JULY / AUGUST 2020
Fraud Alert! Is Your Aviation Operation at Risk?
Shopping for Service?
Aircraft Maintenance Changing with the Times TRAVEL SAFETY DURING A PANDEMIC READY TO BUY AND FLY? FAA GETTING AHEAD OF ILLEGAL CHARTERS INSPECTION SELECTION HOLDING THE LINE A Business Aviation Media, Inc. Publication
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July / August 2020 • Volume 7 / I s sue 4
6
8
F E AT U R E S
Fraud Alert! 06 Is Your Aviation Operation at Risk?
by M IK E BRO DS K Y & A MY E DWAR DS
Shopping for Service? 08 Aircraft Maintenance Changing with the Times
14
14
Inspection Selection
by G EORG E K LE ROS
17
Holding the Line
by LISA OU E LLE T TE
17
Choosing the Right Pre-Purchase Team
Navigating a Hardening Aviation Insurance Market
by AN DY N IXON
10
Ready to Buy and Fly?
Teaming Strategies for a Successful Aircraft Acquisition
Publisher’s Message 05 Blending Safety with Service
by C HR IS YOUNG E R
by G IL WOLIN
12
FAA Getting Ahead of Illegal Charters
18
Washington Report
Education Campaign Aims to Reach Pilots of Every Certification
by PAUL D ’ALLUR A
D E PA R T M E N T S
Charter Operators Have Stepped Up Their Game to Protect You
by DAVI D COLLOG AN
18
Above and Beyond 2020:
Business Aviation Advisor’s Podcast Series Want to Learn More About Your Investment in Business Aviation? Tune in to Business Aviation Advisor’s informative podcast series, on the business of owning and flying business aircraft – from entry portals, to acquisition and operations, to management, insurance, finance, and more.
The Information You Need, From Experts You Can Trust
www.bizavadvisor.com/podcast
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Ju l y/A u g u s t 2 0 2 0 B U S I N E S S AV I AT I O N A DV I S O R 3
Cancer Patients
Fly Free Filling Empty Seats With Hope Corporate Angel Network arranges free travel on corporate aircraft for cancer patients traveling to and from treatment. Business jet travel makes it possible for patients, especially those in locations with minimal airline access, to travel to specialized medical centers.
Contact us today to learn more about patient travel services or to donate space on your aircraft.
It’s wonderful that organizations like the Corporate Angel Network are able to help connect those most in need of flights to those who are flying. -Henry Maier, President and CEO, FedEx Ground
corpangelnetwork.org | Westchester County Airport – White Plains, NY | (866) 328-1313
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 Mike Brodsky Deloitte Financial Advisory Services LLP mbrodsky@deloitte.com Paul D’Allura FAA SEIT safeaircharter@faa.gov Amy Edwards Deloitte Financial Advisory Services LLP aaedwards@deloitte.com George Kleros Jet Support Services, Inc. gkleros@jetsupport.com Andy Nixon MRO Insider andy@mroinsider.com Lisa Ouellette JCL Aviation Services l.ouellette@jclaviationservices.com Chris Younger, GKG Law cyounger@gkglaw.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. 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 2020 by Business Aviation Media, Inc. All rights reserved Printed in the USA
Blending Safety with Service With more than 40 years as an aviation professional, I figured I’d developed a fairly elevated safety consciousness. And I had – at the airport, anyway. Working at home exclusively these past few months has required transferring that nineto-five workday mentality to the home office. That was a reminder that safety in all walks of life is really a 24/7 proposition. My years as a part-time home repairman taught me hand and power tool safety. But using a blender to mix frozen bananas with various powders, semi-solids, and liquids to create a healthy concoction that passes for breakfast requires a different safety awareness. Here’s Rule One: when scraping wet powders from the blender walls with a spoon to ensure complete mixing –UNPLUG the blender first! No, I didn’t learn the hard way. I didn’t have to, as I was not-too-gently reminded that we have a friend who discovered that while flying aircraft are safe, flying kitchen utensils are not. Flying aboard business aircraft today remains quite safe, despite the pandemic, as operators modify their Safety Management Systems to help ensure your safety. Our trade associations have taken aggressive steps to keep your flight department, aircraft management company, and fractional or charter operator informed of new procedures. The result has been the creation of new travel safety protocols involving aircraft cleaning, social distancing, and use of N95 masks. For example, aircraft manufacturers and the NBAA have provided new aircraft cleaning and operating practices www.nbaa.org/aircraft-operations/safety/coronavirus. And the NATA has produced guidance for ground service providers to ensure that their facilities – passenger and crew lounges, offices and rest rooms – are clean and safe as well www.nata.aero/safety-1st/clean. The Signature Flight Support FBO network is taking further steps, initiating the SignatureAssure program across its 200 plus locations worldwide to provide a uniform standard for safety, health, and wellness throughout its system. That’s a good thing, because according to various industry reports, your flight activity is on track to return to previous levels. ARGUS International’s data show that while May 2020 business aviation flight activity was down 49% vs. a year ago, it was up 84.0% over April 2020. Fractionals alone were up 140.3%, individual flight department (Part 91) activity was up 85.0%, and commercial charter (Part 135) was up 70.4%. These new safety protocols do slightly change the way you access your aircraft – you may have to remember to take a few more preparatory steps before boarding. But that’s not much different from remembering to unplug the blender before removing the lid. The upside to this crisis is that we’re all far more conscious of everyone’s safety than ever before. The challenge will be to maintain that awareness and continue relevant protocols when the emergency ends. And don’t forget to unplug your toaster when not in use!
