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The Great Debate: Externally Managed vs. Internally Managed

By Colby McDowell | VanAllen

An aircraft owner is faced with many decisions when determining the optimal way to run their operation. One of the most important of these decisions is whether to outsource the management of their flight operation.

This debate typically starts with financial analysis to understand cost. While the financial aspects and tax implications are certainly important pieces to consider, aircraft management is one of the most commoditized elements of our industry. If done correctly, the ROI for management can be very significant.

Key questions to adress when weighing this debate are philosophical, not financial:

Do I want to be in the “aviation business” or should I consider outsourcing that function?

Most organizations entering aircraft ownership work in a core business outside of aviation. Given the technical nature of the industry, it is sometimes best to leave it to the experts. Technical oversight, consolidated financial reporting, HR administration, regulatory oversight, and operational execution are some of the complicated and often time consuming functions that a good management company can fulfill for a modest fee.

What risk am I assuming for my organization by managing the aircraft internally?

Often, first-time buyers do not fully consider the assumption of risk that comes with aircraft operations. Safety is not a commodity and can vary greatly under an internally-managed operation.  Do you know where the risks may lie?  By definition, under Part 91, the entity that owns the aircraft assumes operational control and all liability that comes with that. Even if chartering the aircraft to third parties is not of interest, consideration of outsourced operations under Part 135 should be given as a means to transfer operational liability to the management company.

How do I protect the long-term value of my aircraft?

Preserving and protecting aircraft value is an important factor of ownership and roughly 20% - 30% of an airplane’s value resides in the condition and organization of the log books. One must evaluate if there are resources internally to provide efficient services in this arena or outsource to a third party. A good management company with experience in your aircraft type can serve as an asset manager through proper maintenance, documentation, and record keeping.

I want to enjoy the ownership experience. How can I best ensure that outcome?

Many organizations wind up in ownership with full recognition of the benefits afforded by ownership, but without a healthy respect for the responsibilities and obligations that come with it. The debate becomes whether your internal organization possesses an understanding of the aviation business, including the rewards and risks. A good management company can create convenience, handle all logistics, address staffing issues, and coordinate on the owner’s behalf to remove the operational headaches.

Aircraft management is certainly not for everyone. When making this decision, thorough consideration of one’s goals, philosophies, and internal capabilities should augment any financial consideration of a management partner.

For more information on this topic, contact VanAllen today.