Benchmarking for Business Aviation

 

Benchmarking is much more than asking a golfing friend questions about his Flight Department.  It is a disciplined approach to measuring performance.

You cannot manage what you do not measure. Benchmarking is a measurement against a norm or set of standards. It is a management tool for assessing an organization’s performance against its stated goals. Internal benchmarks relate to key performance indicators established by management.  External benchmarks are measurements against the performance and norms of firms in the same or related businesses. You can benchmark against an industry standard or benchmark among peers.

Benchmarking against an industry standard is helpful to see how your company compares to an external set of best practices or measures. You need to know the basis for the standard since measurements should compare apples with apples, not oranges (so to speak). For example, benchmarking against a standard set of aircraft operating costs is common.  To be meaningful, however, you must know how the standard is calculated and what are the assumptions.  When benchmarking with other Flight Departments, ask your peer to explain how his or her metrics aligned with the means you use to calculate costs.

Peer-to-peer benchmarking can be useful when the peer group is comparable.  A manufacturing company benchmarking with a pharmaceutical company may not yield a fair comparison. What are the organizational, cultural and strategic elements of the peer group? Are they all public companies? Does everyone in the group fit in well organizationally? No two companies can compare exactly, but vast differences among peer companies can lead to misinformation or poorly stated and understood benchmarks.

Four Elements of Good Benchmarking

Benchmarks must be relevant. Average passengers carried is a great measure for a passenger shuttle operation. But if the business aircraft is used to carry the CEO and family as part of a security program, load factor is of little relevance.Also, what you benchmark should be impactful as it relates to your corporate goals or industry practices. Who can authorize the use of the aircraft? Do you have chargebacks for the use of the aircraft and if so, what are they based on? How your Flight Department compares to others can be insightful only if the measures and benchmarks used align with your own organization’s goals.
A benchmark should be simple to collect. For example, you and your doctor feel that you are carrying too much body fat. You can either take a number of body measurements with calipers, do a bioelectrical impedance analysis, or you can just step on a scale. Which measurement will help you lose weight most effectively and with the lest effort? Your Flight Department already counts things like hours flown, passengers carried, destinations served, etc. Comparing those figures with the performance of Flight Department in the same region of the country and in a similar business is a simple way of assessing performance.

A benchmark measure also needs to be consistent. When you are benchmarking things like costs, how they are calculated and compared must be consistently measured with the same yardstick. For example, what you are paying for aviation fuel can be misleading. Operator A buys fuel at its local airport fixed base operator (FBO) and pays $4.50 per gallon. Operator B just installed a private fuel farm and pays wholesale $2.50 per gallon. But excluded from Operator B’s fuel figure is the cost of the fuel storage tank and fuel truck used to refuel the aircraft. Consistency year-to-year is needed in order compare performance over time. A benchmark’s definition may need to change to reflect changes in how business is done, but be careful that the usefulness of the historical trend remains intact.

If you step on the scale, you’d better be prepared to do something about it.

Perhaps the most important element of effective benchmarking is what you do with the data.

Benchmarking should lead to action, or at least the contemplation of action. If you benchmark salaries and find that your department wages are below the national average or below your peer group average, you may wish to look at increasing salaries and benefits (especially if you have high employee turnover). Being above or below the norm in a benchmark should lead to the question why.

Benchmarking Must Align with Company Goals

Your company’s strategic goals and mission determine how you benchmark. A utility company with nuclear power plants has one aircraft and crew on standby 24-hours a day in case of an emergency. They have a different requirement for how many pilots to employ versus a company that uses their business aircraft during normal business hours, five days per week. You need to determine benchmark criteria that relate to the outcomes your company wants to achieve.

Benchmarking can be a powerful tool that can help your flight department stay focused on the corporation’s goals and provide feedback critical to improving the quality of the services provided.

 

 

 

 

Benchmarking for Business Aviation

The Virtue of Data-Driven Management

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That which is measured improves…

For aviation professionals who fly with precision and leaves nothing to chance, it is time for them to apply metrics in their managerial duties.

