Aircraft cost audit — where the owner's budget leaks away

An owner usually sees the total figure for the year and not the structure behind it. An audit turns that one line into a picture you can read: what it costs to sit on the ground, what it costs to fly, and how much you are paying for things you need not pay for.

How it works

• we pull every invoice for the past 12 months: maintenance, fuel, handling, crew, insurance, navigation, parking, administrative costs
• we split them into fixed and variable and work out the real cost of a flight hour
• we compare that with market terms for the type, the home base and the volume
• we check the engine and airframe programmes: where the reserve is too thin, and where you are paying for something you do not use
• we look at insurance: whether the cover matches the actual flight profile
• we prepare a plan: what changes straight away, what changes at the next renewal, and what calls for a change of supplier

Where the money usually turns up

In practice a few items come round again and again: repositioning flights that planning would have avoided; fuel at spot prices instead of contract ones; handling without an agreed rate; maintenance outside a programme where the programme would pay for itself; insurance cover with no connection to where the aircraft actually flies.

Idle time is a subject of its own. If the aircraft flies little, every fixed item falls on a small number of annual flight hours and the cost per hour multiplies. Sometimes an audit leads to a different conclusion: the aircraft needs more hours in the year, or it belongs under management.

I came into aviation from accounting and audit, and only then moved on to aircraft leasing and operations, so I read an owner's invoices the way I read any set of accounts. I build business plans and financial models for aviation businesses. A purchase with no sound reason behind it is one I talk the buyer out of, as a matter of principle.

What the owner ends up with

• the budget for the period broken down: fixed and variable, actual against the market
• the real cost of a flight hour on your aircraft, worked out from your own invoices
• a list of the items that can be cut, with an estimate of the effect on each
• arguments ready for use in talks with the operator and the suppliers
• a recommendation on how to hold the aircraft: keep it as it is, put it under management, or sell

An audit does not necessarily end in lower costs. Sometimes it ends with the conclusion that the budget is normal and the questions were really about expectations — that is a useful result too, and we say so plainly.

Frequently asked questions

What do you need to provide for the audit?

Invoices and contracts for the period, the record of how much the aircraft has flown, the status of the maintenance programmes and the insurance policy. The more complete the source data, the more accurate the result.

How long does an audit take?

Usually 2–4 weeks for a single aircraft, including the comparison with the market and the negotiating part.

The operator sends totals only, with no source documents. What then?

We start with a written request under the management agreement: work orders, completed-work certificates, supplier invoices, fuel records. If nothing comes back, that is already a result: costs you cannot verify are not worth arguing over, and the conversation moves from the figures to the terms of the contract. As far as I know, a management agreement normally gives the owner that right — worth re-reading your own reporting clause before the argument starts.

How is an audit different from simply changing operator?

Changing operator is one of the possible outcomes, and before an audit there is no telling whether it would help. Part of the overpayment sits in contracts that follow the aircraft to the new operator: the insurance, the engine programmes, the parking agreement. An audit shows where the money goes on the terms and where it goes on the management itself, and only then does changing supplier become a considered step.

Alexander Filimonov — business aviation: sourcing, acquisition and entry into service of aircraft.