Setup costs/pitfalls

[Arm out the window]

Would anyone who's bought or crosshired and operated their own machines for profit have any good guides to doing reasonably accurate business studies to see if an operation is going to work or not?
Just pipe dreaming for down the track a bit, and would be very keen to see how you went about getting all your forecast costs together, and whether it actually worked out that way in practice.
Any good rules of thumb about operating costs vs flight hour and so on.
Obviously the type of operation and aircraft will influence the outcome greatly, but the idea of having a go interests me.
Laugh if you will!!
Any pointers appreciated.

[Dantruck]

The trick to predicting cash-flow, etc for any new venture is to be as un-emotional and, therefore, realistic as possible. The trouble with the aircraft biz is it's full of aircraft - about which we all get terribly emotional - and pilot-wannebe-owner/operators - who are notoriously good at thinking with their heart when they should be using their head.
Put together your plan then get an experienced business person with no connection to, or interest in, aviation to go through it. They'll spot the holes straight away.
As for the plan itself, it's all down to homework, homework, homework. A sympathetic bank manager helps, but at the end of the day it will all boil down to how well you know the business you're getting into; where the money will come from, and where you will spend it.
Remember: "Prudicious Pre Planning Prevents Piss Poor Performance," as my instructor used to helpfully entone as my latest navigation attempt went, er, south.
Good luck :ok:

[rotaryman]

Or as the saying goes!

How do you end up with a small Helicopter Company?
Start with a big Bastard first!......

:ok:

[SASless]

rotary man,

The collary to that statement is:

The way to make a small fortune in the helicopter business is to start with a large fortune.

[paco]

Unfortunately, most people don't do these calculations, so it's refreshing to see a potential company owner who is at least thinking about it! All this comes from my Operational Flying book:

Cashflow is King, so you want as few surprises as possible, so if you can find someone who will let you borrow the machine under a contract hire basis, so much the better. The other unfortunate thing is that most companies live on cashflow, which is how they can undercut everyone else, but they have to undercut further and further to guarantee getting the work, which is a diminishing prospect. It takes guts to stick to your price!

Please do not fall into the trap of thinking that all the revenue is for spending! You must allocate a portion per hour for depreciation/repair, insurance, maintenance, salaries, etc. The problem is that you can't predict the number of hours flown in order to find out what to allocate. The question of hourly cost, believe it or not, is best solved with a graph, with overheads up the left and hours across the bottom, and costs split into fixed and variable. Where all the lines meet is your minimum cost, and the big area at the top right is your potential profit (PM me for a rough diagram)

As a rule, you would need to get around 500 hours per year to make it worthwhile, probably minimum 350

Two other tips - no discounts until some flying has been done (say every tenth hour free) as they will have the cheap flying then go elsewhere, and take their credit card details first - the more a customer wants to go in a hurry, the greater must be your insistence on payment first!

hope that helps!

Phil

[Dantruck]

Phil is right

And also remember...

Turnover (sales to our American cousins) is vanity.
Profit is sanity.
But Cash is the only reality.

[John Eacott]

Phil,

Not too sure whether we mean the same on this side of the globe, but confusing cash flow with profit is the first step to bankruptcy!!!

We are bedevilled with an industry which finds unrealistic pricing creating a no win situation. There are a large number of "business investment" helicopters which belong to non aviation owners, put out at what they are convinced is a profit making rate. Often this rate is way below market, thus dragging down owner operators (yes, I'm one) and queering the whole market. Eventually Joe Businessman gets a real bill (mini turbine, MGB overhaul, or even better a Turbomeca overhaul :eek: ) and leaves the arena. Until Joe MkII comes along, and the cycle starts again. We currently have "new" EC120's going out 10-15% below B206's, as an example of what I'm referring to.

Anyway, AOTW, don't listen to the doomsayers about big fortune/little fortune. Give me a call if you want real advice, not something I'm inclined to go into on an open forum ;)

[paco]

Hi John!

It's no different in Canada - last I heard was $499 plus fuel, as a discount for quantity on a 206 - madness!

The problem is that most owners are pilots and think they have to fly, and will doso at almost any cost. Sometimes it'sbetter to stay on the ground!

Phil

[John Eacott]

$C499 :confused: :rolleyes:

We've just gone to $A1200 (including 10% GST), and even that isn't realistic with fuel now >$A1 per litre. Plus landing fees have tripled (privatisation taking hold: Tullamarine went from $A7 to $A170!!), and AirServices Australia have mooted increases in Avcharges of 300%+.

Why do we do it? That's as rhetorical a question as you'll get on this forum ;)

[Arm out the window]

Thanks one and all.