Conventional Wisdom has a quaint, comforting sound to it. Unfortunately, when challenged or tested, much of it can be found to be based on half-truths. Aviation is a science. Professional pilots pride themselves on the precision of their flying. The management of the flight departmental also requires precision. Thus, as a Board, you should be looking for useful ways to measure your Flight Department’s performance and the value of the company aircraft as a business tool.

One area that is ideally suited for measurements is the maintenance condition of the aircraft. Scheduled Airlines were the first drivers of reliability-centered maintenance. Conventional wisdom years ago suggested that old parts fail most frequently and that the best way to prevent a problem was to over-build a part initially and replace it while much of its useful life remained.

Research driven by data and expanded over many years led to aircraft maintenance systems that now are both robust and cost-effective. Today, parts are replaced when their condition warrants replacement—hence the name “on-condition” for such a maintenance protocol. Business Aviation was late to adopt this view, but today this community is a leader in data-driven maintenance.

In particular, the civil helicopter community has taken a leadership role in maintenance monitoring with Health and Usage Monitoring Systems, typically known as HUMS. With over a decade of experience, the civil helicopter industry has discovered that not only does aircraft reliability increase when aircraft condition is monitored, there also are benefits to safety and operational control too.

CAMP Systems started out with basic computerized maintenance tracking. Today the company has developed advanced systems for tracking and reporting the maintenance condition of the aircraft, and has expanded into engine health monitoring for Pratt & Whitney and Honeywell engines. Other third party companies also work on data collection systems for business aircraft.

Factory Furnished Equipment
Meanwhile, Gulfstream’s PlaneConnect is an aircraft health, trend and monitoring system that collects reams of data on the aircraft’s status and datalinks that information to the maintenance team on the ground for analysis as the aircraft begins its descent for landing. Thus ground crews are aware of any issue that must be addressed prior to the aircraft’s next departure.

Dassault Falcon is implementing a similar system with its newest models. The Falcon 5X will be equipped with an on-board self-diagnosis system called FalconScan, which will monitor the aircraft systems and collect about 10,000 parameters in real time. The technological advancement that has enabled monitoring of aircraft condition is the ability for near instant communication. The Internet, Wi-Fi, cellular data and satellites have provided real-time data collection and reporting to the flight department.

Today, Business Aviation recognizes the use of data tracking for maintenance. In fact, it is difficult to sell a turbine airplane that does not have some sort of electronic record keeping and maintenance reporting. For the aircraft and engines, we are moving toward measurements and data reporting in real-time.

But there are many more opportunities to make use of data in the management of the aviation operation. Tracking internal engine temperatures can lead to better understanding of the wear inside an engine. Tracking the operations of the flight department itself can also yield valuable metrics that aviation managers can use to minimize fuel burn and fly more efficiently.

While quality control engineer and statistician W. Edward Deming is often credited with saying “What you don’t measure can’t be managed” (he didn’t), measurements for measurement’s sake leads to data overload and an inability to see the trends that matter. With regards to measurements, the corollary statement is, “If you step on the scale, you’d better do something about it.” Raw data without a system for analysis and a mindset to use the information data provide, are of little value.

Management’s Role
Data-based management starts at the top. A corporation thrives on profit and loss. Management has a number of metrics that indicate not only the current profitability of the company, but trends that will affect long-term profitability. What are some of the metrics your company uses for its various business units?

Yardsticks need to be tailored to the business function. A metric that works for Human Resources might lack meaning and usefulness in the manufacturing process. What are the metrics, or “keep” measures, that can help determine how well your flight department is doing its job?

Business Aviation is a means of transportation for the firm’s personnel and clients. As such, immediately after safety, service should be your Flight Department’s top priority. Measuring customer service, however, is not a familiar activity. With safety, accidents are a terrible measure, but they are indeed a metric. Organizations that value safety seek smaller measures like incidents as well as processes and procedures that are not followed properly, to track their quest for safe operations. Using such measures, intervention can be instituted before tragedy happens.

