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Business Aviation Services Use Policies

Posted on: July 23rd, 2013 by Pete Agur

 

Identifying the Right Aviation Usage Policies for Your Company

“Once you’ve seen one company’s use of Business Aviation, you have seen one company’s use of Business Aviation.”  This was told to me 25 years ago when I started my aviation consulting career by one of my first clients.    His point was; the business, organizational and cultural challenges related to “who can use the airplane” is unique to each user.  One-size-fits-all approaches to policies can degrade the benefits Business Aircraft can create.

Before policies can be developed it is critical to answer three questions:

 

  1.       What is your business’ Strategic Intent?
  2.       What is your corporate Organization and its resulting Culture?
  3.       How does Business Aviation support each?

 

1. Strategic Intent

Is your business growing or maintaining?  If you are maintaining (cash cowing) then cost management is a major part of your strategy, which may be mutually exclusive to the premium costs of Business Aviation.  On the other hand, if your goal is to grow, you are more focused on revenue development through new products or services, markets, or horizontal or vertical acquisitions.  The impact of time on the key people making growth happen has a leveraging effect on your business’ success that far out shadows the marginal cost of Business Aviation over the airlines.  The highest and best use of Business Aviation is, therefore, in support of accelerating and assuring the achievement of your enterprise’s Strategic Intent.

 

2. Corporate Organization and Culture

The use of Business Aviation is an effective method to support the enterprise’s structure and communicate culture.  For example, if your company is organized around a small team of key executives, you will liberate them to make the most of their time by saving them three hours for every leg when you put them on Business Aircraft.  An airline trip per week costs over 300 hours per year (five executive work weeks or 10% of their work year) of wasted time per executive.  Business Aviation puts that time, and much more, back in the plus column for your company, for each frequent traveling key executive.

On the other hand, if your organization if flat, supported by a culture of collaboration, then egalitarian aircraft use policies that are based on highest and best business purpose, cost vs. benefit, and first come first served; may be appropriate.

 

3. How does Business Aviation support each?

Business Aviation services: 

  • Allow key individuals or teams to participate in multiple meetings at disparate destinations in days instead of weeks,
  • Provide access to communities and business sites that are not served by other forms of transportation,
  • Leverage senior leaders’ and other key individual’s time,
  • Act as a powerful sales and branding tool,
  • Support a corporate culture committed to providing quality of life for employees, and
  • Be an appropriate part of executive compensation.

How you wish to address each of these questions shapes your Business Aviation use policies.  As the competitive arena shifts or the corporate culture evolves, those use polices may need to be adjusted, too.

 

What policies should you have?

Regardless of culture, Business Aviation use policies should be thoughtful, clearly defined, and published.  They should be endorsed or reviewed by the highest leadership group within the company (Board of Directors, owner, etc.).  Here are a number of policies that should be addressed by any company, regardless of culture:

 

 

Access Policy – Who has the right to request the aircraft? 

 

Access Policy: Who has the right to request the use of the aircraft?  Is there a specific role (i.e, individual, such as the CEO, etc.) or group (the Senior Leadership Team or a project implementation team) who should always have access?  Are specific individuals or lines of businesses excluded from Business Aircraft use?  Are specific types of trips or individuals provided preferred or denied access?

 

Egalitarian, Flat, Team Oriented Culture Individualistic, Hierarchical, Competitive Culture
Access is defined by very large groups or may not be restricted. The use of the aircraft is promoted.Existence of the aircraft is known across most of the organization. Access is limited to a select few individuals. Titles or specific individuals are named in the policy identifying access to the aircraft.Existence or use of the aircraft may be confidential.

 

 

           

Approval Policy – Who approves the aircraft use?

 

Approval Policy: Will aircraft access be controlled by a specific individual or will multiple layers of approval be required to use the aircraft?  Will any individual or position have the authority to use the aircraft without any additional approval (self-approval)?

 

Egalitarian, Flat, Team Oriented Culture  Individualistic, Hierarchical, Competitive Culture
 May have multiple layers of approval. May have predefined “approved” uses.Multiple individuals (line of business leaders) may have final approval on aircraft use.

 

 Simplified, possibly only one or two approvals required. Approved only at senior leadership levelMay have a few individuals with “self-approval” authority

 

 

Scheduling Conflict – Resolving competing aircraft requests?

 

Scheduling Conflict: If there are competing requests to use the aircraft who will get priority?  Will any individuals or teams have the authority to “bump” others off the aircraft?  If someone is bumped from the aircraft will their needs be satisfied by another form of on-demand air travel (Charter aircraft service? Fractional aircraft service?) and who will be responsible for the incremental expense?

 

 Egalitarian, Flat, Team Oriented Culture  Individualistic, Hierarchical, Competitive Culture
 First come – First Served No “bumping”  

 

Simplified, possibly only one or two approvals required. Approved only at senior leadership levelMay have a few individuals with “self-approval” authority

 

Justification – How will you determine if the trip is worthy?

