NOVEMBER / DECEMBER 2018
An XXLent Time for BizAv All Signs Point to “Yes” Decked Out and Tech’d Out New Technology Enhances Safety, Comfort
HAVE INNOVATION, WILL TRAVEL 3-2-1 CONTRACT! “LOW PRICE” OR “GOOD VALUE”? COCKPIT CONFESSIONAL A REALLY BIG WIN 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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6
F E AT U R E S
An XXLent Time for BizAv 06 All Signs Point to “Yes”
• Volume 5 / I s sue 6
by ROLL AN D VIN C E NT
Decked Out and Tech’d Out 08 New Technology Enhances Safety, Comfort
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“Low Price” or “Good Value”?
by BAR BAR A S P OOR
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Cockpit Confessional
by E R IK A AR MS TRONG
Prior Planning Produces Premium Sale Price
Six Secrets Your Pilots Want You to Know
by BA A S TAFF R E P OR T
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Have Innovation, Will Travel
Publisher’s Message 05 New & Improved!
by JAY B E E V E R
by G IL WOLIN
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3-2-1 Contract!
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Washington Report
by W ILLIA M QUINN
by DAVI D COLLOG AN
Interior Design in the Access Economy
Contract Pilots Help Fill Shortage
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D E PA R T M E N T S
A Really BIG Win
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No v e m b e r/ D e c e m b e r 2 018 B U S I N E S S AV I AT I O N A DV I S O R 3
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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 Erika Armstrong Leading Edge Aviation Consulting erika@achickinthecockpit.com Jay Beever Embraer Executive Jets jbeever@embraer.com Barbara Spoor Asset Insight, Inc. bspoor@assetinsight.com William Quinn Aviation Management Systems bquinn@amsinc.aero Rolland Vincent Rolland Vincent Associates rvincent@rollandvincent.com BUSINESS MANAGER JoAnn O’Keefe jokeefe@bizavadvisor.com BOARD OF ADVISORS Paul Cardarelli • Larry Flynn Anthony Kioussis • Dick Koenig Joe Moeggenberg • Louis C. Seno Nel Stubbs • Rolland Vincent John (Jack) M. Young 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.
New & Improved!
The 2018 National Business Aviation Association Convention was rife with good news for most all attendees, as manufacturers, service providers – and even the government – announced new and renewed products and services. The convention hall was chock-a-block with elaborate booth displays for the 25,000 attendees to view. Owners and their advisors willing to brave 90 degree temperatures with 90% humidity at the Orlando Executive Airport static display had their choice of touring recently introduced or brand new aircraft. Large-cabin/ long-range aircraft were on display, including the Gulfstream G500, Bombardier’s Global 6000/7000 – soon to be the 6500/7500 powered by the new Rolls-Royce Pearl engine – as well as Dassault Falcon Jet’s 8X and the 6X mockup. Embraer’s just-announced super-midsize Embraer Praetor 500 and 600 were there too, as well as the Cessna Longitude, Pilatus PC-24, and Honda Jet. The industry news was good as well. Virtually all bizav segments – Part 91/91k owner and fractional flying, and Part 135 charter – have seen healthy year-over-year increases in flight activity through August, according to aviation research company Argus International’s TraqPak data. While Labor Day and Hurricane Michael slowed September flying in most segments, Argus expected activity in October 2018 to surpass last October by 2.3%, reaching the 280,000 flight mark for the first time in a decade. The preowned aircraft inventory continues to shrink. Asset Insight’s data show that “jet aircraft for sale” inventory decreased by 2.4% through September, though the turboprop inventory increased by 1.4%. Market intelligence company JETNET LLC’s data indicate that June’s preowned aircraft inventory for business jets dropped to its lowest point since 2008 – good news for owners looking to sell or trade current equipment. The future for new aircraft sales looks bright too. JETNET’s ten-year forecast foresees 7,807 business jets delivered through 2027, with 2019 showing a 9% increase over 2018 alone. And while the shrinking preowned inventory bodes well for residual values going forward, the continued technological advances likely will require regular aircraft updating to preserve those values. Complying with mandates like the 2020 ADS-B deadline are one thing – keeping up with newer aircraft offerings will mean harnessing the greater navigational and communications capabilities offered by new avionics suites shown by Universal Avionics, Garmin, Honeywell, and Rockwell Collins, by retrofit if necessary. Perhaps most importantly – and most surprisingly – was Congress’ passage of a five-year FAA reauthorization bill for the first time in more than 35 years. Dave Collogan details what that means to you and the traveling public at large in this issue’s Washington Report. So on behalf of all aircraft owners, users, and aviation professionals the world over, thank you for your calls to your own delegation. Thanks for reading!
