24 months by hiring a new pilot and combining a few trips each month. Acquiring another aircraft may take between six and nine months.

    The company hired a consultant who performed an aircraft needs analysis. The report confirmed the aviation department’s internal findings and recommended that a second aircraft be purchased within the year. The report also recommended adding supplemental lift within the next six months to maintain the department’s ability to meet trip requests without any disruption.

    Accordingly, they purchased a jet card offering them the additional projected flight hours. The card program includes price guarantees for 12 months with the initial purchase.

    Simultaneous Travel Needs: One more consideration might be the scenario where you occasionally need simultaneous aircraft. If you anticipate multiple overlapping requests for the aircraft, a supplemental option, such as a charter, jet card or fractional ownership might make sense.

    Next month we will continue our discussion with consideration of how to choose the right aircraft, and then manage the supplemental lift as you grow into another aircraft.

    This article was originally published in AvBuyer Magazine, Volume 23, Issue 6, 2019, p. 76

  • Tracey Cheek posted an article
    Back to the Future - 35 Years see more

    NAFA member Bill de Decker, Co-Founder of Conklin & de Decker, shares his thoughts on business aviation.

    Nobody could deny Business Aviation has come a long way in the last 35 years. Looking back to 1984, NetJets was only a vision of Richard Santulli who had just purchased Executive Jet Aviation.

    The most popular business jet model was the Learjet 35A and Cessna was in the lead with the most combined deliveries of its Citation line of Light and Mid-size Jets. In the Long-Range category, the Falcon 50 was the leader for Dassault and the Gulfstream GIII was having a strong year.

    Meanwhile, Bombardier’s Challenger was the first entry in the new Super Mid-size Jet class. What’s more, we were all looking forward to the all-new GIV, which was nearing its first flight. Impressively, many of these aircraft are still flying today, which is a testament to the quality of manufacturing, technology and years of proper maintenance.

    But away from the manufacturing side, the launch of several entrepreneurial Business Aviation start-ups also took place at that time, including a company called Conklin & de Decker.

    Al Conklin and I met while working at Falcon Jet in the early 1970s and we went on to publish the first Aircraft Cost Evaluator in 1972. Our combined experience spanned the military, aircraft sales, engineering and c ost analysis, and we had a passion for business jets. We recognized a demand for accurate, trustworthy, directly comparable aircraft cost and performance data that could help businesses and individuals make more informed decisions when buying an aircraft.

    Since then, Conklin & de Decker has become a leader in that field and also consults on a wide range of subjects, including fleet planning, acquisitions and taxes. A little

    over a year ago, we announced that Jet Support Services, Inc. (JSSI) had acquired our company. As JSSI added programs, expanded into parts and leasing, and introduced advisory services such as overhaul management, inspections and appraisals, it was a logical step to acquire our data, tax and consulting business in 2018.

    The result is that JSSI and Conklin & de Decker are positioned for the future and no longer just provide hourly

    maintenance programs or databases but support the entire life cycle of owning and operating an aircraft. Our two companies have many things in common but the most important, in my opinion, is our dedication to our customers.

    What’s Changed in BizAv?

    One of the great things about Business Aviation is the constant pursuit of innovation. In 1984, the push was for more range, more speed, better performance, lower fuel consumption, less noise, lower maintenance costs and better avionics. And that has not changed one bit today!

    So what has changed? It’s the sheer amount of information that’s available to consumers. People consume vastly more data today and depend on it to make decisions. This was a big motivation for the creation of the Conklin & de Decker Report, ba sed on our flagship Aircraft Cost Evaluator that is now easily accessed via the web or mobile app.

    Another change has been the globalization of Business Aviation with its Ultra-Long-Range Jets and worldwide operations. To address this, we’re expanding our research to accurately depict regional variations in operating costs, starting with the Asia-Pacific and European regions.

    Meanwhile, the one area that hasn’t changed since 1984 is the importance of great customer service. Even with increased automation and digital access to our products I don’t foresee the personal level of our service we believe in going out of style.

    And on to the Next Generation in BizAv...

