Final Term Assignment of

Corporate and Business Aviation Management

Topic:

While running your business corporate aviation company, prepare a financial plan while discussing the basic financial process; Planning, Budgeting, Recording, Controlling/Tracking and Justifying.

Program:

BS Aviation Management
6th Semester

Course Instructor:

Wing Commander Nadeem Ansari (R)

Submitted by:

Arslan Aslam

BAM -9234

 

 While running your business corporate aviation company, prepare a financial plan while discussing the basic financial process; Planning, Budgeting, Recording, Controlling/Tracking and Justifying.

Basic Financial Process

Basic financial process consists of five steps; 1. 2. 3. 4. 5. Planning Budgeting Recording Controlling/Tracking Justifying

I am taking steps to establish and to run my owned business aviation company and it is a truth that finance is the backbone of every business so I am preparing a financial plan by keeping in view above steps of financial process.

Business of the parent company

As a business man, I am running two business units currently at very large scale. Those business units are; 1. Manufacturing of Woven Carpets and Tufted Printed Carpets 2. And a textile mill that produces fabrics like, Cotton, Polyester, Lawn etc. The products of both business units mentioned above are produced at very large scale High quality carpets and fabrics (cloths) are exported into foreign western countries and in some Islamic countries that is real source of income for us. These products are also used in Pakistan but more profits are earned through export and definitely it increases the economy of our country. Business units or companies are situated in Pakistan at different locations and some units are in foreign countries and more business expansion is required and company is initiating a new business. 1.

Planning (financial planning)

Need of Flight Department

There is a need of flight department that would support the mission of my parent company that will be primary purpose of flight department. Aircraft will be used for business purposes only like, go for face to face meeting, competitive edge in serving customers and for other business purposes. Specific designated persons; CEO, executives, board of directors, managers will be allowed to travel by fleet of our company/flight department. It will run as a business unit that will indirectly support our other businesses. The goal of my business aviation company is to reduce costs/expenses and increase profits and expansion of my business to foreign countries by this flight department (long term goal). The fleet will be owned by me (On-demand air transportation; In house flight department, ownership). It will give us opportunity to do flexible scheduling; maximum control over frequency of flights and all expenses will be incurred by my company. This flight

department will be at such an aerodrome at which required facilities like hangar, fire and rescue services are available.

Organizational Structure (Hierarchy)

Reporting Senior

Aviation Manager

Chief Engineer

Chief Pilot

Scheduler/ Dispatcher

Lead Technicians

other Technicians

Pilots

The organizational structure of flight department also includes in planning process. Chief pilot will be highly skilled CPL holder pilot with at least 1000 flying hours and having rating of specified business airplane. Other pilots would also be highly skilled and professional pilots. There will be one chief pilot and four other pilots that will perform their duties as well. A chief engineer will be an experienced graduate degree holder aeronautical engineer who has B1 and B2 licenses or LWTR optional with specified maintenance rating of particular aircraft and technicians will be at least LWTR or B1or B2 license holders. Lead technicians will be senior and experienced of maintenance tasks. To reduce cost, engine overhauling would be performed by a management company that we would outsource and line (routine) maintenance would be performed by our technicians in the charge of chief engineer. The scheduler will schedule flights in coordination with aviation manager and reporting authority by making feasibility of trip from pilots. He will have license of flight operation officer course from designated authority. Aviation manager will keep proper check and balance on operational activities and non operational activities like paper work and all work of accounting department will go through the aviation manager and he will report to reporting senior about overall operations and budget variance.

Fleet:
The aircraft are leased dryly for five years period. Two Bombardier Lear jet 60 XR will be included in fleet. The same aircraft would be suitable because of less cost on maintenance task (like maintenance labours and maintenance reserve).

