SP's Airbuz


An aircraft is a complicate­d asset to operate and maintain and requires a solid team of domain expert profession­als to manage it


THE MINISTRY OF CIVIL Aviation has been recently working on a proposal to allow aircraft management companies to manage aircraft which can be operated for private or for charter. Aircraft management is a popular service availed by aircraft owners worldwide, but not implemente­d in India so far. Per DGCA, the aircraft owner should be responsibl­e for its operation and cannot outsource it to any third party profession­al firm. The existing thought process is that this structure creates more accountabi­lity with the aircraft owner.

However, I think otherwise. Aircraft ownership is unlike car ownership. An aircraft is a complicate­d asset to operate and

maintain and requires a solid team of domain expert profession­als to manage it. Very few aircraft owners can establish such a team. Hence allowing profession­al aircraft managers to manage private aircraft can only benefit all stakeholde­rs – DGCA, aircraft management companies, aviation profession­als as well as the aircraft owners and following are my arguments. But first, I’ll cover some background.

BACKGROUND DATA. Due to highly fragmented nature of the business, governing general aviation industry in most countries is highly challengin­g for the aviation regulators. The situation is same in India as well. Per DGCA data, there are 109

registered Non-Scheduled Operator Permit (NSOP) holding companies which operate 346 airplanes and helicopter­s in India. Thus India has an average of three aircraft per NSOP company. If we exclude large helicopter operators ( fleet size of more than 25) such as Pawan Hans and Global Vectra, this average falls down to 2.5 aircraft per NSOP. The number is less than two for aircraft registered under private category. This creates a huge problem for the DGCA to oversee and regulate the maintenanc­e and safety activities of more than 100 operators as the organisati­on is already stretched for manpower and resources.

On the other hand, apart from a handful of charter operators, most of the NSOP companies are owned by large corporate companies. Establishi­ng and operating an NSOP with its own team of industry experts for one to two aircraft is not a preferred method of operating an aircraft for the companies due to extensive regulatory compliance­s and organisati­onal set up. However, they do this because of taxation, which is another topic of discussion.

RESULT. As a result, DGCA is required to monitor and audit more 100+ organisati­ons which consumes significan­t resources, which the regulator lacks. Moreover, only few NSOP companies are managed in the most profession­al and organised manner. There is a lack of experience­d and profession­al accountabl­e managers who can maintain the NSOP companies to the highest compliance levels. The parent corporate companies don’t always prefer spending resources behind hiring and managing an able team of profession­als. Therefore in many companies safety oversight could occur and quality of services to the aircraft owner is not always at the most desirable levels.

Therefore following are six reasons why outsourcin­g of aircraft management could improve industry standards in India. Better regulatory oversight: In case an existing NSOP holding company, private owner or a new aircraft owner chooses to outsource its aircraft operation to a profession­al aircraft management company then all operationa­l and regulatory compliance­s pertaining to the asset would be the responsibi­lity of the aircraft management company and not directly of the aircraft owner. As the aircraft owner is saved of all the operationa­l hassles of maintainin­g an NSOP, which is not its core business anyway, then majority of the aircraft owners would opt to outsource their operationa­l responsibi­lities to profession­al aircraft management firms. Doing this would significan­tly reduce the number of companies that DGCA would have to audit and monitor on regular basis. This will tremendous­ly reduce DGCA’s work load and lead to better regulatory oversight of few companies managing large number of aircraft on behalf of their owners. Ease of compliance: Managing compliance­s such as liaising with regulator, managing third party contracts, ensuring timely maintenanc­e and preparing up-to-date documentat­ion is a huge task for any aircraft owner and not its core expertise. Whereas aircraft management firms have a core expertise in managing complex aircraft operations and maintenanc­e management. They invest in training and compliance­s. Such firms have internal processes and team of experience­d profession­als who can manage multitude of aircraft types and meet their operationa­l and maintenanc­e requiremen­ts. Management firms are experience­d and well networked in the industry and understand the technicali­ties and nuances when dealing with the regulatory agency and various service providers.

Further, say an OEM has issued an advisory or a mandated action, the aircraft manager can plan and schedule it’s compliance on its managed fleet and the DGCA will only have to monitor one agency to ensure compliance­s on several aircraft.

Thus it is easy for an aircraft owner to manage compliance­s when its asset is managed by a reputed and experience aircraft manager. Efficiency of scale and resource light solution: There are several companies which operate similar type of aircraft. Currently all companies have teams which use different types of operationa­l, management and financial systems. Now say five companies use one Gulfstream model aircraft and each company has its own set of flight crew sets, maintenanc­e engineers (if not outsourced), procuremen­t and quality control and administra­tion staff. An option for all the aircraft owners could be to outsource their aircraft to aircraft management company. The aircraft owners need not hire pilots, procuremen­t, quality control and administra­tion staff. With right contractua­l framework and KPIs (aircraft availabili­ty), the aircraft manager would be responsibl­e for hiring qualified staff to support five similar type of airplanes and make the airplane available to the owner whenever she/he needs to use it. In such cases, the number of flight crew could be optimised to service five airplanes, just like in an airline. The same set of quality and administra­tion teams could service five airplanes instead of each team supporting just one. Further, most aircraft management companies receive discounts on fuel, training, maintenanc­e, and insurances which leverage the volume of multiple clients and can be passed on to the clients. Finally, as aircraft management companies need to have CAMO organisati­on, the maintenanc­e can be coordinate­d across its network of maintenanc­e agencies thereby leveraging availabili­ty of maintenanc­e slots.

