November / December 2014
Creating Your New Flight Department Structuring for Safety, Service, and Dispatch Reliability
Will You Be the Last Owner of Your Aircraft? Plan now so you are not surprised A Business Aviation Media, Inc. Publication
Eat, Drink, and Be Wary Getting to Zero Managing Your Management Company What to Know About Your FBO w w w . b i z ava d v i s o r . c o m
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N o v e m b e r / D e c e m b e r 2 014
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8
10
F e at u r e s
06
Creating Your New Flight Department
by Pe te r V. Agur , J r .
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Eat, Drink, and Be Wary
• Volume 1 / I s sue 5
Structuring for safety, service, and dispatch reliability
Minimize the risk for food-borne illness aboard your aircraft
by Susan C . Fr ie d e n b e rg
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Managing Your Management Company
by Dave We il
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What to Know About Your FBO
There is a symbiotic relationship among the FBO, flight department, airport, and traveler
by Davi d E dwar ds
10
Will You Be the Last Owner of Your Aircraft? by G eorge Kle ros
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Rulings From the FAR Side Protect your asset and your safety
by Roy G illig
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Getting to Zero
by K ar e n He n r i que s
Part Two: Balancing owner & charter use
D e pa r t m e n t s
12
Seven steps to successful risk management
05
Publisher’s Message
by G il Wolin
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Washington Report
by Davi d Collog an
Definitely Different
Passenger Interference Penalty
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The Business of Business Aviation The Information You Need, From Experts You Can Trust Aircraft owners and charterers now have a resource to help you make the most effective use of your investments in business aviation. Business Aviation Advisor provides the information you need, without technical jargon, on the business of owning and flying business aircraft – from operations to acquisition, to management and finance.
Business Aviation Advisor: the Business of Business Aviation
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No v e m b e r/ D e c e m b e r 2 014 B U S I N E S S AV I AT I O N A DV I S O R 3
BE ABOVE IT ALL SELECT AIRCRAFT MANAGEMENT PROGRAMS TAILORED TO YOUR NEEDS. CALL +1 877 392 6442 JETAVIATION.COM/BEABOVEITALL Charter flights in the USA are operated by Jet Aviation Flight Services, Inc. or other FAR Part 135 certified air carriers.
Publisher’s message ■ PUBLISHER Gil Wolin gwolin@bizavadvisor.com CRE ATIVE DIRECTor Raymond F. Ringston rringston@bizavadvisor.com Managing Editor G.R. Shapiro gshapiro@bizavadvisor.com Editorial Assistant Michael B. Murphy mmurphy@bizavadvisor.com washington editor David Collogan dlcollogan@gmail.com CONTRIBUTORS Peter V. Agur. Jr. The VanAllen Group, Inc. pagur@vanallen.com Susan C. Friedenberg Corporate Flight Attendant Training & Global Consulting scffatraining@aol.com George Kleros Jet Support Services, Inc. gkleros@jetsupport.com Roy W. Gillig Burns & Levinson LLP rgillig@burnslev.com Karen Henriques ARGUS International, Inc. karen.henriques@argus.aero Dave Weil Flight Dept. Solutions dweil@flightdeptsolutions.com David Edwards Truman Arnold Companies dedwards@tacenergy.com Business Manager JoAnn O’Keefe jokeefe@bizavadvisor.com Business Aviation Media , INC . PO Box 5512 • Wayland, MA 01778 Tel: (800) 655-8496 • Fax: (508) 499-2172 info@bizavadvisor.com www.bizavadvisor.com Editorial contributions should be addressed to: Business Aviation Advisor, PO Box 5512, Wayland, MA 01778, and must be accompanied by return postage. Publisher assumes no responsibility for safety of artwork, photographs, or manuscripts. Permissions: Material in this publication may not be reproduced, stored in a retrieval system, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording, or otherwise) without the prior written permission of the publisher. The views and opinions expressed in Business Aviation Advisor are those of the authors and advertisers, and do not necessarily reflect the policy or position of Business Aviation Media, Inc. Articles presented in this publication are for general information and educational purposes and do not constitute legal or financial advice. Postmaster: Please send address changes to: Business Aviation Media, Inc., PO Box 5512 • Wayland, MA 01778, USA ©Copyright 2014 by Business Aviation Media, Inc. All rights reserved Printed in the USA
Definitely Different
