Within the private aviation industry there is a negative connotation associated with flight department outsourcing to an aircraft management provider. Much of this negativity stems from the history of aircraft management where providers lacked transparency and integrity, hiding fees in everything they could. When the aviation industry took a hit during The Great Recession of the late 2000’s, many companies with aircraft were also hit hard, finding themselves contracted with management providers heading toward insolvency, with no ability to control the destiny of their flight operations. As a result many companies lost the competitive advantage afforded to them by having access to a private aircraft or fleet.
What also resulted from the crash of the late 2000’s were some of the best management providers in the market, with significant capital invested in staffing, infrastructure, insurance, and reporting. Many management providers today, including Polaris Aviation Solutions, are now well positioned to not only manage a single aircraft, but also deliver significant value to larger, more traditional in-house flight departments.
Over the last few years I’ve heard a consistent set of concerns with regard to why an aircraft management model doesn’t apply to a larger fleet in a corporate operation. While some objections may be valid the majority are founded more upon myth and misinformation than anything else. In this article we aim to dispel some of those myths and provide an anchor in the reality of aircraft management for larger corporate fleets.
“Isn’t it just a re-branding exercise where you take a fee?”
No. Aircraft management companies typically provide a foundation of infrastructure services for which a client can leverage, preventing the need to build and maintain such infrastructure in-house. In addition, since aircraft managers are in the business of private aviation, the people, process, and technologies deployed are more likely to be industry leaders. Finance/accounting platforms, expense reporting systems, accounts receivable/payable process, emergency response planning, flight coordination, budgeting, and ground handling/fuel procurement are just a few of the dozens of categories which can be leveraged.
A more concrete example would be the ability to negotiate more favorable payment terms and pricing with maintenance service centers. Consider a faux company named ABC Widgets, Inc and their flight department consisting of 3 Challenger 300 aircraft. They utilize the Comlux service center in Indianapolis. Their ability to negotiate is good with 3 aircraft, however if they enrolled the Challenger fleet into a management program like that of Polaris, they would be in a much more favorable position. The aircraft manager in this case can now negotiate pricing and payment terms not only on behalf of 3 Challenger aircraft, but also their current 3 Boeing aircraft, dramatically improving the negotiating position of each owner.
A second example relates specifically to indemnification. When a client hires an aircraft manager, the staff and crew who operate the aircraft become employees of the management provider. The aircraft manager then indemnifies the owner from any legal action that may arise from the staff and crew assigned to the aircraft, protecting the aircraft owner from costly and time consuming litigation.
“The crew will all lose their jobs if we outsource”
This is the most common objection we hear, yet fortunately it’s a myth when it comes to most management providers. In order to ensure a smooth transition from in-house to outsourced flight operations, a reputable management provider will always work with the aircraft owner to ensure staff and crew necessary for operations are transitioned to the management company. While some aircraft owners use flight department outsourcing as an opportunity to right-size their crew and staff, this is more the exception than the rule. Typically compensation structures will transition along with the crew member as well. In some cases we’ve even found the benefits package to be better on the other side! Transitioning staff/crew employment to the aircraft manager will enable the them to become immersed in the aviation industry like never before, providing for unparalleled training opportunities, greater support infrastructure, and more meaningful career advancement potential.
“The level of service will be lost if we hire an aircraft manager”
This is also a very common myth, and couldn’t be more inaccurate. A primary premise of outsourcing is the ability to manage a third party such that if performance objectives are not met, there is a real risk the client will move their operation to an alternative service provider. That premise alone will improve the overall level of service, and will also spur a culture of continuous improvement. Furthermore, aircraft managers are in the business of aircraft management, and thus have access to benchmarking and best practices seen around the globe. Our philosophy is simple, let the aircraft owners focus on their core business, and the aircraft manager focus on providing a reliable, consistent, cost effective service to enable the owner’s core business.
“The principal cannot request certain crew”
Any reputable management provider will entertain a client request for particular crew members. Management providers are in the business of service, and understand that aircraft can often become an extension of the home. As such there is a level of trust that often builds with certain crew members, and it would not only be understood, but also expected that certain crew fly with certain passengers. In most cases a management provider will dedicate crew members to only one aircraft or passenger such that the principal never has to make a special request.
“We fly 2,000+ hours annually with 5 aircraft, it’s not financially feasible to outsource to an aircraft manager”
Generally speaking for each hour one operates an aircraft there is a corresponding fixed operating expense to support that flight hour. A simple example would be a flight operations software such as AVMOSYS, FOS, or PFM, where the fixed expense remains the same despite aircraft utilization. Whether you fly 1 hour or 500 hours, the cost of the flight operations software is essentially the same.
Given the example above it would be appropriate to state that fixed costs per flight hour reduces for each hour flown. In this case one could attempt to argue that a larger flight department with high utilization would make sense to operate in-house, but only when evaluating on the premise of operating in-house. It’s important to evaluate the cost per hour in-house vs. outsourced in order to get an accurate picture.
A management provider takes this concept a few steps further. Consider combining 2 equal flight departments with 2,000 hours and 5 aircraft, yet the software expense mentioned above remains static. Add to this the volume leverage a management provider has on the total cost of something like a flight operations software, which is typically at least a 20% discount. Now you’re not only leveraging the fixed expense across a larger pool of clients, but now the baseline cost of the software is less expensive. Additionally, you’ll find that most outsourced management models do not charge fees for use of their software, only a flat management fee.
On top of the example above consider other discounts on subscriptions, maintenance expense, and leveraged fuel contracts. If your flight department could save $2 for every $1 spent on a management fee without any degradation in service, would outsourcing the flight department be financially feasible?
“We don’t charter, there’s no need to outsource”
This is more of a business philosophy than anything else. I like to take the approach that any service unrelated to your core business or service offering is a candidate to outsource. Again, outsourcing doesn’t necessarily equate to loss of jobs, but rather a transfer of employment Certainly in the sphere of aircraft management there is value in leveraging an aircraft managers Part 135 certificate to offset fixed costs via charter revenue, however beyond that there is still value in the form of opportunity costs.
Using the faux company discussed earlier, ABC Widgets, Inc, let’s consider their core business of manufacturing widgets. Widgets have nothing to do with aviation, however the business does require travel in order to operate and remain competitive. The company utilizes various forms of transportation to enable its people to be successful, including commercial travel, car service, taxis, and car rentals. Each one of those is an example of outsourcing. ABC Widgets, Inc wants to focus on the changing technologies and methods within its own industry, not to mention continuous innovation to remain relevant in the highly competitive widget industry. They have no interest in operating an airline, car service, taxi company, or car rental business. Utilizing these service providers allows the business to have a more keen focus on what’s most critical to the widget business, and not the logistics, regulatory requirements, and other components of transportation services. Why not do the same with an aircraft?
Leveraging overhead infrastructure, reducing employment risk, crew consistency, meaningful career opportunities, and operating expense reductions, all while enabling a more keen focus on the core business. Is now the time to consider aircraft management?