The management company: what it does for its money

An aircraft owner pays a management company a monthly fixed fee plus costs as incurred. The first question after the contract is signed is always the same: what exactly is that money for, if fuel, crew and parking are paid separately.

Here is what the work consists of and where the company earns back what it costs.

What management covers

▪️ Continuing airworthiness. Planning the checks, monitoring hours, tracking service bulletins and airworthiness directives, keeping the logbooks. This is continuous work: every item has a deadline and consequences when it is missed.

▪️ Arranging maintenance. Choosing the service centre, booking the slot, agreeing the scope of work, accepting it. The company knows where the queue is shorter and where the invoice for the same check differs by a factor of two.

▪️ Crew. Selection, entry into service, simulator training, maintenance of ratings, medicals, monitoring of duty and rest time.

▪️ Flight planning. Route, permits, slots, ground handling, fuel at contract prices, crew briefing.

▪️ Insurance. Calculating the limits, working with the broker, annual renewal, handling claims.

▪️ Budget and reporting. An annual expenditure plan, a monthly report against actuals, suppliers' invoices.

▪️ Regulatory work. Relations with the aviation authorities, keeping the documents current, compliance with the requirements of the airspace the aircraft flies in.

Where the company earns back what it costs

Fuel under contract. The difference between the posted rate on arrival and the contract price accumulates into a noticeable sum on a long leg. Over a year of regular flying it covers part of the fixed fee.

Ground handling. A company with a flow of aircraft gets rates unavailable to the owner of a single one.

Slots and queues. A heavy check placed in the plan six months ahead costs less and takes less time than the same check squeezed urgently into a busy centre.

Missed deadlines. An overdue airworthiness directive grounds the aircraft until it is cleared. One such case costs more than a year of the fixed fee.

Downtime in maintenance. The difference between two weeks and five in a service centre is flying days the owner has lost.

What stays with the owner

Decisions about money: the annual budget, major work, refurbishment, sale. The choice of operating arrangement. Priority of flights.

Everything else goes to the company, and that is the main point of the contract: the owner stops being the dispatcher of their own aircraft.

How the payment is structured

The fixed part is a monthly management fee. It is calculated from the class of aircraft and the scope of the tasks.

The variable part is the actual costs on the aircraft, which the company pays and re-invoices. Fuel, maintenance, charges, crew.

Transparency is what to look at here. A contract in which the variable part is closed off with a single line and no supporting documents leaves the owner without control over the bulk of the spending. The arrangement that works: re-invoicing against supporting documents plus a clearly stated commission.

What to check before signing

1. The company's experience on your specific aircraft type. Experience on the class in general tells you nothing here.
2. The reporting procedure: what reaches the owner monthly and in what form.
3. The mechanism for re-invoicing costs and the size of the commission.
4. Who decides on work, and up to what sum without the owner's agreement.
5. Terms of termination and of handing the documents to a new company.
6. The availability of a relief crew and how it is called upon.
7. References from two or three current clients.

When a management company is unnecessary

At a few dozen hours a year and with one straightforward aircraft, an owner with a strong technical director copes alone. The saving on the fixed fee is real in that case.

As hours grow, on international routes and on a heavy type, the volume of work stops fitting into one person. From there the choice lies between an in-house structure and an outside company, and an in-house structure with a single aircraft comes out more expensive.

The order that works is to settle the operating arrangement together with the choice of aircraft, before the deal rather than after it. Management terms are negotiated from a stronger position while the purchase is still open.

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