NOVEMBER / DECEMBER 2017
A Gathering of Eagles
Bizav Soars Into the Future
You Should Care How the Next Generations Share Newer Methods of Access Come of Age POPULAR PROPS CAPITALIZING ON A FAVORABLE MARKET HOLDING STEADY IN CASE OF AN EMERGENCY… IS IT NATIONAL SECURITY OR AIRCRAFT NOISE? A Business Aviation Media, Inc. Publication
W W W . B I Z AVA D V I S O R . C O M
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N o v e m b e r / D e c e m b e r 2 0 17
10
6
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F E AT U R E S A Gathering of Eagles Bizav soars into the future by ROLL AN D VIN C E NT
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You Should Care How the Next Generations Share
14
Capitalizing on a Favorable Market
by S TE V E DAY
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In Case of an Emergency…
by S TE PH E N HOFE R
Newer methods of access come of age
by K E ITH PLU M B
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• Volume 4 / I s sue 6
Popular Props
Consider a turboprop for flexibility, efficiency
by M I C H AE L D . HIS SA M
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3 keys to getting the best deal
Avoid stress with diligent disaster planning
D E PA R T M E N T S Publisher’s Message Signs Point to “Yes”
by G IL WOLIN
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Holding Steady
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Washington Report
Is It National Security Or Aircraft Noise?
by TIM BAR B E R
by DAVI D COLLOG AN
Consider the pre-owned market
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The Business of Business Aviation The Information You Need, From Experts You Can Trust Aircraft owners and charterers now have a resource to help you make the most effective use of your investments in business aviation. Business Aviation Advisor provides the information you need, without technical jargon, on the business of owning and flying business aircraft – from operations to acquisition, to management and finance.
Business Aviation Advisor: the Business of Business Aviation
Subscribe to our digital edition at www.bizavadvisor.com/subscribe
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No v e m b e r/ D e c e m b e r 2 017 B U S I N E S S AV I AT I O N A DV I S O R 3
Ask why smArt businesses Are turning to operAting leAses.
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PUBLISHER’S MESSAGE ■ PUBLISHER Gil Wolin gwolin@bizavadvisor.com CRE ATIVE DIRECTOR Raymond F. Ringston rringston@bizavadvisor.com MANAGING EDITOR G.R. Shapiro gshapiro@bizavadvisor.com ASSISTANT EDITOR Michael B. Murphy mmurphy@bizavadvisor.com WASHINGTON EDITOR David Collogan dlcollogan@gmail.com CONTRIBUTORS Tim Barber Duncan Aviation Aircraft Sales & Acquisitions tim.barber@duncanaviation.com Steve Day Global Jet Capital sday@globaljetcapital.com Michael D. Hissam Piaggio America, Inc. info@piaggioamerica.com Stephen Hofer Aerlex Law Group shofer@aerlex.com Keith Plumb Executive AirShare kplumb@execairshare.com Rolland Vincent Rolland Vincent Associates rvincent@rollandvincent.com BUSINESS MANAGER JoAnn O’Keefe jokeefe@bizavadvisor.com BUSINESS AVIATION MEDIA , INC . PO Box 5512 • Wayland, MA 01778 Tel: (800) 655-8496 • Fax: (508) 499-2172 info@bizavadvisor.com www.bizavadvisor.com Editorial contributions should be addressed to: Business Aviation Advisor, PO Box 5512, Wayland, MA 01778, and must be accompanied by return postage. Publisher assumes no responsibility for safety of artwork, photographs, or manuscripts. Permissions: Material in this publication may not be reproduced, stored in a retrieval system, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording, or otherwise) without the prior written permission of the publisher. The views and opinions expressed in Business Aviation Advisor are those of the authors and advertisers, and do not necessarily reflect the policy or position of Business Aviation Media, Inc. Articles presented in this publication are for general information and educational purposes and do not constitute legal or financial advice. Postmaster: Please send address changes to: Business Aviation Media, Inc., PO Box 5512 • Wayland, MA 01778, USA ©Copyright 2017 by Business Aviation Media, Inc. All rights reserved Printed in the USA
Signs Point to “Yes” Sound familiar? It’s one of the 20 phrases found on the white icosahedral block inside every fortune-telling Magic 8-Ball. While I might consult the 8-Ball for fun, when it comes to forecasting the future of business aviation, I prefer to consult augurs who rely more on facts than toys. Experts like Argus, whose TRAQPak data indicated that business turbine aircraft flight activity was up more than 5% over August, the second consecutive month of 5%+ growth. Much of that increase can be attributed to charter flying, up 11.8%, and fractional activity, up 3.6%, primarily in the large- and mid-size jet categories. And Argus is not alone – hourly cost maintenance provider Jet Support Services, Inc. (JSSI) has seen its client flight activity up 4.5 % through the first nine months of 2017 compared with 2016, according to its Business Flight Index. Average flight activity in 3Q 2017 reached its highest level since late 2008, when business aviation flight and sales activity began its precipitous slide. Yes, you’ll be flying more – and buying more. The market intelligence company Teal Group is now forecasting that new business aircraft