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 2018 by Business Aviation Media, Inc. All rights reserved
Gil Wolin — Publisher gwolin@bizavadvisor.com
Printed in the USA No v e m b e r/ D e c e m b e r 2 018 B U S I N E S S AV I AT I O N A DV I S O R 5
INDUSTRY UPDATE
An XXLent Time for BizAv W
BY ROLLAND VINCENT Rolland Vincent Associates / rvincent@rollandvincent.com
ith much of the business aviation community gathered at the annual NBAA-BACE 2018 convention in Orlando, FL in mid-October, one of the hottest topics of discussion and debate on the floor of the Orange County Convention Center was the state and direction of the bizav marketplace. After a long, slow recovery period that has now outlasted most business cycles, we can say beyond a doubt that most signals we monitor are pointing in a positive direction. Pre-owned business aircraft sales, coming off of a torrid pace in 2017, have only now begun to peak, throttled back more by a lack of attractive, young inventory rather than attractive, young customers. Business aircraft manufacturers are reporting stronger order intakes, and – perhaps just as importantly – firmer pricing, as one of the last holdout indicators of industry health in the post-2008 financial crisis begins to turn green again. 6 B U S I N E S S AV I AT I O N A DV I S O R
We are only just now beginning to witness the results of years of R&D investments by airframers, their engine and avionics partners, and countless others across the global supply chain, as new business aircraft are certified and enter into service. It’s a far cry from the doldrums of the 1980s, when year-over-year aircraft sales were stubbornly flat and cutbacks in employment, investments, and production lines throughout the business aircraft industry were the name of the game. Today we see that there are enticing new designs and a wider variety of choices of new models to choose from than ever before. Ironically, and after an extended period of flattish new aircraft deliveries over the past six to seven years, it can be argued that we currently have too many manufacturers building too many aircraft models for the level of demand. In many ways, business aviation customers have never had it so good. For those still waiting for the good ol’
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days to return, we might suggest that the good times are already back with us. In the best American tradition, prospective customers were encouraged to “come ’n git it” in Orlando, and through the end of what looks to be a very busy year-end for business aircraft transaction professionals. Fueled in part by still-new U.S. tax and depreciation laws that have been priming the proverbial pump all year, Q4 2018 should have the sales bells clanging as the days count down and the available inventory of pre-owned aircraft and unsold production “white tails” evaporates. OEMs with immediate availability of new aircraft for late 2018 delivery will be working into the wee hours on December 31 to bring every aircraft they can into the hands of eager customers before the midnight hour strikes. The U.S. is home base to almost six out of ten of the world’s business jets and turboprops, a remarkable concentration in an industry that claims to be global, but by many measures isn’t yet so. Blessed with an as-ofyet unmatched mix of aviators, airports, w w w. B i z AvA d v i s o r. c o m
DAS SAULT
All Signs Point to “Yes”
THE U.S. IS HOME BASE TO ALMOST SIX OUT OF TEN OF THE WORLD’S BUSINESS JETS AND TURBOPROPS, A REMARKABLE CONCENTRATION IN AN INDUSTRY THAT CLAIMS TO BE GLOBAL, BUT BY MANY MEASURES ISN’T YET SO.
private air terminals and maintenance shops, locally produced aircraft, mostly friendly equipment lenders and lessors, and all manner of affiliated industries, the U.S. is and will continue to be the dominant force in business aviation for years and years to come. Our latest market forecast, which looks out into the ten-year future, predicts little change in the geographic mix of the fleet over the decade. At least for the time being, the state of the business aviation market will be driven largely by the state of the States. This trend has some fascinating implications for market watchers, market participants, and market makers.