    As we look to the next generation of Business Aviation, we see supersonic transportation (SST) making a comeback; not the 1980s SST version but with new, efficient engines that will burn the latest sustainable alternative jet fuel blend and with no perceptible sonic boom. We see futuristic eVTOL designs and talk of autonomous aircraft.

    However, one vital element to our industry’s longevity is its ability to attract and retain young talent—pilots, maintainers, design engineers, software developers and sales reps who share the same passion for aviation that led many of us to devote our entire careers to this industry.

    With them we will continue the legacy of business aviation for many years into the future. More information from www.conklindd.com

    Bill de Decker is the Co-Founder of Conklin & de Decker, where he is responsible for consulting studies and developing new programs. His areas of expertise include financial management, business and fleet planning, certification issues, life cycle cost and operations. Prior to founding Conklin & de Decker, Bill managed the Falcon and Bell Learning Centers, as well as the Communications Systems Division for FlightSafety International.

    This article was originally published in AvBuyer Magazine, Volume 23, Issue 6, 2019, p. 4

  • Tracey Cheek posted an article
    Avoid Overpaying for Your Jet Operation see more

    NAFA member David Wyndham with Conklin & de Decker considers ways for you to safeguard against being taken advantage of when it comes to aircraft bills and ways to manage operating costs efficiently.

    A recent Bloomberg article described how high net worth individuals are potentially being taken advantage of by aggressive overcharges on their aircraft bills. David Wyndham considers this, and highlights ways to understand and manage your operating costs.

    Few specific examples were cited in the Bloomberg article, and unsurprisingly no aircraft owner was willing to attribute their name to such a story, but what it highlighted is that there are many different costs associated with owning and operating an aircraft. These will vary significantly from trip to trip.

    While transparency is offered as one solution to the issue of overcharging, that approach misses one important area: understanding.

    Aviation, like medicine or law, has a complex language that seems designed to confuse the layperson. With medicine and law, you have a professional at your disposal to assist with questions such as, "What do you mean I have hypertension?" or, "Just what is a waiver of subjugation?"

    Many aircraft owners, when faced with complex aircraft bills, have accountants to review and authorize bills for payment. But the accountant often lacks the expertise to fully understand the aircraft costs they are responsible for paying.

    How Should Aircraft Costs be Presented?

    Each bill submitted to an aircraft owner should be itemized with taxes, fees, labor, services and parts. Even with that level of detail, however, many are still unsure as to what the bill means and whether it is too costly.

    I have assisted several owners recently with a detailed review of their costs. While I have yet to come across fraudulent bills or blatant overpricing, it is easy to see why a reasonable question may be, "Why are these bills so high?"

    The first place to start to understand these costs is with a budget. The management company or aviation department must provide a budget based on the expected utilization of the aircraft. At the financial management level there needs to be enough detail so that individual accounts have differentiation, but not so many details that the complexity outweighs the benefits of detail.

    Operating Cost Categories to Consider

    Fuel: A major cost driver for most aircraft, the cost of fuel per gallon will vary and, in many instances, cheap fuel will beget add-on fees away from home. For example, itemized bills will often contain ramp fees and other services.

    Other Trip Expenses: These need to be verified too, and include items such as the catering, hotel and meals for the crew. I had one owner who stayed at high-end hotels. Wanting the crew to be immediately available, he had them stay at the same hotels. As a result, crew travel costs were far greater than what many would consider ‘normal’.

    Maintenance Costs: More detail is required for this within the budget than just one item. Categories should specify whether the bill is for scheduled maintenance (i.e., an 800-hour inspection), or for unscheduled maintenance (i.e. changing a flat tire or replacing a burned-out landing light). 

    Component overhauls and life-limited part replacement should also be noted.

    The annual budget should note the scheduled inspections with the expected flat rate, or the cost to inspect and replace mandatory items, and allow for the on-condition or unscheduled items that may also require service.

    The management company or flight department should get quotes for major maintenance from at least two qualified sources, if possible. And when requesting quotes, you should account for what is included and excluded. If, for example, there are scheduled parts to be replaced, is labor included or only the cost of parts?

    You must also consider time. For example, a low-cost bid that takes 60 days to accomplish may be worse than the higher cost bid with a 30-day return to service.