deliveries will grow over the next decade, getting back to that 2008 peak in 2021. And Teal believes that more than 70% of those new deliveries will be mid-size to large cabin aircraft, thanks to more international flying. What’s driving this resurgence in business turbine aircraft flying? I’ve watched flight activity mirror market conditions for more than four decades – the economy goes up, and so does bizjet buying and flying. But this time we’re definitely getting some help from unexpected – and unlikely – quarters. It seems that the scheduled airlines have reversed field: rather than making commercial air travel more comfortable, it’s less so, making business aircraft flying even more appealing. American Airlines’ 737-800s will be refurbished to fit twelve more passengers, and its Airbus A321s as many as nine more. The goal is to increase revenue per flight, at the expense of passenger comfort. Now, that may not have much of an impact on first class comfort, but it does mean those aircraft will require more time to board and disembark. And you’ll soon need more time to board 2,000 international flights arriving daily from 280 airports in 105 countries. The Department of Homeland Security is adding as much as 90 minutes to the time required to clear security before boarding those flights. These new procedures are the result of new TSA measures enacted last summer, and include short security interviews, as well as stricter checks on mobile phones, tablets, and laptops, unless you’re a member of its PreCheck program. Business is good, thanks to a growing economy. And business flying looks better than ever, thanks to the growing inconvenience of commercial airline travel. Thanks for reading!
Gil Wolin — Publisher gwolin@bizavadvisor.com No v e m b e r/ D e c e m b e r 2 017 B U S I N E S S AV I AT I O N A DV I S O R 5
■ INDUSTRY UPDATE
A Gathering of Eagles BY ROLLAND VINCENT Rolland Vincent Associates / rvincent@rollandvincent.com
G
atherings of eagles, literally or figuratively, make for fascinating times. Normally reclusive, eagles are among nature’s most evolved and territorial hunters. When eagles gather, whether to share fish stories about the big one they captured, or the one that escaped their grasp, the social interaction is typically energized and full of camaraderie. Business aviation leaders share some of these same characteristics — gatherings of business aviation’s “eagles,” whether at sprawling trade conventions like NBAA-BACE and EBACE or in more intimate surroundings like JETNET iQ Summits and other industry conferences, provide unique opportunities to share stories and compare insights. Where some see only issues, others sense opportunity. This is the nature of the evolving business aviation industry. One of the most fundamental issues facing the business aviation industry continues to be oversupply – manifested in aggressive factory pricing for most new aircraft, declining residual values for pre-owned aircraft, and lower industry order backlogs and book-to-bill ratios. In today’s “get-it-done” world of quarterly earnings reports and near-rabid desire for immediate results, who would have imagined that we still would be collectively discussing industry recovery 9+ years after the dark days of September 2008? 6 B U S I N E S S AV I AT I O N A DV I S O R
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The opportunities? Signs of improving business aviation market conditions are widespread: ■■ For the first time in more than 2.5 years, the sentiment of fixedwing turbine aircraft owner/operators is trending upwards, as are new aircraft purchase intentions. ■■ Available pre-owned inventory levels are at their lowest in 9.5 years. Young inventory – represented especially by aircraft with an impeccable pedigree, a single-owner, on warranty and costper-hour programs, and 5 years or less since initial factory delivery – has been snapped up by savvy buyers recognizing historically attractive deals presented by today’s marketplace. ■■ At the business aircraft and aero-engine OEMs, capital investment and R&D spending are brisk. Quietly, stoically, and perhaps most fundamentally, turbine aircraft utilization in the key U.S. and European markets has been trending upwards, fueled by a solid, albeit unspectacular, rebound of the two regions’ economies. Business and consumer confidence are comparatively robust, buoyed by higher stock market valuations and expectations of more favorable corporate tax regimes in the future. ■■ In conversations around the industry, there is a general feeling that market conditions have improved, with more to come. What’s not to like about today’s market? Well, to be honest, a few things, some much more prominent than others: ■■ Aircraft owners have seen their aircraft equity effectively evaporate as asset values have plummeted in an historically w w w. B i z AvA d v i s o r. c o m
N ATION A L BUSINES S AVIATION AS S O CIATION
Bizav Soars Into the Future