Size Matters
As has been repeatedly proven in business aircraft, as in other segments of the transportation equipment industry, size matters, and it seems to matter even more as the years go by. Ongoing research by the U.S. Centers for Disease Control and Prevention suggests that 40% of U.S. adults aged 20 years or older were overweight in w w w. B i z AvA d v i s o r. c o m
2015-2016, up a remarkable 1/3rd from 1999-2000, when that figure was 30% of the population. Among 40-59 year olds – a prime age bracket that encompasses many business aviation users – 43% of Americans were categorized as overweight, according to data from the National Health and Nutrition Examination Survey. Combine these data with the fact that Americans are also getting taller and taller. What on Earth does this have to do with business aviation markets, you might say? Well, as it turns out, probably quite a bit. It is hard to imagine how – or why – many would even seriously consider a business aircraft if it did not provide many (perhaps even every) comfort and convenience of the home and office to which they have become accustomed. Whether in the form of the latest ultrahigh-speed internet access, the cradling effect of a larger chair design that would relax even a Type A personality A-lister, or the turbulence-bump-softening technology of fly-by-wire controls, the latest business
aircraft features offer much to separate someone from their hard-earned greenbacks. When these features are combined with wide-body, flat floor, stand-up cabins, higher speeds up to Mach 0.925, HUD and SVS systems, steep approach and shortfield capability, and that all-important scent of new Italian leather, what’s not to like? With U.S. corporations reporting record profitability – a staggering $2 trillion after tax on an annualized basis in the year ending March 2018, with higher levels expected as more profits are repatriated throughout the year – corporate buyers never have had such a storehouse of cash to invest in assets, from new buildings to new businesses to new business aircraft. We are expecting a very strong finish to 2018 for business aircraft sales, with most of the activity concentrated in the U.S., which is blessed at this time with a strong currency, favorable tax and depreciation rules, an optimistic owner/operator community, plenty of fancy new airplane models from which to choose, and eager-to-get-it done aircraft sales professionals with pens and iPhones securely in hand. And what a ride it should be! With 2019 and all the uncertainties of global trade tariffs, a newly elected U.S. Congress, higher U.S. inflation and interest rates, the nightmare-turned-to-reality of Brexit, the no-kidding deadlines of ADS-B Out, and (heaven forbid) slower U.S. and Euro-Area economies, we should all enjoy the remainder of the ride. As always, and as the Captain says, we recommend that you fasten your seat belts in case there is some unexpected turbulence. Hopefully just a little light chop ahead … but we advise you to keep the belts tight just in case. BAA ROLL AND 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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■ FLIGHT OPERATIONS
Decked Out and Tech’d Out New Technology Enhances Safety, Comfort
Enhancing Pilot Vision
Pair that streamlined workload with Gulfstream’s third-generation Enhanced Vision System (EVS III), which provides the latest resolution and enables pilots to see in darkness and operate the aircraft more safely in all low visibility situations; as well as Synthetic Vision-Primary Display, which presents a computer-generated 3D image of the terrain ahead. Because of the system’s capabilities, the FAA has approved the use of EVS for landing the G500. The ability to land even in low-visibility conditions eliminates repeated goarounds, which means you can arrive at your destination without the inconvenience of weather-related arrival delays. Electronically linked active control sidesticks, currently available only on the Gulfstream G500 and G600, replace the traditional “yoke” and enable pilots to feel each other’s inputs as well as those from the autopilot. The result is an increase in pilot situational awareness, which greatly enhances safety. Along with the sidesticks, touch-screen controllers on the panel significantly reduce the number of switches in the flight deck and provide interfaces that anticipate your pilots’ next moves, from taxi to takeoff through landing. Designed for ease of upgrading, the Gulfstream 8 B U S I N E S S AV I AT I O N A DV I S O R
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G500 and G600 touch-screen-based flight decks can incorporate future technology enhancements and advancements in navigation. Additionally, the active control sidesticks open up room in the flight deck, thereby increasing visibility to the instrument panel and giving pilots a place to work and plan outside of the cabin, so as to not interfere with you and your passengers. These newest technological advances also offer pilots the ability to quickly start the airplane and have it ready to depart in approximately ten minutes, half the time it would take without the phaseof-flight innovation.
