Choosing An Aircraft Management Firm: Does Quality Match Price?
The aircraft management business has been flooded with dozens of new entrants in recent years, many promising lower costs for a full range of support services. The appeal is great. Turnkey flight operations spare clients the hassles of dispatching, crew screening, maintenance oversight and insurance shopping.
Some management firms increase their appeal by offering to lease back aircraft from owners on an hourly basis and putting them to work in air charter operations. The owners are enticed with projections of substantial income from high-volume charter bookings that can potentially offset a sizable portion of fixed operating costs. That income promise may blur their view of the consequences resulting from additional wear and tear associated with high-tempo flight ops or to restrictions on aircraft availability for their own use due to charter bookings.
Bargain price, full-service aircraft management is a fiction, however. There is no such thing as a free lunch in this business, says David Rimmer, president of Talon Air in Farmingdale, New York. Discounters still must make profits to stay in business, so some firms skillfully cloak slews of upcharges in the fine print of management contracts. The final monthly bill may include handling fees, transaction charges, inflated foreign exchange rates and commissions of 15%, or more, on outside procurement invoices, among other costs.
“All those hidden profits. Let’s call it what it is: dishonesty,” says Rimmer. “Some of these firms just hate their customers, gouging them at every opportunity. ‘We know that he or she can afford it,’ they seem to believe.” But it’s OK to add surcharges to bills, Rimmer asserts, if all the upcharges are clearly explained to clients before they sign management contracts. “Transparency is key to every successful business relationship,” he says.
Along with lack of transparency, many such startups just plain lack the expertise or resources to stay abreast of regulatory changes, maintenance records and legal issues.
“It’s expensive to be in the aircraft management business, to be both legal and safe. If it seems too good to be true, it probably is. People get the management company they want, but not necessarily the one they need,” Rimmer adds.
Econo-class management firms often look for ways to minimize people costs, including cutting corners on crew screening, qualifications and compensation packages, bone lean crew levels to support high-volume operations, requiring office staff to perform multiple functions with limited or no training and bending rules on dry leasing aircraft.
Many such cut-rate management firms collapse in a few years, due to financial setbacks, legal entanglements, FAA enforcement actions, insurance shortfalls or early termination of contracts by clients or their attorneys.
Economies of Scale, Long-Term Experience
Management companies can be divided into three categories: (1) large, nationally recognized firms that may be part of public companies or privately held firms, such as Clay Lacy Aviation, Directional Aviation’s Corporate Wings, Executive Jet Management, Jet Aviation and Solairus Aviation; (2) medium-size firms, often created to complement FBO, aircraft sales and/or air charter businesses; and (3) smaller, locally based or regional companies, typically serving the needs of family offices or a few high-net-worth individuals.
Staying power and employee retention are two key qualifiers when selecting aircraft management. Firms with low employee turnover typically screen job applicants carefully, offer attractive compensation and benefits packages, foster open and honest communications, meticulously comply with regulations and encourage teamwork. Larger management firms, ones that have been in business for decades and ones that manage sizable fleets of aircraft generally are more financially stable than small startups.
Owners should look for companies that have five or more aircraft under management, advises David Hernandez of the business law firm Vedder Price. He says a management firm with “a large, varied fleet of aircraft [light, medium, heavy, etc.] will allow an owner to utilize a substitute aircraft if the owner’s aircraft is grounded for maintenance or the owner needs a larger or smaller aircraft for a particular trip.”
But Ryan Waguespack, senior vice president of aircraft management, air charter services and MROs at the National Air Transport Association (NATA), cautions a management company cannot provide lift to one client using another client’s aircraft without being an FAR Part 135 certificated air carrier having full operational control of the aircraft. That includes a Part 135 qualified crew, specific air-charter aircraft serial numbers listed in its ops specs and appropriate insurance coverage. The NATA’s website allows visitors to look up charter operators by name or aircraft by N-number to verify their charter air-carrier certificate status.
Regardless of the firm’s size, it’s relevant to ask about the business aviation background, training, experience and education of managers, starting at the executive suite, then onto dispatchers, head of maintenance, crew scheduling, finance, accounting and reporting, and then all the way down to the individual client account manager.
In addition, it is essential to speak with the firm’s safety manager about the company’s safety management system, crew training requirements, crew duty and crew rest standards, and workplace safety practices. A good start is to check safety ratings by auditing firms such as ARG/US and Wyvern. IS-BAO (International Standard for Business Aircraft Operations) Stage 3 and IS-BAH (International Standard for Business Aircraft Handling) certifications add credibility to the firm’s commitment to risk management best practices.