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including the rise of an entire generation of Millennial customers seemingly unencumbered by the traditions and desires for “asset ownership.” The promise of disruptive shared-economy business models – leveraging the power of the internet – is everywhere apparent, although what remains to emerge is a profitable, defensible business model that could crack open the market to a new and much broader generation of users. Utilization rates of business aircraft average about 350 hours per aircraft per year across all platforms and business models, at least according to ongoing quarterly JETNET iQ Surveys of business aircraft owners and operators. To put this into some perspective, commercial aircraft tend to be flown 8-10X more hours, and even higher in some long-haul market applications. Unlocking some of this capacity and channeling it through innovative new business models are entrepreneurial opportunities to be grasped today and in the future. The bottom line? Despite recent fluctuations and widespread concerns about aircraft values, business aviation plays an indispensable role in today’s – and the future’s – economy. Fueled by an insatiable desire to make more efficient use of their time and increase their levels of personal control and mobility, entrepreneurs know that the best and most predictable future is one they imagine and invent themselves. Business aviation has a vital role to play in this future. For the time being, business aviation “eagles” may be mostly white-topped and balding, but a new generation of leaders is on the rise. Gatherings of eagles, wherever they occur, provide unique opportunities to explore and experiment with the many different value propositions of business aviation – still and by far the most personal and effective form of high-speed, point-to-point air transportation. BAA ROLLAND VINCENT is President of Rolland Vincent Associates,
an aviation and aerospace market research, forecasting, and strategic planning firm. His 30+ years’ experience includes work with manufacturers, commercial operators, and international organizations.
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JE TNE T LLC
unprecedented fashion, in many cases locking them into their existing aircraft – for better or for worse. ■■ Trade-in prices, and the gap between new and pre-owned valuations, remain problematic at best, removing the impetus for many owners to replace their aircraft with a new model, at least for the time being. ■■ In what was once a relatively predictable 5-year replacement cycle – driven to a large extent by buyers’ desires to stay “in-warranty” – aircraft purchase behaviors clearly have evolved, with some well-heeled buyers now even opting to purchase pre-owned aircraft for the first time. This created a temporary, white-hot window of opportunity in relatively young pre-owned aircraft, which has mostly closed for the time being. Aircraft appraisers and industry prognosticators have had a tough time earning a living in recent times, buffeted by rapidly fluctuating market conditions, imprecise and out-of-date transaction data, and hyper-aggressive competition for new aircraft sales that have disrupted the traditional valuation equations. The business aviation industry continues on a slow, steady recovery trajectory from the seismic shock of the 2008 financial crisis, with many asking the question: “Are today’s market conditions the new reality?” Evidence points in different directions, but the signs of a return to more normal, predictable markets are quite apparent. Tightening inventory, especially of the most attractive late-model aircraft, already has occurred. Aircraft utilization has recovered to pre2008 crisis levels, at least in the all-important U.S. market. Still problematic are aircraft residual values, which have experienced an historical drop in the past 18-24 months, weighed down by classic market oversupply conditions and hyper-aggressive OEM dealmaking in the battle to sell available production slots. With 40+ model choices of new business aircraft, buyers never have been so teased by choice, and chased after by hungry (some might even say starving) new aircraft sales professionals. Are there too many models and still too much production for the level of demand today? We would say “yes,” suggesting that the buyers’ market will continue, at least for the next couple of years. From here to … exactly where? What are the future directions of the industry? We believe that it is helpful, both individually and collectively, to take a step back from the noisiness of today’s markets to reflect upon the industry’s trajectory and growth prospects. Although no precise consensus ever should be expected when eagles gather, we can envisage a future that will include more alternatives to traditional aircraft ownership, including jet cards, membership clubs, branded and digital charter, operating leases, air taxi, and other business model innovations still to be discovered. We are on the verge of a revolution in unmanned aerial systems, drones, and the like – this is likely to represent structural change in the way goods and people are moved, especially in urban and short-haul markets. Demographic changes could be fundamental,
■ ALTERNATIVE LIFT
You Should Care How the Next Generations Share Newer Methods of Access Come of Age BY KEITH PLUMB Executive AirShare / kplumb@execairshare.com