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usiness aviation is not a particularly complex industry. Yes, airframe, engine, and avionics technology have improved continually since the Wright Brothers first flew. But the basic mission — getting you from Point A to Point B as quickly and safely as possible — has not changed since 1903. When I began in the industry in 1972, there were fewer than a dozen makes and models of business turbine aircraft. More than 70% of the 300 total deliveries were in North America. Only 24 were large-cabin, long-range jets. Today, there are more than 145 models, ranging from the original small cabin Learjet, to the latest large-cabin, long-range offerings from Gulfstream, Falcon, Bombardier, Embraer, Boeing, and Airbus. This year will close with slightly more than 700 jet deliveries: better than 2013 but nowhere near the 1,313 new aircraft delivered in 2008. More than 300 jets delivered in 2014 will be large-cabin, long-range aircraft. Only about half will be delivered in North America. The evolution of the world’s fleet composition mirrors the changing world economy. A six-passenger aircraft with a 1200-mile range, while perfectly satisfactory for domestic use, no longer is sufficient to serve today’s international traveler. That message was heard during last month’s three-day National Business Aviation Association (NBAA) convention in Orlando, the 67th such gathering of aviation professionals. Some 26,000 assembled from all over the world, meeting with more than 1,000 exhibitors, viewing almost 100 new and preowned aircraft on the static display, and attending dozens of educational sessions to ensure that your travel aboard business aircraft is as safe and efficient as possible. I had the honor of moderating a standing-room-only panel on aircraft values, where the experts on the dais — Mike Dwyer of Guardian Jet, Tony Kioussis of Asset Insight, George Kleros of Jet Support Services, and Joe Zulueta of Aeronautical Systems — shared their insights on the current and near term market: ■■ Aircraft values no longer rise and fall with the Dow; they now are decoupled from the stock market. ■■ The preowned aircraft inventory sale is static: for every aircraft sold, another is listed, and prices recently have dropped 8%. ■■ The cost of coming mandated upgrades, with changes in the service support networks, may make older aircraft obsolete (See: “Will You Be the Last Owner of Your Aircraft?” page 10). ■■ The large-cabin, long-range segment remains strong. ■■ Original Equipment Manufacturer (OEM) emphasis on customer service and after-sale support continues to rise. While aircraft sales may not mirror the market, flight activity does. With every commercial airline consolidation or schedule cutback, business aircraft travel becomes more valuable to owners and charter users like you. Glad to have you aboard! Best regards,
Gil Wolin — Publisher gwolin@bizavadvisor.com No v e m b e r/ D e c e m b e r 2 014 B U S I N E S S AV I AT I O N A DV I S O R 5
■ Aircraft Operations
Creating Your New Flight Department By Peter V. Agur, Jr.
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The VanAllen Group, Inc. / pagur@vanallen.com
magine this conversation between a first-time aircraft buyer and a consultant, which describes how to establish an inhouse flight department: Buyer: My Board recommended we buy a super mid-sized jet for our North American and EU travel. What do we need to know? Consultant: How did you decide on the aircraft you’re buying? Buyer: We conducted a needs analysis, and found that we would be best served by a nearly new, 8- to 10-passenger jet designed and equipped for transoceanic trips. Based on our requirements for privacy and control, we want an internal department. We don’t need to consider chartering our aircraft out when we’re not using it, since we don’t need the marginal revenue or tax benefits. Our search agent says it will take us at least 90-120 days to take delivery of the right aircraft. Consultant: That leaves you no spare time to get your department up and running. To start, answer this most important question: “What is your company’s strategic intent and how will your aviation services support it?” Buyer: Our primary growth strategies are geographic diversification and acquisition of competitors. Our aircraft must get us where we need to be, when we want, rested and ready to do business. 6 B U S I N E S S AV I AT I O N A DV I S O R No v e m b e r/ D e c e m b e r 2 014
Consultant: Will you be traveling mostly on weekdays? Do you usually have three days or more lead time for your trips, or do they tend to be more spontaneous? Buyer: No to both. We will frequently travel on Sundays to position for Monday meetings, both in the U.S. as well in Western Europe. As we begin to enter new markets and respond to potential acquisition opportunities, our travel will become much more responsive and unpredictable in nature. Consultant: It sounds like your mission is to be able to respond, upon reasonable notice, seven days per week in support of the strategic growth of the company. Now tell me what deliverables and quality you expect. Buyer: I want our aviation services to be at least as safe as our major domestic airlines, I want flexibility, and of course, I want to save money. Consultant: The term “safe” is difficult to quantify. I suggest you focus on identifying and mitigating risks to achieve exposure levels you are willing to endure. That is, shift from “reactive safety” approaches driven by avoiding errors others have previously made, to a more proactive approach focused on risk management, by implementing a Safety Management System (SMS) (See: “Getting to Zero,” page 13).
