Aircraft Mgmt 10-06 lyt

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Flight department options

                                                                                                                                             Photos by Jack Sykes
Charter/management is fine for some, but for most
companies the traditional model still works best.

Nationwide Insurance flight department’s front office next to passenger lobby at CMH (Port Columbus OH). (L–R) Capt Gary Landrum, Aircraft
Scheduler Judy Werts and Chief Pilot Mark Hente work on crew schedules for the next 2 weeks.

By Robert Seaman                               administration and support group—               aircraft purchases as those who
Contributing Writer                            and, of course, maintenance                     charter evolve into owners.
                                               resources. The model is small, lean,               While this may be seen as a
                                               multitasking and efficient.                     good thing—especially if you sell

        ot so long ago, the most                 The typical aircraft owner oper-              aircraft or the services and support
        important decision a busi-             ates an aircraft an average of 200              for them—it is not without its
        ness aircraft owner needed             hours or more per year. They own                detractors. For every owner or
to make related to which airplane              the basic support equipment (or                 operator who spouts the benefits
to buy. As the world of bizav has              have access to it through an FBO                of these newer concepts, there’s
evolved and grown, the number of               rental agreement)—and they go                   another who still finds that the tra-
options and support requirements               about the business of planning, exe-            ditional aircraft ownership model
has developed—and with it the                  cuting and supporting their flight              works best. As one unnamed inter-
cost centers involved in the owner-            activities on behalf of the owner               national operator states, “Basic-
ship, operation and support of a               and keeping the aircraft groomed                ally, you can be a great corporate
business aircraft.                             and maintained. This is more or less            flight department or a great charter
  Today, more than ever, there are             the tradition model. Some indepen-              operator, but not both. Only single
many ways for an owner/operator to             dent flight operators, in pursuit of            owner/operators looking for a way
focus on cost-effective aircraft own-          increased control and privacy, have             to write off the aircraft can be suc-
ership. In the words of an anony-              even built their own hangars and                cessful.”
mous chief pilot, “Remember that               office facilities.                                 George Rependa is based in
logic and aviation common sense                  In recent years, aircraft manage-             Toronto ON, Canada, where he
may not be a factor here. I believe            ment companies and fractional                   both sells corporate aircraft and
that for most companies perception             ownership have come along to                    operates as the “owner’s rep” on
comes first, followed by operational           challenge this model—at least for               completions, financing and man-
requirements and then cost.”                   some. What they have done, essen-               agement. In his past lives, he start-
                                               tially, is allow those who don’t fly            ed and ran a medium-size flight
Traditional owner/operator vs                  the hours once thought necessary                management/charter firm and was
third-party management                         to justify a corporate aircraft to              a corporate pilot in an owner/oper-
                                               enjoy the convenience and avail-                ator set-up. This qualifies him to
  Traditional concepts of corporate            ability without enduring the full               judge both sides of the story.
aircraft ownership/operations have             financial outlay. They have also,                  When it comes to the notion that
long centered around a flightcrew,             without question, served to drive               management firms take away jobs,

88   PROFESSIONAL PILOT / October 2006
in Rependa’s opinion this can be
argued in reverse. Each set-up has
its place, depending on manage-
ment style and level of comfort
with the flight department or man-
agement company. Rependa feels
that both scenarios are valid, and
that the choice of third-party man-
agement firm vs owner/operator
flight department is really up to
what the owner is most comfort-
able with, both personally and

