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Tips for Small Flight Department Budgeting

Savvy aviators can start addressing their small department budgeting challenges by establishing a baseline of historical expenses.

Oct. 23, 2017

Flight department budgeting is one of the biggest challenges for aviation directors of small flight departments, according to the nearly 200 smaller operators who completed a recent survey published by NBAA’s Small Flight Department Subcommittee.

“Most aviation directors have extensive experience with the technical side of aviation – either flying or maintenance – but not as much experience on the business side,” said Brian Koester, NBAA’s manager of operations and staff liaison to the Small Flight Department Subcommittee. “Some aviation directors don’t know where to start when it comes time to develop or manage a budget for an entire flight department. Even a single-aircraftoperation involves complicated expenses and long-term planning.”

Industry veterans offer the following guidance for aviation directors learning how to manage the organization’s budget or looking to improve their budgeting skills.

START WITH HISTORICAL DATA

Analyzing previous years’ expenses, if properly documented and categorized, can provide a baseline for developing a budget.

“Historical data is incredibly helpful, so you need to track expenses accurately,” said Jeff Long, director of and chief pilot for the University of Kansas flight department. “If you keep a good accounting of what you are spending money on, and categorize those expenses, it allows you to better estimate how much you will spend in following years.”

It some cases, it’s useful to look at variances between previous proposed budget numbers and actual expenses. Then identify what really affects the organization and work to better manage or predict those expenses in the future.

Strive to fix as many substantial costs as you can for as long as you can. Some examples of fixed-cost opportunities are airframe maintenance, engine maintenance and component maintenance programs. Opting for these OEM fixed-price programs makes maintenance costs more predictable and stable for longer periods of time – sometimes up to 10 years.

Good relationships with vendors also can help you manage your budget since it will make it easier to negotiate lower prices. Positive vendor relationships can be especially useful in managing variable expenses.

  • Some training centers will offer a discount for prepaid multi-year training contracts.
  • Some repair stations will negotiate labor or parts discounts.
  • You may be able to negotiate a lower hourly rate on supplemental lift by guaranteeing a certain number of hours per year or purchasing a pre-paid jet card.

Fuel – one of the largest budget items for most flight departments – is another area of potential cost savings.

“Take time to learn about fuel management, and put in good processes to manage fuel,” said Andre Fodor, vice president of aviation and global opportunities at Johnsonville Sausage. “Offsethandling fees through fuel purchases, and manage relationships with fuel vendors to get better rates.”

PUTTING COSTS IN CONTEXT

One key to successful budgeting is educating your principals and others who make substantial financial decisions within the organization about the expenses related to the aircraft, justification of relevant costs and proactive notification of unexpected or unusual expenses.

“You have to reach outside of the aviation department,” said Fodor. “Maintenance costs, operating costs – they look very foreign to someone without an aviation background. They’re even complicated for people with many years of aviation experience.”

Most aviation directors have extensive experience with the technical side of aviation – either flying or maintenance – but not as much experience on the business side.
– BRIAN KOESTER Manager of Operations, NBAA

Proactively notifying financial officers or the principal about unexpected expenses is especially important. Unplanned expenses are unwelcome surprises, so be direct, upfront and transparent about such costs, and be prepared to justify the expenses.

It is crucial that the principal and other individuals who make key financial decisions understand the benefits of business aviation to the company. Track indicators of less-tangible benefits to help demonstrate the positive impact that the aviation operation has on the organization and the passengers.

For example, a same-day, out-and-back flight for an important meeting likely means that passengers will be able to spend the night at home, rather than in a hotel room, something that usually is not possible by flying the airlines. These intangible benefits may be overlooked or underestimated by individuals focused only on the bottom line.

MANAGE YOUR BUDGET BY BETTER MANAGING PEOPLE

Being smart about hiring personnel, and then actively working to retain exceptional staff members, can help your budget.

“Managing personnel properly can have a huge impact on your budget’s bottom line,” said Long. “Have policies and processes in place in your flight department so you allow for a good work/life balance.”

Long suggests reviewing NBAA’s annual compensation survey to ensure that the salary and benefits you offer are competitive. Also, provide a reasonable work schedule, and budget funds so that employees can take advantage of professional development opportunities.

Some managers consider it dangerous to help employees enhance their professional capabilities because it could make them outgrow their current position and want to leave the organization. But Long said, “We think allowing people to grow their knowledge and skills shows we value them as individuals.”

Maintenance costs, operating costs – they look very foreign to someone without an aviation background.
– ANDRE FODOR Vice President of Aviation and Global Opportunities, Johnsonville Sausage

Fodor agrees, saying investing in training and providing a lifestyle that is valued leads to better employee performance, less turnover and better overall cost efficiencies.

Also, consider hiring a dedicated maintenance director, someone who spends time with the aircraft, knows both its quirks, as well as its technical aspects, and can optimize dispatch reliability.

Although an extra fixed expense, the investment in a dedicated maintenance expert can pay off in terms of improved efficiency and cost savings.

BUILD IN FLEXIBILITY

Flexibility and knowing your own organization are the final keys to budget success.

“Not every recipe works to make the same cake,” said Fodor. “Your department’s budget depends on the organization’s circumstances and, to a large degree, the personality of the individual or company you are managing the asset for.”

Be sure to include a cushion for expenses that can be volatile from one period to the next, like fuel costs, which fluctuate frequently, and plan for aircraft down time. For example, previous years’ dispatch reliability metrics can help you predict the need for supplemental lift and assist in estimating an appropriate budget line item.

“Learn from bad management decisions and learn from good management decisions, then create a set of guidelines that work for your organization,” said Fodor.

An aviation director’s ultimate budget goal should be serving as a good steward of your company’s aviation resources.

“Manage the aircraft like your principal would – but better. You’re the expert,” said Fodor.

Learn More with These NBAA Resources

NBAA offers small flight departments a variety of budgeting resources.

For in-person training, consider NBAA’s Professional Development Program course titled “Management Fundamentals for Flight Departments Workshop,” which includes sessions on planning, goal setting, budgeting and measuring performance.

Written publications discussing budgeting include Communicating with the Aircraft Principal and the NBAA Management Guide. The first publication provides guidance to aviation directors on budget preparation and negotiations, including identifying your own assumptions about each budget line item and circumstances that can influence each expense. The NBAA Management Guide features a wealth of information related to budgeting, including guidelines on managing operating and personnel costs, a sample maintenance budget form, recommendations for tax planning and more.

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This article originally appeared in the November/December 2017 issue of Business Aviation Insider. Download the magazine app for iOS and Android tablets and smartphones.