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Keeping Your Head Above the Paperwork
Overcoming the Business Management Challenges of an Owner-Operator
Pilots who fly their own aircraft for business face operational challenges like pre-flight planning and managing fatigue all by themselves. What's more, being a single-person flight department also presents a whole set of challenges outside the cockpit. Owner/operators are responsible for managing all the maintenance on the aircraft, their own scheduling, establishing relationships with vendors and – maybe most daunting – keeping up with all the paperwork.
Regulatory, financial and safety demands require the owner/operator to keep a host of records: pilot logbooks, flight records, tax returns, passenger manifests, insurance documentation and maintenance records.
"If you're using your aircraft to support your business, you have the same record keeping requirements as a corporate flight department," said Doug Stewart, president of AircraftLogs, a company that provides record-keeping support and services for aircraft operators. "The biggest challenge for an owner/operator is the demand on their time. They have to do all the jobs of the flight department themselves."
High Costs in Taxes, Resale Value and Time
It can be tempting to take a less-attentive approach to record keeping, since the top priority is to fly the airplane safely, but the costs of incomplete or inaccurate records can be significant.
"Poor record keeping can certainly result in overpayment of taxes," said Glenn Hediger, president of Aviation Financial Consulting, an accounting firm specializing in business aviation.
Aircraft used in a trade or business may be depreciated under Internal Revenue Service (IRS) rules, thereby providing significant tax benefits to the company. However, business aircraft are subject to deduction limitations when there is certain personal use, based on the travel purpose of every passenger aboard every flight. The IRS provides four different methods using seat-miles or seat-hours to calculate the percentage of travel used to compute the disallowance.
"If flight records are not available to do all of the different calculations," said Hediger, "you may be stuck with the deduction limitation that is less favorable."
Additionally, the resale value of an aircraft can be affected by lack of good maintenance records.
"When selling your aircraft, you're competing with other aircraft in the market of the same make and model," said Stewart, "If you have incomplete maintenance logs, you're going to the bottom of the list and you won't get as much [value for your aircraft] as the others."
Incomplete records can cost owner/operators not just money, but also time. When scheduling their own aircraft, pilots need to plan around the recurrent training and regular inspections required by their insurance underwriter.
"If you're just winging it, you could find out at the wrong time that you need to go in for training, or your aircraft needs to go in for maintenance," said Eric Barfield, vice president of Hope Aviation Insurance.
Best Practices for Staying Organized
Barfield speaks not just as an aviation insurance broker, but also as a light business aircraft operator himself. Hope Aviation Insurance is a company of 12 people, four of whom are owners and pilots of a Cessna 340 and a Cessna 182. They've found that integrating their record-keeping processes into their existing business processes is the most efficient approach for their operation.
"There are a lot of [software] programs out there to help you, but you have to find the tool that's right for your operation," said Barfield. "That being said, you just can't do this alone, and you need to stay plugged into the aviation community."
Hope Aviation Insurance uses Microsoft Outlook, which they already utilize in the course of their business, to schedule the airplanes. To keep track of usage and maintenance flights for tax purposes, they generate a monthly report from aircraft timesheets detailing how much each airplane flew, who flew it, the destination and hours flown. They also have an annual process, basing their training and medical certification around their annual insurance renewal.
"A lot of our processes came from sharing knowledge with other people in the industry," said Barfield. "These tools work for us, but we're constantly re-evaluating them for greater efficiency and safety. We also get best practices through groups like NBAA and find out what other folks are doing."
Hediger agrees that owner-operators can manage their aircraft record keeping with many of the systems they're already using, if they have processes in place to input the right data.
"For example," said Hediger, "I've found that setting up separate accounts, or even a division within the software, for aircraft costs helps make annual tax compliance much more efficient."
If owner-operators don't already have an ongoing record keeping process in place, their accountant can help them set one up.
"Make sure your accountant knows how you will be using your aircraft and how your operations are structured," said Hediger. "An accountant will set up a record keeping process that doesn't interfere with the time you need to spend on your business."
While a certified public accountant can help set up an ongoing accounting process, it's the responsibility of the owner-operator to keep up with the data entry, whether it's in paper logbooks, Excel spreadsheets or aviation data tracking software.
"An aviation data-management system is an easy way to ensure all the right documentation is being put in place," said Stewart of AircraftLogs. "Software helps you follow a process, because most software literally has the process built in."
There's no one-size-fits-all solution to aircraft recordkeeping, but here are some of the available resources:
- NBAA's Management Guide – Section 4.14 – Aircraft Maintenance Records Management
- NBAA's Personal Use of Business Aircraft Handbook
- Free online software for aircraft expense tracking, like Expensify
- AircraftLogs' Knowledge Center, with goals for process improvement and case studies from successful flight departments
- Insurance brokers' online pilot forms, like Hope Aviation's