Buyer: What do I need to know about reporting and staffing? w w w. B i z AvA d v i s o r. c o m
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Structuring for Safety, Service, and Dispatch Reliability
Should the new department report to me, since I will be its primary customer as well as the approver of all aircraft use? Consultant: While many top executives choose to control their aviation services by being the trip authorizers, or at least by reviewing all requests, I recommend that the department report to someone at the C-Suite level who has the time to support the department’s various administrative, organizational, and operational needs – such as your Chief Administrative Officer. Regarding staffing, your aviation department’s leader and staff are the most critical parts of your new aviation department. It is a business unit, with its own roles, responsibilities, and operational and financial responsibilities. Most executives to whom aviation departments report say that aviation takes up the highest proportion of their time. So, set your hiring standards as you would for any other support unit in your company. Safety is the second reason for hiring only those whose aptitudes, attitudes, behaviors, and experience are among the best. Anything less and you will be inducing risks you may not want to tolerate. Even though the accident rate for professionally flown aircraft continues to decline, the greatest primary cause of accidents remains unchanged: 70% are caused by human error. Buyer: Aren’t those kinds of aviation professionals expensive and hard to find? Consultant: Actually, no. Highly qualified people want to be part of a great company and department, to feel appreciated, and to feel that they are contributing to the company’s success. If the quality of work life is good, you should be able to attract excellent people without paying a premium. Buyer: So how many people are needed to run this aircraft? I’ve heard that I need only two pilots and a mechanic. What do you think? Consultant: I recommend you start with four pilots. Most department directors are pilots whose duties take them out of the cockpit for a good part of the time. Most large companies require that all their pilots be captain-qualified to assure a higher level of experience in the cockpit, as well as rotational flexibility. Buyer: That sounds like more staff than we really need. Consultant: Let’s do the math. After you eliminate weekends, holidays, vacation days, training days, and other time away, a pilot is available for trip duties about 190 days per year. Based on your requirement of six days per week of support, you will need 624 pilot duty days of coverage. Divide that by 190 days available per pilot and you will need a staff of 3.3 pilots. But your Director will need to spend about ½ of his or her time running the business. And definitely consider hiring a dedicated mechanic. That role is the only one that routinely pays for itself, by saving more in costs and excessive aircraft down time than his or her fully loaded compensation package. Buyer: Can my Executive Assistant handle scheduling, so we don’t need an administrative person at the airport? Consultant: That is a false economy. Your aviation department is a business unit with a seven-figure annual cash flow. w w w. B i z AvA d v i s o r. c o m
Additionally, your crew will be busy operating and maintaining the aircraft. A scheduler/office manager can relieve them of a great deal of administrative work, as well as improve the information flow between them and your office: a very reasonable investment for a great deal of benefit. Buyer: What about training? Consultant: Be sure your aviation department is staffed and budgeted not only for technical or recurrent training, but also for professional development: leadership, managerial, and organizational skills. An experienced staff will bring the templates and know-how to develop operational standards, policies, manuals, and budgets.
set your hiring standards as you would for any other support unit in your company Buyer: Speaking of budgets, what do you recommend about internal charge backs? Are there tax implications? Consultant: There are many ways to distribute the cost of aviation services. The most often used model is to charge the lead passenger or business unit for the direct operating costs of the trip. That gives the requestor a sense of cost impact while not making the price so high that they would seek a less efficient and cheaper mode of travel, like the airlines. Since your aviation services are an internal unit outside the arena of your core business’ expertise, you will benefit from the services of at least two different experts. An aviation attorney will support the acquisition, as well as develop the structure within which the aircraft is held. And since there are a number of taxes on aircraft and their operations imposed by states as well as by the Federal and foreign governments, do engage an aviation accountant. Buyer: What else do we need to know? Consultant: The most frequent source of damage to business aircraft is ground handling incidents. Find hangar space that is either private or shared with only a few high-quality co-tenants to minimize the potential for significant damage to your aircraft, loss of its availability while it is being repaired, and the reduction in its residual value. As this fictional dialogue illustrates, careful planning to properly structure and staff your new flight department will insure that your new aircraft will deliver the safe, efficient executive transportation you require. BAA Peter Agur , Jr . , is Chairman & Founder of The VanAllen Group, Inc. An accomplished aviation writer and speaker, he is a former Army aviator, safety officer, and flight instructor. He holds an ATP rating for fixed wing aircraft and commercial helicopters, a BS in Aeronautical Sciences, and an MBA.
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■ Cabin Safety
Eat, Drink, and Be Wary Minimize the Risk for Food-borne Illness Aboard Your Aircraft By Susan C. Friedenberg
ood safety is a global concern, from the ways in which cattle are slaughtered, poultry are fed antibiotics, and fish are farm-raised. When it comes to the food served aboard your aircraft, food safety becomes a critically important and very personal part of your overall aviation safety program. The Centers for Disease Control and Prevention estimate that each year, approximately one in six Americans (or 48,000,000 people) become ill, and 3,000 die of food-borne diseases. While the most severe cases tend to occur in the very old, the very young, and those with compromised immune systems, even otherwise healthy people can be vulnerable. The three main types of food contamination are: biological (such as bacterial poisons), chemical (e.g. industrial processing chemicals and pesticides), and physical (foreign matter such as insects, stones, or other debris). Most food-borne illnesses tend to be mild and cause symptoms for only one to two days.
