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Usage Policies: Who Gets The Airplane?

Posted on: March 7th, 2013 by webmin

The organizational and cultural challenges related to “who can use the airplane” can be frustrating.  In reaction to that frustration, Boards and top executives can be lured into implementing policies that can degrade the benefits Business Aircraft can provide.

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

  1. What is your strategic intent?
  2. What is your corporate organization and culture?
  3. How does Business Aviation support both?

1. Strategic Intent

Are you growing or maintaining?  If you are maintaining (cash cowing) then cost is a major part of your strategy, which may be mutually exclusive to the premium costs of Business Aviation.  On the other hand, if you are growing 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 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 the enterprise’s Strategic Intent.

2. Corporate Organization and Culture

The use of Business Aviation is an effective method to support the structure and communicate culture.  For example, if your company is organized around a small team of key executives, liberate them to make the most of their time by saving them three hours for every leg by putting them on Business Aircraft.  A trip per week costs over 300 hours (five executive work weeks) per year wasted airline time per executive.  Business Aviation puts that time, and much more, back in the plus column for the 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 examine business purpose, cost vs. benefit, and first come first served; may be appropriate.

3. How does Business Aviation support both?

Business Aviation services can:

  • Allow key individuals or teams to participate in multiple meetings at disparate destinations in days instead of weeks,
  • Provide access to communities that are not served by other forms of transportation,
  • leverage senior leadership’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 answer 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 amended, too.

What policies should you have?

Regardless of culture, 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 “protected” class of individuals who always have access?  Are specific individuals or lines of businesses excluded from aircraft use?  Are specific types of trips or individuals provided “favored” 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 level
  • May have a few individuals with “self-approval” authority

 

Conflict – Resolving competing aircraft requests?

Conflict: If there are competing requests to use the aircraft who will get priority?  Will any individuals have the authority to “bump” others off the aircraft?  If an individual is bumped from the aircraft will their needs be satisfied by another form of on-demand air travel (charter? Fractional?) 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 level
  • May have a few individuals with “self-approval” authority

Justification – How will you determine if the trip is worth the expense?

Justification: Justification and documentation should be part of any policy, regardless of position on a cultural spectrum.  It is imperative to be able to substantiate the business purpose, on a leg-by-leg basis; to be defensible as a business expense.  The ability to demonstrate to the IRS the business purpose of each passenger on each leg is critical to maintaining the ability to deduct the aircraft as a business expense.  Why the aircraft was used in comparison to another form of transportation is only relevant as it relates to the internal culture.   Value of time for key individuals may 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

Consider including a Business Use Statement that declares the alignment of the aircraft with the corporate strategic intent.   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 aircraft will be a primary tool to maximize the CEO’s time and access.

Or

The corporate aircraft 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 may be considered:

  • Operational Standards – What standards will be used to operate the aircraft?  How will these be determined?  Will they emulate commercial air standards?  Will they be just regulatory compliant or best practices?  How do we align the operational standards with our strategic intent and Business 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 and with what mitigating controls?
  • Passenger Pairing – Are there any passengers that should not ride together in the interest of business continuity?  Passenger pairing policies may be perceived as unnecessarily restrictive and not cost effective. While business continuity is a factor in passenger pairing policies, brand protection and the impact on market capitalization may also be a significant risk for publically traded companies.  Even an aircraft incident without injuries may disrupt investor confidence if too many leaders are on the aircraft.  Policy exceptions may be allowed in predetermined circumstances where risk is mitigated.

Once an organization has defined it strategic intent, examined it culture, formed a business use statement and defined a number of significant policies additional consideration may be given to the following policies:

 

  • Metering use of the business aviation asset.  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 a challenge in a one or two aircraft department, depending on senior leaderships perceived use of the aircraft.   This is often the most adult and least administratively burdensome approach.
  • Raising the point of trip authorization.  The higher the point of trip authorization the higher the political visibility for using the aircraft, which constrains use by lower folks.  This one is usually in place because top management does not trust other executives to do the right thing.
  • Use an internal transfer or “charge” for the aircraft use.  Internal chargebacks restrict the use of the aircraft by operational folks due to budget constraints.  This method may have a high administrative cost and avoids leadership being burdened or branded with metering aircraft use.  It may allow the holding company to subsidize the expense of the aircraft for lines of business.  It raises a number of questions that will need to be addressed; Will the holding company subsidize the expense of the aircraft for lines of business?  What metric will be used to determine an internal transfer cost?  Does the corporate structure match the legal tests to allow transfer costs?
  • Personal Use – Is personal use allowed?  How is documented?  How will imputed income be calculated and who is responsible to report to the IRS?  Is the impact on 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 as the corporate aircraft?  What vetting process will be used on charter providers?
  • Charitable Use – Is charitable use allowed?  Is the business expense risk (loss of depreciation expense) considered?  How will requests be 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?

Each aircraft owner needs to develop their own policies that reflect the corporate culture.  A dialog with other operators and owners as well as outside experts will ensure a robust, yet efficient policy structure.

 

 

 

 

 

 

 


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