Gil Wolin — Publisher gwolin@bizavadvisor.com Ju l y/A u g u s t 2 0 2 0 B U S I N E S S AV I AT I O N A DV I S O R 5
■ AIRCRAFT FINANCE
Is Your Aviation Operation at Risk?
BY MIKE BRODSKY & AMY EDWARDS
Y
Deloitte Financial Advisory Services LLP mbrodsky@deloitte.com / aaedwards@deloitte.com
ou’ve invested anywhere from $3 million to $90 million in your business jet, to ensure your travel safety and security. Add to that the annual costs of your flight department or management company, both fixed as well as direct operating costs including fuel, maintenance and repairs, safety/inspections, and onboard expenses such as food, beverage, and labor, and you are spending hundreds of thousands additional dollars. In a $77 billion industry, the potential for fraud is high. According to the Association of Certified Fraud Examiners (ACFE) 2020 Report to the Nations www.acfe.com/report-to-the-nations/2020, the median fraud loss for organizations in the transportation industry was $150,000. Since fraud is a risk that can be reduced with close attention paid to those areas which are inherently more susceptible to theft, mitigating these risks is an important, yet sometimes overlooked, part of business aircraft ownership and operation. Black’s Law Dictionary defines fraud as “a knowing misrepresentation of the truth or concealment of material fact to induce another to act to his or her detriment.” According to the ACFE, three specific factors typically enable individuals to commit fraud: pressure/ motivation, opportunity, and rationalization. 6 B U S I N E S S AV I AT I O N A DV I S O R Ju l y/A u g u s t 2 0 2 0
Pressure/Motivation can arise from the financial pressure both individuals and companies feel when they confront financial challenges and distress. As the economy continues to weaken, the incentive and likelihood of fraud increases. The National Business Aviation Association (NBAA) and other industry groups wrote to congressional leaders asking that business aviation companies be included in an aviation/airline bailout as a result of the financial uncertainty for the industry. Current financial circumstances illustrate examples of the potential pressure that could push unscrupulous individuals to commit fraud. ■ Opportunity can arise as a result of lack of supervision or oversight or the overriding of controls and processes. Smaller vendors with few employees might lack the capacity for a proper segregation of duties, which also may present an opportunity to commit fraud. ■ Rationalization for an individual to commit fraud against an owner/operator of, or investor in, a business jet could be as simple as envy. Some employees consistently serving high-net-worth individuals could rationalize their fraudulent acts as justifiable if they perceive the impact to be small relative to the owners’ wealth. Some fraud risk factors include: ■ Outsourcing your day-to-day operations to a management company. Services sourced by management companies include maintenance, fuel sourcing, inflight labor, and safety inspections. Lack of transparency between you and your management company can increase the risk of fraud. ■
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Fraud Alert!