Do not expect a five-star, four-course meal aboard a Lear 45. Stick to a sandwich tray. However, can you imagine how illness could affect your entire senior staff traveling to a Board meeting? Or your top executive with your most important client? What if both pilots became ill in the cockpit, and barely were able to fly the aircraft? In addition, food sabotage is an unlikely, but real, possibility. While ordering and handling catering for your aircraft is the responsibility of your crew, it is your responsibility to hire a staff or an outside firm that is properly vetted, so as to ensure your safety, and that of your staff, clients, and family. Each country, state, and municipality has differing rules and practices for licensing caterers. You definitely do not want to encounter hair in your food, from an unlicensed caterer working out of his garage. (Yes, this really happened to a Fortune 500 executive.) How can you keep yourself safe and healthy? Follow best practices –You or your staff should know how to order catering globally, and how to be sure the catering you order is secure. You or they must know how to keep safe temperature zones in aircraft storage compartments. Cross-contamination of tainted food can occur in the transportation process to the aircraft, in galley storage compartments, on the counters in the galley — as well as in your cabin dining area. Pay close attention to the length of time your meal is in front of you, and never allow 8 B U S I N E S S AV I AT I O N A DV I S O R No v e m b e r/ D e c e m b e r 2 014
perishable food items to remain in a non-chilled environment for four hours or longer. Understand your aircraft’s limitations — The aircraft’s galley and cabin size limit the choice of food and its proper and secure storage. Some foods you may enjoy on the ground — such as raw clams or oysters on the half shell — will not be available aboard your aircraft. Other foods, such as raw meat and seafood, eggs and dairy products, sliced melon, leafy green vegetables, berries, and mushrooms, will need special handling. Crème brûlée cannot be prepared in the air, since open flames and aircraft do not mix. Do not expect a five-star, four-course meal aboard a Lear 45. Stick to a sandwich tray. Secure your safety by guarding your privacy — Provide the caterer with only enough information to enable billing. Instruct your staff never to divulge the names of the passengers or the aircraft owner. An unscrupulous employee of the caterer or of the FBO might have a personal vendetta against you, your company, or your company’s practices, such as the fact that you’ve recently closed a local plant site or office, or had to lay off workers. Poisoning is rare, but unfortunately, not unheard of. Implementing these three steps — as well as maintaining and encouraging good communication with your trusted staff — will help to ensure your well-being and safety. BAA Susan C . Friedenberg is President & CEO of
Philadelphia-based Corporate Flight Attendant Training & Consulting Services. She has flown for American Airlines, Capitol Air, Coca Cola, DuPont Aviation, and American Standard Companies; and as a contract corporate flight attendant.
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Corporate Flight Attendant Training & Consulting Services / scffatraining@aol.com
Business Aviation Professionals Taking You to the Next Step For more than 35 years, corporations, high net worth individuals, and owners and operators of business aircraft have looked to AMS to deliver cost effective solutions to complex aviation issues. With an unparalleled combination of expertise and a valuable collection of aviation products and services, AMS is ready to become a member of your decision making team. ■ New & Pre-Owned Aircraft & Helicopter Acquisitions ■ Purchase New & Pre-Owned Fractional Shares ■ Transportation Analysis & Aircraft Ownership Options ■ Aircraft and Flight Department Audits & Evaluations ■ Charter/Management Company Evaluation & Selection ■ New Aircraft Completion Management ■ Manage & Oversee Aircraft Pre-Purchase Inspections ■ Portfolio & Asset Management Aviation Management Systems, Inc. 155 Fleet Street | Portsmouth, NH 03801 800 (603) 431-3362 | info@amsinc.aero
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■ aircraft maintenance
Will You Be the Last Owner of Your Aircraft? Plan Now So You Are Not Surprised By George Kleros nce your aircraft is 30 or so years old, or has high total flight time, it may already have had its third paint and interior refurb, and two or more engine overhauls. Although no longer a showpiece, it serves your mission well, and you expect it will hold its value when it comes time to upgrade. But aircraft that used to sell at 30 — or even 40 — years old now are being retired. What has changed? Will you be your aircraft’s last owner? Until a decade ago, many Original Equipment Manufacturers (OEMs) authorized independent maintenance/repair/overhaul (MRO) facilities to work on their airframes and engines. These shops had access to an abundance of spare parts and exchange units. Owners easily could shop large work packages and parts competitively. With new models selling at record levels, the OEMs’ primary mission to build, sell, and deliver new airframes and engines left much of the maintenance support on older aircraft to those independent shops. Competition kept the operating cost low for an aircraft’s third, fourth, and even fifth owner, enabling some aircraft to continue in service for up to 40 years. But during the 2008 market downturn, new aircraft worth $30,000,000+ plunged as much as 30% in value. Many owners who’d planned to sell their aircraft were surprised to find no buyers. Those less fortunate found themselves the next-to-last owner, just before the bank called in the loan. Because the market has not fully recovered, even some newer models with relatively moderate or low time are being parked and sold for parts. What caused this shift? ■■ New technology – “Next generation” aircraft, produced since 2000, were delivered with significantly advanced technology, such as on-board monitoring systems, computercontrolled engines, and advanced avionics suites. These require special training, advanced tooling, and OEM engineering support — a costly commitment. ■■ Cost for an independent shop to become OEM-approved – Blanket OEM approvals and authorizations for entire OEM engine or airframe product lines no longer are sold to independent repair facilities as before. Now, they may be sold separately to MRO facilities for as much as what a full-line authorization previously cost, leaving fewer MRO facilities from which to shop competitively. ■■ The OEMs’ desire to retain more revenue in-house. When aircraft are new and under warranty, the first two 10 B U S I N E S S AV I AT I O N A DV I S O R No v e m b e r/ D e c e m b e r 2 014
owners usually return to the OEM facilities for maintenance or repair. OEMs today seek to retain these aircraft as in-house service customers as long as possible, and build this revenue stream to supplement lower new aircraft sales. They focus on retaining parts and maintenance services for older aircraft and recent models, rather than have them move to third-party maintenance providers. Some OEMs no longer sell licensing agreements, in order to drive work and revenue to company-owned facilities. ■■ New, more stringent restrictions by lenders, which eliminate groups of potential owners (See: “The Changing Lending Climate,” BAA September/October 2014). These factors are more likely to apply to aircraft more than 20 years old with at least two, and often three, major maintenance items due. For example; ■■ Airframe is due for a major 20-year check, with some life-limited components due for overhaul or change: cost totaling 20%+ of the aircraft value. ■■ Engines due for a major shop visit (e.g. hot section or overhaul): cost approaching 40% of the aircraft value. ■■ Avionics upgrades required to comply with changes to FAA or EASA operating regulations: cost 10%+ of the aircraft’s value. If you’ve recently purchased an older aircraft, planning to fly it for several years, depreciate, and then sell and upgrade, you may find that the aircraft no longer holds its value. For many makes and models, changing markets and technology, combined with limited MRO competition, could make you — today’s owner — the last owner. BAA George Kleros , SVP, Strategic Event Management, &
Fleet Support at Jet Support Services, Inc., has 30+ years experience in aviation maintenance, management, and field support services for business jets. He serves on several industry association boards.