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two years out than five or 10. Making a 24-month investment is a great way for businesses to gauge and refine their travel needs. If demands increase, it’s easy to convert to a fractional share. If demands drop, there’s a well-defined, shorter time to manage the accounting. For the operator, leasing creates revenue opportunities that are less reliant on maintaining residual value, lately notably flat due to the abundance of aircraft on the market and belt-tightening by bizav users. When an aircraft comes off lease, it can be leased again easily. There’s less pressure to sell before the aircraft depreciates too much. The Privileges of Membership Charter cards and membership programs are enticing for younger leaders. They’ve never known a time when commercial travel equated to luxury. They came of age in the cattle-call era of being herded through security lines, squeezed into ever-smaller coach seats, and bumped from over-sold flights. Membership programs allow them to bypass airport hassles and missed connections, while still saving over one-off charter trips. They don’t want to pay for in-flight cappuccino machines and crystal. They just want to roll up their sleeves and get to work: a message that resonates with an increasing number of more senior business leaders. BAA KEITH PLUMB is President and CEO of Executive AirShare,
the nation’s third-largest fractional provider. With 25+ years of experience in the aviation industry, he serves as Kansas City Chapter Chair of Young Presidents’ Organization.
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ISTO CKPHOTO
Share with others.” “Use only what you need.” Most of us learn these valuable lessons in kindergarten. It has taken the impending ascendency of a younger generation as decisionmakers to fully implement these ideas in business aviation. They are asking: “Why own an entire airplane when you can share the cost and use it with others?” The answer is a more widespread move to fractional ownership and other modes of joint ownership and shared use. While the fractional option has been available for decades, today’s younger business leaders are more fully embracing the practical benefits than their more senior counterparts. According to research by international market research firm YouGov, 67% of those with $10 million or more in assets like the convenience of “pay-as-you-go” for access to goods and services. And 14% of those with assets valued at more than $20 million are willing to use a jet charter subscription or on-demand service. It makes sense that Millennials would be the ones to look more closely at the value of fractional programs. These “cord-cutters” broke the traditional structure of television by eliminating cable TV. Why pay for 100 channels, if you’re only really watching 10? Younger leaders see corporate aircraft the same way. They don’t have to own the entire aircraft to garner the benefits. They’re willing to share – crews, expenses, and upkeep – to get the 20 trips they really need each year. Information Is the Asset Those born after 1980 are becoming leaders of middle-market businesses that don’t have the budgets of Fortune 500 companies, but still have travel needs that aren’t met by commercial carriers. They’re interested in sharing valuable information and learning from their peers, to gain insights about all aspects of their transactions. The result? A large percentage of fractional shares sold now are based not just on price, but on mission-specific aircraft. A contract that allows the flexibility to downsize aircraft for a specific trip? Even better. Leasing Leads to Growth Operating leases are important to the future of the business aircraft market. A JETNET research study showed that leasing as a preferred method of payment has nearly doubled year-over-year, according to quarterly surveys conducted in 2016 and 2017. For the customer, leases offer great travel flexibility without a long-term commitment. It’s much easier to project budgets one to
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■ AIRCRAFT OPERATIONS
Popular Props Consider a Turboprop for Flexibility, Efficiency BY MICHAEL D. HISSAM Piaggio America, Inc. / info@piaggioamerica.com
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P.180 Avanti EVO
Turboprops are designed from the ground up for that kind of mission flexibility, from their robust construction to their dependable engines. The most popular engine found on business turboprops today is the Pratt & Whitney Canada (P&WC) PT-6. First developed in 1960, there are more than 55,000 PT-6 engines currently in service. It is considered to be the most popular and reliable – some would even say “bulletproof” – turboprop aircraft engine, found on aircraft ranging from the single-engine Caravan, Piper Meridian, and Pilatus PC-12, to the twin-engine King Air series and Avanti EVO. While the 2008 financial crisis caused new turboprop deliveries to drop by 18% in 2009, the segment has rebounded, with 2016 new deliveries up more than 30% over that 2009 low, according to the General Aviation Manufacturers Association. The most recent JETNET iQ research indicates that owners and users definitely recognize that value; its 2017 forecast states that “pent-up demand” for new aircraft will drive production and delivery of more than 4,200 new turboprop aircraft over the next ten years. As newer models will meet the evolving regulatory requirements, a well-maintained aircraft should hold its residual value at the end of its depreciation schedule. And that makes the business turboprop an excellent capital investment, as well as an excellent business tool.BAA MICHAEL D. HISSAM is President and CEO of Piaggio
America, Inc. An instrument rated private pilot, his 20 years in aviation includes positions as Senior Director of Sales, PreOwned Sales Director, and Regional Sales Manager.