Invisible Innovations
Many of these technological innovations aren’t always visible to you. For example, a data concentration network (DCN), tucked behind the sidewall, collects and distributes data from various aircraft systems and makes that information available to other systems, all within an advanced infrastructure that has fewer wires and parts than before. The DCN creates more room in the cabin and reduces aircraft weight, reducing fuel burn and leaving more room for luggage. It also is easier to maintain, and acts as a back-up system, so that if something should fail, the pilot can continue to operate the aircraft safely. Your pilots and technicians can stay ahead of potential unscheduled maintenance issues, thus increasing your aircraft availability and reliability, and allowing you to fully leverage one of the major benefits of business aviation: flexibility. Even more hidden technology enhances your cabin experience. This includes 100% fresh air, unprecedented low noise levels, and a low-altitude cabin environment, which is less tiring for passengers, even while cruising at 41,000 feet and higher. Combined with the option for Jet ConneX, the high-speed KA-band broadband service, this environment makes it possible for you to stay alert and connected as you access high-speed internet, streaming capabilities, and multiple owner-secure Virtual Private Network sessions. So, yes, while innovations may start in the flight deck, you will feel the benefits far beyond. BAA w w w. B i z AvA d v i s o r. c o m
GULFSTRE A M
I
BAA STAFF REPORT
t’s often easy to dismiss the technological advances in the flight deck as nothing more than an appeal to pilots. While innovation tends to start in the flight deck, capabilities introduced in the cockpit also provide comfort and peace of mind to you and your passengers in the cabin. Visualize a lengthy, late-night flight across the Atlantic Ocean. While you might expect to feel fatigued, that’s not the case in an ultra-long-range aircraft such as the Gulfstream G500 and G600, featuring a cabin custom-designed for passenger comfort and uninterrupted connectivity. And to keep fatigue in the cockpit to a minimum, the aircraft are equipped with “phase-of-flight” technology that decreases the workload for pilots from takeoff roll to final approach and touchdown, allowing them to focus on flying.
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■ AIRCRAFT MAINTENANCE
Have Innovation, Will Travel Interior Design in the Access Economy
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BY JAY BEEVER
hile until recently, business aircraft owners have been primarily Baby Boomers and older, today’s users of business aviation span five generations: The Silent Generation (born before 1945), Baby Boomers, Generations X and Y, and Millennials. New users increasingly are drawn from these last groups. Most new users usually first experience business aviation via charter flights, whether direct aircraft charter or jet cards (See “The Access Economy,” BAA May/June 2018). Those new aircraft users, as well as a growing number of current owners, are willing to share access to “their” aircraft. They will forego the bespoke paint and interior of a dedicated, single-owner aircraft in return for lower fixed overhead costs or less expensive flights.
Evolving Use Feeds Industry Rebound
Recovering from the downturn of the past ten years, aircraft manufacturers are responding by making several changes. They are producing aircraft with airframes, engines, and operating systems that are more robust, and can fly longer between maintenance events. These more efficient aircraft, with advanced avionics and navigation systems, can fly farther with less fuel. More than 6,000 business jets were delivered during the last decade, and more than 11% of those entered service as fleet aircraft dedicated to flying fractional or charter customers. While programs offering aircraft dedicated to shared use have been around since 1964, the current generation of fleet operators, ordering 20 to 40 new aircraft at a time, reflects an evolution in executive and highnet-worth individual business aircraft travel (See “Access Without Excess,” BAA July/August 2018). From the manufacturer’s standpoint, these large orders make building aircraft easier. It smooths the production flow, enabling the manufacturer to load the production line with pre-sold aircraft. There is no delay in waiting for an owner to “spec” the interior and paint; that is predetermined by the fleet brand. The manufacturer knows that Fleet Operator “A” wants Interior “B” with Fabric “C” and Carpet “D.” But fleet aircraft serving multiple users present different manufacturing challenges. Fleet use means higher annual flight hours on each airframe, and that means more wear and tear on aircraft interiors. While an aircraft dedicated to flying for a single owner averages less than 200-300 flight hours annually, a fleet aircraft operator targets more than 600 hours. Plus, the aircraft may need to be repositioned between occupied flights several times each day. Repositioning presents two challenges. One is that, unlike an aircraft interior designed for an 10 B U S I N E S S AV I AT I O N A DV I S O R