Vendor relationships and kickback schemes between your flight department or management company and their vendors. Bidding fraud often includes price fixing and noncompetitive bids for contracts. ■ Since the aviation industry is highly regulated, a variety of inspections are performed regularly and permits required. The risk of bribery for such items is inherently high for permitting, licensing, and inspection services – and can put your travel safety at risk, too. ■ When dealing with expensive, high-quality aircraft parts, there is a potential risk of asset misappropriation including theft of materials and goods by employees, and subsequent reselling on “gray markets” for a profit. What are the most common fraud schemes, their associated risks, and what are the potential controls your organization can implement to mitigate these risks? ■
Fraud Risk: Bribery/Corruption Scheme: Many state and local laws prohibit bribery of government officials with the majority of states prohibiting bribery between commercial entities. There is potential risk that certain unscrupulous agents or officials could be bribed by aircraft operators or their representatives in order to pass aircraft inspections or obtain licenses and permits. And vendors could provide kickbacks to flight department personnel or management companies to win contracts. What You Can Do: Ensure that you and/or your aircraft management company have controls in place, including anti-bribery and anti-corruption training and policies. These policies and procedures can help you determine that appropriate behaviors and/or activities are followed when interacting with a third party. If you fly internationally, be conscious of global bribery and corruption laws like the US’s Foreign Corrupt Practices Act (FCPA).
Fraud Risk: Vendor Fraud Scheme: Types of fraud involving third-party vendors include fictitious or duplicate invoice payments and check tampering. Fictitious vendors also could be created to misappropriate your money. What You Can Do: Implement mitigation techniques. These include accounts payable/billing controls such as a three-way match among an invoice, purchase order, and receiving report. Conduct regular vendor audits and background checks of vendors and employees.
Fraud Risk: Bidding Fraud/“Bid Rigging” Scheme: While bid rigging may take many different forms, typically it involves an agreement among bidders that predetermines the winning bidder and limits competition among vendors. When contracts are up for bidding, competitors might agree in advance who will submit the winning bid, thus colluding to fix the price – an illegal act that undermines the bidding process. What You Can Do: You can and should obtain numerous independent quotes for contracts, have price lists of previous contracts, and add audit clauses in contracts. By understanding current market rates with the industry for certain contracts, you can feel more confident that you are getting a fair price. w w w. B i z AvA d v i s o r. c o m
Fraud Risk: Asset Misappropriation Scheme: There is a risk of theft of spare and ancillary parts for your aircraft, as well as food and beverage and other sundries purchased for you and your passengers. Additionally, employees could order larger quantities than actually required and resell these for their own profit. What You Can Do: Use direct supervision of employees, conduct employee and vendor background checks, perform periodic counts of higher-value spare and ancillary parts, and maintain detailed repair records to track the use of spare and ancillary parts. According to the latest statistics from ARGUS International, May 2020 flight activity among individual flight departments and charter operators increased 84% from April 2020. The industry has more than adequate capacity to accommodate growth, and flight activity is expected to continue to recover and grow over the near term, according to aviation market intelligence provider JETNET. As a result of the recent events with COVID-19, you may be less likely to be price sensitive and more focused on safety and security while flying. Given this potential loss due to fraud and the potential growth of the bizav industry, it’s even more important now for you to focus on reducing your risk for fraud. While it’s impossible to eliminate all potential risk, it is possible to mitigate wrongdoing with appropriate controls. By identifying the higher risks of potential fraud in business jet ownership, you can develop relevant internal controls to monitor, detect, and deter fraud, resulting in lower losses, increased profits, and protection of reputational risks. BAA
The authors would like to thank Deloitte Risk & Financial Advisory consultant Lauren Dinges, Deloitte Financial Advisory Services LLP, for her contributions to this piece. MIKE BRODSK Y is a Deloitte Risk & Financial Advisory
managing director in the forensic practice, Deloitte Financial Advisory Services LLP.
AMY EDWARDS is a Deloitte Risk & Financial Advisory senior
manager in the forensic practice, Deloitte Financial Advisory Services LLP.
