Whole Aircraft
Management Agreements: What You Are Actually Buying When You Hire an Operator
Most owners do not run their aircraft; a management company does. The agreement that governs that relationship decides your cost, your access to your own aircraft, and what happens to it when you are not aboard.
Tyler Hults
Founder & Managing Principal, TRH Aviation
In brief
Whole-aircraft ownership almost always means hiring a management company to crew, maintain, hangar, dispatch, and often charter the aircraft. The management agreement is the operating contract of your ownership, and its terms move the annual cost of the aircraft as much as the aircraft itself. This guide walks the agreement's main sections: the management fee and what it covers, pass-through costs and how they are marked up, crew, maintenance control, charter revenue and its split, owner access and priority, insurance, and termination. It closes with the questions to ask before you sign, and the ones to revisit every year.
What a management company does
An aircraft is an operating business. Someone has to employ and train the crew, schedule and oversee maintenance, arrange hangar and insurance, handle dispatch and flight planning, buy fuel, manage regulatory compliance, and account for all of it. Most owners engage a management company to do that work under a management agreement. Many management companies also hold a Part 135 certificate and offer to charter the aircraft to third parties when the owner is not using it, sharing the revenue. The agreement governs all of this. The whole-aircraft guide covers the ownership decision; this guide covers the contract that follows it.
The terms that matter
Management fee and scope
What it does
Sets the fixed monthly fee and the services it covers: administration, dispatch, scheduling, regulatory compliance, accounting, and oversight.
Why it matters
The fee is the visible number and usually the smaller one. What it excludes defines the pass-throughs.
What to ask
- What exactly does the fee cover, and what is billed separately?
- Does the fee change with charter activity or aircraft type?
- How does it escalate?
Where risk hides
A low management fee paired with generous mark-ups on pass-throughs can cost more than a higher fee with none.
Pass-through costs and mark-ups
What it does
Governs how direct costs — crew salaries and training, maintenance, parts, hangar, insurance, fuel, catering, handling — are billed to you, and whether the manager adds a margin.
Why it matters
Pass-throughs are the bulk of annual cost. A percentage mark-up on every invoice, or fuel bought at retail and billed without the manager's volume discount, compounds across everything.
What to ask
- Are direct costs billed at cost, or with a mark-up, and what is it?
- Do I receive the benefit of your fleet discounts on fuel, insurance, parts, and training?
- Can I audit invoices against vendor bills?
Where risk hides
Unaudited pass-throughs are where owners lose money without ever seeing a line item they could object to.
Crew
What it does
Sets whether the crew are dedicated to your aircraft or pooled, how they are employed, trained, and paid, and who selects them.
Why it matters
Dedicated crew know your aircraft and your preferences; pooled crew reduce cost and improve coverage. Training and recurrent costs are large and recurring.
What to ask
- Are the pilots dedicated to my aircraft, and who approves them?
- How are salaries, benefits, and training billed?
- What happens when a crew member is unavailable?
Where risk hides
Crew turnover and training cost are chronic ownership expenses that the agreement often leaves open-ended.
Maintenance control
What it does
Assigns responsibility for maintenance planning, vendor selection, and approval of work, and sets the reserves or programs the aircraft is enrolled in.
Why it matters
Maintenance is the largest variable in ownership cost and the one with the most discretion. Who decides what is done, by whom, and at what price is a governance question.
What to ask
- Who approves maintenance beyond a stated threshold?
- Which maintenance programs is the aircraft enrolled in, and who pays them?
- Do I see vendor quotes and invoices before and after work?
Where risk hides
Without approval thresholds, maintenance spend is the manager's decision and your bill.
Charter revenue and its split
What it does
If the manager charters your aircraft, sets the revenue share, who bears positioning and unsold time, how charter hours are priced, and what wear and cycles it adds.
Why it matters
Charter can offset fixed cost. It also adds hours and cycles, accelerates maintenance, exposes the aircraft to third parties, and can compete with your own use.
What to ask
- What is the revenue split, and on what base: gross charter revenue, or net of positioning and fees?
