ROI of Buying a Business Aircraft

Business metrics are an important part of effectively managing a business.  It goes beyond the basics of costs, revenues and profits.  One such calculation is return on investment or ROI.

ROI has many uses and can be applied to both invested capital as well as investments in human capital.  The capital of the brand, people, and productivity are hard to calculate, however that does not make them any less real. 

ROI also exists in the buying and selling of aircraft.  Most people would not think of buying a multiple million-dollar asset without enlisting the help of experts.  Most often those experts come from outside the company as the cost benefit or ROI of maintaining that expertise in-house is not attractive. 

What we have seen in the aviation industry is that more and more people are realizing that the cost of hiring an expert is far less than their own in-house ROI.  They do the same for their commercial real estate, or in house counsel who relies on outside legal experts in matters they do not do day in and day out.  Simply put, unless your business is in the buying and selling of aircraft, your human capital resources are best utilized in other more productive portions of the business.  Executives running the day to day business and flight departments managing the complexity of operations with a focus on safety.

Any business executive knows there is more than just looking at the numbers.  What makes you successful is the interpretation of the facts and applying them to retain the best results.  The internet has made information on aircraft more readily available, but the devil is in the details of understanding and properly applying the data.

Over the past 30+ years I have seen or heard of various executives and flight departments think they knew all of the answers and make costly mistakes.  From buying the wrong plane for the wrong reasons, or buying a “deal” that really wasn’t a deal, or not finding out the real market on the new plane.  We have all heard of the story of buying planes without an adequate pre buy to find out at the next inspection that they need to spend hundreds of thousands of dollars.

At this point, I am sure that some are saying, well that won’t happen to me, or our company.   I suggest one of two things, you have been extremely lucky or you have more than likely invested too many resources in an activity that you do not do enough and the results are a ROI that you would never accept in your business.   

Mike McCracken
President
Hawkeye Aircraft Acquisitions
Office 727 796 0903
info@hawkeye-aircraft.com
www.hawkeye-aircraft.com
"See the Difference"

Private Aviation versus Business Aviation--What is the Difference?

These are two terms that used interchangeably however they should not be.  While they look the same they are different.

Private Aviation is transporting passengers on private aircraft for either business or pleasure.  Generally, private aviation is a very broad reaching term.  Business aviation is much more narrowly defined.  It is using the same private aircraft but the flights and purpose are for business use.

This might sound like semantics to some, however it is an important distinction.   Why is it important?  The lack of distinguishing the two leads to the many erroneous comments by the press and politicians about ALL private aircraft.   It becomes guilt by association.

Lets take a couple of examples.  First, lets start with the President.  Air Force One is the most visible private aircraft in the world.  It can be used both for business and for personal flights.  A flight to meet a world leader to discuss an important trade agreement is a business trip.  A trip to South Florida to play golf with friends is a private aviation event.  Same plane, two different events.  (While there is an argument that can be made for security purposes and therefore even the golfing trip is business, the ultimate purpose is different.)

I own a small single engine Cirrus.  I use the plane for business use and for personal use.  You might see my plane on a ramp for a ballgame and assume wrongly that it was flown as a pseudo business trip.  But yet, not one dime of that trip is written off.  The same happens on larger planes with SIFL and entertainment tax rules. 

There are many companies that use the aircraft for only business use and do not allow any personal flights of any nature.  By tax code, those who do use some personal flying have to account for that in their taxes and if a public company, that must be reported as income on the SEC filings. 

Assuming that planes flown to special events are just for the rich and famous and they are getting subsidized on their taxes is not correct.  Sure there are some people who have made it to the big time and use their aircraft mainly for personal private aviation uses.  That is the beauty of America, that you can spend your money on things that make your life more convenient.  How their tax structure for the plane is handled is way different than how the masses are led to believe. 

So as an industry, we need to do more to help the masses understand that just because it looks the same, it is very different.  Perhaps we need to be honest with ourselves and admit that there is a mix, just like there is a mix for the President.