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■ AIRCRAFT MAINTENANCE
Shopping for Service? Aircraft Maintenance Changing with the Times BY ANDY NIXON ust as the retail, travel, and taxi industries have evolved in response to consumers’ realization that there might be a better way to shop, stay, and travel, so too is business aviation changing. New technology now enables you to fly further and faster than ever before, so you can create more revenue and value for your business. You and your flight operations team today are more knowledgeable and better equipped to shop and compare maintenance costs than ever before, with data and information available with the click of a button. Your aircraft requires regular maintenance, performed at intervals dictated either by the manufacturer or the FAA, to ensure it’s safe and reliable. Some of these scheduled maintenance events are calendar-driven, required monthly or annually; others are dictated by the number of hours flown since the previous event. While some are just inspections, others require parts replacement or refurbishing, or a system overhaul performed at a shop authorized by the FAA to work on your particular make/model aircraft. Because there are a variety of both manufacturer-operated and independent maintenance shops so authorized from which to choose, finding the right shop offering the right price can be a timeconsuming, even excruciating, task. Shopping for and overseeing scheduled maintenance can be a frustrating and unnecessarily expensive part of aircraft ownership, even for veteran Directors of Maintenance. Unfortunately, there is no standard pricing template; each organization or shop creates its own model. A maintenance facility with high overhead may try to cover it with small-print fees, to bring its “Page 1” quote in line with its competitors’ – possibly creating “sticker shock” when you get the bill. That leaves it to your technician to determine in advance: ■ Is the downtime quoted in working days or calendar days? ■ Does pricing include interior removal and installation? ■ Does the facility add charges for defueling and refueling the aircraft? ■ Does the labor rate change for inspection vs. repairing “squawks” (minor malfunctions)? These questions, and any others you may have, should be answered in a straightforward manner, with all potential variables and options priced clearly. Full transparency and consistency during the bidding process is the goal. So how can your technician or management company be sure to receive a fair, competitive quote for the required scope of work? Quite simply, there now are online tools available that require the 8 B U S I N E S S AV I AT I O N A DV I S O R Ju l y/A u g u s t 2 0 2 0
detailed information needed to ensure bid transparency, giving you and your technician peace of mind as you compare and weigh different options. As the customer, you have the right to request such pricing transparency – with all parts, labor, consumables, and test run costs detailed in the bid. Although some operators may choose a more expensive facility based on perceived value, it’s imperative that your technician or management company be able to examine the hard data, and quickly tally the premium that will be paid for using that facility versus its competitors. Parts brokers and maintenance brokers are likely to begin to disappear as the industry moves to a more direct-to-consumer business model. Experts and online tools now are readily available to assist you with shopping your inspection and repair requirements, for a fixed, established-in-advance charge, while leaving the final provider selection to you and your technician. New aircraft are being designed for improved performance and lower operating economics. Business aviation maintenance will become more transparent and competitive, as routine and unscheduled events are simplified. That will drive down labor revenue for facilities that choose to adapt. While nobody can direct you where to go for maintenance, do simplify the process by making use of the available resources and tools that enable you to select from the wide variety of facilities able to perform your required maintenance safely and efficiently – and at the right price. BAA ANDY NIXON is Co-founder and VP of Sales of MRO Insider,
which allows operators to source multiple quotes for maintenance and AOG. With a degree in Aviation Management, he is a fourth generation aviation professional.
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MRO Insider / andy@mroinsider.com
TRUSTED GUIDANCE THROUGH LEGAL TURBULENCE Whether dealing with the unprecedented circumstances of COVID-19 or the everyday issues of business aviation, we have the knowledge and experience to guide you. Clients turn to our sophisticated and accomplished counsel for such matters as: • Legal protection and insurance coverage for potential disease contamination • Contracts and force majeure • Work-outs and credit facilities • Aircraft interchange and timesharing agreements • Aircraft management agreements • Aviation-related federal and state tax advice • FAA approvals and exemptions • Employment and workplace safety
K&L Gates LLP. Global counsel across five continents. For more information about our services and a comprehensive resource center on the legal issues associated with the impacts of COVID-19, visit klgateshub.com.
