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Special Focus – Aircraft Management: Rising regulation drives aircraft owners under protective wings of experienced managers
Owners may find little difficulty in basing the choice of an aircraft management company solely on practical and commercial considerations. However, it can be more difficult to be wholly objective when deciding whether to charter out an aircraft, especially if it may be required primarily for company or for personal use.

Owners may find little difficulty in basing the choice of an aircraft management company solely on practical and commercial considerations. However, it can be more difficult to be wholly objective when deciding whether to charter out an aircraft, especially if it may be required primarily for company or for personal use.

Some owners do not like the thought of others using their private aircraft and prefer not to take the income. Others might decide, for business efficiency reasons, that they want 100 per cent availability of their aircraft. But where income to defray operational expenses is the priority, owners might have to accept that maintenance and charter have to sometimes be put first before owner use.

However the first decision is almost invariably based on whether it is profitable as well as convenient to have the aircraft professionally managed. During the recessionary times of the past few years many owners have been tempted by cut-price offers but established management companies confirm there has since been a trend to put quality, and agreements that last, top of the list of requirements (Abelag and FlyingGroup, EBAN July 2010).

Their assessments are confirmed by Mike Hamlin, md of Hamlin Jet, who says owners should check that management companies have been around for a few years and have a good reputation.

Hamlin adds: "They should also check that the prospective management companies have up-to-date experience and systems in place for dealing with all current, and future, regulatory and environmental issues. It is equally important to ascertain their crew experience criteria and confirm that they have a current contract with one of the major simulator training providers. It is always advisable to get a reference from one of their long standing customers."

The "flight to quality" is said to have intensified after owners found that some management companies did not have the resources to maintain the special deals that were offered to attract business.

Growing fleets

ExecuJet Middle East has recently added two new Challenger 605s to its managed fleet. "Further aircraft are expected to join the fleet over the coming months, taking the total number to well over 20 aircraft," says md Middle East Mike Berry.

Berry says ExecuJet Middle East has seen a strong recent increase in demand for wide bodied aircraft on the charter market which has in turn led to record numbers of movements in their Dubai FBO over recent months, with figures continuing to increase. The group manages 150 business jets worldwide and holds eight regional AOCs.

Berry says: "Owners want maximum availability and minimum downturn where their aircraft are concerned. It is especially important where long haul operations are concerned to have a good global choice. ExecuJet has many authorised maintenance facilities throughout four regions, certified to work on most business jets. The group also operates six FBO facilities in Berlin, Zurich, Cape Town, Johannesburg, Dubai and Kuala Lumpur."

The UK-based PremiAir sees aircraft management as a significant contributor to its continued growth in business aviation. It also stresses its maintenance capability. PremiAir has taken over the management of a fleet of Learjets and has also acquired a new private jet operating and maintenance base at London Biggin Hill. "This follows the launch of private jet charter and management operations earlier this year and boosts the number of our UK operating bases to six," says group md David McRobert. An additional 50 jobs will be created to support the new Biggin Hill operation.

The acquisition for an undisclosed sum from Gold Group International sees PremiAir's sister company von Essen Aviation take ownership of a number of Learjet 45s. PremiAir's maintenance business will take over the Biggin Hill facility, which is an EASA approved specialist Learjet 40/45 and Challenger 300 maintenance operation. "The Biggin Hill facility becomes PremiAir's second fixed wing maintenance operation and will be an important base for private jet and executive helicopter charter operations," says McRobert.

"We're the largest executive helicopter charter, management and maintenance services organisation in the UK and this acquisition now firmly establishes PremiAir in the private jet charter and management arena.

Neil Gibson, PremiAir's director of aircraft charter and management says: "The new managed Learjet 45 fleet will add strong robust capacity to our private jet charter business and we expect to add additional managed aircraft, including long range wide-body private jets, by the end of the year. We've been managing and chartering executive helicopters for 30 years, so our growth into private jet management and charter is a very logical and natural growth step for our experienced operations team. Uniquely in the UK, PremiAir can offer clients an integrated helicopter and executive jet management service. We've essentially grown into a one-stop-shop for helicopter and jet owners and we're determined to keep focused on delivering the highest quality services."