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PIAGGIO A ERO SPACE
e live in a world enamored with speed. Smartphone users jumped from 3G to 4G when it was introduced, anticipating increased communications efficiency. And wireless providers expect the same will happen when 5G becomes available. So too with business aircraft, where “business jet” implies the velocity necessary for success in today’s fast-paced world. But sometimes, by flying in a business turboprop rather than a jet, you actually can arrive at your final destination faster. How so? While a turboprop may take a few minutes longer than a jet to complete flights of 1000 miles or less, its ability to land at airports closer to your final destination can dramatically reduce your total travel time by reducing your ground travel time. This is particularly true if your destination is a remote facility, or a client in a rural area. And turboprops can land in small airports that are not suitable for business jets, making them the aircraft of choice for individuals, and regionally-focused companies whose flight legs often are 400 to 1,200 miles. Some turboprops can land on grass strips of 1,200 feet or fewer as well as other unimproved runways. And for those aircraft equipped with floats, any open waterway can be a landing field. Turboprops offer the flexibility that a traditional business jet may not be able to match. For example, using a turboprop can allow a business team to make several stops visiting different retail sites, manufacturing facilities, etc., and still return home that same day! They operate much more efficiently than business jets, with up to 30% lower operating costs. And the turboprop does so while burning less than half the fuel of a business jet: from as little as 40 gallons/hour for single engine aircraft, to 65 gallons/hour for twin-engine aircraft. In addition to all these other capabilities, turboprops can perform a wide variety of missions that are beyond the capacity of business jets. From specialty missions like air ambulance, aerial observation, and firefighting, to light freight hauling, turboprops offer excellent operational flexibility. Some, like the Piaggio EVO, are well-suited for executive transport and special mission work, cruising at near jet speeds (400 MPH) at altitudes up to 41,000 feet. Others, like the Pilatus PC12, Beech King Air, and Viking Twin Otter, also serve in short haul commuter fleets, as well as offering executive transport and medical transport capabilities. Still others like the Cessna Caravan and the Quest Kodiak work well for light cargo transport.
