Charter Broker Set Up Advice
 

Good Afternoon Aviation Folk

I've worked in both commercial and private aviation for a few years now in many areas.
I am in the process of establishing a small charter brokerage on the side so i can make some extra money in order to save up for a house etc.
One thing I cannot get my head around or get any proper information from existing broker firms is how they invoice their clients.
The operator gives the broker a price of say £20,000 for a trip to Madrid.
The broker returns to their client and says it's £22,500 for the trip. - obviously the £2,500 is the brokers "arrangement fee" and the client understands that the broker isn't arranging it all for free. But how is the client presented the price/invoice? - is an invoice raised showing the operator fee of £20,000, and then the "arrangement fee" of £2,083.33 + 20% VAT = £2,500. OR does the broker simply raise and invoice showing £22,500 NET?

Thanks in advance for any assistance.

I would think that just presenting an invoice to the client for the £22,500 would be sufficient, no need to let the client know what your buy price is. There's no VAT (if the flight is international) so it's relatively straight forward.

There are both types on the market, those that are transparent and those who are not. Everybody on the market, clients and service providers, know that there will be a broker fee of about 7-10% added to the actual cost of the trip. It’s not like it’s a secret so it’s up to you if you want to be transparent and play with your cards open and work towards building a long term relationship with your clients or not.

I don’t always know personally, but our private office would never accept a charter trip to be sold on our aircraft without knowing how much the broker, if there is one, is taking for their services.

CP

I second Monkey Boy's comment. No, I repeat, no broker will reveal the original price. Same with the travel agency where you buy your BA ticket. Also, no VAT on international transport, no matter what the commission is.

There is the Tour Operators Marginal Scheme "TOMS" which you have to be careful of. The rules are not easy but as a broker unless a true disclosed agent and even then there are still issues if a flight starts and ends anywhere in Europe you have to pay basically VAT on your fee you have added on. It does not matter about the VAT status of the charter of the aircraft as that is zero rated anyway most of the time unless VLJ in Uk or helicopter. So if you add on £2000 to a charter you have to account for £400 to HMRC. If you do a multi leg flight for a client and 2 of the legs are in Europe and the third leg lands outside Europe you have to calculate the fee for the first 2 legs and pay the VAT on that. HMRC can go back 4 years on accounts also. Definitely worth covering this point as could be expensive however not sure what will happen after Brexit hopefully it will disappear .

I think maybe you need a few years more and some practical training before getting into this. There are any number of 'wideboys' in this business, don't become another....get a proper training.

Are you intending to interpose yourself between the AOC holder and the paying client? If so how? That isn't a place you want to be, unless you know exactly how to contract such an arrangement with all parties...lot of legal traps there.
If not, then how will you audit your suppliers...? what actual 'service' are you providing.? What happens if the charter supplier lets you down...? It can happen.
What insurance are you carrying?
What happens if there is an accident or incident? What plans and procedures do you have? Have you even considered this in the contracting and money flow for liability issues...?

Just like the cockpit of an aircraft, you can do 10 hours instruction and learn to fly solo PPL....but that isn't a qualification to be a professional pilot. Same for brokers....there are good ones who act professionally and provide real value for money service, and there are the rest to just think its easy money and take a cut, but actually do virtually nothing.

That's just nonsense and incorrect.

CP

Thanks for this info MonkeyBoy

Hi CaptainProp,

I was thinking of a 7-10% arrangement fee. I was just unsure how invoices are presented to clients. Particularly if trips are in the UK and there is VAT. How is the invoice put together.
I have spoken to an accountant who has said the following;
I would suggest you describe your services to your customer as an ‘arrangement fee’, as this makes it clear you are not supplying the chartered flight. You would need to make full disclosure of the flight charter costs to your customer. Your customer can either pay the charter company direct, or pay the amount through you, but you must not make any profit on this. You would show the amount you are paying the charter company on your customers behalf separately on your invoice as a disbursement. This means you would only have to charge VAT on your arrangement fee:
· You would charge VAT to all customers in the UK
· You would charge VAT to all non-business customers in the EU
· You would not charge vat to businesses registered for vat in an EU country, as long as you quote their vat number on your invoice and complete an EC Sales list.
Another accountant I have spoke to has stated that do not need to charge VAT on anything, so as you can see, I have been told that I do not need to charge VAT and that I do so I have had conflicting comments.
Having worked with AOC holders, brokers have always refused to disclose their commission % to us.

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I don't think this is a job to make a quick fee, I have worked with brokers who have very little operational knowledge and common sense who promise things to their clients and then have make silly and ridiculous requests of myself as an operator, for which they themselves have to return to the client and tell them that they cannot keep their promises.

If you’ve had to ask this question because you honestly don’t know the answer you shouldn’t be considering getting into the totally saturated market of broking. Secondly if you think you’re going to be able to earn over 10% on a job think again, those days are long gone!

HI Chidken Sangwich,

I have asked this question because I have been receiving mixed advice from both accountants and brokers and would like further clarification, without the correct advice or instruction I wouldn't be able to operate proficiently along side my current job. Surely this site if for those who wish to ask questions as well as discuss topics?
However, thank you for your input.

First Post. Greetings.

There are definitely both types on the market - ranging in skill level and personality types. Completely unregulated industry on the broker side of things. You have everything from one-man operations to large multinational public firms.

Some brokers even have their client sign the agreements with operators directly - and bill the operator for a comission post-flight which is built into the price.

The days of the "Gentleman's 20%" are over - there is too much saturation in the market, too much competition, and clients are too smart and most will "shop around" to price check their main broker.

That's not to say that every once in a while a broker can take home a big slice of pie. I've seen comissions of 60,000 USD happen. Is it relatively rare? Yes, but a sly broker who doesn't care for the long term relationship can pull the wool over on an inexperienced client. No way the broker is revealing what he paid the operator directly when this happens.

There are other tricks too. A broker will confirm with a client (contract or cleared funds) - then go back and ask for a discount to "win the trip" because the client is "between a couple of options". If the operator drops their price - pure money in his/her pocket because the client has already confirmed.

Another is cancellation fees - if there is a mismatch in cancellation fees between Client-Broker & Broker-Operator, you better believe Broker is taking that difference.

Another fun part of the industry is the differences between the markets in the USA and Europe. USA is much more price sensitive, abrasive, and fast paced. Absolutely filled with Ex-Wall Street. Europe is more posh, status oriented, and less price sensitive. Planes are a lot newer as well. Asia and the Middle East are interesting markets of their own, and Africa is the complete wild west. South America doesn't get much action.

Where are you based OP? I imagine the UK?

Have you heard of Avinode?

One last thing I'll mention is that contracts in this industry don't really mean much. At the end of the day - whoever has possesion of the funds has the leverage.

I say go for it. If you're nervous about taxes, insurance, etc. you can just have the client sign with operators directly until you learn the ropes.