McRobert says: "We plan to home-base executive helicopters at Biggin for charter use, which we recognise is growing fast through major infrastructure and facility investment. It's an extremely rapid 10 minute helicopter hop from Biggin into London using our own London Heliport shuttle services. The growing fleet of long range private jets based at Biggin demonstrates aircraft owners' increasing satisfaction with the airport's benefits. We're delighted to add Biggin Hill to our existing bases at Farnborough, Oxford, Denham, Blackbushe and The London Heliport."

Stability is the key

"If you are looking to place your aircraft with a management company," says George Galanopoulos, md of London Executive Aviation (LEA), "you need to start by thinking of 'stability'. You need to work with an established company with the proven capacity to survive hard times. You want to be confident that when times are hard again - and every realist knows that times will always be hard again soon - your management company will stand firm. After all, in challenging times, weaknesses in a business model that might be hidden by a booming economy are exposed. Cracks widen. Not everybody in executive aviation survived the last recession and not everybody will survive the next economic downturn. When you place your aircraft with a management company, you want convenience and peace of mind; you don't want the trouble that comes from dealing with an inexperienced, unstable start-up that begins to struggle as soon as the economy dips."

Experience is clearly important, therefore, although Galanopoulos says it is not necessarily vital for the management company you choose to be experienced with your particular aircraft type. "It's more important," he says, "that the company understands aircraft in the same range as your jet - say, mid-size, long-range or entry-level. I would have no concerns, for example, placing an Embraer Phenom 100 with a company experienced in managing Cessna Citation Mustangs. An established relationship between the management company and the aircraft manufacturer is always helpful too."

Galanopoulos also stresses the importance of choosing a management company with a good overall infrastructure, including a 24-7 operations room. "Aviation, by its very nature, is an international business. Time differences between, say, the UK and the Middle East can be very significant factors. If you need to make business jet arrangements when you wake at 07:30 in Dubai, that's 04:30 in London. You want a professional operations room to be handling your request; you don't want to be speaking to someone you have just woken up, on his mobile phone, in the middle of the night."

A good management company will therefore employ enough staff to offer a reliable service at all times, but Galanopoulos adds: "If a company becomes too large, customers no longer receive personal attention. As a customer, you want to feel you have access to the top management, day or night, if necessary."

Top engineering expertise is also essential, says Galanopoulos, but he offers a warning. "You need a management company with in-house engineering expertise, able to identify problems, propose solutions and monitor the quality of any work carried out on the aircraft. But remember that if your management company is also a maintenance outfit, there may be a conflict of interest. You don't want to be encouraged to spend money on unnecessary work. You need a management company with objective, independent engineering expertise, protecting your interests."

Galanopoulos points out that there have been significant changes taking place in executive aircraft management. Historically, pure management companies would often take care of an aircraft without an AOC. "An owner bringing an aircraft from the US to the UK, for example, might have been advised to keep the aircraft on the US register and not to worry about a UK AOC. If simply operating the aircraft privately in the UK, there would have been no need to spend money placing the aircraft on the UK register. But now, an aircraft can be put on the register at no cost, so it's a 'no-brainer' decision.

"Firstly, charter income helps to offset operating overheads and finance costs, bringing economic benefits to the aircraft owner. And secondly, even if you are not chartering the aircraft, you can enjoy tax advantages if you place the aircraft on an AOC. There are still companies offering executive aircraft management without an AOC, but that business model makes no sense any more. Owners realise it is a lot more financially viable to add an aircraft to an AOC than to try to operate the jet privately themselves."

Galanopoulos concludes: "At LEA, we expect to continue adding aircraft to our managed fleet, particularly in these challenging times. More than ever before, owners are looking at what their aircraft actually cost them. The old days of having an aircraft sitting on the ground, waiting for the owner to fly once a week, are long gone. Owners now realise that an aircraft, like any other asset, needs to work to earn its keep. Adding a business jet to an operator's fleet makes financial sense and ensures the aircraft is operated safely and professionally."

When should an owner consider chartering his aircraft? Galanopoulos says: "As a rule, I would say that if the owner uses the aircraft for up to 400 hours a year, it is still worth chartering."

Swiss PrivateAviation says demand for aircraft management continues to grow. There are already around 20 aircraft under management. "The Swiss International Air Lines group subsidiary intends to put a stronger focus on managing larger aircraft types, to make greater use of the synergies available within the Lufthansa Group," the company says. The company's Peter Koch says: "In March the company extended its business to sales activities for the Lufthansa Group's private jet equipment. The new products include both private jet operations connecting with Swiss or Lufthansa scheduled services and individual point-to-point flights."

