Optimising Aviation Consignments – Contract Terms to Operational Excellence

Are you setting out to create a consignment agreement in line with current market conditions? If not, perhaps you would think again! With supply, demand and fair market value (FMV) in the air it will need a different approach.

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The objective within this process is all about defining the Way of Work. Effectively the operational commitments, from both sides, to optimise the consignment outcome. Coming into this process that positive Win-Win mindset is imperative.

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Your standard contract terms are of course important and need to be given the time and attention they deserve – including but not limited to payment terms, cash flow, and general legal clauses. Both parties need to be prepared to have contract flexibility and to operate that flexibility within a structure of conscious optimal engagement – COE.

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The operation of this approach across all aspects means resources, however these resources come with a return, vastly increasing the probability of model achievement, and getting that optimal outcome craved by investors – higher and earlier returns.

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• Win-Win Commission – having identified minimal requirement (time and revenue) and ability to achieve, your standard commission needs to be linked to this number. Beyond this a quickstep scale needs to be introduced to ensure your consignment is where the consignee invests their resources. Your consignment then gets priority where the consignee has competing assets and options on where material offered comes from, your consignment drives consignee business development. You also should look differently at commission linked to component exchanges, leases and loans.

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• Component Thinning – In the current market a significant amount of material has moved down the Tier ladder. Component harvesting, warehousing, shipping, and repair management need to be contracted with this in mind, with significant cash management and cost reductions opportunities achievable. The Minimal Model Validation process as discussed in the last article plays strongly into this aspect.

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• Program Support – Detailed agreement across many aspect support aspects such as: ?

Ensuring clarity across appropriate support mechanisms reduces time/resource wastage, loss of potential sales, and procrastination creep. All reviews need to be held within a positive mindset about what steps are being taken to get the best out of the consignment. Negative conversations around why things are not going to plan need to be banned.

Here also is your opportunity to show your resource commitment around optimising the outcome and increasing consignee commission potential.

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• Conflict Resolution – Two aspects arise here.

The first where conflicting consignments are being or will be managed by your consignee. Ensuring that your consignment(s) get priority, or at a minimum fair management, is critical to consignment outcome – the wording around this needs to be exact and supported by the commission structure.

The second is where differences in opinion/approach occur – an agreed process to fair and fast resolution is needed, with protection of the relationship between the operational resources key to optimising the consignment result, quick escalation to next level may be the best route.

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• Senior Level Review – Involvement of senior levels on both sides brings fresh perspectives leading to new opportunities. Getting the senior review frequency/metrics/issues right is key. Review items normally linked to this can include; Status/Forecast, Re-frame Timing options, Model Management. Why is this different to normal contracting you may ask – the difference needs to be the commitment. Too many consignments are sub-optimal because the commitment to this is less than it should be.

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• Flexibility – With so many things key it can be hard to keep all bases covered, however flexibility could be described as King of what is Key. There are so many unknowns in today’s market – supply, demand, fair market value (FMV), being dominant among them, that the ability to be flexible so that all can adapt quickly, has to be built into all of the ways that the consignor and consignee work together.

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So many things that we could go into under this subject, all of which can be successfully managed through the Win-Win mindset discussed. Some of which will become clearer in the next article when we talk about Parallel Marketing.

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David Baily is Chief Optimisation Officer at SellUe

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