Characteristics of Bombardier Lear jet 60 XR

Bombardier Learjet 60 XR Is the safest and most fuel-efficient business aircraft. The Learjet 60 XR delivers a high-speed cruise of Mach 0.81 (861 km/hr) and a 2,405 nauticalmile range (4,454 km) to outdistance. Its capacity is to carry 2 crew members (pilots) and 7 passengers and also optional 9 passengers can travel easily. External and interior view of aircraft is shown below:

Bombardier Lear jet 60 XR,

Systems
The Bombardier Lear jet 60 XR offers systems and features normally associated with larger aircraft and even airliners. As a result, it will save time, reduce maintenance and pilot workload, benefit from high dispatch reliability and fly more confidently. System features deliver the following benefits: Approximately 10 minutes to refuel Virtually no fuel management during flight Electrical system provides ample power reserve Loss of any one electrical component does not result in any loss in cockpit functionality Features bleed air anti-ice system, versus de-icing boots or liquid deicing system found on some other mid-size jets Hydraulic system incorporates airliner-style features Dual wheel and dual anti-skid brakes per main landing gear

Power plants
Pratt & Whitney PW305A turbofans Thrust: 4,600 pounds at takeoff Flat-rating: ISA + 17C (90F)

The Pratt & Whitney PW305A turbofan engine has set new standards for business jet propulsion. Low in fuel consumption and high in thrust, these engines help give the Bombardier Learjet 60 XR its exceptional range and economical operation.

Avionics
The Rockwell Collins Pro Line 21 avionics suite of the Learjet 60 XR is an advanced fully integrated system. The avionics system features an Integrated Avionics Processing System (IAPS), dual Mode-S transponders and an Electronic Flight Instrumentation System (EFIS). The avionics suite features include: Electronic Flight Instrument System (EFIS) Engine Indication System (EIS) Air Data System (ADS) Attitude Heading Reference System (AHRS) Flight Guidance System (FGS) Radio Sensor System (RSS) Flight Management System (FMS) Integrated Flight Information System (IFIS) Weather Radar System (WXR) Cockpit view of Bombardier Lear jet 60 XR

Aircraft Maintenance:
y y y The maintenance of two same aircraft would be easy. It will require limited expenses on maintenance reserve and limited maintenance labours. Line maintenance (oil change etc.) would be done by our maintenance team. Maintenance, repair and overhauling (MRO), aircraft modification, refurbishment etc. would be outsourced to maintenance services centers like Raisbeck Engineering and other companies.

Feasibility of the trip:

y The base or hangar of aircraft will be at such an aerodrome or airport where runway along with their lighting system would be at least CAT TWO (ILS CAT 2 equipped runway) A request for business trip would be made in timely manner so that trip factors would be determined like weather, adopting an alternate route due to NOTAM issued on specified aerodrome or other factors and flight would be scheduled in the suitable time accordingly. The purpose of trip should be cleared to the scheduler because of keeping in record. After scheduling or flight planning, information regarding flights is disseminated to the authority.

y y

Trip would be flown and flight information is recorded properly.

2. Budgeting
There are two types of budgets;

 Capital budget  Operational budget

Capital budget
It is necessary for flight department to allocate capital budget first that includes expenses of purchasing assets; building, installations, purchasing new machinery, tools and equipments, furniture etc. Capital budget is important for flight department because it is not considered a part of annual operations budget. Capital budget explanation is shown below:

Aircraft on lease for five years............................................50-55%of allocated amount Maintenance machinery and tools..................................................20-22% Furniture and other equipments and supplies...............................10-15% Other initial supplies.........................................................................5%
This Capital budget will be allocated first time and next time, only operations budget would be allocated with some amendments. After five years of operations of aircraft, I will change my lease contract regarding usage of aircraft (assets) due to their depreciation value and get new aircraft because their depreciation value will directly affect on my operational budget. In practice, the book depreciation value of a popular aircraft after 5 or even 10 years of use may actually be greater than its purchase price and tax depreciation value may reduce. Budgets for aviation organization are allocated by the estimated operational costs both variable and fixed costs.

