Every jet owner needs their aircraft properly looked after for both safety and the protection of their investment. For most single-aircraft owners, this means a professional aircraft management company – ideally one that has experience operating the same aircraft type.
The owner's relationship with the aircraft manager should be in writing and clearly describe each party's obligations. Some of the key commercial terms are described below.
Term
Sometimes it can take a few tries for an owner to find a management company that is a perfect fit. What if your first management company doesn't work out?
This is why the term is essential. Many management companies ask for a one-year commitment from the owner. This is often because the initial onboarding and first year can be the most work for a manager. When representing owners, I prefer a thirty-day no-fault termination right for either party (sometimes sixty days during the initial year). This agreement keeps the parties on their best behavior, since they know they must keep each other satisfied. The manager must be responsive, while the owner cannot be overly burdensome.
Costs
Perhaps what owners pay most attention to is the cost of aircraft management. Initially, most owners focus on the monthly management fee itself. After a few months of ownership, owners realize that this is merely one piece.
Another "up-front" cost is often an operating deposit. An owner typically pays the manager one or two months' worth of operating costs, so the manager is not advancing owner costs on their own dime.
It is also incredibly important for owners to know exactly which costs they will be responsible for and which expenses are covered by the monthly management fee. Every owner would expect to pay for their own fuel and for the manager to pay for their own computers. But what about other items, such as crew phones, hangar fees at the home base, travel for the manager to oversee maintenance, crew training, and aircraft cleaning? All of these items should be described in the management agreement.
Further, for costs that are the owner's responsibility, how are they reimbursed? Are invoices passed on from the manager to the owner at cost? Or is there a markup added by the manager? There are occasionally good arguments for some markup (such as when a manager is inventorying parts or charging a below-market management fee). Either way, a prudent owner will know what they are agreeing to pay for.
Duties
Every owner needs to know exactly what the management company is responsible for and what the owner will be responsible for arranging. What the management company is performing vs. what is being outsourced should also be agreed to in writing. This can be difficult for new owners since they are unaware of everything that needs to be accounted for, which is why they should work with an attorney experienced in negotiating management agreements.
Some of the questions to include: who is responsible for finding crew? Is the maintenance being performed by the manager, or will it be outsourced? Is the management company expected to arrange ground transportation for the owner upon the plane's arrival?
Whatever the answers, they should be documented so that expectations are aligned, disappointment is avoided, and neither party needs to quickly invoke their right to terminate the agreement!
Stay tuned for next month's article, which will detail more key terms needed in every management agreement.
This article is not intended, nor should it be construed or relied upon, as legal advice. The comments, recommendations, and analysis expressed in this article are those of the individual author, John Farrish, and are purely informational. This article does not create an attorney-client relationship between you and the author or his law firm. If specific legal information is needed, each person should retain and consult an attorney with knowledge of the subject matter.