Contact: Robert E. Wolin, 214.939.4909, Robert.Wolin@klgates.com
■ AIRCRAFT SALES AND ACQUISITION
Ready to Buy and Fly? Teaming Strategies for a Successful Aircraft Acquisition BY CHRIS YOUNGER
re you considering purchasing an aircraft? Perhaps you outgrew using charter or your fractional hours. Or you have health and security concerns and want the certainty of flying on board your own aircraft. Whatever your reason, you’ll first want to consider several key factors as you make your decision (See “Six Essential Questions for Aircraft Acquisition Success,” BAA July, 2014). Begin the acquisition process by retaining two key industry professionals to assist you. Assembling the best team, or failing to do so, can make or break a deal. A business aircraft acquisition expert will work with you to clearly define your mission profile and the best aircraft makes and models to meet your needs. He or she also will identify and source available aircraft, and perform an initial evaluation of the aircrafts’ pedigree, including a visual inspection and preliminary review of documents, to determine which of the available aircraft merit your further consideration. A business aviation attorney will enable you to move quickly once you’ve identified an aircraft to purchase. He or she will work closely with you and your aircraft acquisition expert to draft and negotiate purchase documents, such as a letter of intent and/or aircraft purchase agreement, that clearly describe the purchase terms and conditions. These terms include: ■ purchase price ■ deposit amount and refundability ■ rights to oversee a new aircraft completion or conduct a used aircraft prepurchase inspection ■ aircraft delivery condition requirements ■ the scope of the seller’s obligation to repair any discrepancies from the required aircraft delivery condition, and ■ the purchaser’s right to terminate the purchase agreement if the aircraft cannot meet the delivery condition requirements or if the seller defaults on its obligations. A business aviation attorney with tax expertise will fill a dual role on the aircraft acquisition team by advising you on the optimal aircraft ownership and operating structure to minimize liability for sales or use tax and personal property tax, maximize income tax deductions originating from ownership and operation of the aircraft (for example, an engine overhaul which can be expensed 100% in the year in which it is performed, rather than depreciated over time), and ensure that the aircraft ownership and operating structure also complies with FAA and other regulatory requirements applicable to business aircraft ownership and operations. 10 B U S I N E S S AV I AT I O N A DV I S O R Ju l y/A u g u s t 2 0 2 0
Once the purchase contract is signed, the acquisition expert will work closely with you to oversee the acquisition process. He or she will provide hands-on oversight of the aircraft assembly or prepurchase inspection process (employing a knowledgeable and qualified technician, if necessary) to be certain that they are completed in accordance with the requirements of the purchase contract, prepurchase inspection work scope, FAA regulations, and industry best practices. In addition, your team should provide guidance regarding whether you will be setting up your own flight department, or hiring an aircraft management company. If you choose to use a management company (particularly if the manager also will operate the aircraft in charter), it is very helpful to have the manager and/or the assigned maintenance technician involved during the aircraft completion/inspection process. This will help ensure that anything the manager requires for operation of the aircraft can be addressed prior to purchase, if possible. Your acquisition team also will include a banker, if you plan to finance the aircraft, lease the aircraft from a commercial lessor, or borrow against the aircraft’s value at or after closing. If the aircraft will be imported from another country’s registry, you also will need to retain a customs broker and Designated Airworthiness Representative. Ensuring a positive aircraft acquisition is a multi-faceted process. Hiring a team of experienced and well qualified aviation professionals will lay the surest foundation for success. BAA CHRIS YOUNGER , GKG Law Principal, assists clients with all
aspects of business aircraft ownership and operations, including issues related to federal and state taxation and regulation. He holds both a JD and LLM in Taxation.
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GKG Law / cyounger@gkglaw.com
Business Aviation’s Most Advanced Aircraft Valuation Tool Simply enter an aircraft’s serial number online: ■ Obtain Current Market Value and Residual Value figures. ■ Compare an aircraft with all units listed for sale. ■ Predict future maintenance events and expense. ■ Value the impact of any Hourly Cost Maintenance Program enrollment. ■ Forecast anticipated marketability – and much more. ■ All information is updated daily. The same methods, techniques, and processes an aircraft appraiser would use. eValues is the only valuation tool that runs on a true Artificial Intelligence platform.
To learn more call us at (540) 905-4555 or visit our website: www.assetinsight.com Atlanta • Chicago • Las Vegas • Orlando • Portsmouth • Washington
■ ALTERNATIVE LIFT
