Kevin Austin went to work in the aviation industry nearly 50 years ago running tours, mopping floors and emptying garbage cans at Boeing’s 747 manufacturing facility while going to school at night. He later negotiated aircraft purchase agreements with the world’s airlines. He then attended Stanford Law School and Stanford’s Graduate School of Business where he focused on international transactions, tax strategy and securities law. For the last 25 years Kevin has assisted clients with the acquisition, sale and management of corporate and personal aircraft. Kevin founded the Aero Law Group in 2001 and now serves as Of Counsel.
Kevin recently advised an Aero Law Group client choosing a management company for his new aircraft and would like to share that email.
I know I have shared some of these stories with you before, but I thought this would be a good time to review some issues – prior to you deciding upon the Management Company which will take care of your new aircraft. This is a composite of what could happen. The names and locations have been changed to protect the guilty. Read it at your leisure.
You are currently interviewing three of the top management companies in the world. You cannot make a mistake choosing one over the other. They are all very good and will all cost substantially the same, one just a little more than the others. You will pick the one that makes the best impression on you during a short one-hour interview.
Early on, there will be some teething problems while adjusting to this new business relationship, but things will stabilize and seem AOK… for a while.
About one year “in” something will get screwed up, and you may get stranded overnight. It may be their fault, it may be your fault, it may be my fault. The Pilot will imply to you that it was the Management Company’s fault. You will be pissed at and blame the Management Company in a sternly written letter, and you will fire them, because you can. You might fire me too. But someone didn’t hire enough pilots.
You will ask the Second Management Company (one of the others that you interviewed) to take over.
You will have a mess on your hands for about 60 days – insurance, FAA Letters of Authorization, Hangar Agreements, etc. were all tied to the Management Company. You may be “grounded” for a few days and rely on your one remaining NetJets interest for transportation in the interim. The Initial Management Company will expect a double-digit fee because you poached their flight crew and maintenance people. It will all get worked out.
About six months into the Second Management Company’s contract you will call me and declare that “all management companies are the same”; but you agree to put up with the minimal miscommunications and/or correct them where you can. But it’s not a perfect system and it’s costing you about $360K a year.
After about three years, your Pilot will come to you, while you are relaxing in the back of the aircraft (with no way to escape) and say: “You know, you should fire the management company, they are incompetent and don’t provide any real services.” “I can do what they are doing for $50,000 more in Salary a year”. You trust this pilot with your life. He can really “grease” the landings. Your girlfriend trusts him too. (Insert “Hmmmmm?” emoji.) After careful thought, you will decide to Self-Manage your Aircraft.
There will also be some teething problems on Self-Management, as your pilot doesn’t know much about accounting, maintenance, taxes, HR or IT, or have a process in place for dealing with the myriad of parts and service vendors, other than receiving an occasional free golf trip. You will figure out that your accountant and your executive assistant are taking-on a lot more work supporting the Aircraft, and your Aero Law Group bills will be twice as much as they were when you had the Management Company.
At some point you will approve an aircraft maintenance bill for work that wasn’t actually done on your aircraft or pay 10 times the amount for a part because of a misplaced decimal point. Just minor mistakes. Hey, the Pilot never said he was an accountant. “We should hire a part time accountant to review these bills” he will recommend. “We also really need a full-time dispatcher”, he says, “to keep up with the tornado of travel that you demand”.
Your Pilot will move his residence to Reno and “dial it in” from afar. You will talk with him regularly, but you won’t see much of him. He will show up to fly just enough to keep “current” on the Aircraft and satiate his flying hobby. Sometimes he takes the plane home with him in order to be “ready” when you are.
10 years from now, you will ask the Pilot to help you buy a new GX720 from Bombstream. He will say “that’s a great idea. You really need a new aircraft, it’s a matter of your family’s safety”, and 100 more miles of unusable range (and a step up in salary for the pilot). However, he knows nothing about buying a new aircraft, although he visited Bombstream once or twice, and once did a “ride along – in the cockpit — on a test flight after a D Check”. He convinces you not to hire an Aircraft Acquisition Specialist, and that there is no need for any lawyers in this process because you are dealing with a very reputable manufacturer on the other side. After asking the Bombstream salesperson for a “gratuity” to make the deal happen, they will turn him down, but he will still move to Florida for 6 months to babysit the new airplane’s manufacture and interior completion.
The new aircraft is delayed by a year, and your old aircraft needs a “D Check”. About the time the old one finally comes out of the D-Check, you have a family emergency and need to use the plane immediately. But you will find it is not available because the pilot (and his girlfriend) have taken it to Las Vegas for a post-D-Check cold soak flight. You will fire him on the spot.
While we help you clean up the mess, your auditors figure out that you spent over $40K on Vodka for the aircraft in just the last six months. Where did it go? Your defense lawyers will call and say that you are also being sued by the flight attendant that was sexually harassed or assaulted by the part-time pilot that was hired while your pilot was in Florida. You didn’t even know that you had a part time pilot as your employee. You thought he was a contractor. In discovery, you find out that flight crew meals on the road were regularly at Hooters, Twin Peaks or another adult entertainment facility. You will also find out that your “surplus” spare tires and brakes for the old aircraft had been sold out the back door of the Hangar by your full-time maintenance guy that is also working part-time for the charter company down the taxiway.
You may also find out that the Bombstream GX720 contract is in the name of some company in Merced, owned by a friend of your pilot (and your pilot indirectly), and not your company. Your pilot was doing a “back-to-back” on you and planning to make a lot of money on the upcharge.
You will ask yourself, “Why did I fire the Initial Management Company?” but you are too proud to call them back.
You will ask yourself, “Why did I fire the Second Management Company?” but you are also too proud to call them back.
You will then ask yourself, “Why did I buy my own Aircraft?” Some of those reasons have gone away. And it’s just too much work to really self-manage. The Stock Market is tanking, and the Regional Bank you had your money in just folded. Good thing you still have that Crypto stuff with FTX.
You cancel the GX720 order, sell the existing airplane and go back to using NetJets for your travels.
6 Months later you receive a knock at your door and a process-server hands you a piece of paper notifying you that your “former” Pilot is suing you for the “commission” he feels he is due on your cancelled purchase of the GX720.
This all seems impossible, but you can’t make this stuff up. Each one of these events happened to an aircraft owner that is (or became) one of our clients.
The information in this article is intended to highlight potential issues with aircraft ownership and operations and is therefore general in nature. Please feel free to contact one of our experienced aviation attorneys directly to discuss your specific business/personal needs.