    Maintenance costs vary from year-to-year and major inspections will cause a large increase in expenditures.

    These major scheduled inspections can occur every 6–10 years on the airframe; sometimes longer. Older airframes exceeding 20 years may see more age-related checks, and these should be accounted for.

    Engines are a separate consideration and require a major service very infrequently. For most private and corporate operations, an engine may have a 4,000-hour mid-life inspection and run 8,000 hours before it gets overhauled. At 400 annual hours, that overhaul is going to occur when the aircraft is 20 years old. Unscheduled events tend to be rare for turbine engines, but they do occur and can be extremely costly.

    How to Make Maintenance Costs Predictable

    Guaranteed hourly maintenance programs (GHMPs), as the name implies, set a fixed guaranteed rate for the maintenance. An engine GHMP is very common for jet engines. In fact, since the financial crisis many lenders and lessors now require them as a standard term of condition.

    There are also airframe and parts-only programs available for many turbine aircraft.

    A GHMP will usually have a contracted price based on utilization and aircraft age and may incur a calendar and hourly fee, or just an hourly fee. A GHMP provides budget stability and peace of mind, as well as added resale value for the aircraft.

    In Summary…

    There needs to be good communication and clear expectations between the owner and management company or aviation department. Cost overruns need to be communicated as soon as they are known, and not after submitting the bill.

    Someone should spend a little time with the owner or accountant to review the major bills and, importantly, ensure there are no surprises. When in doubt, seek the opinion of a professional. Aircraft are complex machines that, when well-maintained, will provide safe and comfortable service for many years.

    More information from www.conklindd.com

    This article was originally published in AvBuyer on May 24, 2019.

  • Tracey Cheek posted an article
    What to Consider When Chartering Your Jet see more

    NAFA member, David Wyndham, Co-Owner and President of Conklin & de Decker, discusses potential issues and concerns for operators to consider before choosing to hire a management company to charter your business jet when you're not using it.

    Putting an aircraft on a charter operator's certificate may incur expenses for the initial inspections that are required to demonstrate its compliance with FAA standards for commercial service. Both the aircraft and crew must conform to the charter operator's approved operating limitations.

    The aircraft must also be enrolled on the charter operator's approved maintenance program, which could require more frequent inspections, while commercial operations may necessitate the installation of additional safety equipment and the crews must train to the approved operating standards fo the charter operator.

    The above costs, which are typically borne by the aircraft owner, can range from several thousand to tends of thousands of dollars.

    Given the added costs of approving your aircraft for on-demand commercial service, there must be sufficient charter revenue to make the arrangement work financially. The more you fly for your own purposes, however, the less time the charter operator has available to monetize your aircraft. This can be a delicate balance to find, since scheduling charter flights will impact the aircraft's ability for company travel.

    Moreover, peak demand for charter may overlap with your own intended travel schedule, especially in the summer and around the holidays. So, you will either forgo the charter revenue or be forced to adjust your own itinerary to accommodate.

    Some charter operators may claim that they can charter your aircraft for 700 hours per year - but that won't be possible unless you fly infrequently and avoid peak travel periods. If you fly more than 100-150 hours annually, you may not be able to generate enough charter revenues to make the extra work worthwhile.

    To read the complete article, click here.

    This article was originally published in AvBuyer, Vol. 23, Issue 2, 2019, p. 62.

  • Tracey Cheek posted an article
    What’s the Case for Becoming a Jet’s Last Owner? see more

    NAFA member, David Wyndham, VP and Director of Business Strategy with Conklin & de Decker, discusses options for a specialized aircraft buyer and how the operator justifies the decision to buy with a view to becoming an aircraft’s last owner.

    As aircraft age, they cost more to maintain and support. Spare parts for aging aircraft can be harder to come by as fewer of these models remain in service today and the OEMs shift focus to their in-production aircraft.

    Parts suppliers may ‘build to order’ certain spares when demand levels no longer justify keeping a production line running. Be aware that the cost of these spares can fluctuate greatly as the effects of supply and demand take hold. Finding airworthy used spares is often only possible if there were enough aircraft built for salvage companies to tear down and use as sources.