Mike McCracken

President

Hawkeye Aircraft Acquisitions

Office 727 796 0903

info@hawkeye-aircraft.com

www.hawkeye-aircraft.com

"Jets without Regrets"

Professional Golf and Private Aviation

Arnold Palmer is often credited with being the first golf professional flying to tournaments in his own plane.  However, it was Johnny Bulla and a few golf pros who bought a war surplus C-47 to fly himself and fellow golfers to tournaments in the late 40’s.   One of the first time shares?!  This year at the Masters tournament the ramps will be filled with fractional aircraft dropping off golfers and fans as well as many personal aircraft.  Arnie’s original single engine Cessna would be dwarfed.

With the invention and popularity of the fractional ownership/time card models from NetJets, the combined Flight Options/Flexjet brand , Wheels UP plus several more specialty providers, private aviation is much more accessible to touring pros.   Just look at the number of these companies logos on golfers hats or shirts.  It allows them to travel to more events, spend time with family and pursue other interests.  Plus there are still a handful who have found, for their missions, owning their own plane is more cost effective.

Some would call it a luxury, others who spent over half of their life on the road would call it an investment in their personal life.  Think of Mickelson flying overnight so he would not miss his daughters 8^th grade graduation.

Private aviation is sometimes criticized for being a toy of the rich and famous.  Whether for the business of golf or the running of a competitive business, the reality is, if it did not make people more productive it would not exist.  The bottom-line is the increased accessibility of traveling by private aircraft has made many more of the new generation of golfers be able to enjoy a career, have a family life and pursue business opportunities off the course.

The one universal truth is time.  It is finite and how efficiently we use it makes a difference in the journey of life.  How one measures the costs of time and convenience may be subject to discussion, however no one can argue the benefits. 

Mike McCracken

President

Hawkeye Aircraft Acquisitions

Office 727 796 0903

info@hawkeye-aircraft.com

www.hawkeye-aircraft.com

"Jets without Regrets"

Why is the value of the corporate plane so subjective versus objective?

Aviation will always be in the cross hairs of those who do not fully understand the value of the benefits and see the plane as a luxury.  While study after study has proven that those with a plane produce higher revenues, grow faster and have better returns for their investors, to a small vocal few, it falls on deaf ears.  More needs to be done to incorporate modern productive/human capital valuations that can be used in NPV, IRR and CBA analysis.  Methodology that investment bankers and accountants can use in valuing human capital in other business enterprises is in desperate need to be utilized in our industry. 

The high visibility of the plane has always been a flash point for emotional versus objective decisions.  The last 7-8 years we saw just how negative the politics of guilt by association can be with comments like “fat cats” and their tax savings and the Big 3 automakers huge blunder.  The blunder wasn’t showing up in their planes, but not knowing how to defend their use in black and white terms that would have made the question of why they flew to the meetings silly even to the non aviation community.  Private aviation became politically incorrect. 

The National Aviation Business Association (NBAA) has commissioned studies regarding how to calculate productivity by time savings, work environment etc. and yet it never reaches mainstream benefit analysis in the form of calculating revenues.   The story becomes a discussion of the chicken and the egg, which came first, success that allowed them to buy a plane or success because they purchased the plane? 

Return On Investment (ROI) for human capital is not new, however it is getting much more refined for calculating the value of human capital in a company.   The management axiom, “what can be measured can be managed” needs to become mainstream in the corporate aviation world.  Developing productivity or human capital returns should be a goal to corporate aircraft operators to prove the value in more black and white terms.  More productive time should not be as elusive as it seems to be to calculate and used for productivity measurements.

My challenge to those who are in positions of influence within our community is to continue to strive and update methods that can calculate the value of the plane.   There are plenty of bright people who calculate various efficiencies and productivity in the business world.  ROI of human capital is one method that should help.  Our industry needs to develop an accepted model that companies can use to take the plane from being considered a toy to the real business tool it is.  

Mike McCracken

President

Hawkeye Aircraft Acquisitions

Office 727 796 0903

info@hawkeye-aircraft.com

www.hawkeye-aircraft.com

"Jets without Regrets"