The concept of developing and using metrics can be applied by the aviation manager to identify problem areas before they become debilitating. Successes also can be measured. Knowing what to measure and tracking trends will yield small, but meaningful improvements.

Data to be measured can be more than hours flown and passengers carried. Things like denied trip requests and days the aircraft is unavailable due to maintenance can lead to a discussion of whether the current aircraft is adequate or whether it is time for another aircraft. Tracking sales made by passengers flown on the business aircraft as well as new contracts signed as a result of meeting with clients also are very important metrics of a business aircraft’s usefulness.

Flight departments should be led by managers who appreciate the need to be data oriented. Part of this mindset comes from the corporation’s culture. I’m working with several companies to develop and maintain various metrics that the flight departments can use to improve the levels of service as well as better manage their costs. Staffing, additional duties, and days away from home are also being looked at by this group. Using a data-driven philosophy, the group is making positive progress to improve as a flight department and service organization for the corporation.

Just as the flight department needs to focus on supporting the goals of the company, so must metrics support the ability of the flight department to use their assets wisely and cost effectively. Organizations like the National Business Aviation Association and Helicopter Association International are supporting these measurements though education and industry cooperatives. The leadership of this effort comes from forward-looking aviation managers who understand and support the needs of the corporation.

The Virtue of Data-Driven Management

Making the Upgrade/Replace Decision

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This post examines whether upgrading or replacement of your business aircraft is appropriate.

The owners of a 10-year old light jet were facing the possibility of significant avionics upgrades in the next few years. They were also considering replacing the aircraft during the same timeframe. While the upgrade would add value to the aircraft and might make it easier to sell, what path was best for the owners?

There are many types of upgrades available for popular aircraft that can change them from unacceptable burdens to mission capable assets while reducing their costs of operation. When does it work to do the upgrade, and when doesn’t it?

Certain avionics upgrades may be required just to keep an aircraft flying. The FAA “NextGen” navigation system is requiring new avionics equipment be installed by 2020 to allow aircraft to use the air navigation system. Modifying the aircraft can be costly, especially for older models with low values. Some aircraft may require even more avionics upgrades to operate globally, especially in Europe. Do you do only the FAA-required upgrade and avoid trips to Europe? Do you acquire a new aircraft? Your flight department must consider several options to evaluate the upgrade/replace decision.

When to Do the Upgrade

Upgrades fall into two categories: adding new safety features and adding new capabilities. Certain upgrades associated with the FAA’s NextGen program will be required by 2020 just to maintain the aircraft’s operational viability. Either you spend the money or sell the aircraft for parts. If you require new avionics but don’t need the advantages of a new aircraft, such as more range, speed or cabin volume, the upgrade path may work. Possibly you seek to add performance, such as better fuel efficiency or range. Companies like Aviation Partners, Raisbeck and Blackhawk have been quite popular for many years. They, and others, have aerodynamic and engine upgrades that allow your current aircraft to fly faster, further, or both. Sierra Industries offers Williams engine upgrades for older Citations that add speed and range.

Nextant Aerospace is remanufacturing older Beechjets into Nextant 400XTi’s – complete with new engines, new avionics and a new interior. Nextant is being joined by an engine upgrade from Textron. Other companies offer engine modifications as well. There are a number of avionic upgrades available from Avidyne, Garmin, Honeywell, Rockwell-Collins and others. Third party specialists are also doing modifications that range from updated navigation gear to a full (glass) panel replacement. When looking at new systems, consider what the current variant of your aircraft (or closest relative) has for its avionic system. Done right, these systems enhance both safety and reliability.

For the passenger cabin, interior specialists offer all sorts of options for in-flight entertainment and airborne Internet as well as new seat designs and modern materials.

It’s Personal
Before you undertake such a major project, however, here are some things to consider:
If you need “more” as in seats, payload or room, your only true alternative is acquiring a larger aircraft.

