Safety Management System (SMS)

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SMS and Your Bottom Line

December 6, 2010

Although any action from the Federal Aviation Administration (FAA) regarding requirements for business aircraft operators to implement a Safety Management System (SMS) appears to be a long way off if ever, many flight departments and other business operators who have voluntarily implemented an SMS have seen a benefit where they may not initially have expected to: their company’s bottom line.

The goal of an SMS is to prevent accidents before they happen. And accidents are costly, as aviation insurance companies well understand. From the direct losses of the aircraft, property damage, personal injury/loss of life and legal claims, to a host of indirect losses, such as loss of business, loss of staff and productivity, punitive damages and fines, damage to reputation, and more, accidents can incur significant losses. Avoiding accidents can therefore save money.

Brint Smith, vice president, aviation for John F. Throne & Co. Insurance Marketing Inc. and chair of the Aviation Insurance Working Group of the NBAA Tax Committee, explains the cost savings of an SMS this way: “SMS is an opportunity to increase an operator’s ability to prevent [insurance] claims from happening. The ability to avoid a claim is one of the overriding benefits of having an SMS.”

Smith and other aviation experts note that many companies are already implementing best safety practices, and already essentially have an SMS in place, although it may or may not be in writing. “If an operator has gone through the cultural changes to put an SMS or best safety practices in place, it tells us they want to be the best,” says Smith.

The willingness to embrace a culture of safety throughout an organization – especially since it is not yet mandated – is looked upon favorably by aviation insurers, which could translate to more favorable insurance premiums for that company. According to Doug Carr, NBAA’s vice president for safety, security and regulation, the association has heard from members who have seen cost reductions in their insurance premiums after completing an IS-BAO registration (International Standard for Business Aircraft Operations), one of several ways that are currently available to establish an SMS.

Katherine Perfetti, standards manager at the International Business Aviation Council, noted that many insurance providers are very supportive of the IS-BAO program and may even provide some financial incentive, such as helping to pay for audits or parts of the implementation as well as possible premium reductions and more favorable insurance terms and products.

“I have also heard that some financing companies may be interested and will consider how the aircraft will be operated when making lending decisions,” said Perfetti.