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Cover Story

Controlling Costs: 10 Money-Saving Tips

Everyone knows the past few years have put extraordinary pressures on flight departments. In the current economic climate, many flight departments are being asked to operate within increasingly tighter budgets. The challenge is to provide the same service at lower cost – and to help the company avoid having to sell aircraft or cut staff.

Aviation managers are working hard to control costs," said David Wyndham, vice president and co-owner of Conklin & de Decker.

Experienced operators and advisers like Wyndham recommend a systematic approach to operating on a smaller budget: focusing on the drivers of variable and fixed costs and tracking expenses as carefully as possible.

"The only way to know where you could be saving money is by benchmarking," said one aviation manager at a New York-based flight department. Wyndham tells the story of a client with very high avionics cost. Conklin & de Decker found that the client was replacing the vertical gyro about every 400 hours, far below the typical life. Talking with an avionics specialist revealed that smoking in the cockpit was causing the gyro to fail prematurely. Replacing a cheap air filter extended its life.

There would be no way to quantify and reduce a cost like that if the flight department wasn't tracking its expenses at that level of detail. There are many software applications available for tracking maintenance; the most useful one tracks expenses in detail, rather than just sending an alert when an inspection is due.

Control What You Can – Minimizing Variable Costs

Maintenance is one of the two largest variable costs of operating aircraft; the second is fuel. These are the costs over which managers have the most control.

The more you can manage maintenance in-house, Wyndham said, the more you'll be able to contain costs. While hiring a full-time maintenance professional may make a significant impact on your budget, both operators and aviation consultants advise that it can be cheaper in the long run than sending work out. "If you have a maintenance professional who works on that tail number, they're going to have the most intimate knowledge of the aircraft," said Wyndham.

As for fuel costs, "there's usually more than one supplier on a field, so choose the FBO with the lowest price and required level of service," said the New York-based flight department manager. Experienced operators also suggest joining contract fuel programs, which can offer substantial discounts off the quoted retail price. Choosing where to make a tech stop can also make a big difference. Fuel is cheaper at some airports than others, so tankering can save money, especially if you have a discount at your home base.

There are other variable costs that flight departments can reduce, such as catering and flightcrew travel expenses. Some companies have security policies that require the flightcrew to stay in the same hotel as passengers. When traveling internationally, especially to less-stable countries, that's a sound precaution, but it can be expensive in more developed countries. Similarly, deadheading to pick up passengers may be convenient for them, but when flight departments are being asked to reduce their expenses, it might be appropriate to explain to aviation users the additional cost involved in flying an empty aircraft.

Make Wise Long-Term Decisions to Keep Fixed Costs Low

The majority of the fixed costs of operating aircraft – department salaries, hangar space, loan payments – can't be reduced much without affecting the operation. However, when making big decisions, such as buying or selling an aircraft, operators do have a lot of control over certain outlays, like taxes and insurance.

Right now, there are significant tax advantages to acquiring a new aircraft. With 100 percent bonus depreciation, operators in certain situations can write off the entire value of a new aircraft in the first year. However, the aviation manager based in New York cautions that bonus depreciation only offers tax savings if your company is profitable in 2011. "If you're going to be more profitable next year, or the year after," he said, "you might want to choose a five- or seven-year depreciation schedule."

When selling an aircraft that has been depreciated over several years, most operators will want to avoid recapture. For example, an operator who bought an airplane for $5 million, depreciated it to zero over five years, then sold it for $3 million, would normally have to pay tax on that income. However, if the same operator bought a new aircraft for $9 million, he could defer the sales tax on the first airplane with a 1031 trade-in, or what's called a "tax free exchange." In that case, the operator could only depreciate the new aircraft at a value of $6 million (the $9 million price paid minus the unrealized gain, $3 million, on the trade-in).

Valuations of used aircraft have fallen considerably lately, prompting some operators to consider whether they're over-insured. There is more competition in the aviation insurance market right now, so you should ask your broker to obtain multiple quotes, to ensure you're getting the best coverage at the best price. "You do want to shop around for a low premium, but you don't want to be pennywise and pound foolish," said Wyndham. "A better way to save money on insurance is to make sure your insurance company knows your operation as well as possible."

For example, an underwriter might consider offering a better rate to a flight department with a vigorous training program, a fire suppression system in the hangar or an aviation department that has completed International Standard for Business Aircraft Operations registration.

"We like our underwriters to meet our clients, to get out and visit their operation," said one insurance industry expert. "No one can demonstrate your sound operation and safety practices like you can. Establishing that kind of a relationship can help your broker negotiate on your behalf for the best coverage and premium reductions."

Maintenance-Tracking Programs Can Help You Save

Closely monitoring the maintenance on your aircraft can help minimize downtime, reduce costs related to replacing parts, and make your entire operation safer and more efficient. There are many maintenance-tracking programs on the market. Here is a sampling of services:

  • CAMP: An integrated system with an array of OEMs (including Cessna, Hawker Beechcraft, Bombardier and others), CAMP creates a two-way information flow between operators and OEMs to extend component lifetimes and help operators plan maintenance events as effectively as possible. CAMP has recently launched an update to its web-based portal and is planning an application for Android and iPad tablets.
    www.campsystems.com
  • AvTrak: Focused on simplifying compliance, AvTrak helps customers stay up-to-date on when maintenance events need to happen. AvTrack empowers the factory maintenance-tracking service for Gulfstream.
    www.avtrak.com
  • Flightdocs: Flightdocs specializes in bridging the relationship between operators and maintenance facilities, to bring more transparency to inspections and repairs. Flightdocs has introduced an iPad app, so pilots can enter a squawk into the system from the cockpit, and technicians on the ground can begin troubleshooting the problem before the aircraft lands.
    www4.flightdocs.com

Also, many flight scheduling and operations programs include a maintenance- tracking function, or interface with other maintenance programs:

How to Minimize Variable and Fixed Costs

  • Benchmark and track expenses
  • Consider bringing maintenance in-house
  • Get maintenance tracking software
  • Choose the FBO with the lowest fuel price
  • Join a contract fuel program
  • Choose wisely where to make tech stops
  • Tanker when you can
  • Decrease flightcrew travel expenses
  • Utilize tax advantages
  • Get multiple insurance quotes
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