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Jet Support Services, Inc. / gkleros@jetsupport.com
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Find Out — With the Asset Insight Index The Only “Credit Score” for Your Aircraft’s Asset Value This simple-to-understand, industry standard grading scale measures the single greatest factor affecting your aircraft’s asset value — its maintenance condition. The better your aircraft’s maintenance condition, the higher its Index. Avoid surprises, use the Asset Insight Index to: ▲ Objectively analyze and grade your aircraft’s maintenance condition. ▲ Compare your asset to aircraft listed for sale. ▲ Justify your ask or offer price for an aircraft.
Call (540) 905-4555 info@assetinsightinc.com Manage your aircraft as you do your other Financial Assets.
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■ Aviation law
Rulings From the FAR Side Prior Permission Saves You Time and Money – Forgiveness Costs Both By Roy Gillig
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Burns & Levinson LLP / rgillig@burnslev.com
spiring aerial Ubers Airpooler and Flytenow may have met their match in FAA regulations. In August, the FAA ruled that the two flight scheduling sites are engaged in “common carriage,” meaning that they were holding out air transportation services for compensation or hire. That requires that their pilot “drivers” obtain a Federal Aviation Regulation (FAR) Part 119 certificate, the FAA’s term for a license to fly for hire. Simply, the letter to Airpooler states that it’s one thing to offer to share expenses with a friend going your way, while quite another to advertise to the public your willingness to transport them for a fee. The latter is “common carriage,” and requires that the pilot hold a Part 119 certificate, and probably a Part 135 charter certificate. Flytenow attempted to anticipate those FAA’s concerns by limiting their transportation offering only to “enthusiasts,” as they refer to passengers, who demonstrated a common interest in the time, date, and points of operation for a specific “Aviation Adven-
Owners or operators who solicit FAA comment are not always happy with the answers. ture,” i.e., the flight, posted by a pilot. Flytenow argued that by requiring a common purpose, and by putting its program behind a password-protected website, it was not “holding out” an offer of common carriage. The FAA disagreed, telling Flytenow and Airpooler that any means of communicating to the public that a transportation service is indiscriminately available constitutes “holding out.” Whether the business models of the online flight sharing services can deal with these rulings remains to be seen. Does this mean that as an owner, you cannot ever receive compensation for sharing your aircraft? Not at all. There is a provision under FAR Par 91 501(c) which allows owners to “time share:” to lease their aircraft and crew to another person, and accept compensation up to twice the direct operating cost for specific trips flown under the time share agreement. But there is no provision permitting you to “hold out” or advertise such an arrangement to the general public, which is what Airpooler and Flytenow proposed to do. The FAA requires a higher level of safety assurance from pilots “holding out” their flight services in return for compensation, hence the requirement for the Part 119 certificate. In another letter, the FAA disappointed the would-be founder of an aircraft management company, which had planned to purchase two aircraft and sell eight equal interests in each. The 12 B U S I N E S S AV I AT I O N A DV I S O R No v e m b e r/ D e c e m b e r 2 014
sixteen owners would have been required to use exclusively the management company’s services for flight and maintenance, without any option for them to specify pilots or mechanics. While on the surface, this arrangement appeared to qualify as a fractional operation under FAR Part 91 Subpart K, the FAA advised that the operations would likely need to be conducted under Part 135, which governs on-demand charter operators. In deciding whether a flight is governed by Part 91 or Part 135, the FAA looks at a number of factors, including: who owns or leases the aircraft, who maintains liability for the flight operation, who selects the pilots, who conducts the maintenance, and who has responsibility for dispatching and following the aircraft. If these factors lean towards the owners/passengers of the flight, the flight generally is treated as a Part 91 flight. In this case, the requirements to use the management company’s pilots and maintenance personnel indicate that the company had control over the flights, hence the need for a Part 119 certificate, operating under Part 135. The FAA’s interpretive letters help provide insight into its thought process in specific situations. Owners or operators who solicit FAA comment are not always happy with the answers. But those who avoid asking because “it’s easier to ask forgiveness than to obtain permission,” obviously have never dealt with the FAA. BAA Roy Gillig is a partner at Burns & Levinson LLP. His expertise includes aviation, federal, state, and international tax planning and structuring, and tax controversy and litigation. He is also a certified public accountant.
