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GRAY STONE ADVISORS' BLOG
5 Compelling Reasons You Need a Business Aircraft Use PolicyPrint This
In today’s era of IS-BAO, most flight departments have a well-defined and documented Flight Operations Manual (FOM), which clearly outlines the safe and efficient operation of the aircraft.
But many companies don’t set forth policies on how the aircraft is to be used.
By Steve Brechter
“You need some rules of the road, so everyone understands why the company has an aircraft and what it’s used for,” says Eileen Gleimer, of the Washington D.C.-based international law firm, Crowell & Moring LLP.
In a November 2015 issue of its “Business Aviation Insider” magazine, NBAA states that the Business Aircraft Use Policy helps set and align expectations among the company’s passengers, executive leadership team, board and the flight department.
The policy explains how the aircraft will serve the company’s business goals, and establishes guidelines for appropriate use based upon those goals.
Does your company have a management-endorsed and board-approved Business Aircraft Use Policy?
If not, it should.
Here’s why your organization needs a Business Aircraft Use Policy, and how it can benefit both your flight department and the company at large.
Why You Need a Business Aircraft Use Policy
Strange as it may sound, one of the things we frequently see in flight departments today is that companies, however unintentionally, often underutilize their business aircraft.
When business is tough and belt-tightening occurs throughout the company, one of the first things to go is use of the company aircraft. Flight hours go down.
It may seem counterintuitive, but when you decrease aircraft utilization, your aviation costs go up, as measured on a “total cost-per-flight-hour” basis.
Why? Because the fixed costs of the flight department are absorbed over a lesser number of flight hours.
To get the lowest possible total cost per hour, you need to increase your flight hours. Basic math tells us that when the denominator of a fraction goes up (in this case, flight hours), the value of the whole fraction (total cost per flight hour) goes down.
A Use Policy takes the guessing away. It provides the guidelines under which the aircraft are to be used, which can actually result in an increase in your flight hours.
One of the questions that we at Gray Stone Advisors always ask during our Current State Assessment™ process is, “Who gets to use the company aircraft?”
Sometimes the answer is clear, but you’d be amazed at how often it’s not.
A well-written Business Aircraft Use Policy clearly states those who are designated as Authorized Users of the company aircraft.
It’s generally the chairman, CEO, president and members of the senior executive team (sometimes referred to as the senior management committee or something similar). Often, business unit executives are on the Authorized Users list as well, not just corporate executives.
The Use Policy sets forth the procedures for requesting and authorizing the aircraft.
The purpose of the trip is stated in the event of simultaneous aircraft use requests. The Use Policy addresses how to resolve scheduling conflicts and who to bump from a trip.
The requesting executives are urged to resolve those conflicts, but in many cases, the CEO is the arbitrator for such decisions.
The Use Policy can enable the Aviation Director (or designee) to request that passengers adjust their time schedules in order to maximize the efficiency of aircraft use (provided that the travelers have schedule flexibility).
The Aviation Director may also have the authority to combine some flights to avoid deadhead activity.
All these situations need to be addressed within the Use Policy. Doing so takes the flight department out of the role of “traffic cop” and enables them to focus on what’s most important, the safe operation of the aircraft.
If all aircraft are being utilized or are out of service for maintenance, the flight department may need to go off-fleet and charter an aircraft to satisfy a trip request.
Under no circumstances should anyone outside of Aviation be authorized to make charter selection decisions. The Use Policy should make it clear that if a charter aircraft is necessary, the flight department has sole authority to select the provider.
The Use Policy specifies who bears the cost of a charter aircraft (generally the trip requestor). The decision as to which trip shall be placed on a charter aircraft vs. flown on company aircraft is specified in the Use Policy and is based on the most cost-effective use of company aircraft and the minimization of overall aircraft operating expenses.
This takes the schedulers out of the decision-making role and allows them to focus on the logistics and intricacies of the trip. The last thing you want is a scheduler playing “referee.”
In your company, is there a limitation on the number of senior executives who can travel together?
It’s amazing how many companies do not specify such important business continuity practices.
To ensure the uninterrupted operation of the company in the event of a major disruption or catastrophe, care should be taken to define clear business continuity provisions.
Typical business continuity provisions within a Business Aircraft Use Policy include the following limitations:
- A limitation on the number of executives who may travel together on the same aircraft.
- Specific executives (by position) who may not travel together on the same aircraft.
- The number of board members who may travel together on the same aircraft.
- Limitations on the number of executives (VP and above) from the same business unit who may travel on the same aircraft.
- The total number of employees (any level) who may travel on the same aircraft.
You may not think it’s the business of the flight department to recommend such practices, but this is a clear case of where the role of the flight department has changed from “transportation provider” to “strategic business partner.”
To be a strategic business partner, you may have to “show up” differently to your parent company than you used to.
How do you want your flight department to be perceived?
There is a wide range of other uses of corporate aircraft and the Use Policy must address them all.
For instance, use of corporate aircraft by non-employee members of the Board of Directors to attend a company board meeting or a meeting with the company's senior executives is important to the proper functioning of the company. Accordingly, many companies consider this as business use of the aircraft.
Use of company aircraft by senior executives to attend meetings of outside boards of directors is often in the company's best interest, and many companies consider this as business use of the aircraft.
A company often encourages its senior executives to participate in events as representatives of the company. The company may also permit individuals who do so to include their spouses, where such participation is essential to the senior executive carrying out their business responsibilities. Many companies consider this business use of the aircraft and the Use Policy clarifies such usage.
There are, of course, further considerations for use of company aircraft that must be addressed in the Use Policy, such as personal use of company aircraft by senior executives (definitely on the decline), imputation of income by executives for non-business flights taken, use of corporate aircraft by government officials and proxy calculations of aircraft usage.
You get the idea. But unless it’s covered in a comprehensive Use Policy, the risk of violation of IRS or other federal laws is high.
That would not reflect well on the flight department or the parent company.
A Use Policy Needs Stakeholder Input & Ownership
To be effective, the Business Aircraft Use Policy needs to be developed with input from all key stakeholders in the company. Financial, tax, regulatory and risk-management issues must be addressed in the use of company aircraft.
Very importantly, you need to have the support of the company’s CEO and Board of Directors. Without that, the Use Policy will have no teeth.
If you need assistance developing a Business Aircraft Use Policy for your company, feel free to give us a call. We’ve done many of them.
Have you developed a Business Aircraft Use Policy within your company? Share with us how you did it and we’ll share your ideas in future blogs.
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