 

Justification: Justification and documentation should be part of any policy, regardless of the traveler’s position on a cultural spectrum.  It is imperative to be able to substantiate to the IRS the business purpose of each passenger on each leg.  Otherwise the company’s ability to deduct the aircraft as a business expense could be jeopordized.  Why the aircraft was used in comparison to another form of transportation is not an issue to the IRS.  It is relevant as it relates to the internal culture.   Value of time for key individuals or accelerating the business cycle can easily outweigh a clinical analysis of business aircraft vs. other transportation expense.

 

Egalitarian, Flat, Team Oriented Culture  Individualistic, Hierarchical, Competitive Culture
 May be based on a comparison against the expense of other forms of transportation. May have an additive factor for the value of time. May be used to help multiple approvers weigh appropriate use.

 

May be based on corporate quality of life issues.

 

May be based on information security.

 May be very simple and based on senior leadership request only. May be based on the value of business related to the specific trip May be based on Line of Business (requestor)

 

May be different based on requestor

 

 

 

 

Other Policies to Consider

 

Business Use Statement that declares the alignment of the Business Aviation services with the corporate strategic intent reduces uncertainty about the purpose and value of the use of  business aircraft.   In the absence of specificity in policy, a broad statement may provide sufficient guidance.

 

Examples of a Business Use Statement might be as simple as:

 

            The use of the Business Aviation services will be a primary tool to maximize the Senior Leadership Team’s time and impact for the enterprise.

 

            Or

            The Business Aviation is our primary method of reaching our customers.  It helps us sell trust and demonstrate our uncompromised commitment to excellence.

 

There are a number of other important policies that should be addressed overtly:

 

  • Operational Standards – What standards will be expected of Business Aviation services?  How will those be determined and measured?  Will they emulate commercial air standards?  Will they be just regulatory compliant or Best Practices?  How do we align the Business Aviation operational standards with our other corporate quality initiatives, strategic intent and Business Aviation Use Statement?
  • Policy Exceptions – Policies cannot be written for every situation.  It is important to declare if exceptions are allowed, and if so, under what circumstances, with whose authority and with what mitigating controls?
  • Passenger Pairing or Co-Rider Issues – Are there passengers who should not ride together in the interest of business continuity?  Tactically, passenger pairing policies may be perceived as unnecessarily restrictive and not cost effective.  Strategically, business continuity is a factor in passenger pairing policies, brand protection and the impact on market capitalization may be a significant risk for publically traded companies.  Even an aircraft incident without injuries can disrupt investor confidence if too many leaders are on the aircraft.  Co-rider policy exceptions may be allowed in predetermined circumstances where risks are deliberately mitigated.  Routine exceptions, or variances, indicate the policy is either being ignored or needs to be reviewed.

 

There are a number of significant supporting Business Aviation policies that also deserve top leadership review and approval to assure the effective support the enterprise:

 

  • Business Aviation services limitations and distribution.  This can be accomplished by a number of methods:
  • Constrain the number of aircraft available.   Ideally this leads to a negotiation for highest and best use.  This is approach is especially challenging for companies with limited aviation resources such as those with only one or two aircraft and little or no  supplemental support from fractional or charter aircraft services.  User negotiations for access requires open and adult dialogue and is least effective in organizations with substantial internal politics or an informal power structure.
  • Elevating the point of trip authorization.  The higher the executive to whom trip requests go, the greater the political visibility (and liability) there is.  This acts as an effective use constraint in most organizations.  This approach is usually in place because one or more top executive feels a high need for Business Aviation services control for all potential users.
  • Use an internal transfer fee for the aircraft use.  Internal chargebacks can meter the use of the aircraft, depending upon their costs versus commercial alternatives as well as the latitude the requestors have within their budgets.  This method may have a high administrative costs but it can reduce the need for senior executives being burdened with managing aircraft use.  Tactically, it may allow the company to subsidize the expense of the aircraft for lines of business that are under time and performance pressures.  Incidentally, internal charge rates range from artificially nominal to full cost recovery, based on the strategic and operational objectives for using Business Aviation services.
  • Personal Use – Is personal use allowed?  How is it documented?  How will imputed income be calculated and who is responsible for reporting that income to the IRS?  Is the company’s tax benefit impact on aircraft depreciation considered?
  • Public Officials – What is the policy for the transportation of public officials?
  • Charter aircraft use – Are all on-demand forms of transportation subject to the same procedures and standards as the corporate aircraft?  What quality assurance standards, processes and practices used for charter aircraft services?
  • Charitable Use – Is charitable use allowed?  Is the business expense risk (loss of depreciation expense) considered?  How are requests handled?
  • Empty Seats – Are the unused seats available to other traveling employees?  Does the user of the aircraft have the authority to not allow others on the aircraft?  Is the expense shared or do the “add-ons” ride for free?

Your use of Business Aviation is unique because your business is unique.  That requires you develop your own policies.  Even so, a dialog with other owners and operators as well as outside experts can ensure the development of a robust, yet efficient policy structure.


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