ESTIMATED VARIABLE COSTS - per Hour of Bombardier Lear jet 60 XR

Fuel $1,158.08 Maintenance Labor 161.09 Parts Airframe/Eng/Avionics 112.23 Engine Restoration...393.50 APU Allowance.41.60 Misc Exp. - Landing/Parking23.19 Crew Expenses....83.20 Supplies/Catering...43.68

Total Variable Cost/Hour$2,016.58

ANNUAL FIXED COSTS

Crew salaries - Captain $109,300 Co Pilot.75, 000 Hangar Typical..55,290 Insurance - Hull ..21, 935 Single Limit Liability.11, 900 Aircraft Modernization.. 23,333 Navigation Chart Service...4, 166 Refurbishing ...24,920 Computer Max. Program ...4,500 Weather Service . 700 Total Fixed Cost/Year..$401,144

ANNUAL BUDGET
Variable Cost.. 848,978 Fixed Cost... 401,144 Total Cost (No Depreciation) ..$1,250,122 - Per Hour 2,969.00 Total Cost (No Depreciation)... 1,250,122 Book Depreciation ..1,290,300 Total Cost (Book Dep.).. $2,540,422 per Hour 6,034.00 The above statements are estimated and in American dollar currency but actual expenses may vary.

Operational budget:
This budget will be zero based. My average flying hours would be almost 450 hours per year so according to them budget will be allocated. It will be allocated department wise and according to the following setting; Non Operation side (HR, Accounting, administration).........................18-22% The budget allocated to non operational or managerial side are the expenses of recruitment, hiring, training, salaries and benefits of operational staff (pilots, maintenance technicians) and accountant, managers and other administrative expenses will be included. Operation side budget allocation Maintenance.............................................................................................28-30% Fuel and oil...............................................................................................38-40% Insurance, flight planning and weather services and other utilities, parking and landing fees, hangar fees and all fixed costs........................................................8-10%

Other local taxes and expenses...............................................................2% Maintenance budgeting includes parts or reserve, restoration allowance and maintenance equipments and expenses of line maintenance and maintenance, repairing and overhauling (MRO).maintenance department has 28-30% budget of the allocated budget amount. It is stated that 70% parts should be available to the user, it will also increase expenses. Operational budgeting also includes fuel and oil expenses that has 38-40% budget which means expenses of fuel and oil according to 450 flying hours per year of aircraft. Aircraft insurance (hull and liability insurance), parking and landing fees, flight planning and weather services, , flight publication data services expenses, utilities (bills) and taxes are allocated 8-10% budget of allocated amount. Other taxes means local taxes and expenses are included in 2-3% of budget. All tasks to be performed in flight department are passed through accounting department. It will enter information on concerning obliged expenses in timely manner to enable monthly reports to be sent to the operating departments by the tenth of following month, the operation manager has up to date information regarding financial performance and progress toward their goals.

3. Recording
The allocated budget will be properly documented and presented to reporting senior that will approve the budget and then after approval, budget will be executed. Before execution each budget items or documents will be kept in record. The accountant will keep all bills, invoices, taxes paid receipts and all other receipts in record to provide operational direction for operational personnel to reduce costs and to check whether performance leads to companys goals or not.

4. Controlling/tracking budgets
In this step of financial process of business aviation company, the variance of budget is calculated. The difference between budgeted amount and relevant actual expenses is called budget variance. At first year, a large amount of money would be spent due to expenses mentioned in capital budget and other operational expenses would increase because of first year of operation. The operational budget will be analyzed and its potential variance would be checked monthly. Maintenance, salaries and fuel budget variance would be analyzed by an accountant at the end of each month to measure performance towards targeted goals. Aviation manager would check variance or no variance and reports to reporting senior and he will require justification on variance. When unexpected expenses like non-scheduled maintenance expenses will arise, then moving average variance method would be used. This method will add current month expense with the previous 11 months and divides by 12 to spread the current month expense over a long period of time.

5. Budget Justification
When budget is being allocated and then variance will be anticipated. Reason for potential budget variance will be required by aviation manger or reporting authority from accountant firstly. Variance will be justified by accounting department. It will include detailed information of unexpected expenses and other supplies or items that will be necessary for operational activities. Higher authority will not require justification on each type of expenses. It depends on level and type of expenses. In justification, purpose and utility of purchased items would be cleared to the aviation manager or reporting senior. Justification will contain the following points to be covered: 1. 2. 3. 4. 5. 6. 7. Background Prior conditions Current situation Assumptions Proposal Detailed information Benefits