- Who bears empty positioning legs for charter trips?
- How many charter hours do you project, and what is the effect on maintenance reserves and residual value?
Where risk hides
Owners routinely overestimate charter offset and underestimate the wear and access cost it brings. Model it conservatively.
Owner access and priority
What it does
Defines how far ahead you must schedule, whether you have priority over charter bookings, and what the manager owes you when your aircraft is unavailable.
Why it matters
It is your aircraft. The agreement decides whether that means anything on a peak weekend when a charter client has booked it.
What to ask
- What notice do I give to bump a charter booking, if any?
- If my aircraft is down or away, do you provide a substitute, and at what cost?
- Are there blackout periods on my own use?
Where risk hides
An owner who cannot access the aircraft on short notice has bought the cost of ownership without its main benefit.
Insurance
What it does
Sets who procures hull and liability coverage, the limits, whose policy it sits on, and how charter operations are covered.
Why it matters
Fleet policies can be cheaper and broader. Limits must fit your exposure, and charter use must be covered.
What to ask
- Whose policy covers the aircraft, at what limits?
- Am I named, and do I see the certificate?
- How are premiums allocated and billed?
Where risk hides
Under-insured charter operations expose the owner personally.
Term and termination
What it does
Sets the length of the agreement, notice periods, termination fees, and the transition obligations when you change managers.
Why it matters
Changing managers is the owner's ultimate remedy. Long terms, high termination fees, or slow transitions blunt it.
What to ask
- What is the term, and what notice ends it?
- What fees apply to early termination?
- What are your obligations to hand over records, crew, and maintenance status at transition?
Where risk hides
An agreement that is easy to sign and hard to leave shifts every other negotiation toward the manager.
Taxes, briefly
How management fees and owner flights are treated for federal excise tax, how charter revenue is treated, and how the ownership structure interacts with state and federal tax are material and technical questions. Under federal legislation enacted in 2017, amounts paid by an aircraft owner for management services related to its own aircraft are generally exempt from the federal air transportation excise tax; the boundaries of that exemption depend on the arrangement. This is not tax advice. Put the structure in front of qualified aviation tax counsel before signing; see the taxes and fees not in the rate for the framework.
Before you sign a management agreement
- 01Ask for a full-year pro forma budget: fee, every pass-through, projected charter offset, and the assumptions behind each.
- 02Get the mark-up policy and the audit right in writing.
- 03Set maintenance approval thresholds and enrol the aircraft in programs deliberately.
- 04Model charter conservatively and decide whether you want it at all.
- 05Confirm owner priority and substitution terms.
- 06Read the termination and transition clauses as if you were leaving.
- 07Put the tax structure in front of counsel.
A good management company is worth every dollar of a fair fee; the discipline is in making the fee fair and the pass-throughs visible. The hidden costs of ownership sets out the categories; a program review benchmarks the agreement you hold.
Key takeaways
- The management fee is a small part of the cost. The pass-throughs — crew, maintenance, hangar, insurance, fuel — and how they are marked up and controlled are where the money is.
- Charter revenue is not found money. Understand the split, the wear it adds, who bears positioning cost, and what it does to your own access.
- Owner priority, scheduling notice, and what happens when your aircraft is unavailable are access terms, not operational details.
- Termination terms decide how easily you can change managers. Read them as carefully as the fee.
Put this to work
Where this decision goes next — the advisory guides and head-to-head comparisons behind it.
Source notes
- Structure of management agreements reflects the author's experience in acquisitions and operations oversight for owned aircraft. No specific management company's terms or fees are stated.
- Federal excise tax exemption for aircraft management services paid by an owner: enacted in the Tax Cuts and Jobs Act of 2017 (Internal Revenue Code §4261(e)(5)). Application depends on the specific arrangement; consult qualified tax counsel.
- Charter operations on managed aircraft are conducted under the manager's Part 135 certificate; see "How to Vet a Charter Operator" for what that certificate does and does not establish.
Educational, and deliberately general. Your situation turns on specifics — routes, hours, and terms — which is what an engagement is for.