FAA Getting Ahead of Illegal Charters Education Campaign Aims to Reach Pilots of Every Certification BY PAUL D’ALLURA id your pilots recently receive a letter from the Federal Aviation Administration (FAA)? In May, the FAA sent an informational letter to more than 471,000 certificated pilots as a reminder that private pilots may not fly for compensation or hire, i.e. Part 135, unless they hold a commercial or airline transport pilot license. This letter and other charter company investigations seek to alert aviators of an industry trend: the use of mobile applications to facilitate air charter transportation, also known as “commuter” and “on-demand” operations. The prevalence of these apps correlates with an increase in illegal or unauthorized Part 135 operations. These operations dilute the safety of our national airspace system and undercut the business of legitimate operators. “Simplicity” isn’t always synonymous with “safety.” The FAA is working closely with the National Air Transportation Association (NATA), to foster the legitimate use of these mobile apps, and to educate and engage with pilots who may not be aware of the FAA regulations and federal laws surrounding “fly-for-hire” operations. “Flying in the national airspace mandates unique safety and operational control requirements relating to aircraft maintenance, crew currency, training, and flight dispatch,” said Ryan Waguespack, NATA senior vice president. “Educating the aircraft owners and fractional owners, who may not know the required FAA certifications when leasing an aircraft, is critical to maintaining safety and the integrity of the current regulations.” As a Part 91 aircraft owner, you may lease your aircraft out for operation under a Part 135 certificate for additional income. However, in doing so, you relinquish operational control to the Part 135 certificate holder, ceding “control and authority over the initiation, continuation, conduct, and termination of the Part 135 flights.” The FAA and NATA have formed an intra-agency Safe Air Charter team to increase awareness of the safety and legal issues associated with illegal charters. The team is comprised of experts from the FAA Special Emphasis Investigations Team (SEIT), Flight Standards District Offices (FSDO), the Office of Airports, and the Office of Communications. In March, the Safe Air Charter team briefed more than 1,200 FAA aviation safety inspectors and provided them with enforcement tools and information. They created a public website, developed training and materials, kicked off a social media campaign, 12 B U S I N E S S AV I AT I O N A DV I S O R Ju l y/A u g u s t 2 0 2 0
and are working to create a specialized course of instruction at the FAA Academy. An important part of this education effort is aimed at those who might unwittingly lease an aircraft from uncertificated operators, putting themselves at possible risk, as well as those who make their aircraft available for charter. “People take for granted that the individual who greets them at the airport in a pilot’s uniform with epaulets is type-certificated for the aircraft, has had plenty of sleep, has been drug tested, and is flying a safe and well-maintained aircraft,” said South Carolina FSDO manager Randy DeBerry, who recognized the illegal charter issue and started outreach activities in 2017. Unfortunately, and sometimes tragically, this is not always so. “Some illegal charters begin innocently enough when an airplane owner allows a friend or business partner to use his or her airplane and accept compensation for supplying the pilot, time, and fuel,” said DeBerry. “We’re trying to get to the folks who don’t even understand that the plane they’re getting in might not be operated legally under FAA safety rules.” Whether you want to confirm that your aircraft is on certificate and therefore legal to charter, or confirm that the aircraft you intend to charter is fully certificated, visit the FAA Safe Air Charter website. Charter is a useful air transportation tool, designed to support your occasional need for a backup aircraft, or to help defray the cost of your own operating expenses. Don’t increase your safety and economic risks by using or tolerating illegal charter. BAA PAUL D’ALLUR A , is Assistant Manager for FAA SEIT. He
worked as an FAA principal operations inspector after a 16-year career as a charter pilot, and owning and operating a Part 135 worldwide charter company.
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FAA SEIT / safeaircharter@faa.gov
■ AIRCRAFT MAINTENANCE
Inspection Selection Choosing the Right Pre-Purchase Team BY GEORGE KLEROS
T
Jet Support Services, Inc. / gkleros@jetsupport.com
he current preowned business aircraft market is awash with anxious buyers seeking a deal, anticipating distress sales similar to the 2008-2009 economic downturn. The few that have closed in “as-is, where-is” condition might appear to be great bargains, but when unknown corrosion is found, necessary repairs and other heavy maintenance events can almost exceed the aircraft’s total value. So much for the bargain!
Avoiding Unhappy Post-Purchase Surprises
Your Technical Representative
You should have a qualified professional technical representative under contract to be present during the entire pre-buy inspection. If you’re upgrading or replacing a current aircraft, this can be your own mechanic. If buying your first aircraft, your broker should be able to recommend a qualified technician. This person should be contracted with and paid directly by you. Establish your expectations and communications process before you begin. The technician’s job is to confirm that the aircraft’s condition is as stated in your purchase agreement, and so should have a well-seasoned maintenance background as well as experience on the exact model you have under contract. Your technical representative is responsible for drafting a prepurchase inspection checklist of critical items. Although most Original Equipment Manufacturers (OEMs) do not provide a standard list, some maintenance facilities do. Your broker and tech rep will negotiate a reasonable checklist of inspection points 14 B U S I N E S S AV I AT I O N A DV I S O R Ju l y/A u g u s t 2 0 2 0
satisfactory to both you and the seller. The goal is to ensure that certain critical areas are inspected, to avoid any incurable or expensive post-purchase problems.
How Deep Should You Dig?
While it is not necessary, or usual, to disassemble the entire aircraft, detailed records research on the engines, auxiliary power unit, and airframe is required to understand the aircraft’s history. A capable, experienced tech rep will know what to look for and what to ask, often uncovering hidden problems. For example, a structure part change might trigger the question as to why this part was changed.