Smaller aircraft

Commercially it may almost always be worthwhile chartering larger, longer haul aircraft and helicopters that have hours to spare. But Jonathan Gordon, md of the UK-based aviation management and business consultancy Atlantic Bridge Aviation, points out that smaller aircraft, such as light piston twins, which are operated privately do not usually need a professional management package.

"A pilot, even part time, should be able to look after the aircraft and organise maintenance on the LAMP schedule without too much difficulty," he says. "However, if the owner wished to lease the aircraft to an operator they may find it cheaper to have that operator manage the aircraft rather than employ a pilot."

Gordon adds: "Entry level corporate aircraft, operated on a maintenance schedule outside LAMPS would probably benefit from a management operation. These aircraft usually require a type rated pilot and therefore involve initial and recurrent training costs. Often the aircraft is too complex for an owner, assuming the owner is not involved in aviation."

Gordon says: "Assuming the aircraft could be operated by the managing company then pilots would be in good flying practice. The maintenance scheduling is more important and more complicated and needs to be properly managed and advised upon in order to maintain asset value and to ensure safe operations."

A light jet or higher end corporate aircraft, for example the Super King Air or Lear 45, owned by an individual or a business, definitely should be professionally managed.

"These types usually require a two pilot operation and crewing/training becomes all the more important as does current flying practice. The maintenance programme, if not carefully controlled, will lead to a devaluation of the aircraft and a degradation in safety," Gordon warns.

Special training needs

"Also, these aircraft are often flying in upper airspace using special equipment - for example RVSM between FL290 and FL410 and PRNAV operations. These operations require special training and manuals. Correct control and usage of the approved minimum equipment list will maximise utility while keeping operations safe. All this is in the professional domain."

Gordon points out that there are benefits and downsides for an owner leasing his aircraft to an operator. "However, the negatives are few and really amount to the possibility of the aircraft not being available for the owner's short term needs and extra wear on interiors." Such negatives are outweighed by the benefits.

"These include higher utilisation which amortises fixed maintenance costs and generally keeps the aircraft in better shape mechanically. Systems can fail or jam through lack of use," Gordon points out. "Charter provides an income stream to the owner. While this may not be required per se, it can have legitimate benefits in tax and VAT dealings which can be substantial. When the aircraft is placed on an AOC there can be marked savings in fuel costs in certain EEC countries. The maintenance schedule will be strictly adhered to under airline rules; pilots will have training, competency and current experience requirements acceptable to the regulatory authority thus providing safe carriage for the owner and the aircraft will be kept clean and looked after within a caring fleet operation."

Synergy Aviation's Paddy Magan points out that managing an aircraft as an owner is both complex and time consuming. He adds: "Appointing an operator to manage your aircraft is often the most sensible solution as it will take care of all of the technical, legal, administrative, financial and personnel matters allowing you time to enjoy the freedom of flight without the associated worry and concerns."

Synergy Aviation says that, unlike most companies who charge on a commission basis, Synergy charges a fixed fee. "Staffing, parking, insurance and maintenance costs are then charged at cost. This model is designed to be totally transparent (there are no hidden surcharges or disbursement levies) and most importantly it gives Synergy every incentive to keep costs down on your behalf."

The priority for owners is to get value for money while satisfying priorities such as efficiency, availability and reliable support. Mike Hamlin knows what their priorities are from personal experience. He joined Lotus Cars Ltd in 1972 where, as a lone pilot, he was responsible for a Navajo, a Navajo Chieftain and a Seneca. "Over the next four years I honed my management skills in getting the best possible value for the company out of the small fleet of aircraft. I am now in my 38th year of buying, selling, managing and maintaining corporate aircraft and there have obviously been significant changes of requirements in that time."

Hamlin adds: "The original concept of buying an aeroplane, hiring a pilot and everything working out well was a well proven route for private aircraft owners for many years. The owner liked to feel that, along with all other employees, the crew worked for him and that they were 'his men'. However this started to change 25 years ago with the advent of Middle Eastern owners for whom individuals were less important. They just wanted to purchase a professional, completely turnkey operating package where individuals were of minor importance."

He says this concept grew to be more attractive to UK and continental European companies over the years as outsourcing specialised tasks were seen to be ever more important. "They enabled senior management to concentrate on their core business."

