Can your business afford to take a six-figure hit for fuel escalation charges?
The aviation sector carries many inherent risks. To the uninitiated, these can seem daunting. Air operators are, with good reason, heavily regulated. Air charter brokers and logistics companies, arranging air transportation on behalf of their clients, are not. Instead, this niche sector relies upon sound industry knowledge and best practice to keep clients and their goods flying safely with as little risk to those named contractual parties, potentially, on hook if a legal issue presents itself.
Managing risk in a practical way
In a world of squeezed capacity and dealing with the practicalities of rising costs, few aviation companies have an appetite to absorb significant additional invoices from an air operator on one single charter or series of flights. This was one of the examples, encountered when we recently performed a “risk healthcheck” on their US based air charter operation. They are not alone.
We are all too aware of such charges in today’s volatile commercial environment but areas such as fuel escalation charges can highlight gaps in commercial contract arrangements.
The term “risk management” carries that inevitable sense of audit checklist items. Many, in the non-regulated sector, comfortable with their own level of industry knowhow, may have felt a sense of this being too onerous and not necessary for them. Equally, the term “compliance” appears to sit little better in our vocabulary.
Inevitably, governance for business must stand slightly apart. However, it takes more than the efforts of one function of the business to feel at ease in signing agreements for aircraft carrying our clients and cargo.
Technical expertise is important but this will truly benefit the industry when managing risk can be applied practically, with a sound understanding of the commercial operation and in conjunction with the teams that are relied upon to secure clients and deliver excellent service to the market. It remains a challenging, fine balance.
The C.O.S.I. approach – a framework of for risk management in aviation
It involves, of course, careful contracting. Considering, reflecting and mitigating (for clients and transport arrangers) operational risks imposed by air operators of differing scale is key. In this industry, one size definitely does not fit all.
It also involves careful consideration of the choice of air operator. The choice of aircraft we recommend to clients to carry those goods or people carries with it, our responsibility to consider the risk profile of the company we choose to keep. Do we really understand the risks of our supply chain?
So, then we turn to keeping our own house in order. Our staff and our operating procedures in-house, must reinforce and evidence the care we devote to the detail around checking and quality assurance.
And finally, but no less importantly, we look to insurance. Even if we apply these principles well, some risk remains. Should the worst happen, despite best efforts, it is vital that we and any of our subcontractors hold sufficient insurance to enable management to feel secure in dealing with this.
Simply put, we refer to this as the C.O.S.I. approach. Not exactly a warm fluffy blanket but rather more a set of practical “belt and braces” considerations which are designed to afford you and any interested third parties, a clear and managed framework and peace of mind that an aviation business with known risk factors, adopts an “eyes wide open” approach.
We all recognise the impossible task of eliminating all risks in aviation. Equally, as we read the news headlines, it is perhaps, timely to re revisit some priority areas. Navigating a global pandemic in a deeply unsettled geopolitical climate, few of us would argue that we might benefit from considering whether we can act smarter in the way we conduct our business. It is after all, a practical real-world view in protecting commercial interests.
It comes down to your risk appetite
So, where is the hesitation felt in digging deeper in this non-regulated area of aviation? Is it the size of a business and the perception that this is a costly overhead? Is it the “we are too busy” to justify much time and focus here? Is it the comfortable place inhabited when you know the business inside out and eat, sleep and breathe it as so many aviation enthusiasts do? Or is it simply that the industry has been doing just fine and we are happy to delegate the management of operational risk to our commercial teams who “know what they are doing?”
The way in which you choose to manage your business risks will depend upon your culture, business goals and organisation structure but should follow some guiding principles. Whether you chose an initial light touch review of some key areas of your business or feel ready to examine a specific requirement in more detail, Informed Risk would love to hear from you. Call us on +44 (0) 1798 672777 or email email@example.com