Aircraft age is also an issue. Older aircraft cost more to maintain than newer ones. Wear and tear items, aging aircraft issues, and engine overhauls all drive costs up. Your aircraft must be in excellent mechanical condition and essentially free of corrosion, otherwise don’t consider the upgrades.

Some upgrades add value to your aircraft while others add value only to you. With today’s market, do the upgrade if it has value to you. If it has value in the market place, so much the better but do it primarily for you. Unique is great with art, not with aircraft. Stick with established programs with a successful track record. Do equipment upgrades that mirror the new models or closest equivalents. Those will tend to have the best impact on resale value and also maintenance supportability.

There is a trade off between putting money into an existing aircraft and replacing it. A decade or two ago, you could always avoid the upgrade analysis and sell the aircraft to a buyer outside the US. That is not so easy anymore. Countries in South America, Africa and Asia are upgrading their air traffic and navigation systems. Many of them are looking toward Europe’s airspace as their model. In today’s economic conditions, spending money on an upgrade may not result in a 100% return on the investment, especially on older turbine-powered airplanes.

For example: upgrading the engines on a King Air C90 can run to over $700,000. A 20-year old C90B sells for just over $1 million. Looking at today’s market, its doubtful that the upgraded C90B can recoup 100% of the upgrade at resale. The engine upgrade will add to the aircraft’s value, but don’t do it just to resell the King Air after the retrofit. The likelihood of recovering all your money is very low. Do it because it adds value to you. If you are upgrading just for a significant mission, but that mission is infrequent, consider the alternative. It might be more cost-effective to charter an aircraft for the occasional European trip rather than upgrade your company’s existing aircraft.

Budget carefully and talk to other operators who have done the same upgrades. Ask your accountant to run the numbers, including all tax considerations as well as your cost of borrowing the funds needed to upgrade or replace. As long as your current aircraft is in excellent mechanical condition and you plan to keep it for the next few years, the added utility and flexibility of the upgrade may add all the value you need.

Making the Upgrade/Replace Decision

New or Pre-owned: Part 3 — Financing

This concludes the 3-part series of pivotal considerations for companies and entrepreneurs seeking to acquire a business aircraft.

In the previous articles of this series, I touched on only two aspects of the new vs. per-owned question: acquisition cost and operating costs. While those are two significant areas in arriving at a purchase decision, we always recommend looking at the full life cycle cost of owning and operating the aircraft.  Some fixed costs such as crew salaries, hangar and liability insurance may be unrelated to the new-vs-pre-owned question. But what about financing the acquisition? Are there more favorable terms for new aircraft? What about residual value of the aircraft at the end of your ownership? For business use, taxes and tax depreciation are also important.

Financing

When looking at the costs to acquire, operate and dispose of the aircraft, used aircraft can often have a significant cash advantage. Consider the new and five-year old mid-sized business jets we used as illustrative in Parts 1 and 2 of this series as an example:

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New aircraft tend to secure better financing or leasing rates than pre-owned equipment. Post-2008, aircraft values took a major tumble, and they have not fully recovered. Newer aircraft remain on the market less time than older aircraft. Several aviation finance experts believe that the aircraft must be less than age 20 at the end of the finance/lease term for the deal to be financially safe. While that advice is a generalization, financing terms and rates support that position.

Financial institutions do not mind taking a residual value risk on an aircraft that is five or ten years old at the end of the lease or finance term. They are much more wary of 20-year and older aircraft, however. For a new business aircraft, 100% financing at low single-digit rates are available for the best credit risks. Older aircraft tend to require 20% to as much as 50% down to secure financing. Lease rates and terms also favor the new business aircraft: a 10-year lease on a new business jet is not a problem, while the bank may balk at longer than five years for a 15-years old business jet.

This fact of financing recognizes that selling a newer aircraft in excellent condition is easier than selling a much older aircraft, even when it is in very good condition. As one example, according to AMSTAT, older Challenger 601-3A models for sale take longer to sell then their new variant, the model 605.