Third-party management—
just about tax issues?
  For some owners, using a third-
party management firm is a way to
offset operating costs and, under
some circumstances, portions of
                                       The numbers tell the story when you add them up. Data from AvData—a JetNet company—
the possible tax issues. For others,
                                       shows traditional flight departments still predominate among corporate flight operations.
keeping it all in-house makes more
sense. Then there are those who
allow their personal needs and         department gives a company com-                Perceived third-party
wants to be the priority—the quick     mand and control of more of its                management negatives
access, privacy and even vanity. For   financials—there’s more account-
them these factors supersede any       ability to its bottom line. A tradi-             One negative view of manage-
interest in having someone else        tional flight department is not in the         ment companies frequently raised
manage their aircraft.                 business of making money—it pro-               by owner/operators is that they
  Some argue that a management         vides a service at a cost that the             actually take away corporate pilot
company can offer savings and cost     company is willing to accept. The              and aviation department manager
control that no single flight opera-   intangibles include confidentiality,           jobs. While the practice is not
tor can obtain or match. This is       responsibility and loyalty to the              widespread, it has certainly hap-
partly true for some overhead          company.                                       pened in the past, and many flight
items—you get the use of manage-         Northrop Grumman Dir of Flight               department rank and file tend to be
ment company staff, often a better     Ops Tom Ranney reflects the com-               very wary of them for this reason.
insurance rate based on their buy-     mon feeling of many owner/opera-                 Hand in hand with this, some
ing volume, and savings on fuel        tor flight groups when he states,              owners have actually found that
costs due to volume purchases.         “We like the hands-on or owner-                management firms take their chosen
  On the other hand, the accep-        ship method. It’s worked for us for            talent—pilots and flight attendants.
tance, stability and buying power      over 60 years with tremendous                  Having entrusted its own aircraft
of handlers and planners like Air      safety and reliability.”                       and crew to a management firm,
Routing, Baseops/World Fuel and          It is clear is that many owner/              some owners have found that the
UVAir, and of fuel programs such       operators have serious concerns                management company will occa-
as Colt and AVCard, have given the     about security. Beyond placing their           sionally reassign crewmembers to
single flight operation an opportu-    aircraft into separate or discrete             another aircraft—and not necessari-
nity to secure better rates and pre-   divisions of their respective firms,           ly with the owner’s agreement or
ferred service, and still keep con-    many just do not want someone                  consultation. Such action puts
trol. Many of these programs have      else knowing their business—and to             crews in a bad situation—that of
become integrated into the tradi-      this extent don’t trust any third-party        having to choose between their loy-
tional flight department through       management company system.                     alty and the owner’s trust and an
online programs, direct input and        In Rependa’s experience, the                 opportunity for advancement or
attractive pricing scales. In fact,    most persuasive reason to allow                promotion.
many flight management firms use       your aircraft to be used for charter
these same service providers.          is tax avoidance—not income.                   Experience as a teacher
Again, the choice comes down to        Most people who have the means
owner preference.                      to purchase such an asset don’t                  One of the big irritation factors
  A professional pilot may “have to    want their aircraft used by others.            between traditional corporate flight
believe” in the traditional flight     This is why most aircraft owners are           departments and flight management
department—but there are vari-         selective as to who uses their air-            providers emerged in Canada a few
ables, such as a company’s culture     craft. Security may also be the                years back, during introduction of
and its comfort zone with its share-   other reason for not giving the air-           the Private Operators Certificate
holders. The traditional flight        craft to the general public.                   (POC). At that time, the manage-
                                                                                           PROFESSIONAL PILOT / October 2006 89
VF Corp technicians aboard one of the Dassault Falcon 50s the company operates, bound for Georgia from GSO (Intl, Greensboro NC). For com-
panies like this, the corporate aircraft means getting people where they are needed right away—a hard task if your aircraft is out on a charter.

ment groups petitioned the                       keep this level of control over their             after the trip was logged and a
Canadian Business Aviation Associa-              asset, for both personal and corpo-               management firm that is not on top
tion (CBAA)—the group tasked with                rate reasons. It is something that                of the billing process may pass such
managing the POC process—to                      owners need to consider before                    fees along to the owner, as opposed
allow them to apply for a single,                jumping into this operations model.               to the charter trip account. This is
blanket POC that would cover all                                                                   not a frequent problem, but it can
aircraft under their umbrella of man-            With management options,                          and does exist within these rela-
agement and operation.                           who pays the bill?                                tionships.
  Individual private operators took                                                                   Some of these issues become a
extreme issue with this for several                 Some owners—albeit a few—                      matter for the lawyers—which
reasons, including the unfair appli-             have discovered the hard way about                means that everyone (except the
cation of associated charges and                 where their liability begins and                  lawyers) loses in the end. This high-
fees, and defining just who the                  stops. An example of this is when a               lights the need for very clear agree-
operator really was under these cir-             management company incurs debt                    ments and contracts up front which
cumstances.                                      on the owner’s behalf, and then                   specify where liabilities and trans-
  Enter the legal world and the                  doesn’t settle the account. Who’s                 fers of management begin and
argument really heated up, as issues             responsible?                                      end—and this is where legal money
of liability and ownership quickly                  In many cases, the firm which is               is best spent. However, for many
came into play. A final ruling deter-            owed the money turns to collect                   owner/operators, it is the potential
mined in effect that each aircraft               from the owner, who may in fact                   for problems like these that leads to
must have its own POC. The argu-                 have already paid the management                  them keeping control of the aircraft
ment runs that, while a manage-                  firm. Under such circumstances it’s               directly or through a separate but
ment company may be responsible                  not unknown for a debt from a                     affiliated company.
for the aircraft on a daily basis, it is         charter operation to become the lia-
not empowered to the point of                    bility of the owner.                              Fractional options
being able to become the responsi-                  Other issues, like overflight fees,
ble and liable party. This is an                 can also become a problem. While                    Some flight departments decide to
important consideration, as man-                 matters are generally better now, in              add supplemental lift to their mix.
agement companies frequently                     the past some owners have found                   The relevant questions are how,
position themselves as all-responsi-             themselves subject to such fees on                when and where to do it.
ble and all-powerful in their efforts.           their bill when it may in fact have                 While a fractional option could
  The fact remains that it’s the air-            been incurred on a charter flight.                provide for this sort of thing, not
craft owners who are ultimately on               The problem in this case stems                    one flight department manager or
the hook—not a third party they’ve               from the time of billing—many nav-                owner we interviewed was willing
engaged. In reality, owners need to              fee-type billings come through long               to admit considering it. In fact, the

