How The Alliance Got Started
How We Got Started
I have been working as a professional contract captain since 2008. As you may know, contract pilots pay for their own training. The cost of training is very important to a contract pilot because the source of payment comes right out of their own bank account.
One day I was talking to the director of operations for a small management company. He had just returned from recurrent training on the Challenger 300. I asked him how much his company was paying for training. To my surprise, he was paying $10,000 more than I was.
It was at that time I realized business aviation was the same as other industries. Large companies purchase goods and services with volume discounts. I was lucky to also be providing services for a company with a large fleet of aircraft – where I did my training.
I then started to ask my staffing customers how they were purchasing other goods and services. It turns out they were spending hundreds of man-hours every year trying to get the best price. Because the market is so segmented, there was very little focus on supplier relationships. The result was a lot of hard work with little cost savings.
I had experience working in both automobile and semiconductor manufacturing. These products have narrow profit margins and competitive markets. Consolidating purchasing needs in the supply chain is not only ordinary, it is necessary to remain in business. This is a subject flight departments need to consider.
The idea of group purchasing is so common; we even used it to buy hay for our horses on the farm. I combined the purchasing needs of several owners in our stable to get a volume discount on the delivery of hay and straw. Co-ops, club stores, manufacturing, colleges, the auto club, hospitals, airlines and the military all use group purchasing to get volume discounts.
Ironically, every company with the resources to operate a corporate aircraft uses some form of group purchasing. Even web-only companies purchase telecommunications services, software applications and server capacity on purchasing platforms like Switch. The one exception is the flight department.
In other industries, this would seem crazy. Why would someone take the company’s single most expensive asset, with the highest annual operating costs, and purchase goods and services at the retail level?
Silos vs. Platforms
Today, corporate flight departments largely operate in silos. They are stand-alone business units that purchase goods and services at the retail level. Even companies that share a common hangar rarely coordinate purchasing when they are using the same services. This has led to a grossly inefficient market for both the producer and consumer of business aviation goods and services.
Why is this important? The rising cost of operating an aircraft is having a negative impact on ownership. This has been primarily driven by maintenance. Today, it is compounded by the rising cost of flight crew. Companies large and small need a way to offset rising costs in the flight department.
Finding the Solution – Platform Economics
The solution seemed simple. However, there were a number of challenges to consider. This included the need for privacy, a mismatch in highly specialized skills, transparency and mutual benefit.
This “silo” culture is largely driven by the need for privacy. A corporate flight department operates in a cloak of secrecy to ensure the security of the passengers and company business. It became clear we needed a purchasing platform that would allow the flight department to remain 100% private.
The Alliance allows you to operate with complete privacy. You choose what services you need and work directly with the vendor when you need them. They invoice you directly. You make payment directly to the service provider. The Alliance does not get in the middle of your business.
CFO’s rarely have the technical expertise to function efficiently in the highly specialized field of aviation. On the other hand, flight crews don’t typically have access to volume purchasing resources. This mismatch in skill set leaves the flight department in a gray area that is hard to manage. The Alliance platform is designed to help bridge the gap between these two highly specialized fields.
Segmented markets are ripe with shady operators. It is hard to weed out the bad apples when nobody speaks to each other. Aircraft operators can see prices vary by six-figures for the exact same service. In some cases, the difference in price is being pocketed by one party in the supply chain without the owner’s knowledge. For this reason, we needed a platform that is 100% transparent.
Finally, we needed a platform that made sense for our service providers. Supplier relationships that are unrealistic don’t last long. There are many advantages to a long-term relationship that is supported by mutual benefit.
Companies with a large fleet of aircraft get volume discounts up to 50% for the same goods and services. Having a large fleet lowers the cost of sales for the service provider. Lower prices increase customer loyalty. This is a winning combination for the aircraft operator and service provider.
Individual aircraft and small fleets have no purchasing power. They are hard to get ahold of and often have to shop for price rather than maintain a long-term relationship. Not only is this frustrating, it cost the flight department hundreds of man-hours every year and for very little savings.
Building the Team
Old habits are hard to change. I began by forming a trusted advisory team to help guide the discussion of group purchasing in business aviation. We expanded the conversation across disciplines with industry leaders in a variety of fields. Together, we started forming the foundation for the Alliance.
In almost every meeting with company executives, we got the same response. Corporate aviation desperately needs to change the way we do business. Followed by, we should have done this years ago.
Today, we have the largest group of industry-leading companies on a single platform designed to connect with aircraft operators across a digital ecosystem. We are growing our service partners and Alliance members. Both are important. The more service providers we have, the more value we can deliver to our members. The more members we have, the more important we are to our service providers.
Having a Positive Impact by Working Together
For the first time, individual flight departments and small fleets can get the cost advantage of a large-fleet with our Alliance. This includes volume discounts up to 50% for the goods and services most business aircraft use and from the same companies. Cost reduction is a key benefit of the Alliance.
Product development is another benefit. There are a number of product innovations and complimentary services that are ripe for integration. Alliance members, because we represent a purchasing group, can have a voice in what is needed and how it should be used.
Just this week, A Challenger 350 operator, working with the Alliance and N1 Engines came up with an innovative way to save over $800,000 during the first five-year warranty period. At the same time, they are getting coverage for known, unknown and AOG events including catastrophic failure. N1 Engines is implementing the program for new and recent Challenger 350 aircraft purchases with their Smart Engine Program (SEP).
Advancements in customer service are achieved by connecting Alliance partners across our platform network. In many cases, the Alliance can provide a significant advantage to our partners by developing supplier relationships that have been largely ignored. This will drive advancements in customer service, increase profitability and decrease costs.
For aircraft operators, the Alliance is about teamwork, people working together, producers and consumers, to make a positive impact on business aviation. The opportunities are endless. We welcome aircraft operators and service providers to join our team as we grow.
Alliance Partners save our Members up to $150,000 per aircraft annually.
The Alliance is 100% Private | 100% Transparent | and Easy to Use
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