Air­craft Man­age­ment

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

SP's Aviation - - TABLE OF CONTENTS - By SUD­HIR S. RA­JESHIRKE

6 Rea­sons Why it Ben­e­fits All

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 quali-

fied 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

- ers 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. 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

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.

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.

THE PRO­POSED RE­LIEF TO AIR­CRAFT MAN­AGE­MENT IS A GREAT NEWS FOR PRI­VATE AND CHAR­TER OP­ER­A­TORS

IN­DIA’S BUSI­NESS AVI­A­TION SEC­TOR IS CON­STANTLY EVOLV­ING FOR BET­TER

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