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■ AIRCRAFT SALES & ACQUISTIONS
Holding Steady Consider the Pre-owned Market BY TIM BARBER Duncan Aviation Aircraft Sales & Acquisitions tim.barber@duncanaviation.com
The Pre-Owned Market: A Bright Spot
Pre-owned business jets still represent phenomenal value. Sure, the value of pre-owned aircraft typically continues to slide as they age. But the fact that depreciation after the first five years of ownership is pretty modest is a great story to tell. Buy a 2012 aircraft today and in five years, you will probably have lost no more than 2% or 3% of the value per year of your ownership. As an illustration, here are a few examples. The percentage given is the indicative residual value as a percentage of the original price of the aircraft when new. Aircraft/Year
2012
2011
2010
2009
2008
2007
Gulfstream G550
50%
49%
48%
44%
40%
38%
Global 5000
51%
44%
41%
44%
38%
36%
Embraer Legacy 600
40%
36%
33%
29%
28%
26%
Falcon 2000LX
57%
51%
46%
44%
45%
44%
Challenger 605
41%
37%
44%
35%
32%
32%
Citation Sovereign
53%
48%
45%
42%
41%
41%
Gulfstream G150
41%
39%
34%
32%
31%
30%
Citation CJ2+
60%
58%
54%
54%
54%
N/A
Phenom 100
63%
60%
59%
58%
67%
58%
S OURCE: V REF
While some of these aircraft have more upfront depreciation than others, none suffer a value erosion of more than 15% in the next five years. In fact, the average is considerably less – and in this context, totally irrelevant. 12 B U S I N E S S AV I AT I O N A DV I S O R
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Potential Traps In Pre-Owned
If you are just looking to find a “good deal” in the pre-owned market, however, there are lots of potential pitfalls. Purchasing a preowned aircraft is much more complicated than comparing spec sheets and similar make/model aircraft. Every aircraft is configured differently, and systems, configurations, modifications, and options all have a very real effect on aircraft market value. It’s also important to understand and consider the total fiveyear cost of aircraft ownership and the importance of projecting its future maintenance and necessary modifications (avionics and instruments). Has it been modified for upcoming mandates, like ADS-B? Does it have Wi-Fi? When is its next major inspection due? How much time is on its engines? While the aircraft can be retrofitted, time spent at a maintenance, repair, and overhaul facility (MRO) means time you cannot use the aircraft. With more than 2,000 pre-owned business jets for sale right now, you have a lot of choice. There are some great, aggressivelypriced aircraft on the market, and you may need help to identify which is the best buy for your needs. If you’re ready to purchase or upgrade an aircraft and have reliable expert guidance, consider the pre-owned aircraft market. Then you can enjoy the true benefits of business aviation – speed, flexibility, local access, improved security, comfort – and most importantly, better control of your valuable time. BAA TIM BARBER , Duncan Aviation Aircraft Sales and Acquisitions,
represents the company in Europe, the Middle East, and Africa. A founder of JetBrokers Europe, he held directorships with businesses listed on the FTSE and the AIM.
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ISTO CKPHOTO
N
ot a single day goes by, it seems, without a sensational headline referencing the rapid depreciation in value of business jets. One recent article even proffered a value for the average bizjet at $8.9 million, and implied all had depreciated by 35% since April 2014! It just isn’t so. Until very recently, there was a glut of pre-owned aircraft available for sale – a “hangover” from the 2008 market downturn. But now the inventory of pre-owned aircraft has shrunk, because owners have dropped asking prices to a level at which people are willing to buy. Clearly, if you are a potential buyer, you need to be aware of the state of the market – the number of aircraft for sale, how many have sold, how long they’ve been sitting before selling, value trends, and so on. But there is no need to linger on the negatives. There is good to be found!
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■ AVIATION FINANCE
Capitalizing on a 3 Keys to Getting Favorable Market the Best Deal BY STEVE DAY Global Jet Capital / sday@globaljetcapital.com
When evaluating the benefits and related responsibilities of purchasing a business aircraft, there are many costs to consider. For most buyers, how they will finance the aircraft is a key component of the aircraft acquisition analysis. The current very favorable interest rate environment certainly helps support a solid return on investment. How can you put yourself in the best possible position to secure financing, while ensuring that the financing option you choose makes the most efficient use of your capital? Lenders consider three key areas when deciding whether to offer financing on a corporate aircraft transaction. They are the:
1
Mission and Market Value of the Aircraft – Most air-
2
Client Profile – The finance company will seek assurance
that any potential client has the character and capacity to carry the loan. Be prepared to provide information on your income, assets, net worth, taxes, and current debt obligations. While publicly listed companies are required to publish a substantial amount of information about their financial performance, privately held businesses and high-net-worth individuals often are surprised by the level of financial detail required. This information in a usable format will expedite the underwriting process and minimize any follow-up questions. 14 B U S I N E S S AV I AT I O N A DV I S O R
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3
Ownership Structure – When deciding among product
structures, ultimately you will need to determine your top aircraft acquisition requirements. Will you lease the asset, or own and finance it? If the former, you may not be as concerned with the aircraft’s residual value. While both can provide you with the benefits of aircraft use, each has different economic, structural, and risk aspects. You will need to weigh these and several other factors carefully in your decision-making process. It’s not uncommon for clients to begin the acquisition process with the intention of owning the aircraft themselves, but during the evaluation, to decide that the risks of capital depreciation ownership outweigh the benefits. While many aircraft finance providers lean heavily on the credit underwriting side of the transaction, others balance the underwriting between the asset value and the credit profile. So when selecting a finance company, choose one with preferences that match your strength, be it your own capacity/credit/character or your collateral aircraft. Regardless of the product structure, a corporate aircraft can be a significant long term investment. It’s important that both parties work in partnership from the beginning of the decision-making process to make the best use of the capital needed for the transaction. BAA STEVE DAY is Head of Sales, Americas, at Global Jet Capital.