Covering All Bases
Some underlying problems may not be discovered during the inspection. Flight testing at altitude may reveal problems with avionics, autopilot systems, pressurization, cabin temperature, cabin noise, or flight performance characteristics. Your pilot (or qualified contractor) should test fly the aircraft with the seller’s pilot prior to the inspection, and then again afterwards during the acceptance flight, to verify that all systems work correctly and that any “squawks” uncovered by your tech rep have been repaired. Climbing to normal cruise altitude will enable your pilot to complete appropriate operational checks, and identify most operational issues not evident on the ground. The pilot and your tech rep then will debrief with you and the broker. Any items uncovered during the inspection and/or flight test may require further investigation and correction, helping you to decide when – or if – it is right to move on to aircraft closing.. BAA GEORGE KLEROS , ASA, is Senior Vice President, Strategic Event
Management & Fleet Support,Jet Support Services, Inc. He has 35 years of experience in Aviation Maintenance, Management, and Field Support Services for business jet aircraft.
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GULFSTRE A M A ERO SPACE
Whether you’re upgrading or entering the market as a first time buyer, you’ll want your aircraft to have a thorough pre-purchase inspection at a maintenance facility qualified to serve the specific make/model aircraft you’ve selected (See “Inside View,” BAA July/August 2017). Different levels of pre-purchase inspection are dependent on your penchant for risk avoidance. The maintenance history and condition of the aircraft ultimately will determine your ownership experience – will the aircraft be ready to fly the day you take delivery? Typically, the process involves a records review and a physical inspection in key areas looking for corrosion and major structure damage caused by age or accidents. If you request a detailed inspection, expect some pushback from the seller. However, an aircraft that is well maintained, operated regularly, and stored properly should not present any huge, surprising issues.
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ARGUS Rated Charter Operators are the most trusted and respected in the world. ARGUS Rated Operators are the only choice for the most selective buyers of charter. ARGUS Ratings are private aviation’s only truly independent, third-party source for trusted operator due diligence. Demand the best, demand ARGUS Rated Charter Operators.
FLY CONFIDENTLY WWW.ARGUS.AERO
AIRCRAFT FINANCE ■
Holding the Line Navigating a Hardening Aviation Insurance Market BY LISA OUELLETTE JCL Aviation Services / l.ouellette@jclaviationservices.com
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ith the disruption of operations and aircraft movements down due to COVID-19, many hoped that the aviation insurance market would soften, and rate increases not be as high as originally predicted. Unfortunately, this does not appear to be the case. The market is expected to continue to harden over the next five years. Insureds are facing many challenges as their aviation insurance programs come up for renewal. These include: ■ Rising/inconsistent ratings ■ Tightening of pilot warranties ■ Reduced limits & coverage terms ■ Shrinking capacity ■ Limited market options To help mitigate some of these issues, it is crucial to work with an experienced aviation specialist. Starting the renewal process early, preparing a detailed submission, and approaching the right markets for your type of operation will help. It’s also important to be straightforward with your broker and your underwriter. Aviation insurance is a small industry and you don’t want to burn bridges by providing inaccurate or incomplete information. Demonstrating that initial, recurrent, and company-specific training is being conducted in accordance with insurance industry standards also is critical. It will put your program at the top of an underwriter’s list of targeted accounts and help assure the best results. For operators of turbine-powered aircraft this usually means annual simulator-based ground and flight training for each make and model aircraft. For piston-powered aircraft, your pilot might need to complete an annual instrument proficiency check. Being legal to operate an aircraft is not the same as being proficient, and meeting the requirement of the insurance carriers that pilots are up-to-date on their training helps provide proof of proficiency. If your company is experiencing losses, you may decide to work with a loss control professional. That, plus completing additional training, or working on a plan to improve safety, will demonstrate that you are taking the right steps. This will help you attract more prospective carriers, thus giving you more options. Single-pilot operations of turbine-powered aircraft have been particularly hard hit. Liability limits are being reduced from $50M to as low as $5M, and it may be hard even to find a market. Another area of concern is that insured operators could still pay as much for the lower coverage limit as they did for the higher limit. Commercial helicopter operators and managed fleet programs are also being hard hit. Programs that once were insured on a 100% w w w. B i z AvA d v i s o r. c o m
basis by one carrier may now require multiple carriers, each underwriting a part of the total coverage (“vertical placement”), to cover 100% of the risk. Vertical placements require more expertise to assemble, and usually have a higher cost than single carrier placements. Carriers are hiring actuaries to review the numbers on individual accounts, looking at the current rating and forecasting where the rates need to be to bring each program to a profitable level. This is one reason why it is hard to determine the type of rate increase that you may receive at renewal. If you had no losses, no changes in exposure, and your rating is considered above average, you may receive a 20% increase. Those with losses, a significant change in exposure, and/or lower rating, may see an increase of 25% or more. This unpredictability is another reason to work with an experienced agent who is staying apprised of current market conditions and can develop a strategy to minimize the impact on your program. The significant premium jumps are extremely frustrating for both agents and insureds. It seems like carriers are trying to make up for years of declining rates in one or two years. However, it is important to note that in most cases, even with significant increases in premiums, you still are paying less for insurance today than you did ten years ago. BAA LISA OUELLET TE , CPCU, CAIP, is President of JCL Aviation Services, an independent aviation insurance agency. A pilot with 25 years of aviation industry experience, she is a member of AOPA, WAI, CPCU Society, and AIA.