Aircraft                    Percent Fleet for Sale         Average # Days For Sale       Years Built

Challenger 601-3A             12.21%                     495 days                                   1987 – 1993

Challenger 605                    8.55%                      275 days                                    2007 – 2014

In general, newer aircraft sell quicker than their older brethren.

Depreciation: 

Tax Depreciation can narrow the new-versus-used price gap. But the tax advantages are greatest for the first time buyer of the new aircraft. How?

If the aircraft is 100% used for business, 100% of the acquisition price can be depreciated as a business expense. The United States Internal Revenue Service (IRS) allows full depreciation in as little as five years for non commercial operators. Depending on the tax law and whether you can qualify, there has also been a 50% bonus depreciation law that allows up to half the purchase price to be taken in the first year of use for the aircraft. That feature is not available for pre-owned aircraft. So the tax depreciation in the first year of service may allow for a $13.3 million deduction for our new aircraft example. The used aircraft does not qualify for other than the standard IRS allowance. (Note that accelerated depreciation only changes the timing of depreciation, not the duration or amount of total depreciation.)

Aircraft Maximum tax deduction during the first year following acquisition (US)

  • New $13,300,000 if qualify for 50% Bonus
  • Used $ 2,600,000 (MACRS 5-Year)

At a 35% tax rate, the new aircraft with bonus depreciation can have a tax advantage of $3,745,000 ($10.7 million depreciation difference at 35% rate).

This situation often skews the analysis if only the first year is considered.

What happens when you sell the aircraft?

There are two options depending on your subsequent actions regarding aircraft ownership. There will be a capital gains tax on the difference between the sale price and the depreciated value of the aircraft that can negate a significant part of the early deduction. In order to avoid having a capital gains tax on the aircraft sale price less depreciated value, you may be able to defer the gains tax with a 1031 Like Kind Exchange. But in deferring this gain, the basis of the next aircraft you purchase will carry the impact of the depreciated amount, thereby making you unable to depreciate the full value of the replacement aircraft. This can get quite complicated and requires the advice of a tax expert. The huge depreciation advantage of the new aircraft is really only useful in the initial purchase year; its value lessens over time.

Tax planning overseen by a person knowledgeable in the ways of the IRS is required.

Looking at the costs and assuming 100% business use and a 35% tax rate:

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Source: Vref for aircraft values, Conklin & de Decker Life Cycle Cost for operating costs

In the example shown above, the pre-owned aircraft has a net after-tax advantage. This benefit, however, may not always hold true. That is why we always recommend looking at the life cycle costs for each option. Taxes and financing/leasing options may favor one option under particular circumstances.

In summary, new versus pre-owned should take into account mission requirements, aircraft capability, owner preferences and life cycle costs. It can be complicated, so having a consultant’s help can make the decision easier.
Remember to focus on the objective—safe and efficient transportation using a business aircraft.

New or Pre-owned: Part 3 — Financing

New or Pre-owned – Part 2, Pre-Owned

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This is part two off of a three-part series on evaluating options for achieving the benefits of Business Aviation.

Acquisition price is the biggest reason for selecting pre-owned versus new. Since the 2008 recession, the spread between new and used prices has increased. For example, a popular mid-size business jet sells for $26.6 million in 2015. According to Vref Aircraft Value Reference, the 2010 model currently sells for under half that price, at $13 million. A 10-Year old model value is $7 million.

Mid-size Business Jet

Price New = $26.6 million

5-Year old model = $13 million (49% of new)

10-Year old model = $7 million (26% of new)

Rather than buying the same model aircraft new, another option is to upgrade to a large pre-owned aircraft using the same $26 million. We do not normally recommend this option, however: you should buy the aircraft that meets your needs and that you can afford to operate. Operating a large aircraft will cost more, sometimes much more.