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individual owner, who chooses the style, layout, colors, and materials to personalize the aircraft to taste, a shared aircraft interior must be designed for increased durability, flexibility, and ease of cleaning and maintenance required for “quick turns.” Two, the seating arrangement must be more flexible, and able to be altered easily to accommodate different user requirements. Manufacturers also are re-engineering the interior design and completion process, to expedite deliveries and entries into service to meet the increased demand by end users. Traditionally, changes in aircraft interiors have required complete replacement of affected elements. Recent innovation in aircraft interior architecture allows for the creation of “zones of personalization” as well as maintenance accessibility for rapid replacement operations between flights. This enables operators to clean, maintain, and repair seats, sidewall panels, carpets, and cabinetry more quickly and easily. And that minimizes aircraft downtime between flights, thus maximizing flight availability for fractional owners and charterers. In developing these new designs for shared aircraft use, aircraft manufacturers preserved the essential flexibility, comfort, and freedom of movement business aviation flying provides the traveler, while offering improved maintainability for fleet operators. As the popularity of the “Access Economy” increases and manufacturers continue to respond, these NextGen aircraft increasingly will serve both constituencies: delivering sustainable operations and profitable results to their fleet owners, while offering comfortable and cost effective transportation to business travelers. BAA With more than 25 years of experience in the automotive and business aviation sectors, JAY BEEVER has served as the Vice President of Interior Design at Embraer Executive Jets in Melbourne, Florida, since 2012.
w w w. B i z AvA d v i s o r. c o m
EMBR A ER E XECUTIV E JE TS
Embraer Executive Jets / jbeever@embraer.com
■ FLIGHT OPERATIONS
3-2-1
Contract! Contract Pilots Help Fill Shortage BY WILLIAM QUINN
M
Aviation Management Systems / bquinn@amsinc.aero
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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discounted rate of $1,000 a day. This payment is made monthly whether the pilot flies or not. So that pilot forfeits $24,000 in income, but saves $50,000 in training expense, which nets another $26,000. This pilot flies 120 days a year for $120,000, and another 60 days a year for $72,000, for a total gross income of $192,000. Now the pretax income jumps from approximately $121,000 to $147,000. A pilot willing to give up some quality of life, flying 200 billable days a year, could gross $240,000 a year. Minus expenses and taxes, the net could be approximately $144,000.
Why Use Contract Pilots?
From an employer’s perspective, using contract pilots can be advantageous. Companies with healthy benefit packages may pay as much as 30% overhead on a pilot’s annual compensation. So employing one permanent, full-time pilot for $150,000 a year actually costs $195,000. Depending upon your company’s needs, using contract pilots for upwards of 120 days a year could net savings of 26% in labor costs. But be mindful of the pitfalls of using contract pilots who are not properly trained or insured. Exercising due diligence is critical for both the company and the contract pilot. Because of the need to cover most of their own expenses, it looks like contract pilot rates are only going to go up – not necessarily a negative, considering the advantages for those employers who want to keep both their head count and basic overhead down. BAA WILLIAM QUINN brings 45 years’ aviation expertise to his
position as Founder/President of Aviation Management Systems. AMS provides management, technical, operational, and asset-based consulting services to aircraft owners/operators, and to the financial, insurance, and legal communities.
