Do You Know Your Wide-body Aircraft Operating Costs?

Whether you own a fleet of regional, narrow-body or wide-body aircraft, knowing your operating costs is important.

Your goal is to lean out and maximize your fleet to it’s fullest potential. What strategies can you adopt to streamline your maintenance costs? With crew and maintenance costs being over 25% of your total operating costs, I would say these are important, wouldn’t you?

Below is a list from planestats.com on the reported aircraft operating costs for nearly 500 wide-body aircraft for the 12 months of 2014. Its good to note that fuel prices will clearly be much different for 2015.

Aircraft operating costs per block hour

Cost per ASM

Monthly ownership costs

Average daily aircraft utilization.

Surplus Robbery And Why To Avoid Excess

Young-man-surprised

Have you ever walked down a busy urban street to eventually find out you’ve been robbed?

Or, maybe you're like me, a type that goes grocery shopping while hungry.

I’ll go down each aisle, stomach growling and toss junk in my shopping cart.

A week later I’ll reach into the refrigerator and find out that my vegetables are rotting, the meat is smelly and my fruit is beginning to attract several flying creatures.

These two scenarios have one thing in common, lost money. When you're robbed you lose money immediately but when you overbuy money is lost over time.

Now, the problem with these 2 scenarios is your surplus inventory is similar to both.

I know, hold the screaming and crying.

Aircraft surplus robs you blind

I challenge you. Go through your inventory and calculate the amount of money that's been tied up on your shelves for more than 12 months.

Is it 50%? 75% Maybe even 90%?

Now, think of that money sitting in a large pile in the middle of your warehouse. Do you have the image?

Now light it on fire!

Inventory that’s been on your shelf for greater than 12 months is a poor inventory turnover strategy with negative effects on cash flow.

Just picture how this money could have been allocated. I’m sure you have more important projects than just sitting money on the shelf watching it get dusty. This is why we created our aircraft asset management program.

Our goal is to minimize your inventory's shelf life, reduce holding cost and capitalize on generating revenue from your aging material. Aging assets is a poor way to manage your money.

With so much focus on hedging fuel, creating ancillary revenue, you should also focus on minimizing idle, wasted inventory.

Don’t sit and wait.

Look at your inventory, scream out loud and take action. Liquidating this excess is a bright future for your cash flow.

And just possibly an aircraft asset management program may be a good solution for your operation.

If it is, contact us today by CLICKING HERE and saying "Help me eliminate our surplus nightmare."

High Turnover and the Inventory Dream

You sit in your office, wondering, waiting.

The mess on your shelves is a never ending doom of dust and debris.

You fight with yourself trying to figure out when it will sell or when it should be scrapped.

Aircraft component surplus is a common problem. A costly problem.

It’s a marriage problem.

Often times people feel married, dedicated to the parts.

A few years ago, more like 7, we decided to move to another location.

We had old Rolls-Royce engine nacelles lining the wall, several hundred feet of wings and struts hanging and consuming the outside perimeter of the warehouse.

Prior to the move I walked into the warehouse, with a deep sigh, and thought, what a bunch of junk.

The material had sat in the warehouse for over a decade and was deemed useless and costly to continue to sit. So we decided to scrap it.

Now, as an airline you have the option to consign the material to someone like Skylink but for us, at this time, scrapping was in our best interest.

For you, creating a strategy where you have high inventory turnover may seem impractical, but it may not be a so far from being just a dream.

Inventory turnover

Inventory turnover is defined as how many times a company’s inventory is sold and replaced over a period. This is a valid definition for someone like Skylink.

For you, inventory turnover is defined as the liquidation of unnecessary components to reduce cost and fund profit generating activities.

High inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens you up to trouble should prices begin to fall. Another very big issue we see.

Often times airline surplus is still expected to get the same return from pricing 10 years old. Unrealistic and hard to achieve.

The best option to avoid this is to consign your assets to a trusted partner who specializes in the resale of aircraft spares. And it’s for this reason we have our Asset Management program.

By utilizing a skilled partner who does this day in and day you will ensure a higher inventory turnover than you experience now, it will cost you less to staff and facilitate sales, and reduce your overhead expenditure.

An asset management program is an excellent tool if you see your inventory levels rising and dust beginning to collect.

If you're interested in such an asset management program, Click here

5 Ways To Be Cheap And Profit

Let’s face it you want to be cheap.

This isn’t always true through procurement since quality comes at a higher price. Getting a WalMart “Everyday Low Price” is a scary thought for a $50,000 avionic.

But operationally you want to be cheap without sacrificing efficiency. This is why we are a huge proponent of Lean Six Sigma.

