Every corporate business unit has a Plan and the Flight Department should be no exception.
No matter the culture in your company’s executive suite, a flight department’s Fleet Planning process affects your bottom line—and the way you manage expectations at Corporate.
That’s why, in part three of our series on becoming an effective Aviation Reporting Executive, we’ll look at why Fleet Plans make good business sense—and why having one at the ready is a necessity.
Benefits of Business Jet Fleet Planning
Here are six reasons why a Reporting Executive (and their Aviation Director) can benefit from a solid business aviation fleet plan:
1. A Fleet Plan will help you gain further respect at Corporate
Gray Stone Advisors has worked with many Reporting Executives and Aviation Directors who’ve told us, “I just get told what to do. I don’t need a Fleet Plan.”
To which we respond, “But what if you were asked for one? “Would you rather say, “I’ll get back to you in six months” or “Can I get that to you in hard copy or PowerPoint? Would you like to see it this afternoon or tomorrow morning?”
Unfortunately, many of the analytical and reporting skills required to generate a comprehensive Fleet Plan are not inherent in the corporate flight department.
That’s why many of the industry’s top flight departments don’t have a strategic Fleet Plan at the ready. Outside assistance is often required to develop one.
2. A Fleet Plan helps you understand data-driven needs
When making an aircraft selection, preference often wins out over what makes best business sense for the company.
For example, ABC Company’s Chairman might prefer a Gulfstream because his friend on the Board of XYZ Company has a G550.
It’s amazing how often preference trumps the analytical and business case. Preference certainly plays a role in aircraft fleet composition, but the difference between ‘want’ and ‘need’ should be clearly defined in both the initial investment and on-going operating costs.
It is important that every Reporting Executive understands the relationship between capacity and demand in the aircraft fleet, so he or she can articulate the aviation business case to the Board or principal decision maker.
One must be in a position to bring forward a recommendation to the effect of, “Hey we’re flying 70% of our leg lengths between 1 and 3 hours and we have a G650 on order. Since we have two G550s now, why don’t we keep one of the 550s and replace the other with a G280? A super mid-sized aircraft will be great for the shorter legs especially since our passenger load isn’t that high. We’ll save an estimated $X,XXX,XXX a year.”
3. A Fleet Plan helps Senior Leaders make smarter decisions
For those Reporting Executives in a manufacturing business, you know well that you don’t add plant capacity to meet 100% of anticipated demand.
You generally build to meet 80% capacity and then supplement—through the smart use of overtime, adding shifts or outsourcing.
The same business rules apply to aviation. Your flight department doesn’t have to meet all of its demand using the company’s aircraft.
It could very well be in the best interest of the company for you to consider supplemental lift (e.g., fractional and/or charter flights) when it makes sense.
But you’re only going to make informed decisions if you’re able to accurately understand the relationship between capacity and demand in your aircraft operations.
4. A Fleet Plan helps you partner with Finance, Tax and Legal departments
When your Fleet Plan suggests a change in the fleet composition or mix, it’s time to ask, “How will this impact the company’s financial statements?” Here’s where you’ll need to partner with your internal Accounting, Tax and Legal departments.
For example, if you’re selling an airplane and bringing in a replacement, you’ll want to consider options as a ‘like-kind exchange’ transaction, which affects your company’s tax liability—often for the better.
You’ll also want to work with Treasury to help make key decisions such as whether to buy or lease, how to set up the best financial structure, and when progress payments need to occur.
Does your flight department have the ability to speak the language of Finance? Many do not.
Gray Stone Advisors can help you express the data in terms that non-aviation people understand. Our team has decades of financial and business experience that makes conversing with the various corporate entities much easier.
5. A Fleet Plan helps validate what you may already be thinking
A Fleet Plan is an excellent means by which you, as the Reporting Executive, can validate your gut feel (or hunch). Properly prepared, it serves to translate the language of Aviation into the language of Finance.
We often hear clients say, “Finally, someone’s able to articulate what we’ve been thinking for years. You helped us express the savings generated by a fleet change in terms that the corporate office understands.”
In fact, Gray Stone recently helped a single-aircraft flight department realize a savings of $800,000 in capital costs and $400,000 in annual operating costs by recommending a shift to the use of more in-house capacity vs. supplemental lift.
6. A Fleet Plan helps your Reporting Executive compete for scarce corporate resources
It used to be that the Chairman got whatever he or she wanted when it came to corporate aircraft.
But today, everyone, including the flight department, has to get ‘in line’ and vie for scarce resources.
So the Fleet Plan is a critical tool to help the flight department express its needs and value in terms of every other investment consideration that is on the table at Corporate.
One way to build a strong business case is to express the impact of the fleet change in the same terms the other investment considerations are expressed. (e.g., the impact on the company’s earnings per share.)
Flight department leaders, however, rarely communicate this way. With the right financial preparation, you can say, “This $120 million investment in aircraft fleet renewal is only impacting the company’s earnings per share by $0.05 cents a share.”
When you state a fleet investment in this context, your case is financially more articulate, and your discussion with the CFO becomes much easier. And you just may earn a new found respect for speaking in their terms, not in aviation-speak.
The Bottom Line
Your business aviation team may execute its day-to-day mission safely and with great precision, but there will come a time when you, the Reporting Executive, are asked any of the following questions:
- What’s our company’s fleet replacement or renewal strategy?
- Are we making the best use of our fleet today?
- Can you help us save $X million annually so we can meet shareholder expectations?
The big question is whether you and your Aviation Team are prepared, at a moment’s notice, to present an at-the-ready Fleet Plan.