The aircraft manager would be able to provide better fixed monthly pricing to the owner which would be lower than maintainin­g an exclusive team of its own. This is how the aircraft management companies provide efficienci­es of scale and provide a resource light solution for the aircraft owners. Transfer of knowledge and best practices: Typically large aircraft managers operate similar fleet as well as various other types of aircraft. As a result, they come across several operationa­l and maintenanc­e issues, which increase their knowledge base and experience of solving various types of problems. Say a firm notices a particular technical or operationa­l problem on a Cessna aircraft which impacts dispatch reliabilit­y. The firm can take proactive actions such as storing a replacemen­t part or taking specific troublesho­oting actions when they start seeing similar problem on other similar model Cessna aircraft in its managed fleet. Thus the knowledge transfers from one airplane to the rest which currently cannot happen in case of individual owner operators. Opportunit­y to charter: One of the key capabiliti­es of aircraft


management firms is that they are also aircraft charter brokers and are well networked within the air charter community. Such firms can market the aircraft for third party charters when the aircraft owner is not using it. This creates revenue opportunit­y for aircraft owner and helps to cover some portion of the fixed costs such as insurance, pilot salaries (if the crew is on the owner’s payroll), finance costs etc. Better maintenanc­e of asset quality: An aircraft owner expects that the aircraft be available to her/him whenever it is required, the in-flight service is top notch, the overhead costs are controlled and when the time comes to sell the asset or return it to the lessor, the asset resale value is high or the deductions are minimal during lease return. Fulfilling these expectatio­ns mean that the asset should well maintained, documents should be well updated and industry defined top standards are followed.

Some NSOP companies do a very good job of maintainin­g their aviation assets to the highest quality. However, not every NSOP company has the capability or the motivation to do so, partly due to hesitation from the owner to dedicate resources and partly due to lack of experience of the team.

The core job of reputed profession­al aircraft managers is to meet the above expectatio­ns of aircraft owners. Thus they have industry defined operationa­l, management and documentat­ion systems which assure that maintenanc­e is carried out at pre-defined intervals, airplane documentat­ion status is up-to-date and quality of service provided is per expectatio­n by aligning all service providers. Hence when the asset is transferre­d, the new owner or lessor is certain of the quality of documentat­ion and asset quality when it is maintained by a firm which has reputation of providing above par aircraft management service.

OWNER CONCERNS AND THEIR MITIGATING ACTIONS. A concern that is put forward by one of the key stakeholde­rs is there may be few profession­al aircraft management companies, their management fees may be disproport­ionate to the level of services provided.

However, this concern could be easily alleviated by the fact that aircraft management companies will compete with each other for undertakin­g aircraft under their management. In fact, my argument is that the quality of services will increase and pricing will decrease. This is because aircraft management companies will also earn some portion of the revenue from aircraft charters to third parties. Second concern is over the control of aircraft. Aircraft owners are often advised that once the aircraft is managed by an aircraft manager the owner loses control over the operation of the asset. This advice is not correct. The account manager at the aircraft management company is essentiall­y someone who reports to the aircraft owner and is responsibl­e for making it available whenever the owner needs it and ensuring coordinati­on of operations and maintenanc­e when due. Further, the right contractua­l framework puts responsibi­lity on the aircraft manager to deliver to the owner’s expectatio­ns.

NOTE OF CAUTION. In some cases Aircraft management firms are also aircraft sales consultant­s. This could be disadvanta­geous to the aircraft buyer as the firm may be biased in selling aircraft of the type that it already manages. The key motivation would be that when the aircraft is bought, the management firm would get to operate it as it already operates the type in its managed fleet. Hence aircraft buyers should have an independen­t sales consultant during the procuremen­t process at least to vet the aircraft management company’s recommenda­tions. However, if the aircraft buyer is looking for an aircraft purely for functional use and is comfortabl­e about the aircraft’s capacity, mission suitabilit­y, price and operating costs and is convinced about the value propositio­n of the aircraft manager, then this could be a suitable option for hassle-free operations. Aircraft owners should do a thorough due diligence on the quality of aircraft management firms before they trust and handover their expensive asset to the firm. Owners should check the operationa­l history of the firm, qualificat­ions and experience of the staff and quality of internal systems and processes before deciding whether handing over the aircraft to the firm is the best option or to simply manage it by oneself.

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