I had the opportunity to discuss this very topic with an airline executive.

We entered the coffee shop and a fresh aromatic smell entered our noses. You know the smell I’m talking about.

We ordered our coffee and discussed the war stories we each had encountered in the aviation industry. Both witnessing tragic endeavors for nearly 2 decades in different parts of the aviation industry, we had a lot to talk about.

Finally our names were yelled as though we were at a fair. Our coffee was ready and with scorching hot cups we proceeded to sit.

I bluntly asked the gentlemen, how he precluded to ensure operational efficiency.

His answer was, do everything ourselves.

I about fainted and blurted out WRONG.

Operational Efficiency

Operational efficiency is defined as the “...ratio between the input to run a business operation and the output gained from the business. When improving operational efficiency, the output to input ratio improves. Inputs would typically be money (cost), people (headcount) or time/effort. Outputs would typically be money (revenue, margin, cash), new customers, customer loyalty, market differentiation, headcount productivity, innovation, quality, speed & agility, complexity or opportunities.”

I will cut to the point to avoid any sudden onslaught of boredom.

For any airline operational efficiency is when you operate to maximize your revenue generating activities and minimize your expenses. Easy I know. I’m no Albert Einstein when I define this.

The problem with my airline friend's response in the beginning story is that he relies too much on internal pressures where certain activities could be outsourced.

Managing inventory, aircraft asset remarketing, and surplus inventory and sales is not his strong suit. He’s adding additional expense and taking away from their core focus, keeping the fleet in the air and reducing cost.

How to be cheap and profit

We all want to reduce cost, it’s the best way to expand the bottom line. As long as you aren't cutting back where operational efficiency will suffer.

I have 5 ways you can save, generate more money and become more profitable by utilizing an aircraft asset management partner.

Reduce cost of money: Nobody likes holding cost. Lets say you have $5M worth of inventory in which you're more than likely sitting on a credit line. What if you could reduce that inventory to $4M? I’m sure you could use the additional $1M in increased cash flow rather quickly, for better uses. This cost is typically seen at 15% of your average inventory.

Cost on $5M of inventory = $750,000

Reduce storage cost: No matter if you own or lease you’re paying for warehouse space. The more inventory you have, the more warehouse you need. From computers, to racks, mezzanines to boxes the list can go on. What could you do with a smaller space? Storage cost adds 4% to your carrying cost.

Cost on $5M of inventory = $200,000

Reduce Taxes: Ronald Reagan once said, “Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. If it stops moving, subsidize it.” Your inventory is always moving so whether you like it or not the government will more than likely tax it depending on where you're located. From an accounting standpoint, an increase in inventory is shown as a profit and will be taxed as such. Taxes will typically add 2.5% to your annual carrying cost.

Cost on $5M of inventory = $125,000

Reduce waste: Let’s face no matter how much you plan waste will always follow inventory. You cannot plan the market 100% of the time. From overbought gaskets whose shelf life has been reached, an outdated TCAS system, or excess expendables waste is on your shelf. It can be safe to say that most of these won't be going anywhere any time soon. Waste can usually add 1% to your annual carrying cost.

Cost on $5M of inventory = $50,000

Reduce shrinkage and spoilage: Dan Kiefer explains this best when he says “...This category should not be confused with obsolescence.  This category includes inventory that came into the warehouse and should have been sold but can’t and won’t be.  Where as obsolescence and spoilage have to do with purchasing and the market demand, pilferage and damage can often be attributed to human behavior in your warehouse.  Although this  cost can vary greatly from one warehouse to the next, and can often be controlled and reduced, it can never really be eliminated.  Whether a forklift hits a pallet, a jar gets dropped during handling, or someone gets overzealous with a box cutter, damaged products in a warehouse are a fact of life and must  be accounted for.   The longer something sits in your warehouse, the greater the risk of it being damaged or disappearing.”  The typical cost associated with shrinkage and damage is 1%.

Cost on $5M of inventory = $50,000

Reduce insurance: Your insurance company is charging you based on the average amount of inventory you have on your shelf. If not, please refer me to your insurance company as I’ll change policies immediately. The cost is not huge but it’s still an unnecessary cost for unwanted, unused material. Insurance costs are typically .5%.

Cost on $5M of inventory = $25,000

For a $5M inventory your annual carrying costs are $1,200,000. WOW!

You can solve this by taking advantage of an asset management program.

Whether it’s an aircraft ending its life or surplus inventory sitting on the shelf the right partner can market your assets at an attractive price to liquidate and generate revenue.

You will immediately reduce carrying costs and operate within operational efficiency.

We have just the program for you. Click here to show your interest.