A Market View from the World’s Leading Aircraft Management Companies

AIN asked experts from five leading aircraft management firms for their perspective on issues affecting owners today. An edited transcript of their comments follows.

What brings clients to your management company?

Brian Kirkdoffer, Clay Lacy Aviation: Our customers refer the large majority of new clients, but it is the experience and personal attention our people provide that enable those referrals. We have the strongest team in the industry and our core leadership team has been together for over 25 years. Add to that, in the past five years we moved from being a West Coast company to a national one, capped by our acquisition of Key Air in 2016, which provided the foundation for a new operations and maintenance center in Connecticut. We now have aircraft in 20 cities around the U.S., and owners who often fly around the country have access to dispatch and maintenance centers and much more support wherever they are.

Bill Papariella, Jet Edge International: Clients choose Jet Edge because we manage their asset as if it were our own. Each owner has unique needs and desires, and our services are very customizable. We don’t put a round peg in a square hole. We’re extremely flexible.Our company is built on relationships and word of mouth, and most clients come from owner referrals. We’re also very active in the charter market, and most of the fleet is on our 135 certificate, so we have owners who are former charter customers, and clients who upgraded from jet cards or fractional ownership to their own aircraft. Many owners want to take advantage of demand for our charter product to maximize utilization of their aircraft. We have airplanes that do up to 100 hours a month in charter.

Michael Tamkus, Executive Jet Management: Clients choose EJM for our industry-leading safety, service, security, and experience. We invest heavily in safety management, including our emergency-response plan and risk-mitigation. Because we’re owned by NetJets, our clients benefit from our ability to optimize efficiencies and manage their best interest through charter, fractional, and full-aircraft/asset management. We have strengthened our partnership with the aircraft manufacturers and continuously align our goals to support owners’ interests and goals for their flight departments. We have dedicated crews and maintenance technicians for each owner’s aircraft. We embrace the culture flight departments have built while driving our experience to them. Our mission is to take on as much of the administrative responsibilities as possible. Our commitment to industry groups and focus on staying ahead of the regulatory environment keeps our flight departments under management on the leading edge of compliance and best practices.

Don Haloburdo, Jet Aviation: Most owners who come to Jet Aviation for aircraft management services are international travelers looking for a company with an established track record who can support them no matter where they are. Having our fleet of aircraft managed out of Europe, Asia, and the Middle East, and a network of management and FBO structures around world, are benefits for customers who move from one continent to another. We’re never too far away to provide additional services they’re going to need. Also, because we’re a subsidiary of General Dynamics, clients don’t have to worry about our financial stability, and we have access to resources and information we otherwise wouldn’t have. When a client is planning a trip, we evaluate the security situation in whatever part of the world they’re going to and we plan comprehensive risk-mitigation contingencies.

Michael Moore, Meridian: The reason for Meridian’s success is that we do a great job for clients and they tell their friends. That’s how we grow and build our brand. We also hear [from customers] that big factors include our financial stability, the longevity of the company, and our ability to offer excellent customized management programs. The most common reason for leaving a management company that I hear from clients who come to us is that they’re not getting the service they want. We’re focused on customer service and professionalism. Our whole company—every person, top to bottom—does the Ritz-Carlton Customer Service training course every year. Our Ritz-Carlton committee meets once a week to see what we can do better for external and internal customers. If the team is happy here, it will reflect out.

Transactional activity is on the upswing. What should new and upgrading aircraft owners keep in mind?

Michael Moore, Meridian: The number-one issue now is proper crewing of the airplane. Let’s just say it’s a good time to be a pilot. There are a lot of aircraft entering the market. If you're buying a light or a midsize aircraft, pilots are willing to build time. But when you get into the Falcon 7X or a G550, these pilots have made it to the top. They’re not looking to build time. They’re looking for a long-term commitment. If an owner wants to operate Part 135 and generate revenue, it’s especially important to get ahead of this. [Part 135 paperwork] is a long, drawn-out process. Owners also need to carefully evaluate any management company they’re considering. Do your homework. Show up and talk to people. Ask the right questions: What is your business model? How do you make money? How do you expect to make money off me?