Another advantage of the pre-owned aircraft is the time to put the acquisition into service. Popular new aircraft can have waiting times of 12 to 18 months or longer between order and delivery. Even if the new aircraft is in stock, selecting interior appointments and equipment options will take time. A pre-owned aircraft can be put into service quite quickly, depending on the time needed for the financial, legal and contract processes, plus scheduling and accomplishing a pre-buy inspection. For a cash deal it may be possible to put an aircraft into service in a matter of weeks.

Budget for upgrades. You may spend $300,000 to $500,000 in new avionics, repainting the aircraft, and perhaps refurbishing the interior, so budget accordingly. Paint is cosmetic and easy to change. As long as the interior is in good physical condition, new soft-goods (leathers, fabrics, carpets, etc.) are relatively inexpensive and easy to change. New avionics for an aircraft manufactured in the past 15 years or less, while not inexpensive, tend to be technologically feasible and able to meet all the future air navigation requirements. These upgrades to the used aircraft also add value when it comes time to resell.

 

 
Operating costs will be higher for the pre-owned aircraft compared with new equipment. The used aircraft probably is no longer in warranty. If an item needs an unscheduled repair or replacement, you are likely to bear the full cost. New parts do come with warranties, but they are far shorter than the new aircraft warranty coverage. An aircraft’s life is measured in flight-hours and cycles (or landings). Even a 10-year old aircraft with 4,000 hours is still young if it has been maintained properly.

As aircraft age, they tend to require more maintenance. For example, one large business jet has routine scheduled checks every six months or 300 hours. These are relatively minor. Every six years there is a major inspection that costs upwards of $500,000. The likelihood for unscheduled maintenance also increases with ag. Our Conklin & de Decker data suggest that the maintenance costs for an older aircraft can be 25% to 50% higher if it has been in service for 5 to 10 years. For a mid-size business jet, maintenance costs (excluding the engines) can add about $200 to $400 per hour to the averaged maintenance cost reserves, compared with a new aircraft of the same design. So for our hypothetical medium-cabin business jet, purchasing used adds about $300 per hour to the operating costs and requires $500,000 expense to put it into service. How is this cost package still an advantage?

The $13.6 million saved by purchasing pre-owned will easily cover the extra maintenance and refurbishment costs over the next ten or more years! The differences in the operating costs by themselves do not negate the pre-owned option. Part of the higher expense of the new aircraft does get returned when the aircraft is sold, however.

Do not overlook the fact that the well maintained used aircraft also loses less in terms of absolute dollars in its market value. When looking at the costs to acquire, operate and dispose of the aircraft, pre-owned aircraft can often have a significant cash advantage.
So in terms of cash, the pre-owned aircraft in the example presented here should stimulate thought, but the devil is in the details, so they say. We always recommend a thorough life cycle cost analysis as the numbers can be very different for each case.

New or Pre-owned – Part 2, Pre-Owned

Buy New or Pre-Owned (Part 1)

Part One – Buy New

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Today’s consumer of Business Aviation is sufficiently sophisticated to explore the spectrum of available aircraft, new and pre-owned. Starting with this article, here is a three-part series on factors to consider when choosing between these options.