    These incremental maintenance costs and procurement hurdles can render an old aircraft unsuitable for a regular schedule of frequent flying. Nevertheless, for the savvy buyer with specific needs and managed expectations, there may be some value left in these airworthy but aged aircraft.

    How Old is too Old?

    If an aircraft is well cared for, it can have an almost unlimited life with respect to safety and airworthiness. There are DC-3 aircraft that were in service in the late 1930s still flying today. While not much more than the pilots’ control wheels and OEM’s data plate may be “original equipment”, they are still airborne.

    Such aircraft are in the hands of loving and dedicated teams who fly for the joy of keeping them flying, not for transportation or business use.

    What ends the life of most aircraft is economics—when the cost of flying them becomes more than the cost of replacing them. This is called the economic useful life, which is defined by the International Society of Transport Aircraft Trading (ISTAT) as follows:

    “As it pertains to an aircraft or engine, the economic useful life is the period of time over which it is (or is expected to be) physically and economically feasible to operate in its intended role. Periodic maintenance and repair will usually be required in order to preserve safety and efficiency during the economic useful life.”

    This age is contextual. An airliner flying 2,000–3,000 hours per year in short-haul trips will reach its end of life much sooner than a long-range business jet flying 300–400 hours annually. For a piston airplane flying 100 hours per year, its end-of-life can easily extend past a half-century. Age is a factor of calendar time and utilization, or flight time.

    Research from Boeing Commercial Airplanes published in an article titled ‘Key Findings on Aircraft Economic Life’ (March 2013) found that while no exact definition exists, their data on over 31,000 airliners suggest that this economic life can be expressed in two general ways:

    • The average age of airplanes when they are permanently withdrawn from service;
    • The interval of time between delivery of a cohort of airplanes and the date when 50% (or some other fraction) of the cohort has been retired.

    But what is a typical useful economic life for a business jet?

    Data from JETNET showing the business jet retirements from 2011 to 2015 notes that 144 business jets retire each year on average. The vast majority of these are over 30 years of age. Meanwhile, AMSTAT data shows that today, of the more than 7,300 business jets built before 1998, about 46% of the fleet has been removed from service. This data suggests the useful economic life for a business jet is just over 30 years.

     When Does an Aircraft Reach Salvage?

    An aircraft at the end of its useful economic life can be sold for parts for salvage or scrap value. The Machinery & Technical Specialties Committee of the American Society of Appraisers (July 2010) defines scrap, or salvage, value as follows:

    “An opinion of the amount, expressed in terms of money that could be realized for the property if it were sold for its material content, not for a productive use, as of a specific date.”

    So, when does the scrap or salvage value of an aircraft exceed its ‘retail’ value as a flying asset?

    If the maintenance to be done exceeds the retail value of the aircraft and, if accomplished, does not return enough retail value to cover the cost of the maintenance, then your aircraft is at salvage. In summary, an aircraft would reach salvage when the upcoming maintenance costs exceed the value of the airplane. That can be any maintenance, be it airframe, engines or avionics.

    In Conclusion…

    Combining all the above information leads to the following conclusion: If you are the owner of an airworthy aircraft aged 25 years or older, you could be its final owner.

    Nevertheless, there may be aircraft younger than 25 that, owing to limited production runs and a lack of product support, will not be economically feasible to fly for much longer than a few years. Meanwhile, for some of the more popular aircraft with a long production run, you may see 40-year-old aircraft still in the air in sufficient numbers to make supporting them economically feasible.

    So why would anyone want to become the last owner of a business jet?

    If you understand the limitations, your value proposition is likely to be something like this:

    You buy a very old business jet for $2m, spending $3.5m operating it for four years, before selling it for salvage at $500k. The net cost to you is $5m. The owner of a new business jet that paid $30m, meanwhile, will see more than that in market depreciation alone.

    However, keep in mind that these older jets spend a lot of time in maintenance and there is a higher chance that you will not be able to “call when needed”, but if your flying needs are infrequent and predictable, you may find there is enough value left in these older jets to make the case for buying one.