Michael Tamkus, Executive Jet Management: Our first priority in any partnership is setting realistic expectations and goals for the flight department. We’ve seen aircraft owners come to us with a desire to resolve issues related to service delivery, crew/staffing, cost controls, and overall client relationships. We assist in defining goals for the flight operations, the number of hours they want to fly, and the number of hours of charter. New owners are exposed to all the responsibilities involved with owning and operating an aircraft. This can be quite a significant change. Our responsibility is to be proactive about any risk of the aircraft not being available due to maintenance and to avoid surprises. EJM simply wants to create an exceptional experience for informed owners.

Don Haloburdo, Jet Aviation: The pilot shortage is an ongoing challenge, and it’s important to communicate that to new customers, whether this is their first, second, or third aircraft. We hire the best-qualified candidates for our customers. If the choice is an A, a B, or a C, nobody ever says, “I’m totally good with a C,” and that requires us to recruit into the marketplace to fill those positions. The second issue that needs attention is the quality of the overall asset: the aircraft, maintenance records, and the crew. Recently, we brought on some aircraft from operators that had run into financial difficulties and, in situations like that, maintenance can be an issue. We spared no effort to bring their aircraft up to the standard we expect as an operator and advisor, and that ensures the owner can maximize the value when he wants to dispose of it for another aircraft.

Bill Papariella, Jet Edge International: Whether you’re flying one hour or 400 hours [per year], the fixed costs of ownership are tremendous. So, for most owners, getting the highest utilization possible makes the most sense. That means putting the airplane on a charter certificate and having a charter program developed around the owner’s unique usage profile. New owners typically simply want to outsource the hundreds of variables associated with the operation of a multimillion-dollar aircraft. Underutilization of the aircraft and crew retention are also common issues. The pilot supply-and-demand curve is certainly swinging in one direction, with demand outweighing supply, and that has created a little sticker shock for some owners. We’re making sure that being a pilot for Jet Edge provides a good quality of life, with competitive rates, great benefits, and vacation time.

Brian Kirkdoffer, Clay Lacy Aviation: New owners should get a management company involved as soon as possible during the acquisition, preferably before the aircraft enters the pre-purchase inspection. Otherwise, the company sometimes inherits—and the owner pays for—problems that could have been prevented earlier in the transaction. The prepurchase inspection, for example: the owner may expect the aircraft to be [operated] Part 135, but if the scope of the inspection does not include auditing for Part 135 specific items, that can create delays and added expenses for those owner. The management company can provide tremendous value in obtaining LOAs [Letters of Authorization from the FAA] quickly to fly internationally, and begin a pilot search before the plane is ready to begin flying. There’s a shortage of great pilots, which is creating longer lead times in recruiting top talent. Selecting and involving a management company early is critical so they can have the perfect flight crew trained and ready to fly when the airplane is ready.

When should a company consider outsourcing its flight department operations to a management firm?

Don Haloburdo, Jet Aviation: Flight departments should consider their options, including working with a management company, whenever a significant change in their situation occurs, such as a change in the aircraft, mission, or key personnel. Maybe the company needs a larger or more up-to-date aircraft. Maybe you were going back and forth between Chicago and New York, and you suddenly have international business requiring a lot of travel to Europe or Asia. Or perhaps a longstanding aviation director or chief pilot is retiring without a clear succession plan in place. All of these situations should prompt a review of flight operations, including an analysis of the department’s resources. Most don’t have the scale of operations to staff it in a cost-efficient manner. That’s significant when an AOG or other situation arises and you’re 12 time zones away from your home base.

Michael Moore, Meridian: The first thing to consider is the additional oversight when it comes to safety. We all answer to the FAA; we’re audited by Argus and Wyvern; we have DOD [Dept. of Defense] audits and we have a mature Safety Management System (SMS) program. All that gives you an opportunity to learn what other aviation professionals think of your systems. A management company can also save you money. We’ve sat down with flight departments and reviewed their operations. They might typically have an airplane, a dispatcher, a full-time flight attendant, and a couple of company accounting people. We have a 24-hour experienced flight department, including 10 licensed dispatchers and 20 mechanics. We’re constantly updated on the latest procedures; we travel to every NBAA trade show; and we have aviation professionals in marketing, accounting and billing, and oversight. If I’m charging $150,000 per year to manage that aircraft, I don’t think you’re doing it for less.