Business jets are certified to the same standards as commercial airliners, yet they typically operate a small fraction of the hours flown by the Scheduled Airlines. Airliners remain in service for decades and are commercially viable well beyond 50,000 flight hours. Thus it is understandable that a pre-owned business jet, properly maintained and updated with required avionics and safety features, is a plausible option when a company or entrepreneur is contemplating multi-million dollar purchase of a business aircraft. Certainly the prudent purchaser looks at all possibilities that provide the advantages of Business Aviation.
When evaluating a business aircraft, the best advice is to select equipment that fits your mission and can be acquired as well as operated within your budget. General wisdom also suggests that pre-owned aircraft cost more to operate, and new aircraft cost more to acquire. As always, there is more to the story. In this three-part article, I’ll explore factors to consider when contemplating purchasing new and considerations when evaluating pre-owned. Furthermore, this series will address what the analysis should involve.
One caveat before we begin. Aircraft are not like automobiles. A 15-year old family sedan with 250,000 miles (400,000 km) is probably at or near the end of its useful life. A new set of tires probably doubles the used sedan’s value, so economically it makes little sense to spend much money keeping it available for transportation. Aircraft, by their design and by the fact they are maintained to exacting tolerances, have useful lives well past 50 years. An aircraft’s life is measured in flight-hours and cycles (or landings). The typical life span of an aircraft can be 50,000 or more flight fours. The DC-3 transport ended production at the end of World War II (as the C-47). TransNorthern Aviation still operates DC-3 aircraft in commercial service in Alaska.
For our discussion, we will be considering “pre-owned aircraft” as those models built in the last 15 or so years that have quiet, fuel-efficient engines and modern avionics.
Why buy new?
While the salesperson jokes nothing beats that new airplane smell, there are many reasons why new is the way to go. New aircraft may be more capable than their predecessors. The Gulfstream G650 has a one-third larger cabin and greater range than the Gulfstream GV-SP. It also provides an advanced cabin-pressurization system that makes those 14-hour long trips even more comfortable. If you need that G650 capability, the GV-SP business jet doesn’t suffice.
New aircraft also come with new technologies that make operating them less costly and potentially more versatile than models available a few years ago. Head-up guidance and synthetic vision can give the pilot the equivalent of a daytime view when landing in poor visibility (surely a safety advantage). Navigating in North America, Europe and across the oceans have evolving requirements for more accurate navigation equipment. The US Federal Aviation Administration “NextGen” navigation system requires new avionics that come with new aircraft.

You also get to choose the options you need, along with interior layout, colors, fabrics and other appointments. While somebody may like the colors of that purple and green aircraft, you may not. This situation is also important if your aircraft needs to match the corporation’s colors or if you have several aircraft with a common livery.
Maintenance monitoring systems and computerized features available on today’s models make troubleshooting the new aircraft a matter of looking up an error code. Line replaceable units make swapping out some equipment as easy as swapping a hard drive on your desktop computer. Cabin connectivity such as high-speed internet as well as anti-noise and anti-vibration technologies have evolved with smart cabins. Today’s aircraft are rapidly becoming an extension of the home office.
Warranties
New aircraft come with full warranties. While new equipment tends to be more reliable, it can be costly to replace. The warranty gives the owner piece of mind that if components fail prematurely; the repair or replacement is covered. New aircraft have reduced maintenance costs. This fact is not just because of warranty and better technology, but also because of the manufacturer’s continuing refinement of required maintenance schedules and reliability centered maintenance practices.
In order to maintain aircraft safety, as aircraft age they tend to require more intense inspections and preventative care. Aircraft that spend a lot of time operating in corrosive environments need more care, for example, and as they age these requirements increase.
The lower required maintenance of new aircraft also mean they can fly more. Aircraft Availability is defined as a percentage of days an aircraft is available for flight in an operating year. (Aircraft Reliability is the percentage of times an available aircraft can be dispatched when available for service. This number is higher, sometimes measurably, than Aircraft Availability.) In order to keep an aircraft reliable (not to mention, safe) requires maintenance. When the aircraft is in for maintenance, it is not available for flight. If an aircraft is down for maintenance three weeks in a year, its availability is 94% (i.e., 49 weeks out of 52-week year).
As aircraft age, unscheduled maintenance increases. More maintenance usually is required to keep a high rate of reliability once the aircraft has been determined to be available. Time in the hanger or maintenance shop detracts from the aircraft’s availability for flight operations. Data researched by Conklin & de Decker show that availability drops from the 95% range for new aircraft, most noticeably after 20 years of age. Average availability is about 70% at age 25 and 55% at age 30.