w w w. B i z AvA d v i s o r. c o m
ISTO CKPHOTO
any owners, unable to find a permanent crew due to the pilot shortage, are turning to contract pilots. Others find that they prefer them. But even if you use contract pilots only when your own pilots are in recurrent training or on vacation, be aware that the rules are changing. What will it take to hire contract pilots in the days ahead? Most contract pilots charge daily rates for the actual flying, travel time to and from the aircraft, and layover days. While some charge for travel time and layover days at different rates, many charge the same daily rate as for flying. They maintain that their time has value, whether or not they are positioning themselves to and from a flight or in a hotel during layover days. Contract pilot rates for business jet aircraft have been escalating gradually for the last ten years. In 2008, they earned from $850 to $1,000 a day for domestic trips, and $1,000 to $1,200 for international trips. Today’s rates start at $1,200 a day for domestic trips, with some pilots charging as much as $1,750 a day for international trips. It’s likely that these rates will continue to increase. Here’s why. The benefits associated with being a full-time contract pilot are compelling. They can control their schedules by accepting or rejecting trips, which improves the “quality of life” aspect of flying increasingly important to today’s younger pilots. But the downsides include: no regular paycheck, responsibility for training expenses ($30-$50,000 a year), health insurance, workers compensation, and liability coverage ($30-$40,000); plus payment of the full FICA tax at 15.3%. Interestingly, some contract pilots roll the dice when it comes to insurance, which can be problematic both for the pilot and the aircraft owner/operator should a claim arise. So what are the actual economics of being a full-time contract pilot? A pilot charging $1,200 a day, who flies 15 days a month or 180 days a year, could earn a gross annual income of $216,000 a year. Given the estimated expenses above, that equates to an average pretax income of approximately $121,000. Assume that the contract pilot has a non-exclusive anchor client who agrees to pay for his or her training in exchange for a commitment of 10 days a month, at a
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■ AIRCRAFT SALES & ACQUISITION
“Low Price” or “Good Value”? Prior Planning Produces Premium Sale Price BY BARBARA SPOOR
W
Asset Insight, Inc. / bspoor@assetinsight.com
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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The Residual Value Projection
A traditional RV forecast starts with an assumed Current Value that then is degraded based on the aircraft model’s average historical annual depreciation percentage. But the aircraft’s future maintenance condition, perhaps the most important value influencer, is not accounted for appropriately, if at all. Since historical values and trends play no role in an aircraft’s future financial behavior, it’s best to obtain Residual Value figures using objective methodology that assesses the aircraft’s value independently, based on current maintenance condition, future requirements, and proven forwardlooking market indicators. A “low price” is easy to determine. “Good value” is derived by optimizing your investment by: ■■ Acquiring an aircraft able to perform your mission requirements, at a reasonable price; ■■ Stabilizing maintenance costs during your ownership period with HCMP enrollment; ■■ Limiting scheduled maintenance expenses not covered through an HCMP, based on the aircraft’s future maintenance requirement at time of purchase; ■■ Securing an objective, science-based Residual Value analysis; and, ■■ Remarketing an HCMP-enrolled aircraft at a predetermined date to ensure that the ETP Ratio is well below 40%. Taking these steps can help you enjoy the best possible return from your aircraft – both while you own it and when you are ready to sell. BAA BARBAR A SPOOR is a co-founder of Asset Insight, LLC, a
leading aviation equipment valuation firm. She is a licensed commercial pilot and a Senior ASA Accredited Appraiser with nearly 30 years’ experience appraising aviation equipment.
w w w. B i z AvA d v i s o r. c o m
ISTO CKPHOTO
hat do you need to know before you purchase an aircraft to ensure that you get the best possible price when it’s time to sell? While the terms “price” and “value” often are used interchangeably to describe an aircraft’s worth, they actually have different meanings. “Price” is what the buyer pays, while its “value” is the relative worth, utility, and/or importance placed on that asset. Since emotions can run high during the aircraft acquisition process, determining whether an aircraft carrying a “low price” represents “good value” requires a detailed analysis – one that focuses on its future maintenance requirements and estimated Residual Value (RV). Consider the length of time you plan to keep the aircraft, and how many hours you intend to fly annually. Such data can help project the aircraft’s scheduled maintenance costs during your ownership term. This calculation is neither linear nor simple; costs assumed to be minimal actually can be much higher than anticipated. For example, scheduled maintenance costs increase over time due to more comprehensive airframe inspections, required either by the manufacturer or new regulation. While some view airframe maintenance costs as relatively minor, they are not. If you plan to own the aircraft for five years, and it will need a double-engine overhaul within ten years, the value of the airplane may be reduced by what the next owner will have to spend: approximately half the cost of the overhaul, perhaps more for an older aircraft. That could run from the high six-figures to several million dollars, depending on make and model. Carefully consider the cost of scheduled engine maintenance if the aircraft is not enrolled on an Hourly Cost Maintenance Program (HCMP), as maintenance expenses based on “time and materials” undoubtedly will increase over time. Opting to not enroll the aircraft on an HCMP upon purchase will increase your financial risk during your ownership period. And the aircraft still may require HCMP enrollment at resale to make it marketable, due to its “Maintenance Exposure to Ask Price Ratio” (“ETP Ratio”). The ETP Ratio is a useful indicator of an aircraft’s marketability. It is computed by dividing an aircraft’s Maintenance Exposure (the financial liability accrued for future scheduled maintenance events) by the aircraft’s Ask Price. An analysis of “Days on Market” shows that when the ETP Ratio exceeds 40%, the Days on Market increase by more than 30%. For example, aircraft with ETP Ratios exceeding 40% during Q2 2018 were listed for sale an average of 72% longer than aircraft with ratios below 40% (169 days versus 291 Days on Market, respectively).