Brian Kirkdoffer, Clay Lacy Aviation: Efficiency is one factor a company should consider regarding its flight department. Twenty years ago, my answer would have been different, because the industry has matured and the value of a management company is so much greater today. It gets down to scale. You need 25 to 30 aircraft or more to support the people I have, for the payroll to make sense. Few in-house flight departments have enough scale to provide the level of expertise and cost effectiveness of major management companies. In the last two years, two flight departments that had operated for over 50 years came to Clay Lacy Aviation for aircraft management. They had a positive culture for five decades and wanted to keep their flight operations in-house. But when they look at the supply-and-demand curve, at some point they say it’s not efficient, and recognize they are not getting the same level of experience and oversight a quality management company can provide.

Michael Tamkus, Executive Jet Management: We’ve seen many individual and corporate owners transition in-house flight departments to EJM, to maximize efficiencies and risk management and manage the complex regulatory environment. We protect and embrace the corporate culture our clients have built while adding value. EJM brings economies of scale that drive down the flight department’s costs, and we can expand support for the flight and maintenance crew, allowing them to focus on flying their missions. Because we take administrative and business responsibility off the flight department, service and value can improve. We also help owners to develop industry insights and best practices. Our flight-department management takes pressure off the crew and maintenance technicians, allowing them to focus on safety and service to the owner. Everybody wins.

Bill Papariella, Jet Edge International: There are so many variables that can cause an owner to consider a management company. Top-tier management companies can offer significant economies of scale, safety-management systems, oversight by multiple experts in the field (eliminating single source of failures), specific customized accounting for the operations, and offsetting revenue if operated under FAR Part 135. But for a lot of owners it’s an emotional decision, and there’s a little concern that the management company will take control. You have to be customizable in your management program, and communicate to your owners that they get the final say, as long as it doesn’t put the aircraft in an unsafe situation or violate any FARs. At the end of the day, it’s still their airplane.

What does transparency mean to your customers and to you?

Bill Papariella, Jet Edge International: This business is based on relationships and the owners’ trust that the management company has their best interests at heart. Transparency is the key to our business and to the trust Jet Edge instills in our clients. At the outset of our relationship, we clearly define our services, revenue streams, and all other items related to the operation of an owner’s aircraft. Our revenue stream is simple: we don’t mark up ancillary services. The basis of our revenue is charter commission and management fees. If there’s significant charter revenue, the management fee might be lower, and that’s part of our communication with the customer at the outset. Our monthly reports are also transparent and customizable with the amount of detail desired. We show receipts for every dollar that passes through our hands.

Don Haloburdo, Jet Aviation: Today, transparency is of the utmost importance to customers. We offer an online customer portal that we equate to online banking. Customers can see all transactions, with hyperlinks on the statement to all their invoices, and they get a bill at the end of the month showing every penny they spent plus our management fee. We’re open to customer audits at any time. Customers often wire several hundred-thousand dollars a month to pay a bill and, if I were them, I’d want to make sure the money was actually paying bills and not just noted on a monthly statement. They can also audit our payments to vendors, money paid into employee 401(k) accounts, and medical benefits. We don’t mark anything up—if we did, it’d be too difficult for us to figure out the billing and way too difficult for customers to understand what exactly they were paying for.

Michael Moore, Meridian: I think transparency is everything. We give everybody a monthly report of all revenues, all expenses, every receipt, everything scanned in. Some owners want four pages, some want 50 pages. It’s important to give them anything they want. Unless I’m traveling, I’m in the office five days a week. We can pull flight logs, look at invoices. If you’re doing the right thing all the time, it shouldn’t be a problem. Those are the kind of things that build trust, and trust builds your business. A management company should make a good, honest deal with the owner of the aircraft it’s going to manage, and both the company and the owner should feel good. Before the aircraft shows up on the management company’s doorstep, the owner should understand if you’re marking up, what the markup is, and how the management company is making money off the owner.

Brian Kirkdoffer, Clay Lacy Aviation: Transparency is more important than ever, but it means different things to different companies. Owners can compare the reporting and access that different companies offer, and the sophisticated owner will see a difference. Our clients have 24/7 electronic access to their account information. They can create their own dashboards and manipulate information, and the monthly statement is customized for them. We watch trends, track monthly data, and provide recommendations on any anomalies, and manage toward a goal. That is when transparency really pays off for the customer. An example came across my desk last week. We track the cost of international data plans, to make sure customers are getting the best rates for their usage. Often, you can prepurchase bundles of data and drastically reduce costs, and because we monitor those costs, we were able to recommend a plan to a client that will save them 25 percent.

