Management companies often add “built in” costs which are calculated arbitrarily, rarely explained and difficult to detect. Owners unwittingly end up paying for items which can quickly accumulate into sizable amounts over time. Because they are rarely challenged, management and maintenance companies have very little incentive to change practices which work well for them financially.
Assumed “administrative costs” are an example. A recent illustration we encountered involved a management company’s maintenance shop which applied a priority courier charge for every part removed from inventory. In one instance, an engineer scooped a small handful of rivets from an inventory stores bin and the “accounting tracking system” charged the customer $60.00 USD in assumed priority courier charges for each one!
The rivets were actually shipped in large bulk. The assumed charges bore absolutely no relationship to costs actually incurred on behalf of the customer. The revenue received by the management company was all profit that went directly to the bottom line, one hundred cents on the dollar!
With this management company, assumed charges automatically applied whenever an item was removed from inventory stores in place to support the management company’s large fleet of managed aircraft. This practice generated large net revenues over the entire fleet every year and had never been challenged by an of the customers.
Similarly we uncovered a case where a large shop charged an owner $250.00 USD for “aircraft tooling” which on further inquiry turned out to be afresh ballpoint pen replaced by an engineer when the pen he had been using ran dry of ink!
“Handling charges” are another frequently misunderstood cost category. On the bright side, inventory control is a valuable part of the management company’s service offering. It requires planning and has costs associated. But the effort involved should inform the billings being applied. The common practice is often otherwise. Parts pricing is used as a base for raw percentages applied even though the effort may be equal between a $100,000 part and a $100 part. One generates $15,000 and the other $15 even though the processes and total work are equal. Yet, again, customers rarely second guess the amounts they are being charged. The unfortunate outcome are punitive all-event taxes that bear little relationship to the manager’s service costs.
There are many additional examples. Assumed daily inspection charges, service charge minimums, and similar examples can add tens of thousands of dollars to annual costs that may not reflect value added. Every customer deserves to know what each line item means and why it is there. Unfortunately clear invoicing is a rarity. The Aviation Home Office can help you identify whether or not your management company is charging you unnecessary costs.