    Next month, we will illustrate with a case study. Stay tuned!

    More information from www.conklindd.com or https://jetsupport.com.

    This article was originally published by AvBuyer on November 5, 2018.

  • Tracey Cheek posted an article
    NAFA member, Neil Book, President and CEO of JSSI, talks to Anthony Harrington, with BAM. see more

    NAFA member, Neil Book, President and CEO of Jet Support Services, Inc. (JSSI), talks to Anthony Harrington with Business Aviation Magazine.

    Q: Your big announcement at EBACE was the acquisition of Conklin & de Decker. Can you comment on the logic that guided the deal?

    NB: There is a very real need in this market for easier access to data and more transparency for aircraft operators and owners. Conklin & de Decker’s mission, as they define it  themselves,  is to arm operators  and owners  with information. Their product set is all about helping the general aviation industry to make more informed decisions around the purchase, operation and sale of aircraft, by providing objective and impartial information. They’ve been doing this for 35 years, so they bring a layer of credible data and a level of customer service that is very consistent with our own culture. 

    The starting point for the deal was the launch of our advisory services platform last year, and the early success that we have had with it. This acquisition will be the first of many as we grow the strength and depth of our services business. There is no doubt that Conklin & de Decker is a tremendous bolt-on acquisition for us. 

    It is worth emphasizing that JSSI’s growth, prior to this, has been entirely organic. This is our first strategic acquisition and we are actively looking for more. 

    Q: How do you see the advisory service side? Does it simply strengthen the JSSI brand and add to the service set you provide or do you see it growing into a significant revenue earner in its own right?

    NB: I think it will absolutely generate significant revenue and earnings, or we wouldn't pursue it. I also believe that it only strengthens the JSSI brand if we deliver a high quality product. We strive to be the best at what we do and if we do not provide the highest quality product, it could have a negative brand impact. 

    On the Conklin side, we have a strong technology team, led by our newly named CIO, Jake Gerstein. I’m confident we’ll be able to relaunch Conklin’s platform with even better data, features, and a more global focus. 

    Q: Both the engine and airframe OEMs are going down a similar route, deploying sensor data beamed directly to operations centres for maintenance purposes. Is this competition for your platform?

    NB: I don’t see OEM real-time data being competition. I’m  confident we can help operators better disseminate and understand that information. We cover every single make and model of aircraft and have been doing so for the last 30 years. We are sitting on a massive amount of maintenance data. This, coupled with operating data from the 2,000 aircraft we support and Conklin’s database, will allow us to deliver a product that helps operators. Ultimately, the market will decide. 

    Q: There is an issue in the market at the moment with the very mixed skill sets of appraisers and valuers, some of whom are very good and others who produce very questionable figures. How do you see this playing with your platform?

    NB: I can’t speak for the entire market, but we take a lot of pride in the integrity of our appraisals. We just hired our eighth ASA-certified appraiser, Rich Thompson, and believe that our technical expertise really sets us apart. This service to date has been very geographically fragmented. Many banks have to partner with a number of different appraisers around the world, and, as you say, this can have very mixed results. The beauty of working with JSSI is that we have our people in key locations around the globe and this leads to a level of consistent and high quality work that our customers appreciate. 

    Q: How is the business doing, generally? 

    NB: Business is performing great and we’re having a lot of fun. We are seeing growth in every region around the world. Flight hours are up generally across the globe, so having 2018 turn into a strong flight-hours year is a very good barometer of the health of the industry. 

    Q: July and August have seen a considerable spike in both rhetoric and actions around protectionism and punitive tariff increases, raising the probability of trade wars weakening global 
    GDP. Do you see this as a significant threat?

    NB: I can’t opine on a theoretical trade war at this point and what impact that will have on our business or global GDP. I am highly confident, however, that business jets are a critical tool to the global economy and will continue to be so. 

    Q: How interesting is the insurance market for JSSI?

    NB: We’re working with two of the largest aviation insurance companies, who have made the choice to outsource their engine claims to JSSI. You have to remember that we manage in excess of 8,000 different maintenance events per year. When an engine claim is filed, we step in and perform a detailed analysis of the event. We determine the insurance company’s responsibility and we direct the work to the facility that is in a position to deliver the best turn-around time, highest quality work and the best pricing. And, of course, we audit the invoices when they come in. Our work has driven significant cost savings for the insurer, which ultimately helps the operators. 