Michael Tamkus, Executive Jet Management: EJM’s business philosophy is simple. Our core business is aircraft/asset management for our owners and providing exceptional charter services. That’s it. EJM does not sell maintenance, parts, or fuel or have other sources of revenue. Our revenue comes solely from our management fees and charter revenue we produce for our owners. We provide our owners with our buying power within the industry with 100 percent pass-through transparency. As a wholly owned subsidiary of NetJets, which is a Berkshire Hathaway company, we have financial controls in place to protect our owners, our company, our employees, and Berkshire shareholders. We allow our owners to openly audit EJM and routinely go through internal compliance reviews successfully. EJM’s goal is to open up our complete organization to a prospect and for owners to see the true value in our service and our commitment to safety. EJM’s level of expertise and support behind every flight segment, every maintenance event, and every owner mission is unique.

Charter revenue is important to many customers. How can they evaluate a management company’s ability to generate charter hours?

Michael Tamkus, Executive Jet Management: When considering a management company, owners should review its ability to not only support flight operations, but to sell trips. Do they have an in-house sales team or do they rely on the broker network? How do they quote and sell trips? How will they present the aircraft to potential charter clients? Do they have data to justify proposed charter volume? How much control do they have in the sales process? We’ve had owners who’ve been offered lofty charter revenue guarantees. Owners should routinely review with their management company the progress toward goals. We have over 90 aircraft open to third-party charter, and every owner has unique goals for the flight department. Our objective is to be realistic and open about our progress toward those goals.

Brian Kirkdoffer, Clay Lacy Aviation: Each client has their own appetite for charter, and it has little to do with the net worth of that company or individual. They either want this to be a working business asset that is creating revenue or reducing cost, or they just want it available for them. We advise clients that there is a benefit to having an aircraft on an FAA Part 135 certificate. It does not necessarily mean it will do a lot of charter, but that it holds the management company to a higher standard. Clay Lacy does not make commitments and promises on charter revenue. Many times, guarantees misalign the interests of the owner because the management company is incentivized to meet the goals, even if it means putting 15 people going to a bachelor party on an airplane. Our philosophy comes from Clay: under-promise and overachieve. We track each owner’s goals and make sure to meet or exceed them.

Bill Papariella, Jet Edge International: Unfortunately, many aircraft owners are led down a path based on unrealistic expectation regarding charter hours, potential net revenue, and the complications of FAR Part 135 operations. Owners should ask for referrals from other clients with similar mission goals. We have a charter revenue guarantee program, but it has to be the right airplane in the right situation in the right location for us to do it. We are very focused on super-mid- and large-cabin airplanes in the L.A.-New York-Florida market. If the owner doesn’t have Wi-Fi, we’ve gone so far as to install it in exchange for a time commitment to make it attractive on the charter market. We average more than 20,000 hours of charter per year and find that most of our clients want to maximize the utilization of their aircraft. We’ve got a robust in-house sales team around the country whose sole purpose is to source retail charter for our airplanes. We’ve also got great relationships with large brokerage firms.

Michael Moore, Meridian: Do your homework. Every owner has a different philosophy on how much charter they want. If you have a target number, come in, speak to the executive team, the director of operations, the chief pilot, the marketing guy. If they spoke about an impressive number of hours they put on an airplane, ask how they did it. Meridian has an inside sales team, and more than 50 percent of our charter is retail rather than wholesale—we reimburse the owners the same either way. Crewing is also an issue. If you own a GIV and want to put 400 hours of charter on it, give me three to four crewmembers and there’s no problem. With two pilots, it’s much more difficult.

Don Haloburdo, Jet Aviation: In our world, we’d rather have a relationship with the customer where they say, “This is what we’re looking for” in terms of charter hours, and we work toward that together, instead of providing guarantees. There are differing levels of expectations people have when putting aircraft out for charter. Some aircraft are on “look and book” status—we look at the schedule and if nothing conflicts, [the aircraft] goes out for charter under a prearranged agreement. Some owners have requirements for what trips they’ll accept for charter, and some owners may need a specific portion of overall commercial activity to realize a tax or other benefit. If charter revenue is important, ask the management company about their customers’ goals for number of hours, and what has been delivered over the past 24 months.