He has 20+ years’ experience in asset based financing. Prior to joining the company, he was Head of ABS Investor Development at GE Capital.
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DAS SAULT AVIATION
craft finance providers will look for aircraft models which have solid residual values with a strong economic life beyond the end of the financing. Aircraft which have broad and deep secondary markets are generally more attractive, with the sweet spot being pre-owned aircraft up to 15 years old. Specific characteristics, such as cabin height, fuel efficiency, flight range, interior configuration, and more can increase an aircraft’s popularity. Finance providers will want to see a satisfactory history of the aircraft’s ownership and maintenance, and the aircraft having been maintained on OEM or third party maintenance programs, managed by reputable operators, and having been stored properly. They will place an emphasis on the engine maintenance programs, as those make up a significant proportion of the aircraft’s overall value. It’s also important for them to understand any plans you may have for upgrading and improving the aircraft during the term of the transaction. These could include repainting the exterior, updating the interior, or undertaking an avionics upgrade. While these improvements will help to maintain the value of the aircraft, they need to be planned and factored into the total cost.
■ AVIATION LAW
In Case of an Emergency… Avoid Stress with Diligent Disaster Planning BY STEPHEN HOFER o one in the aviation industry likes to talk about aircraft accidents. We prefer to point to aviation’s exemplary safety record. Statistically, it’s true that flying in an airplane is far safer than riding in a car, and getting safer all the time. But the reality is that aircraft accidents do happen. Sometimes the result is just “ramp rash” – no one gets hurt, the damage to the aircraft is relatively minor, somebody’s insurance pays for the repairs, and the aircraft is soon returned to service. But then there are the statistically few terrible events that end in injury or death. Many owners simply are not prepared for the worst. And hardly anyone wants to think about it. Yet, your business, your employees, your crew, and your family will be better protected when you plan ahead. Every company or individual business aircraft owner should have a well-thought-out, comprehensive Emergency Response Plan (ERP). If you lease your airplane to a Part 135 charter operator, you may assume you don’t need an ERP because the aircraft management company already has one. Verifying that one is indeed in place, and having a copy, is a good start, but not enough. Each aircraft accident is unique, and may involve a number of people, often at a remote location. Since you cannot anticipate what will happen, or where, or who might be involved, it’s not possible to create a “one-size-fits-all” ERP. Yet, all accidents have a number of commonalities: ■■ They generally result in immediate and significant scrutiny from multiple agencies, including the National Transportation Safety Board, the Federal Aviation Administration, local law enforcement and fire departments, and airport authorities. ■■ They also attract a high degree of media attention and public awareness. This is especially true if any of the passengers has a high public profile. Your PR department would face an unprecedented challenge. ■■ The significant human and capital loss would cause enormous disruption to your company, employees, and clients or customers, and raise continuity questions you need to be prepared to answer. The moment of crisis is not the time to develop an ERP. Make preparations before you ever need them, hoping you never will. What Should Your ERP Include? As you create your plan, consider: ■■ What would you do when the media gets your name from the FAA’s online aircraft registry and calls you to ask about the accident that’s just occurred involving your airplane? 16 B U S I N E S S AV I AT I O N A DV I S O R
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■■ Exactly what does your (and/or your management compa-
ny’s) insurance cover? Are you certain? Who is your insurer and what does its representative suggest you incorporate into your ERP? ■■ How would you first respond if corporate officers or employees are aboard the aircraft? ■■ Accurate information is critical. How will you obtain and verify the actual facts of an accident? Failure to handle an accident properly can make a bad situation much worse and have serious and lasting consequences for a company, its image, and its financial bottom line. Once Your Plan Is In Place Once you have a plan in place, it’s not enough to simply keep it in a binder on the shelf. Aircraft owners should periodically conduct ERP drills, and everyone in the company who might conceivably have any role in responding to an accident, including the receptionist who gets the initial telephone call, should participate in the rehearsals. Everyone should know what – and what not – to do and say. Work with your aviation attorney, insurance carrier, public relations and communications team, marketing firm, and, most importantly, your aircraft management personnel, to develop an ERP. Start the process as soon as the aircraft acquisition closes, if not sooner. It’s time and money well invested and will give you peace of mind that you’re prepared if the worst-case nightmare should ever become a reality. BAA STEPHEN HOFER is President and founder of the Aerlex
Law Group. For 37 years, he has specialized in aviation, corporate, commercial and employment law, and is a frequent speaker to organizations in the aviation industry.
