Aviation Today :: Defraying Aircraft Costs

The current aviation operating environment – with charter operators having trouble meeting demand and the costs of aircraft operations growing – provides a natural partnership, according to Conklin & deDecker’s Vice President and Co-Owner David Wyndham, who recently published the pros and cons of putting aircraft under management, especially if utilization is low.
Windham outlined the benefits including the coverage of variable and fixed operating expenses through charter operations. Other benefits, he said, include:

• Reduced liability to the owner if all flights are flown under the charter operators' certificate. If the owners flights are also flown under Part 135 then the operational control for the flight rests with the charter operator, not the aircraft owner.

• Access to lower costs. Most charter companies purchase their fuel at a discount. For those with exemplary safety records, insurance costs may be lower for the fleet. Pilots, when employed by the charter company, have their salaries and other costs spread over more flying hours.

• Access to other aircraft in the charter operators' fleet if the owner’s aircraft is in for maintenance. Any charter could come at a discount rate using another aircraft from the charter fleet.

• Reduced "management hassles" to the owner if the entire operation is under a management agreement. The owner pays the management company/charter certificate holder to take care of all the personnel and aircraft issues.

Wyndham cautioned that management may not work for everyone, expeicially if aircraft utilization is high, leaving little opportunity to make the aircraft available for charters. “If you have infrequent use and a predictable schedule, then you might want to look into charter,” he said. “If you have a constantly changing flight schedule, and take the aircraft on the road for long trips, the charter operator won't have access to your aircraft and you won't get much revenue.”

Placing aircraft under charter management may also:

• Increase operating costs. Prior to placing an aircraft on a charter certificate, it must undergo a conformity inspection and it must maintain the conformity with the operator's certificate. These expenses can be offset by the charter revenues, but total costs will increase.

• Increase wear and tear. Increased utilization (especially by others) will increase the wear and tear on the aircraft. Plan on refurbishing the interior more often.

• Increase aircraft management and operational issues if operating both Part 91 and Part 135. The FAA Part 135 OpSpec A008 adds restrictions on how the aircraft agreements can be structured and can affect how easy it is for aircraft to be flown under both Part 91 and Part 135. Flying all Part 135 is easier.

• Decrease values. The more hours an aircraft flies the greater decrease in value at the time of sale (other factors being equal). A 10-year old airframe with 6,000 hours will have a reduced value and take longer to sell than one in the same overall condition, but with 4,000 hours.

• Decrease availability. Yes, the aircraft owner gets the aircraft whenever they want it, but what owner will "schedule" their aircraft knowing it is booked for a revenue trip?

Owners must also consider legal, tax and regulatory issues, said Wyndham “Rental income is generally considered as a passive income,” he said. “Passive income (and losses) may impact the ability to fully tax depreciate the aircraft. State and local taxes are often different for commercial operations. If done under the correct circumstances, placing an aircraft on an operator's charter certificate can be a win-win situation. The owner gets revenues to offset costs, and the charter provider gets an aircraft to charter without having to fully support the costs of owning and operating the aircraft with charter revenues. However, owners should not go into charter management without carefully researching all the requirements and conditions, especially legal and tax.”

Defraying Aircraft Costs