Hamlin says the 1980s and 1990s were not an easy time being interspersed with recessions that badly affected corporate aircraft operations. "They were also not helped at all by the UK CAA's view that aircraft management companies should have an AOC even though they were not conducting any flights that were remotely commercial. Fortunately the slow passage of authority to EASA has negated the latter problem as EASA feels that any professional input into a non-commercial private aircraft operation must be beneficial in terms of regulatory compliance, and safety, so European management companies now do not need an AOC."

Changing scenario

Company pilots were originally somewhat sceptical about management companies as they felt such organisations posed a threat to their ongoing employment. Hamlin says: "This was understandable as some management companies aggressively, although not always successfully, canvassed aircraft owning companies to try and take over the operation of their aircraft and this was naturally resisted by the crew that were already employed. However this scenario is markedly changing as EASA works towards mandatory compliance even for one-man-band operations with operations manuals, named operations managers, Safety Management Systems and manual PLogs and fuel calculations."

Hamlin predicts: "Private operators will eventually be faced with watered down 'son of AOC' regulations. Add to this the EU requirement to join and comply with the Emissions Trading Scheme where, rather absurdly, each company's scheme has to be individually approved and the returns verified at great cost by an authorised indepen-dent auditor, and you have a completely different scenario for a company pilot." An overwhelming logic appears to underpin the need to delegate aircraft management. Paul Walker, ceo of The Sage Group PLC, a Hamlin Jet managed client for 13 years, points out: "A business jet is a very complicated piece of machinery and operating it takes wide experience, knowledge and expertise. If we get it wrong the potential ramifications and liabilities are significant. Do we understand all the issues involved in controlling the safe and cost effective use of our aircraft? We are in software so the answer has to be 'No'." Hamlin reports: "The prospect of enjoying removal of responsibility for the growing regulatory compliance along with the variety, and job security advantages, of working for a company managing several aircraft means that for the first time we are being approached by corporate pilots asking if we would be interested in managing their company's aircraft - providing of course that they keep their job! If a company has several aircraft then they can perform all management functions in-house but for those companies with only one aircraft I can see a slow migration from in-house to managed operation in order to deal efficiently with the ever increasing regulatory environment."

He advises: "If the management company you choose actually has its own maintenance division then you could be on a winner with buying, selling, managing and maintaining all being provided by a one- stop-shop. It is in this direction that I see management companies playing an ever larger role in the future operation of corporate aircraft."

Questions the aircraft owner should ask and the reasons why the answers are important

  1. Which types of aircraft does the management company operate currently? If they are operating three Piper Cherokees and a Navajo light twin, then an expensive business jet is probably not going to receive the correct sort of care and attention it deserves.
  2. What does the management company do about aircraft maintenance? If they have their own maintenance department staffed by licensed, experienced engineers then you know they mean business. If they have very "loose arrangements" with sub-contracted companies you have never heard of – steer well clear!
  3. Are they able to show you their AOC documents easily and without a fuss? It is reassuring if the documents are all published on the company's website and provide testimony to a reputable operator on top of their game.
  4. When was the last time the management company was audited or inspected by a regulator such as EASA? Ask to see the findings of the last inspection and also the closure actions for those findings.
  5. What is the level of communication like? If the company is slow to respond to emails and telephone calls even before you have signed up with them to operate and manage your expensive asset, then you can safely assume they will be no better afterwards.
  6. Is the management company able to show clearly what sort of return can be expected if it charters the aircraft on its AOC? If it can provide detailed spreadsheets with breakdowns of fixed costs and variable costs, all clearly identified, then it looks like it knows what it is doing. If it is scribbled on the back of an envelope, beware.
  7. How big is the company's fleet and how well organised are the offices? Is there a proper quality system in place? If it is an AOC holder and operator what geographical coverage has it got? A worldwide AOC with ETOPS approval is not easily achieved and is a mark of a premier operator.
  8. Does the management company attend the major shows? Does it go out of its way to showcase its products? Does it seem to be proud of what it has achieved? Positive answers to all these questions are important and separate the men from the boys. There are an awful lot of pretenders out there and it pays to be wary.
  9. Is the company you are approaching to manage your aircraft prepared to put its offer to you in writing and show you a sample of copy of its operating agreement or aircraft management contract? If not, then it may wish to avoid having anything which the client can come back to it with later if the service goes awry.
  10. Which lawyers does the company employ? The use of top law firms can be an indicator of quality.
Source: Gainjet based on priorities identified through client feedback.

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