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Aerlex Law Group / shofer@aerlex.com
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■ WASHINGTON REPORT
Is It National Security Or Aircraft Noise? MA legislator wants FAA to wring more personal information from aircraft owners BY DAVID COLLOGAN dlcollogan@gmail.com
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n a world already brimming with physical and cyber-security threats to aviation, a Massachusetts congressman introduced legislation that would enable terrorists or criminals to access even more sensitive information about registered aircraft owners in the U.S. Data in the FAA Aircraft Registry have been available for years on the opening page of the agency’s web site. Finding the owner of a particular aircraft is as simple as typing in the N-number – and up pops the serial number, manufacturer, model, and name and address of the registered owner. For a variety of legitimate reasons – privacy and liability concerns, business and personal security, insurance considerations – many aircraft owners create subsidiaries or stand-alone entities that are listed as the registered owners of aircraft assets. FAA regulators and law enforcement agencies can quickly determine the beneficial owners of aircraft when necessary. Aircraft security experts have long advocated registering an aircraft in the name of an entity not directly linked to the owner, to help protect against individuals or organizations with nefarious intent. Rep. Stephen Lynch (D-MA) wants to strip away that layer of protection. In July he introduced the “Aircraft Ownership Transparency Act of 2017,” H.R.3544. Before an aircraft could be registered, Lynch’s bill would require the FAA Administrator to “identify each beneficial owner of the covered entity by name; current residential or business street address; a unique identifying number from a nonexpired passport issued by the United States or a nonexpired drivers license issued by a state…” In addition, in the case of a covered entity owned or controlled by more than one entity, H.R.3544 would require FAA to “identify how each entity relates to every other entity, including the extent to which each entity holds an ownership interest in or exercises control over another entity, and the relationship of each such entity with the beneficial owners who are natural persons; and in addition to each beneficial owner, identify each trust grantor, trustee, trust protector, and beneficiary owner of the covered entity that is a foreign person.” This summer Lynch and Rep. Peter King (R-NY), asked the Government Accountability Office to examine “how FAA assesses and manages risks related to the eligibility requirements 18 B U S I N E S S AV I AT I O N A DV I S O R
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of its aircraft registration program.” But their letter cited only three instances of suspicious or possibly illegal activity related to aircraft registration issues: in October 2006, March 2010, and January 2012. Considering more than 200,000 aircraft are listed on the FAA Registry, three questionable registrations in a decade does not sound like a major problem requiring new legislation. It is probably worth noting there are a lot of voters in Lynch’s congressional district who are adamantly opposed to aircraft noise. According to Massport, more than 19,000 noise complaints – some 46 percent of the total filed about operations at Boston Logan Airport during the first eight months of 2017 – came from constituents in Lynch’s 8th congressional district. In October, Lynch introduced another bill, the “Air Traffic Noise and Pollution Expert Consensus Act of 2017,” H.R. 3938. That measure would require FAA “to sponsor an Expert Consensus Report issued by the National Academies of Sciences, Engineering and Medicine on the health effects of airplanes flying over residential areas.” Citing a four-fold jump in noise complaints to Massport since 2015, Lynch attributed the increase to flight path shifts implemented as part of the NextGen air traffic control modernization program. “There is clear demand from our constituents that we look into the impact of new flight paths… It is imperative that we understand and remedy any health effects caused by aircraft flying over residential areas, and the onus is on the FAA to produce this information,” Lynch said. Apparently no breach of your personal privacy, or imposition of new make-work projects on FAA, is too much to demand when Rep. Lynch is trying to impress his constituents. BAA DAVID COLLOGAN has covered aviation in Washington, DC
for more than four decades. This award-wining journalist is known as one of the most knowledgeable, balanced, wary, and trusted journalists in the aviation community.
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