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FLIGHT OPERATIONS ■
Cockpit Confessional Six Secrets Your Pilots Want You to Know BY ERIKA ARMSTRONG Leading Edge Aviation Consulting / erika@achickinthecockpit.com
Unlike in the airline world, where the cockpit door is closed to a cabin full of strangers, business aviation fosters an intimate relationship between passengers and pilots. And if the pilots execute a bumpy landing, they will see their passengers, again and again. They can’t just leave the cockpit door closed at the end of the trip. This intimacy may prevent your pilots from telling you all they wish they could say. But they don’t want to break the code of cockpit confidence, which ironically, could jeopardize your safety. What are the six most common errors passengers – and pilots – commit?
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“CINCHING”: Flying looks so easy and wow, look at that view! Yes, we pilots have the best office in the world, but we’ve worked long hours for many years, often sacrificing personal and family time to obtain the experience, training, and ratings we need to earn your confidence. If it looks like a cinch, it’s because of all the effort and time we’ve put in to achieve proficiency. HOVERING: Pilots love to talk about flying. We enjoy showing passengers what we know, but when the CEO or other passenger parks in between the cockpit seats and spends significant time talking to the pilots, it is diverting their attention away from the tasks at hand. And since many pilots are introverts, it can be tiring to entertain passengers. “GREASING”: While en route, pilots are quietly dealing with mechanical issues, communication with ATC, navigation technology, and weather, but our entire worth often is judged on the landing. Crosswinds, gusty winds, short runways or runways contaminated with ice, snow, or rain all require “firm” authoritative landings. The number one BizAv accident is a runway excursion, in which the aircraft goes off the runway unintentionally. That’s often because pilots feel pressured to try to w w w. B i z AvA d v i s o r. c o m
“grease” – that is, to make smooth – the landing for our passengers. The smoothest landing is not always the safest course of action.
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CRAVING: Bagels and lox sounds like a simple request. But if you’re the pilot on a layover in a small airport in Mississippi, and your passengers call and insist on gluten-free bagels with all the timmings an hour before departure, that pilot may quickly discover that it’s not so easy to find. Precious preflight time will be spent explaining to too many local people what lox is. Yes, your pilots want to please you, but please be reasonable with requests, especially when you’re away from home base.
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MAGICAL THINKING: There are certain times of the year when the jet stream is howling, and not in the direction you need to go. Even when passengers inform the pilots they don’t have time to stop for fuel, pilots are not able to upload magic fuel inflight for that day. It’s tough for a pilot say “no” to the person who signs his or her paycheck. Over time, and under trying circumstances, egos – both pilots’ and passengers’ – sometimes can impair safety. Remember that you hired your pilots not only for their logbook hours, but for their judgement, and because you can trust them with your secrets. Always allow your pilots do their job, so you can continue to do yours. BAA From the front desk of an FBO to the captain’s seat of a commercial airliner, ERIK A ARMSTRONG , author of A Chick in the Cockpit, has experienced everything aviation has to offer. She is the owner of Colorado-based Leading Edge Aviation Consulting.
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PUSHING: When the CEO comes onboard and announces, “we absolutely have to be at our destination by a certain time,” absolution must be granted to your pilots who arrive late due to weather, mechanical issues, Air Traffic Control (ATC), air space congestion, or other factors outside of their control. Although pilots spend our lives learning the intricacies of aviation, a significant portion of each journey is in the hands of outside forces. Pilots’ primary duty is to provide a safe flight, and we can’t do that by cutting corners on safety.