    Q: How big is this market for JSSI?

    NB: We’re focused on the “tier one” insurers today and believe this can be a significant business for us. 

    Q: Over the last two years you have expanded JSSI’s remit to include smaller commercial airlines. How is that working out?

    NB: We have been really pleased with our success in this regional airline market. Since launching the program, we’ve enrolled five regionals and have a very robust pipeline. This year is already the strongest we’ve had through nearly three quarters and we do not anticipate it slowing down.

    This article was originally published in the Autumn 2018 issue of Business Aviation Magazine.

     

  • Tracey Cheek posted an article
    Whole Aircraft Ownership: Is It Right For You? see more

    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.

  • Tracey Cheek posted an article
    Avoid Misconceptions About Aircraft Costing see more

    NAFA member, David Wyndham with Conklin & de Decker, discusses the costs to owning an aircraft after the initial purchase.

    What are some common misconceptions about aircraft costs? David Wyndham details some that he comes across on a regular basis, providing advice on how to avoid them…

    Most misconceptions about aircraft cost result from connecting something that we’re familiar with (such as the cost of running an automobile or building a house) and using those as an analogy for the unfamiliar cost of owning and operating an aircraft.

    The biggest misconception is focusing too heavily on the acquisition cost, to the detriment of operating costs and asset value over time. Let’s illustrate with an example…

    I have a client who has a maximum acquisition budget of $20m. This is a real limit and not one to exceed. There is, however, a possible misconception that can arise if we were to look at Aircraft A (with a selling price of $20m) and Aircraft B ($17m) and conclude that Aircraft B is the less costly option.

    The only way to know which aircraft costs “less” would be to evaluate the total costs to acquire, operate and dispose of the aircraft. Two of the major costs that must be factored are the operating costs (including maintenance) and the estimated residual value after a set timeframe.

    Hourly Variable Costs

    Looking at our current scenario (represented in Table A), Aircraft A has a lower fuel consumption than Aircraft B while the engine maintenance costs are similar. Aircraft B has lower airframe maintenance costs, meanwhile.

    Aircraft Hourly Variable Costs

    Yet even in factoring variable costs, there’s more to consider. For example, Aircraft A flies 8% faster than Aircraft B. The faster aircraft will use fewer hours to fly the same trips form point of origin to destination. Therefore, if Aircraft A flies 400 hours annually, Aircraft B will require 432 hours to cover the same missions.

    Annual Variable Costs

    Table B sets out the annual variable cost for each aircraft, factoring the required annual hours. As depicted, Aircraft A costs almost 10% less in variable cost per year than Aircraft B.

    With both aircraft having about $650k per year in fixed costs, the annual operating budget favors Aircraft A slightly. While not enough to make up the $3m price difference, it does account for about $1m over 10 years. But before we can draw any conclusions, there is more…

    Aircraft Annual Variable Costs

    Life Cycle Costing

    Let’s assume Aircraft A is a popular model and is currently selling better than Aircraft B. Current market values for Aircraft A are being maintained better than for Aircraft B – therefore, after 10 years the estimated value (in dollars and percent) is higher for Aircraft A. Table C represents our ten-year Life Cycle Cost for each aircraft.

    Aircraft Lifecycle Costing

    In Summary…

    Aircraft A costs about the same to own and operate as Aircraft B. Our analysis has shown that making the purchase decision based on acquisition price alone doesn’t tell the entire story.

    In the above example, we needed to evaluate parameters beyond the costs alone to determine which aircraft would provide the better value. And once you’ve achieved a solid cost analysis, there are additional factors to consider. Does Aircraft A have better support and a longer range than Aircraft B, for example?

    Never let a spreadsheet make a purchase decision for you. And, never just look at a single cost item when evaluating the aircraft that best fits your budget. Aircraft are not commodities sharing essentially the same characteristics, which is why I stress to my clients to look for a best value when making the aircraft buying decision.

