Charter revenue offset: how the compensation is calculated

An aircraft owner is regularly offered a simple piece of arithmetic: place the aircraft with an operator, the unused hours go out on charter, and the revenue covers the running costs. The compensation figure in the presentation is usually a round number, and usually an overstated one.

I go through the mechanics from the money side: where the revenue comes from, what deductions stand between it and the owner, what is being consumed in the process, and under what conditions the arrangement comes out positive. There will be no sums here — only the ratios, which do not go out of date.

What the owner buys along with the management

Handing an aircraft over to management covers operations in full:

▪️ Crew: recruitment, line training, simulators, ratings, duty time planning. ▪️ Maintenance, and dealing with the maintenance base and the manufacturer. ▪️ Documentation, airworthiness, insurance, flight planning and permits. ▪️ Procurement: fuel contracts, handling, ground services. ▪️ Selling the unused hours on the charter market, if the owner wants that.

Scale usually gives the operator better terms on fuel, insurance and maintenance programmes. That difference partly offsets the management fee before any charter at all, and it is worth counting as a separate line: it comes in whether or not the aircraft ever flies a single third-party booking.

Three deductions between charter revenue and the owner

Three items stand between the rate on the passenger's invoice and the money that reaches the owner.

The first deduction is the direct cost of the flight. Fuel, handling, airport charges, crew per diem, parking at the destination. These come off the revenue first and in full.

The second deduction is the operator's share. The operator sells the flight, carries the commercial risk and looks after the client. Its share is set out in the contract and is taken either as a percentage of revenue or as a fixed amount per flight hour.

The third deduction is the maintenance reserves. Every third-party hour moves the time counters on the airframe, the engines and the APU. If the aircraft is on an hourly cost programme, the contribution goes out against the hours actually flown. If there is no programme, the owner sets the money aside for the future engine removal himself, and a competent calculation shows that reserve.

The first two deductions are visible in the operator's report. The third is most often absent from the presentation, and it is the one that turns a handsome compensation percentage into a modest one.

What is consumed along with the offset

An hour of charter brings in money and at the same time uses up life that costs money.

▪️ Airframe hours bring the calendar and hourly checks closer: every hour flown moves the date of the heavy inspection nearer. ▪️ Engine hours reduce the time remaining to removal. That remaining time is the item on which the price of the aircraft is calculated at sale. ▪️ The number of landings grows faster than the hours: charter flies short legs more often than the owner's own trips do.

Hence the rule: the offset is calculated on the net margin of an hour. Revenue is the top line of the invoice, the margin is what remains after the three deductions, and on some types the difference between those figures runs to several times.

The ratios that always hold

There are no sums here, and none are needed. What follows is what determines the sign of the result.

▪️ Compensation grows together with idle time. An aircraft that flies a hundred hours a year on personal trips releases plenty of free time to charter. An aircraft with a dense personal schedule releases little, and the offset comes out token. ▪️ The base decides more than the type does. An aircraft at an aerodrome with steady demand sells easily; the same type at a field away from the traffic sits without bookings. ▪️ Positioning the aircraft for a short leg can cost more than the flight itself. A booking for which the aircraft flies empty across half the country brings the owner less than the rate suggests. ▪️ An older aircraft earns less. The customer chooses by year of manufacture and cabin condition, and the difference in rate between a recent and an older aircraft of the same type is noticeable.

What to look at in the management agreement

Four clauses determine what the arrangement turns out to be a year later.

Owner priority. Who takes the decision on a flight, and how much notice the owner needs to pull a third-party trip without penalty. The wording "by agreement" means in practice that there is no priority.

Revenue split and accounting for wear. How the income is divided and who pays the maintenance reserves. An agreement that describes the revenue split in detail and does not describe the reserves at all reads unambiguously.

Transparency of purchasing. Reporting on every invoice, access to the source documents, the approval procedure for major work. The saving on the operator's fuel contract makes sense as long as the owner can see the figures.

Exit. The termination notice period, the procedure for handing the aircraft to another operator, and the fate of outstanding obligations on flights already sold.

Who the arrangement suits

Management with charter of the unused hours works in three cases: the aircraft sits idle a great deal; the owner does not want to keep an aviation department of his own; access is needed to the terms that the operator's scale provides.

I am an active operator myself: as of 2024 our company had ten aircraft under management — five aeroplanes and five helicopters. An aircraft above a certain take-off weight requires an operator under a management agreement in any case, so for that owner the question comes down to one thing: whether to sell the unused hours or not. A business jet, in my experience, flies 300–400 hours a year against roughly three thousand for an airline aircraft, and the whole of the compensation is built out of that idle time.

The arrangement does not work where the owner expects to depart at any moment without notice and does not want to see strangers on his aircraft. In that case it is more honest to carry the running costs entirely yourself and to plan the budget without any compensation.

How to calculate before signing

The calculation is done as two scenarios over the same planning year: with charter and without it. The charter scenario includes the maintenance reserves and the utilisation available at your base. The difference between the scenarios is the figure the whole arrangement is set up for.

The compensation percentage is calculated for your aircraft, your base and the demand on your routes.

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