■ WASHINGTON REPORT
A Really BIG Win An industry-wide team effort was crucial in passage of a much-needed FAA reauthorization bill dlcollogan@gmail.com
t is impossible to overstate the magnitude of the victory won by the business and general aviation community when Congress passed a five-year FAA reauthorization bill in early October. That huge legislative win is all the more remarkable because of how unlikely it seemed for so long. For years the chairman of the House Transportation & Infrastructure Committee, Rep. Bill Shuster (R-PA), and the scheduled airlines were pushing a scheme to bulldoze the diverse non-airline segment of the industry by ceding control of the air traffic control system to the airline lobby. In response to that threat, opponents mobilized a force of business aviation manufacturers, operators, union members, state and local government officials, and dozens of trade associations across the country to speak out opposing Shuster’s plan. That coalition persevered for years, generating thousands of letters, scores of rallies, and a never-ending series of interactions with House and Senate members. The persistence and single-minded focus of opponents finally forced Shuster to drop his ATC privatization plan in order to get a bill enacted before he retired from Congress. But you know what’s most amazing? Despite the nastiest, most rancorous, politically divisive climate in Washington in decades, 94 percent of all House and Senate members ultimately agreed to do the right thing! They voted overwhelmingly for H.R.302. President Trump (who repeatedly had paid lip service to Shuster’s ATC privatization efforts) signed the measure into law days later.
Passage of the Bill Is Historic
“This is the first time since 1982 that the U.S. government has enacted a five-year FAA reauthorization,” the Aerospace Industries Association and the General Aviation Manufacturers Association noted in a joint statement. After 35 years of short-term bills, uncertainty, extensions, stopsand-starts, government shutdowns, political bickering, and inertia, FAA and the aviation community finally have a comprehensive fiveyear plan to guide planning and decision-making. What a concept! “The new law provides direction, training and tools for the FAA to be able to aggressively implement critical reforms,” which “will help to drive important progress on safety, efficiency, investment, competitiveness and the effective use of taxpayer and industry resources,” AIA and GAMA said. In addition to keeping the nation’s air traffic control system and management within FAA, and subject to congressional oversight, H.R.302 contains a long list of objectives the industry was seeking. Aircraft and systems manufacturers are thrilled with provisions 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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streamlining FAA’s certification process. The bill also creates a Safety Oversight and Certification Advisory Committee to collaborate with the industry to improve certification and regulatory processes and establish clear FAA performance objectives and metrics. The bill provides stable funding for the Airport Improvement Program for five years, a huge help for airport managers dealing with multi-year planning and development cycles. It also reforms the federal Airport Contract Control Tower program and updates outdated cost-benefit criteria, opening the way for contract towers at more airports. Another safety multiplier creates a remote ATC tower program to deploy advanced technologies, including new weather sensors at airports where building and staffing a standard tower is not feasible. But perhaps the very best thing about H.R.302? It preserves equal access to the world’s safest air traffic control system and the national system of airports for all qualified aircraft operators. ATC privatization would have opened the gates to all sorts of mischief and gamesmanship, to the detriment of business and general aviation. Pushing H.R.302 across the finish line required huge expenditures of resources, time, commitment, and energy. The directors, top executives, staffers, and members of AIA, GAMA, the National Business Aviation Association, the Aircraft Owners and Pilots Association, the Experimental Aircraft Association, the National Air Transportation Association, the Aircraft Electronics Association, and their counterparts at other like-minded groups deserve immense credit. 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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BY DAVID COLLOGAN
ONE JOURNEY TOGETHER More than simply words, this is our philosophy. And it’s why, once again, aircraft operators have voted Gulfstream No. 1 in product support. We thank you, our customers, for your continued confidence in Gulfstream and for allowing us to be part of your journey. Gulfstream was voted No. 1 in BCA’s Readership Awards for Outstanding Product Support and Aircraft Superstar and earned the top ranking in Aviation International News' annual product support survey.
DEREK ZIMMERMAN | +1 912 395 0856 | derek.zimmerman@gulfstream.com