Aircraft Age                     Maximum Availability
0 – 20                                 years up to 95%
25 years                             up to 70%
30 years                             up to 55%

For the above reason, we rarely recommend a business aircraft operator keep their aircraft beyond age 20.
Replacement Practices
Several of our clients replace their business jet aircraft within six years of purchasing new. With that policy, their aircraft are always in warranty and the aircraft’s first time-intensive maintenance check occurs in year six. That practice easily provides for 600 to 700 hours of flight operations per year per aircraft.
In the next article I will address factors to evaluate when considering pre-owned business aircraft.

Buy New or Pre-Owned (Part 1)

Charter: An Option with Many Dimensions

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When your company’s travel needs are diverse and the frequency of demand for any specific mission does not support a dedicated business aircraft, charter may be the optimum choice.

 
A recent client presented a very interesting challenge. About 40 percent of their private air travel is less than 200 miles, much of it to short runways at airports that are conveniently located to their plants. Another 40 percent or so is in the 800 to 1,500 mile range to visit regional offices. The typical passenger load on these trips is three to five persons with minimal baggage, and the short trips are always out and back in the same day. The last 20 percent of their travel is long range (in excess of 2,000 miles) and although loaded with only five or six passengers, there is considerable baggage on those trips. No one aircraft seemed a best fit for all the company’s travel needs.

 
Any aircraft that could fly the long-range trip could easily handle the intermediate range travel, but finding a long-range alternative capable of the short-range trip was not practical. There were several aircraft models that, lightly loaded for the 200 mile trip, could land and take-off from a few of the shorter runways, but most short-range missions with a long-range aircraft would require operating from larger airports more distant from the desired destination. Furthermore, the acquisition prices of the long-range alternatives were $18 to $25 million and their operating costs were relatively high.

 
There were aircraft capable of the intermediate range trips that could also do the short hops. Their acquisition prices were $7 million to $9 million, and their operating costs were lower than the long-range jets. But they would require a fuel stop on the long-range trip, and the passenger cabin (even with only five persons aboard) was too small to accommodate people and baggage appropriately.

 
For about $3 million to $4 million, a turboprop airplane was very cost effective on the short trips and could easily handle the shortest of the runways at the company’s intended destinations. But the slower speeds of the turboprop made the intermediate trips longer than the client wanted. Furthermore, due to its faster speed, the business jet’s cost per trip was actually very close to the trip cost of the turboprop.

 
With the company’s total utilization and mission profiles, acquiring more than one aircraft was not cost effective.

 

 
Examining Options

 

One recommendation was acquiring a light jet for the short and intermediate range trips and added supplemental charter for the longer trips. Full aircraft ownership for any mission, however, wasn’t cost effective when the company’s frequency of specific needs was analyzed. Thus a second option was chartering three different aircraft that were optimized for each trip.

 
Upon analysis, the client was ideally suited for the all-charter option to address differing trip lengths and baggage requirements. The company had experience chartering various aircraft and had identified several preferred charter operators to provide lift. One offered the light-twin turboprop needed for the short trips. Two other charter companies operated jet aircraft suitable for the longer-range missions. Charter fit all the company needs well.

 

Charter is a flexible option for company travel. My client was able to pick the right aircraft for each mission. If they end up flying more frequently than they do now, ownership might make sense for them in the future, possibly with a light jet for the short and intermediate range trips and adding supplemental charter for the longer trips. But for now, the client needed the option of low utilization and high flexibility that charter provides.

 
Charter as Supplemental Lift

 

This type of flexibility works even for those who own their own aircraft. A chartered aircraft can be the second aircraft when needed, since acquiring another aircraft for a slight increase in utilization does not make fiscal sense. Charter also serves as a means of evaluating the need for new or additional aircraft.

 
Include Jet Card memberships as part of your assessment of the charter option. Cards offer flexibility since card holders pay only for the flights flown and competitive rates can be customized to meet the holder’s needs.

 
Fly on non-peak days and need a lot of one-way trips? Fly only between major metropolitan city-pairs? There may be a charter plan and a business aircraft just right for you.

Charter: An Option with Many Dimensions