Every jet owner needs their aircraft properly looked after for both safety and the protection of their investment. Last month’s article addressed some of the commercial terms that should be captured in every owner’s management agreement. Let’s pick up where we left off and analyze other key items to include.
‍
Financial Oversight
In the last article, we discussed the importance of knowing which costs are owed. But how will this be verified? Your management contract should include clear guidelines on invoice timing, payment timing, and any supporting invoices that should be available.
Each contract should include the owner’s right to audit and inspect the records to verify that the invoices match the underlying costs.
When the manager is also chartering the plane to third parties for the owner, this audit right is essential to verify the allocation of costs (and revenue!) between the manager and owner, and to confirm that the aircraft use is following the contract on some nuanced items like the allocation of empty leg costs.
‍
Maintenance
One of the most important reasons to use a professional management company is to ensure the plane is properly maintained and cared for. But the maintenance plan needs to be fleshed out in advance and put in writing.
Will the manager be performing some maintenance themselves? If so, is it included in the management fee, or will the manager also charge an hourly rate?
How will approvals be handled for big-ticket items or expensive inspections? Some owners want to pre-approve every nickel or dime (cumbersome, and your management company might not like you very soon); others prefer not to be bothered with pre-approval unless the invoice exceeds a certain threshold, well into the thousands of dollars.
‍
Termination
We previously stressed the importance of defining terms and establishing termination rights for both the owner and the manager. But what should actually happen when the relationship ends?
Many operational invoices have a billing lag, and they continue to roll in after termination. Most management companies understandably prefer to retain part of the owner’s operating deposit for some time after termination to cover invoices the owner is responsible for. This is fair enough. But how much should the manager retain to cover these costs, and at what point should the remaining balance be refunded to the owner? These answers need to be documented in advance.
The biggest protection upon termination for an owner needs to be clearly written instructions in the management contract on what happens to the plane and logbooks. The management agreement needs to clearly state that the owner gets immediate possession of the aircraft and records, so that they can’t be held hostage to force an owner to pay disputed bills.
An owner’s management company will be the face of their aircraft ownership experience, and it is a critical relationship. The management agreement and these key terms are imperative for setting expectations and obligations, and for preserving the peace and providing a respectful break-up when the time comes.
‍
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.
‍