Established firms will also have their own FAR Part 145 repair station authorization, enabling them to accomplish many routine scheduled maintenance and line-service tasks in house. If the aircraft will be based away from the company’s headquarters facility, aircraft owners need to determine how the aircraft will be supported, especially if it becomes grounded due to a maintenance snag.
Airplanes break. That’s a reality of aircraft ownership. The acid test for an aircraft management company is its response when a client’s airplane suddenly becomes unairworthy. What is the firm’s Plan B? How quickly can it can arrange for a chartered aircraft to provide supplemental lift? How soon can it arrange for aircraft repairs? How well does it keep the aircraft owner informed of progress in restoring the aircraft to service? How carefully does it control costs?
A template to assist potential clients in assessing management company competencies is in the works. The NATA is in the process of creating a seven-step guide to best practices for aircraft management companies, says Waguespack. Focus areas include operations, finance, maintenance, legal, insurance, environmental protection including carbon emissions offsets, and cybersecurity. The guide will use input from Solairus Aviation, Duncan Aviation and Jet Aviation, plus Pentastar Aviation, Jet Professionals and Texas State Technical College, among others. Waguespack expects the first edition to be published in coming months.
Top Firms Offer Best-Practices Tips
Pentastar was founded in 1964 as Chrysler’s flight department, serving the needs of the automaker’s executives. It was spun off as an independent entity in 1980, pursuant to the U.S. government’s $1.5 billion bailout of the company.
It’s now one of the Midwest’s leading aircraft management firms, caring for more than two dozen customer aircraft, mostly in the greater Detroit area. The firm has been growing continuously since it was acquired by Edsel Ford in 2001, and it now offers a wide range of services including charter, aircraft management, a Part 145 aircraft repair station (1995), aircraft interior refurbishment, avionics upgrades, FBO services and even aircraft acquisition consulting.
Pentastar puts special emphasis on recruiting, screening and retaining pilots. “They’re the tip of the spear for our operation. We put our trust in them to manage situations [dynamically],” says Robert Rufli, Pentastar’s vice president of flight operations. The flight crews are front-line customer service representatives with clients. Pentastar gives them full support, including a 24/7 dispatching team that provides weather briefing, trip planning, catering, handling and fuel arrangements, along with flight following, plus a maintenance control team.
Rufli says pilots must have access to all resources needed because of unforeseen circumstances. If an airplane breaks down on a trip, they need to coordinate through Pentastar’s Pontiac, Michigan, headquarters for repairs, supplemental lift and ground transportation.
Meticulous record-keeping in the process is top priority as well. “We place a premium on proper paperwork and maintenance,” Rufli notes. “There are lots of changes to maintenance documents, including Service Bulletins and Airworthiness Directives. It’s challenging for pilots if they have to double as [acting] directors of maintenance.”
Thus, on long trips, Rufli often sends an airframe and powerplant technician along with the flight crew to provide line service, routine maintenance and repair coordination, if needed.
“We’re committed to doing it right,” says Rufli. “We’re a service business. We want to work with clients to make it work for them.”
Solairus Aviation in Petaluma, California, is a slightly younger aircraft management firm, partially having roots in Aviation Methods, which was founded in 1976. In line with Pentastar, Solairus positions itself as a service business. It now has grown to 750 full-time employees.
The firm prides itself on its “Sustainable Culture of Safety” for clients, passengers and team members. It has a full-time safety officer, a top-to-bottom integrated safety management system and it earned AR/GUS Platinum certification in 2009 as well as zero-discrepancy IS-BAO approval in 2010. Several large corporate flight departments have conducted independent audits of Solairus, providing assurance that the firm’s Part 135 charter service meets their own safety standards.
“We’re looking for long-term business relationships. The secret sauce is to personalize everything, within constraints,” says John King, Solairus’ president. Prior to joining Solairus, King was the CFO at Sunset Aviation. He has three-plus decades of business and financial management experience.
“We’re in the outsourced flight department business. We ask clients to tell us how to communicate with them. We personalize at every touch point, including having a dedicated client aviation manager [CAM], flight crew, flight attendant, crew chief and client responsible officer. We provide the same flight coordinator, the same finance contact, the same overseer to each client.”
Solairus is rigorous in personnel screening, as the on-site CAM — usually also the client’s chief pilot — is the principal point of contact to the firm on a daily basis. The on-site manager coordinates with Solairus’ accounting, flight coordination and dispatch office, maintenance department, client services section, charter sales and aircraft acquisition divisions, among others.