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Safety management ■
Getting to Zero Seven Steps to Successful Risk Management By Karen Henriques ARGUS International, Inc / karen.henriques@argus.aero
W
hile risk management is not a new concept, recently it has been receiving increasing recognition as a critical component of your business’ strategy for success. Effective risk mitigation increases safety and reduces costs – an appealing combination for any organization. In 2008, when the International Civil Aviation Organization (ICAO) first recommended that all aviation entities create a safety management system, it established a systemic, organization-wide approach to help companies formalize safety management as a best practice (See: “Six Sigma for Corporate Aviation,” BAA March/April 2014).
Across the business aviation industry, more companies are voluntarily developing risk mitigation efforts, even if they are not required to, in order to demonstrate safety-related best practices. They seek advice in identifying risk factors they should be addressing, and in developing a strategy for measuring and monitoring company-wide continual improvement. Many are aircraft operators; others, who rely on outside operators to transport their employees safely, are requiring such programs of their vendors. For example, companies who use aircraft charter for executive transport may implement a risk management program requiring operators to prove that they have instituted an ICAO-approved Safety Management System (SMS). At its simplest level, risk management includes implementing the following seven steps:
ONE –Identify risks or hazards that you have seen or can expect to see. TWO –Determine the degree of severity of impact (low, medium, or high) if the risk occurs. Three –Determine the likelihood (certain/frequent, possible/remote, unlikely/improbable) that the risk actually will occur. Four –Identify the consequences or impact if the risk
does occur.
Five –Identify options to reduce the risk. Six –Create a five-part strategy to reduce risk: ■■ Prioritize risks: address first and allocate the most resources
to those with the worst possible consequences and highest probability of occurring . ■■ Measure the results achieved from each risk mitigation action to determine if it is effective. w w w. B i z AvA d v i s o r. c o m
■■ Modify
your procedures as necessary for each action that proves effective, to maintain continual improvement. ■■ For each risk identified, decide whether your organization will attempt to avoid, accept, reduce/mitigate, or transfer the risk. ■■ Continue to measure and evaluate risk mitigation efforts.
Seven –Implement risk reduction activities. Useful tools may include: ■■ Creating a decision matrix, ■■ Developing new or modified processes, ■■ Writing and using employee training curricula, ■■ Creating minimum standards for your vendors, and ■■ Others as may be appropriate for your company. Successful organizations include and engage employees at all levels. Encouraging buy-in and involvement from the front lines to top management, sometimes with help from outside consultants or specialists, will establish a “safety culture” throughout the organization, and insure that management accomplishes its safety management goals. Several current industry trends may have an impact on your company’s risk management efforts. These include: ■■ An increased focus on data-driven, “predictive” risk mitigation measures, including monitoring and determining the occurrence of risks in relation to activities over which the organization has some influence or control. ■■ Risk management/SMS plans are being implemented in branches of aviation other than aircraft operations. These may include: ground handling, airport operations, charter and charter brokers, procurement, and contracting, among others. These may require modifications to your own program, if you already have an ICAO-compliant SMS in place. ■■ More industry-focused risk mitigation requirements on specialized areas such as oil and gas and law enforcement. If any of these come to apply to aircraft operations (e.g. increased product quality specifications for aviation fuel suppliers), if you have an SMS in place, you may need to modify your own program. While a guaranteed zero rate of incidents and accidents is ideal, by taking these seven steps to incorporate best risk management efforts into your company’s culture, and working toward continual improvement, you will have the best chance of getting as close as possible to zero. BAA Karen Henriques, Program Manager - Aviation Risk Management Solutions at Argus International, Inc., assists clients with risk mitigation. An instrument-rated commercial pilot and licensed FAA dispatcher, she has more than 19 years’ aviation experience.
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■ aircraft Management
Managing Your Management Company
Part Two: Balancing Owner & Charter Use By Dave Weil Flight Dept Solutions / dweil@flightdeptsolutions.com
Y
ou’ve just taken delivery of your new business jet and look forward to fully using it to save travel time. However, your CFO reminds you that the aircraft’s business plan calls for 200 hours of charter a year to help offset some of the fixed costs of ownership. How will you manage all your business trips while also letting your management company charter out your aircraft? The natural tension between the owner’s use of his or her business jet and the management company’s desire to maximize the aircraft’s charter hours often leads to disharmony. How can you avoid conflict and maintain a positive relationship with your management company?