90   PROFESSIONAL PILOT / October 2006
mention of a fractional provider’s
name often brought a stronger
response than those of charter/man-
agement firms. While some flight
department managers admitted to
engaging a charter for the odd job,
none seemed to feel that buying a
fractional interest would compli-
ment the traditional corporate flight
  The reason? Many feel that the day
of accounting is not yet in on frac-
tionals. Many people who use it are
reporting that fractional ownership
is very expensive. Once the growth
in new fractional sales slows, the
true cost of ownership will certainly
rise even higher—and that may
cause some customers to reconsider.

A future for the traditional             One of Yum! Brands’ 2 Bombardier Challenger 601s and its Gulfstream G200 in the company
flight department?                       hangar at SDF (Intl, Louisville KY). Yum!’s inhouse flight department has played an important
                                         part in the company’s continued expansion.
   Regardless of where one’s loyalties
lie—traditional flight model or third-
party management—it’s important to       ly, each company needs to take its               we free them from the hassle, abus-
appreciate the importance of each        time and solicit advice to find                  es and uncertainties of airline trav-
of the parts played by all the differ-   where the philosophy of the compa-               el—and we afford them the oppor-
ent participants in our industry, and    ny—or CEO—fits in best with the                  tunity to be more productive in
what they have to offer.                 industry.                                        much less intrusive surroundings.
   As one anonymous chief pilot             Only by using each other’s exper-             Naturally, this comes at a high
notes, as with all industries, there     tise and taking advantage of each                price—one that may ultimately
are predators interested only in         other’s strengths will we all survive.           exceed the capabilities or appetite
making fast money and not overly         To do this we need to stay focused               of some companies.
concerned with the health of the         on the ultimate common goal—                       One great thing about corporate
industry. Then there are the rest of     maintaining the safest aviation                  aviation is that it provides options.
us, who realize that we are ulti-        transportation culture in the world.             Business aircraft owners are normal-
mately all on the same team. Each           Whichever model we use—man-                   ly successful people who are accus-
partner in this team provides a valu-    aged or traditional—we must pro-                 tomed to being in control—or
able service that will meet some-        vide a safe, familiar controlled envi-           empower others who have earned
one’s needs. Just as each company        ronment for the owners for whom                  their trust to be in control for them.
ranks needs and priorities different-    we operate. By doing our jobs right,             The options available in the aviation
                                                                                          world today mean that you can
                                                               HEB flight dept            almost always find ways and means
                                                               Maintenance Mgr            to achieve what you want—when
                                                               Richard Sanchez (L)        and how you want it—and do so to
                                                               and Maintenance Tech       your personal taste. For the owner
                                                               Tim Rust check the         with enough money there is nearly
                                                               company Learjet 60’s       always some way to satisfy their
                                                               Pratt & Whitney
                                                                                          need and interest.
                                                               PW305A engines
                                                               between trips at home
                                                                                            But, first and foremost, it’s their
                                                               base SAT (Intl, San        decision to make. The rest of us are
                                                               Antonio TX).               just here to help.

                                                                                                            Rob Seaman is the
                                                                                                            President of BASS Inc
                                                                                                            (Business Aviation
                                                                                                            Service Solutions)—a
                                                                                                            Toronto ON, Canada-
                                                                                                            based provider of
                                                                                                            contract services for
                                                                                                            corporate aviation
                                                                                          clients. Seaman is also co-chairman of
                                                                                          the CBAA Ontario chapter.

92   PROFESSIONAL PILOT / October 2006

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