Ownership 2.qxp_Finance 22/03/2022 11:00 Page 1
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How to Better Control and Manage Your Operating Costs David Wyndham provides an outline of the basis for flight departments to track and budget costs, minimizing the risks of nasty surprises…
here is an old aphorism about aviation: When the pile of money is equal to the size of the aircraft, then you have enough money to fly. Certainly, in the world of Business Aviation, costs must be justified internally, and to the board of directors. If the aircraft is managed, the management company has a fiduciary responsibility as well as a contractual obligation to spend the owner’s money wisely. Where an aircraft is not managed externally, there is a need for you to control and manage your aircraft operating costs. For this, you need to be the master of two interrelated areas: • Tracking your costs; and • Budgeting your costs.
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Tracking Your Costs
A company’s executive leadership, Board and CFO tend to focus on asset management, and their review may only consider a few major categories. One former client used three cost categories for its flight department: Facilities, Travel, and Personnel. While sufficient for reporting at executive level, such trifurcation is far too broad for management of Business Aviation costs. Except for overhauls and refurbishments, most of the operating costs are incurred in small enough increments that managers don’t realize their total magnitude, unless the company has a specific way to measure them. Thus, the aviation management team needs much more detail to effectively manage its costs. (Remember, you can’t manage what you can’t measure.) The basic minimum 58 Vol 26 Issue 4 2022 AVBUYER MAGAZINE
requirement is to collect and organize the costs in a way that is useful to the Aviation Manager and Maintenance Manager. The measurement system should be flexible enough to allow differentiation in costs between aircraft tail numbers and, if needed, operating locations. Ideally, your maintenance tracking software should include cost tracking. If not, hopefully the comptroller’s office can set up something specific for the Flight Department. The Aviation Department should be run like a business unit with tracking, accountability, and responsibility for the costs. There needs to be enough detail so that you can see changes and explain deviations from your budget with ease. Too many categories can result in a work overload, so whatever you choose, make sure it’s useful in managing the operation. Detailed costs at the Flight Department level must roll up into the reporting categories needed by the CFO. For example, categories such as hangar rent, insurance, utilities, communications, and cleaning services will all role up into the “Facilities” high-level report.
Budgeting Your Costs
The first step in budgeting, namely to agree on the assumptions, will, if done well, make the rest of the process a simple exercise. The mission of the flight department should align with the goals and objectives of the company. That mission defines assumptions for its success, for example: • How much flying are you expected to do in the coming year? www.AVBUYER.com