The New Ground Rule: Relationships Matter your expectations — First, you must be certain of your goals for charter use, and be able to communicate them clearly to the management company and its charter sales team. Some owners are very willing to accept any trip presented to them, while others reject most requests. Your charter sales team wants to support your goals — and has to know what they are. Clearly define for them how much charter you want, and what constitutes an “acceptable trip.” ■■ Define “acceptable trips” — Many experienced business jet owners require that an acceptable charter request include only charter legs greater than X flight hours with a trip duration of not more than Y days in total. These parameters minimize the wear-and-tear on the aircraft and maximize the number of charter hours flown in the shortest period of time. While the actual flight hour minimum depends on the type of aircraft, this type of requirement usually applies to mid-size and large-cabin business aircraft. For example, a GV owner may specify a minimum leg of three to five flight hours. Exceptions should be considered for regular customers and/ or for clients who need a short hop to pick someone up before embarking on a 10+ hour leg from the U.S. to Europe or Asia. ■■ Communicate your schedule — You can avoid unwanted charter requests if you consistently communicate your ■■ State
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intended future use of the aircraft to the management company. Doing so will prevent them from offering charter trips that conflict with your existing schedule. ■■ Use charter — Sometimes your charter sales team will submit a request in which the trip duration exceeds your established limit and/or conflicts with your existing schedule. Consider chartering a small business jet yourself, rather than rejecting the trip outright, should you have only one or two short trips in conflict with an otherwise attractive charter request. ■■ Respond promptly — If the charter sales team contacts you or your representative to approve a trip, try to respond quickly. Charter sales reps are under pressure to get their charter clients an answer quickly. If you don’t respond in a timely fashion, you may miss out on a good trip. ■■ Consider tax depreciation — Tax depreciation usually is an extremely important factor in the economics of business jet ownership. The number of charter hours your aircraft flies can affect your depreciation deduction. Be sure you thoroughly understand the tax implications of your charter hour target and communicate that understanding to your management company. You or your representative should check in regularly with your management company to review your goal. If you are running short of your target, ask your management company to provide a plan to help you catch up. Some steps they might take include: 1. Direct email marketing to other operators and charter brokers regarding aircraft availability. 2. Contacting clients with future trips scheduled, and offering your aircraft at a “preferred rate.” 3. Offering short term pricing “specials” to all clients during slow travel periods. Following the above steps and regularly communicating with your management company enables a harmonious working relationship, avoids frustration, and will allow you to successfully balance your own use of the aircraft with achieving your charter objectives. BAA Dave Weil previously served for 17 years at TAG Aviation USA
and its predecessor, Aviation Methods. He helped TAG grow into the largest aircraft management company in the U.S., led its expansion into Asia, and served as President of its subsidiary, AMI Jet Charter. A past Chair of NBAA’s Tax Committee, he holds an MBA from UCLA.
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■ Ground services
What to Know About Your FBO There Is a Symbiotic Relationship Among the FBO, Flight Department, Airport, and Traveler By DavID Edwards
I
Truman Arnold Companies / dedwards@tacenergy.com
f you are like many frequent travelers, you may step directly from an automobile on the ramp to your aircraft, never setting foot inside — or being aware of all the many services offered by — the airport’s Fixed Base Operator (FBO). In fact, the FBO’s job is to ensure that all services are performed seamlessly and unobtrusively. Much of what the FBO offers may be taken for granted by the traveler, especially those who do not encounter challenges on a particular trip. However, with evolving industry practices shining a spotlight on rising fuel prices and new fees, it is helpful for owners and charter users to understand the business model of the FBO. As has been so for the past 30+ years, fuel sales are a primary, and one of the only reliable sources of, revenue for FBOs. Most of the other available services offered by FBOs are supported, in whole or in part, by fuel sales revenues.