Candidate CAMs and flight crews are technically screened, including a review of logs and training records, deep background checks and several stages of interviews. Then, Solairus meets with clients and introduces a list of personnel candidates to determine the best fit.
The crew chief is vital as that team member “keeps the aircraft flying, marrying up maintenance to the operating environment,” King adds. For instance, if the aircraft is based at an airport in a salty air environment, the crew chief watches for any signs of corrosion.
Most management clients do not make their aircraft available for charter. The bulk of the charter fleet is dry leased and it is relatively young. Older aircraft are not used for charter because of reliability challenges.
Once the client signs on with Solairus, the firm provides monthly detailed financial reports that track all flight activity, fuel costs, charter activity, if applicable, and crew costs. Complete raw data is available so that clients can see the original invoices. The costs are not marked up with service fees, surcharges or handling fees. The monthly management fee is the only additional charge.
We asked King if we could talk to employees about their own experiences with Solairus. “Go ahead, talk to anyone and everyone,” he responded.
So, we contacted Garrett Woodman, one of Solairus’ long-time CAMs and a newly rated Gulfstream G550 captain, for his views. He says fleet discounts on fuel, insurance and maintenance have more than paid for Solairus’ management fees for his clients during the past several years he’s worked for the firm. Woodman has documented 10-20% lower maintenance costs made possible because of Solairus’ volume purchasing power. Between 75% and 80% of Solairus’ clients also take advantage of its fleet insurance policy. The fleet policy not only saves money, but also offers better coverage than an individual aircraft policy. “I’m the client-facing side of the account. I get very, very detailed end-of-the-month reports that I filter and check for errors,” he says.
“Solairus constantly reinvests in infrastructure, refining accounting reports, providing more transparency, as well as supporting me and my family. From my perspective, there is no way to get closer to having your own flight department. It has the feel and sense of a private company,” Woodman adds, noting that the firm has impressively strong employee retention.
Solairus also can assist clients in acquiring aircraft. Maintenance team members get involved with pre-purchase inspections, also coordinating with top-tier heavy maintenance facilities, such as Duncan Aviation and Gulfstream-Dallas, to evaluate aircraft condition and maintenance status.
Data security is a strong focus for the firm, with Solairus meeting ISO 2700 standards, King asserts. Clients are invited to actively audit the firm’s data security system.
Cost Benefits and Intangibles
Large, well-established aircraft management companies charge as much as $14,000-16,000 per month per aircraft for their services. But firms such as Pentastar, Solairus, Executive Jet Management and Directional Aviation’s Corporate Wings have bulk buying power that saves clients as much as 25% on fuel, a third on pilot training, 30% on maintenance and 50% on crew travel expenses, as well as negotiating hotel contracts for lower overnight costs. Some clients say they break even on management costs if their aircraft fly 400 hr. or more per year.
Regardless of the size of the management firms, clients are attracted to full-service companies because of the peace of mind that results. Customers are seeking professionals with broad and deep aviation experience, ones who adhere to the highest safety standards, firms that provide full disclosure of fees and complete transparency of all operating costs. They also want multiple aircraft redundancy, even though they only own one aircraft.
Thus, when a client’s airplane is out of service for a scheduled inspection or unscheduled maintenance, a properly prepared management company can arrange for a chartered aircraft to provide supplement lift. When a client’s regular flight crew is unavailable due to regular recurrent training, vacation time or illness, a full-service management company can provide temporary crew services. When new regulatory requirements loom on the horizon, a competent management company will alert the client to the challenge and provide guidance through the compliance process. When a client is lured toward “damp lease” gray market charter to offset operating costs, an ethical management company will steer the regular away from the temptation.
The least-expensive route to having an aircraft professionally managed by a third-party firm is to put it to work in air charter. In exchange, the client cedes some of the flexibility and convenience of having the airplane available on short notice.
Any management firm needs to be carefully vetted, including safety protocols, industry-accepted safety ratings, checking the experience of the staff, having an aviation attorney peruse the management contract, and verifying data security systems, among dozens of other checks. Good credit and financial standing of the management company are essential. Employee retention is another vital test of a firm’s stability and staying power.
Signing on with a management company requires as much due diligence prior to inking the contract as when evaluating a new aircraft or entering into a long-term personal relationship. Attention to detail can make for an enjoyable, hassle-free business experience. Diving in without doing one’s homework risks months or even years of financial, legal and personal woes.