Aviation is a global, capital intensive business. So the challenges of maximising returns and minimising risk are especially acute: on the one hand long term contracts are appealing because they match the long-term nature of the aircraft, but on the other hand, fixed commitments over that time period carry risks which need to be identified in advance and managed over the period of the contract. So, in winning the contract, negotiations will only be successful if they are based on up-to-date relevant management information, and knowledge of external factors such as currency management and regulations. Implementation requires clear, accurate reporting of variances from the contract amounts and plans to deal with them.
Gavin Hill, our expert in the industry, knows this. He points out the following items which can sometimes be overlooked:
- Timing – new business will require more people. Have you allowed a realistic time frame to recruit and train them so that they perform at the levels required by the contract when it starts?
- Currency – No company has resources to absorb some of the variations on exchange rates: there are a number of instances where the sterling dollar exchange rate (“cable”) has moved by 30% from its long term average of £1=$1.65. So currency management is essential. It was less attractive until new providers such as Smart Currency reduced costs of fixing or hedging for sums below £1m.
- Hidden liabilities – be careful that good contract management doesn’t create as many problems as it solves. An all-expenses paid trip to, say, Houston could become a regular occurrence that may create “nexus” – a taxable base in the USA for profits earned from a contract – as well as cutting into scarce management time.
“FD Solutions made financial information about the company interesting for the first time ever.”
Marie Eichler, Appointments Bi-Language