You’ve heard the axiom: “if it’s associated with aviation, it’s expensive.” For example, an FBO located on a mid-sized airport 50 miles from a large city, previously had two competitors. But in the past 10 to 12 years, increasing operating expenses and reduced fuel volumes forced consolidation. In response, the surviving FBO had to make significant capital investments to continue its commitment to providing excellent services. They include: Ground Equipment You’ve heard the axiom: “if it’s associated with aviation, it’s expensive.” This holds true for fuel and de-icing trucks, ground power units (GPUs), tugs, tow bars, and other equipment. On a recent visit to this FBO, a light jet bought 300 gallons of fuel, which was pumped from an aviation-specific 5,000 gallon fuel truck. The flight crew needed to perform avionics database updates and cool the cabin prior to departure, so they requested a GPU for a few hours. Not including infrastructure, payroll, insurance, or training expenses, the cost of just the equipment required to provide these services approached $400,000. It’s nearly impossible for the margin on fuel alone to generate the revenue to pay for this kind of capital investment. 16 B U S I N E S S AV I AT I O N A DV I S O R No v e m b e r/ D e c e m b e r 2 014
Maintenance Often, an FBO’s maintenance shop operates at a loss, as there is not always a need for its services. However, just like the fire department in your hometown, you want it to be there — just in case. And it must be, as the airport’s minimum standards require every FBO on the field to provide maintenance services. Amenities and Other Services Whether or not you or your crew use them, many FBOs offer a concierge service, in-flight catering, hangar space, and sales of aircraft parts and supplies. The FBO also may have a well-appointed executive terminal with a pilot lounge, conference room, showers, free refreshments, WiFi, and other luxury hotel-like amenities. Even the smallest FBOs offer well-maintained restrooms, vending machines, ground transportation and local accommodation referrals, flight planning, and weather information. In today’s fuel efficient environment, the FBO industry is at a crossroads. The recent trend of charging additional fees for everything from overnight parking to GPUs is not “gouging” for additional profit; it’s replacing the operating revenue lost from lower fuel volumes and eroding fuel margins. Without adopting different pricing structures, many FBOs may fail. Their options are: ■■ Raise fuel prices and risk losing volume and the operating revenue associated with it; ■■ Lower fuel prices and associated revenue, but compensate by reducing costs by eliminating services and amenities; ■■ Introduce a two-tier pricing system: a full-service/retail fuel price covering all traditional services and amenities, or a discount fuel-only price without services or facilities use; or ■■ Keep fuel prices competitive and still provide services — but charge when those services are consumed, a structure commonly known as “unbundling.” The FBO/flight department/airport/business aircraft traveler relationship is symbiotic. Each faces its own challenges, and each needs the others. It appears that aircraft owners and passengers may have to accept this trend toward the unbundling of services. And FBOs must continue to provide flight departments and passengers with excellent customer service. BAA David Edwards is Director of Marketing for Truman Arnold Companies, overseeing advertising and marketing for the TAC Air, TAC Energy and Keystone Aviation divisions. An ad agency account executive before TAC, he holds degrees in Advertising/Public Relations and Marketing.
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■ Washington REPORT
Passenger Interference Penalty Passengers Who Distract or Needlessly Stress Pilots Put Themselves at Risk By DAVID Collogan
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response from a pilot who identified himself as a long-time user of the Bedford airport. He said the owner of the accident aircraft “had a reputation among his former pilots of always being in a hurry, which can be tough on pilots.” He also said he was told by workers at the airport that the engines on the plane were running as the passengers arrived. Pilots should not cut corners when it comes to safety, but even highly trained professionals can make mistakes when they are pressured by owners to “hurry up” and get the airplane airborne. What stresses out pilots? Passengers who arrive 90 minutes later than anticipated for a flight and then complain about being delayed when the crew has to obtain a new ATC clearance and reprogram the flight management system; constant reminders from the cabin of the need to reach the destination “on time” because the passenger has a “very important meeting” to attend; high-maintenance individuals who demand the pilots’ attention during critical phases of flight. Pilots want to get passengers to their destination as soon as possible. But at any given moment there are thousands of airplanes operating in the national airspace system, various airspace and airport constraints, and always changing weather conditions; some delays are inevitable. Putting unnecessary stress on pilots about conditions outside their control is not only poor form, it could have disastrous consequences. BAA David Collogan has covered aviation in Washington, DC
for more than four decades. This award-wining journalist is known as one of the most knowledgeable, balanced, wary, and trusted journalists in the aviation community.
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istockphoto
T
dlcollogan@gmail.com
he safety record for business aviation continues to improve. One reason that’s possible is that corporate and charter pilots train the same way airline pilots do, in full-motion simulators equipped with highly realistic visual systems. Like pilots employed by the big carriers, business aviation pilots are required to follow detailed procedures. These include readand-respond checklists for various phases of flight, from pre-takeoff to approach and landing. While passengers in a hurry to reach their destination may view the few minutes it takes for pilots to complete yet another checklist review as a waste of time, checklists are a critical element of the safety equation. Failing to follow procedures can have catastrophic consequences, as a recent accident graphically illustrates. On the evening of May 31, a large business jet crashed while attempting to depart the airport in Bedford, Massachusetts. Every pilot is taught to manipulate the airplane’s control surfaces (elevators, ailerons, and rudder) to ensure they move freely before taxiing onto the runway for takeoff. But upon examining the flight data recorder from the crashed aircraft, the National Transportation Safety Board said “data parameters associated with the flight control surface positions did not reveal any movement consistent with a flight control check prior to the commencement of the takeoff roll.” The airplane reached a speed of 165 knots during the takeoff roll but “did not lift off the runway,” NTSB said. Instead it ran off the end of the runway, and crashed into some navigation system structures on the ground, ending up in a gulley where a fire broke out. The two pilots, a flight attendant, and all four passengers died. The aircraft was equipped with a mechanical gust lock system, designed to lock the ailerons and rudder in the neutral position, and the elevator in the down position, to protect the control surfaces from wind gusts while parked. “The FDR (Flight Data Recorder) data revealed the elevator control surface position during the taxi and takeoff was consistent with its position if the gust lock was engaged,” according to the preliminary NTSB report. So how could two pilots with nearly 30,000 hours of combined flight experience omit something as basic as a flight control check and launch off in an airplane that could not possibly rotate and climb off the runway? A report about the accident in Business & Commercial Aviation, a journal highly respected for more than 50 years, generated a
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