Made by Rafael Payão – Director of Clear Prop Aeronaves
You, owner of one or more aircraft, or who want to acquire one... and even you corporate pilot: Do you know well about the financial management of your equipment?
But first, I invite you to follow the Clear Prop Aeronaves page on Instagram Clicking here. We are developing software that calculates the annual budget of the aircraft that the chooses in the initial filters, and can even compare equipment from different universes, such as the costs of a CJ1 and a Baron 58.
Consultations will be made free of charge by anyone. However, by following our page on the social network, you will stay on top of news about this great launch on the market, made exclusively by great aviation professionals.
Well… continuing, over the years that I have worked in corporate aviation, and with the accumulated experience of the team that makes up the company Clear Prop Aeronaves, we are faced with extreme situations where aircraft owners are caught by surprise with exorbitant invoices coming from workshops or unimaginable expenses with the purchase of fuel and are appalled.
This happens because they are not well advised.
If this has happened to you, the one reading this article, it's not your fault. Imagine, faced with all your responsibility for your business and concerns… You don't have to become an aircraft expert.
There are several mistakes that can happen due to the poor quality of management, the first mistake being trusting that no breakdown can happen and that only direct costs should be communicated to the owners and their finances. Another common mistake is to believe that maintenance is purely a variable cost, which it is not! You see, an aircraft like a King Air B200 can have up to 45% of its maintenance costs fixed, that is, if it flew 200 hours or just one hour in the year, this expense will exist, otherwise, its equipment will not remain airworthy . This proportion tends to increase in the case of less complex aircraft, such as a Cessna Skylane, with around 75% of expenses of this nature classified as fixed.
Anyway, in a complex and unpredictable world like the one we live in, thinking that an aircraft owner is not concerned with expenses is not a healthy idea, no matter how high their revenues or the value of their equipment.
However, the purpose of this article is to demonstrate a few financial concepts, relating them to some examples, in order to make it clear to you that the basic methodology used in the financial management of a corporation can also be applied to manage an airplane.
First of all, let's start by pointing out those expenses that seem obvious to those who already understand a little about aviation:
- Cost of CLT registration of pilots and payment of salaries;
- Training and "recheques" of pilots;
- Hangar rental;
- Service in other hangars outside the base;
- Airport and airspace fees and charges;
- Aircraft insurance – mandatory and hull;
- Updating the GPS database or ;
- Maintenance expenses;
- Renewal of documents;
- Fuel and oil consumption; and,
- Pilot travel expenses.
These are the direct costs and expenses related to the operation.
Now, we need to separate and calculate those expenditures that do not represent disbursement... well... after all, what is expenditure without disbursement? In a simple way, these are medium and long-term obligations, that is, they do not need to be spent within one year, but the owner or his respective manager needs to ensure that there are resources for when they come to be incurred.
However, some examples of non-cash spending:
- Apportionment for overhaul of engine or engines;
- Expected depreciation of the aircraft, without engine and components;
- Depreciation of operation equipment, such as tablets and headphones.
- Reserve for maintenance risk; and,
- Capital return.
These are some examples that should be considered for the total calculation. In order to clarify some of them, I explain:
The general overhaul of the engine or engines must be considered the total value – from the purchase of parts to labor – and divided by the number of hours that the manufacturer recommends carrying out such a general overhaul.
As for the expected depreciation of the aircraft, there are several methodologies, the most common of which is to deduct the total value of engines and components important to the operation, and apply the respective rate to the remaining value.
The depreciation of equipment follows particular criteria;
As for the contingency reserve, it must be a fund that will finance those unforeseen breakdowns and components that cannot have their average failure rate controlled, such as tires and brake pads. This calculation involves probabilities.
Well, you must have been scared by now. But, CALM! It's not difficult to understand. I'll explain it to you with a real example: let's assume that a 500-hour inspection of the magnets on your Cirrus is planned this year. We know that each inspection costs something close to R$ 500,00. However, there is a risk that the maintenance technician will assess generalized corrosion, or another impeding factor and require the replacement of the entire component. In addition, we've clocked 2.400 total hours since new on your magnets. What is the risk probability of completely replacing that component? Empirically, we can conclude that the risk may be close to 30%. Therefore, 30% of R$ 15.000,00, approximately, is equivalent to R$ 4.500,00. However, this amount will compose the balance of this contingency fund, as well as others that may happen.
This calculation must be done by your aircraft manager, or pilots who know your plane or helicopter in detail.
In this way, it is able to provide financial predictability to aircraft owners, and avoid those last minute scares.
Now, regarding capital remuneration, it is not a common indicator to be used, but even so, the Clear Prop team usually considers it in their reports, as it measures the return capacity that the purchase of that equipment can generate in your company, even if it does not involve a financial return, but an added value. To exemplify, suppose that a company considers the purchase of an aircraft for BRL 5 million, despite another of the same model, with more age, for BRL 1 million. In this way, it will no longer earn income equivalent to the R$ 4 million that could be invested in a conventional application, or others, and, which would amortize the extra expenses of an old aircraft and even allow for an additional reserve.
Another example of the application of this concept is to measure your company's ability to pay the income it failed to receive from the investment that purchased the aircraft. Of course, a corporate plane does not and cannot generate direct financial gain, because it is prohibited. But we are sure that it generates added value for your organization, as it allows you to close profitable deals faster and in greater quantity, it provides satisfaction to directors or investors by allowing faster displacements and, therefore, more time with family and friends.
However, this index is important to define the aircraft to be purchased.
Anyway, are you interested in knowing Clear Prop's financial planning applied to the aircraft you operate? Do not hesitate! . We send material without commitments or those annoying collection calls.
Another good idea is to call Clear Prop for the financial planning of the aircraft you are negotiating to buy, in order to have great predictability for the coming years.
Finally, professionals with knowledge and experience for your advice to be successful and not to be unnecessarily scared.
Good deals and great flights!