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■ WASHINGTON REPORT
Travel Safety During a Pandemic Charter Operators Have Stepped Up Their Game to Protect You BY DAVID COLLOGAN atching federal officials and the scheduled airlines trying to come up with a standardized approach for protecting passengers from exposure to the COVID-19 virus is akin to viewing a Marx Brothers movie – confusion and pandemonium are the principal plot elements. Medical experts around the world and the CDC have repeatedly stated that wearing masks covering the nose and mouth is the first line of defense to prevent transmission and help avoid exposure. Masks protect the wearer, and also the people they come in contact with. You’d think it would be a simple thing for the Department of Transportation to require passengers and cabin crewmembers to wear protective masks. DOT Secretary Elaine Chao has spent a lengthy career in the Executive Branch, while attempting to avoid leaving footprints in the carpeting. So, true to form, she shied away from issuing a requirement that masks be worn on airliners. (Chao’s boss, President Trump, is consistently defiant about not wearing a mask himself.) So Chao passed the buck and let individual airlines decide who will be required to wear masks. By late June most carriers were requiring masks for everyone in the cabin, although a few passengers objected to mandatory face coverings. But as summer arrived, the airlines were all over the place on the issue of blocking middle seats and limiting passenger load factors to afford some distancing between travelers. A couple of carriers are blocking all middle seats and limiting passenger load factors to 65 percent. Other airlines are blocking “some” middle seats. Another was filling every seat on the airplane if possible, but allowing ticketed passengers to switch to another flight if the load factor exceeds 70 percent. Wow, isn’t that dandy? Welcome to the nervous and unpredictable skies. Business aviation flight levels are still down from a year ago, but flight activity picked up in May and June. Some charter and fractional aircraft providers are reporting significant increases in the number of requests for flight quotes from people new to the charter market. Whether that trend will continue remains to be seen, but it does suggest more people are seeking alternatives to crowded airline flights. Many charter operators feature COVID-19 updates on the first page of their web sites, and provide considerable detail on what they are doing to sanitize aircraft between flights. 18 B U S I N E S S AV I AT I O N A DV I S O R Ju l y/A u g u s t 2 0 2 0
COVID-19 procedure lists typically include: rigorous cabin disinfection protocols before and after each flight leg; hand sanitizer and wipes aboard the aircraft; requiring flight crew and cabin personnel to wear masks when customer-facing; strict travel policies for employees and crew including avoidance of airline travel; pilots required to take temperatures before each work day and self-monitor/stay home if they do not feel well; asking customers to fill out a questionnaire on recent travel, etc. Many operators also are allowing only essential personnel and passengers in their terminals, emphasizing social distancing and eliminating food service both on the ground and in the air. The National Air Transportation Association rolled out its “Safety 1st Clean” infectious disease response cleaning standard for fixed-base operators (FBOs) in mid-June. The association, which represents both charter operators and FBOs, said the new standard was produced by its Safety Committee and Coronavirus Task Force “to provide general guidance on facility cleaning, disinfecting and facility operation in response to a pandemic.” After months of travel restrictions and being cooped up at home, people are anxious to begin flying again for both business and personal reasons. But minimizing potential exposure to the virus should remain at the top of your list – the number of new daily cases was rising in AZ, CA, FL and TX in late June. Ask questions, do your research, and make sure operators deliver on their promises. 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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