    Costs are a very important part, but even the total costs do not tell the entire story. For the record, my client has yet to make the final decision on which aircraft to purchase…

    This article was originally published on AvBuyer.com on July 16, 2018.

  • Tracey Cheek posted an article
    Tips To Get The Best From Your Business Jet see more

    NAFA member David Wyndham with Conklin & de Decker offers advice on three things to keep in mind that will help you get the full benefits of a business jet.

    Though it’s impossible to prepare for every situation, it is possible to prepare for things to change and to learn what’s needed for adapting and managing those changes.

    The business aircraft is one of the tools that enables and enhances your ability to act, manage and react to the changes within your business. To get the full benefits of a business aircraft, however, it pays to keep the following three things in mind…

    1. Different Aircraft for Different Missions

    Throughout my career as a consultant, the 100% solution (that is, the aircraft capable of flying all the missions you may need) is most often the costliest. Over the long run, it may also be one of the least effective solutions too.

    To illustrate, I once had a client who was looking at a Mid-size jet.

    • This jet had the runway performance to manage the required short trips into smaller airfields, but with a light passenger load.
    • It had the seats for the handful of longer trips with six or seven people.
    • With full seats, however, its range was limited.

    One larger cabin business jet offered the short runway performance and the range with full seats the client wanted, but the acquisition and operating budget was beyond what the board would approve.

    What proved to be a better fit for the client was a turboprop for the short-range, short-runway trips and a fractional share of a Mid-size jet for the longer-range missions. That Mid-size jet fractional share could also be upgraded to a Large jet for the two or three trips annually that required eight to ten seats.

    It’s vital to remember that owning your business aircraft does not prevent you from using other options (such as charter, jet cards and fractional). These lower utilization alternatives can give you the second aircraft for the few times its needed or expand the capability when occasionally needed.

    2. Re-evaluate Your Options Regularly

    How does the business aircraft you use support your current strategies for managing your business and your time? You will need to regularly re-evaluate your options. Planning is necessary for your company, and that includes forward-planning with regards to the aircraft.

    It may be running nicely and not costing a lot of money to operate currently, but you should not wait for a major expense to arise before evaluating your options.

    • Are you looking to grow into new markets in the next five years?
    • Are you in the Mergers and Acquisitions market?
    • Can the current aircraft support the future company?

    An aircraft replacement can take 12-18 months to plan and execute, especially if you’re acquiring an aircraft that will need to be outfitted to your specifications. It’s advisable to have a written plan for when, and how to upgrade or replace your aircraft. Review the plan and revise it as your company changes, grows or develops into new markets.

    3. Numbers Don’t Tell the Whole Story

    While they can help you make an informed decision, a spreadsheet alone should not make the decision for you. So, what are the other factors that need to be considered in the decision? I’ve had several clients where the optics of owning the aircraft were a concern.

    One was a defense department supplier of technology. My analysis showed them that a Light jet was the most efficient for their travel in terms of cost and speed, but they chose to purchase a slower single-engine turboprop that lacked the non-stop range for about 40% of their trips.

    Their decision was based upon appearances. If the Generals saw the supplier with a turboprop single, they believed it would give the impression of frugality in their business and that their technology solution would also be judged as the cost-effective choice.

    Another client upgrading from a Turboprop chose a Mid-size jet over a Large-Cabin jet. The lower cost Mid-size jet would still meet 85% of their needs but also look appropriate to their shareholders.

    But it’s about more than just optics. Comfort plays a role, too. Another client evaluating Large-Cabin jets preferred the slightly smaller cabin alternative as it offered more cabin width, which felt roomier.

    The costs of the applicable options were similar, but in addition to having the slightly wider cabin his choice also had less range. Nevertheless, as the client was going to spend 400 hours per year on board, this was the right choice for him. Comfort was the deciding factor in this case.

    Business aircraft owners and operators all have slightly different criteria that they use for evaluating subjective qualities like comfort. When evaluating different aircraft, it’s important to decide in advance what criterion are important to you.

    Remember that numbers are very helpful but leave some room for the subjective.

    This article was originally published on AvBuyer on August 23, 2018.