Business Aviation Advisor January/February 2015 by Business Aviation Advisor Magazine

JANUARY / FEBRUARY 2015

The Seven Cs of Charter What You Need to Know About Aircraft Charter – Before You Fly

Demystifying Business Aircraft Costs: An Owner’s Primer

HIRE STANDARDS NEXTGEN – WHY? UPGRADING YOUR IFE OR CMS DCA’S PROXIMITY ENTICING

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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• Volume 2 / I s sue 1

F E AT U R E S

Hire Standards

by S H E RYL BAR D E N

It’s more than skills and experience

The Seven Cs of Charter

by K ATHLE E N H . BR E C K E N R I D G E

Opt to Operate Without Owning

Upgrading Your IFE or CMS

Escalating prices, less available credit make operating leases attractive

by S IMON DAVIE S

What you need to know about aircraft charter — before you fly

Three Keys to Success

by TONY BAILE Y

Demystifying Aircraft Costs: An Owner’s Primer

by N E L S TUBB S

NextGen – Why?

What is NexGen, and what impact will it have on your flying?

by N AN CY R IS SO

D E PA R T M E N T S

Publisher’s Message

by G IL WOLIN

Washington Report

by DAVI D C OLLOG AN

Droning On

DCA’s proximity enticing

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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BE ABOVE IT ALL SELECT AIRCRAFT MANAGEMENT PROGRAMS TAILORED TO YOUR NEEDS. CALL +1 877 392 6442 JETAVIATION.COM/BEABOVEITALL Charter flights in the USA are operated by Jet Aviation Flight Services, Inc. or other FAR Part 135 certified air carriers.

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 EDITORIAL ASSISTANT Michael B. Murphy mmurphy@bizavadvisor.com WASHINGTON EDITOR David Collogan dlcollogan@gmail.com CONTRIBUTORS Tony Bailey Spirit Aeronautics tbailey@spiritaeronautics.com Sheryl Barden Aviation Personnel International sabarden@apiaviation.com Kathleen H. Breckenridge Cooling & Herbers, P.C. kbreckenridge@coolinglaw.com Simon Davies Global Jet Capital sdavies@globaljetcapital.com Nancy Risso Risso NextGen Aviation Solutions rissoaviation@gmail.com Nel Stubbs Conklin & de Decker nel@conklindd.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 2015 by Business Aviation Media, Inc. All rights reserved Printed in the USA

Droning On Some 40 years ago, I was told that flight crews in the future will be comprised of a pilot and a dog. The pilot will be there to feed the dog, and the dog there to bite the pilot in case he or she tries to touch anything. It was funny then; now, it appears prescient. Drones, or Unmanned Aerial Vehicles (UAVs) — also known as Remote Piloted Vehicles (RPAs) by the International Civil Aviation Organization (ICAO) — have been in military use for those 40 years, for reconnaissance as well as for combat. But UAVs for commercial use — that’s something new, and a hotly debated issue. Current U.S. regulations restrict remote-control commercial UAVs’ size to 55 pounds, and flight operations to below 400 feet, quite sufficient for aerial filming or to monitor remote farmland or facilities. The concern is one of training and regulation: will commercial UAVs stay below 400 feet? What is the potential to interfere with low-flying manned aircraft, perhaps carrying passengers? And what is their future? In September, the FAA approved the use of UAVs for commercial purposes as per an exemption provided by the 2012 FAA Modernization and Reform Act, Section 333. More than 50 companies already have applied for these exemptions, for aerial mapping, facilities monitoring, and movie production. As of this writing, 13 have been approved for limited operations for crop surveying and movie production, thanks to some heavy lobbying by Hollywood. FedEx, Amazon, and UPS have added their voices to that lobby, looking to use UAVs for small package delivery. That lobbying is about increase, by a very different group: the U.S. Congress. The Association for Unmanned Vehicle Systems International (AUVSI) forecasts that drone use will create 100,000 jobs and $82 billion in economic impact in the first 10 years after approval. Those are numbers no self-respecting legislator seeking reelection can ignore. How large a leap is it from photo missions and package delivery to UAV passenger transportation? Nicholas Carr’s 2014 book The Glass Cage examines the accelerating expansion of automation into modern life. The chapter “On Autopilot” traces the impact of the resulting changes on today’s pilots’ “stick-and-rudder” skills. As automation assumes more control of routine flight activities, the pilot’s challenge becomes one of maintaining those critical skills. That makes twice-yearly recurrent training sessions in Level-D full-flight simulators mandatory to insure optimal operational safety. While pilotless passenger aircraft may still be years away, aviation automation remains on a fast track. As Nancy Risso writes in this issue (“NextGen — Why?” p. 10), jet owners are required to install Automatic Dependent Surveillance — Broadcast Business (ADS-B) equipment by 2020. And by then, a very different group of lads and lassies may be staffing our aircraft. Glad to have you aboard!

Gil Wolin — Publisher gwolin@bizavadvisor.com Ja n u a r y/ Fe b r u a r y 2 015 B U S I N E S S AV I AT I O N A DV I S O R 5

■ AIRCRAFT CHARTER

BY KATHLEEN H. BRECKENRIDGE Cooling & Herbers, P.C. / kbreckenridge@coolinglaw.com

Whether you are a first-time or experienced charter customer, or an aircraft owner looking for alternative or supplemental lift, you are familiar with the advantages of business jet travel. However, before you sign on the dotted line for your next charter trip, there are some key issues that you and your aviation manager should consider when negotiating with a charter company. Charter Operators & Brokers Aircraft charter operating companies range from large (75 or more aircraft) to very small (one or two aircraft), and their fleet composition can range from ultra-long-range large aircraft to small propeller aircraft. While you can book directly with any charter operator, many smaller charter operators work through the various charter brokers. These brokers function much like travel agents, shopping your trip among a variety of charter operators before presenting it to you for acceptance and confirmation. Larger charter operators also work through brokers, but often prefer to provide full service directly, from the initial contact with the charter customer throughout the flight. 6 B U S I N E S S AV I AT I O N A DV I S O R Ja n u a r y/ Fe b r u a r y 2 015

Contracts A charter contract may be for one flight, a series of flights, and/or for multiple flights on a single aircraft, or for multiple flights on multiple aircraft. Single flight charter agreements typically are negotiated with a charter broker, not with the actual charter operator. You will be presented with a quote from the charter broker containing some terms of payment and a “General Terms and Conditions” document from the charter certificate holder, similar to that which an airline posts on its website. This tends to be a “take it or leave it” offer. In a Block Charter Agreement, you purchase a set number of hours per year in a certain type of aircraft, usually directly from the charter operator. Because this may represent a significant amount of business, especially for a small operator, you may have substantially more leverage to negotiate the terms of an agreement than you would with just a single trip. A more recent type of charter program (similar to block charter) is the “Jet Card Program,” in which you deposit a set amount of money, from which the charter operator or broker draws down w w w. B i z AvA d v i s o r. c o m

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The Seven Cs of Charter

What You Need to Know About Aircraft Charter – Before You Fly

over a set term. These programs usually are offered by the larger charter companies and allow you to charter any of its fleet aircraft with variable rates depending on aircraft size. However, broker programs draw upon a range of charter operators, often required to meet an industry-recognized safety rating from an established auditor such as ARGUS or Wyvern (see below). Some card programs have a set term, while others allow drawdowns to continue until the balance reaches zero. With the latter, you can continue to fly at your negotiated rates for the remainder of the term by replenishing the balance. Jet card companies usually are not as willing to negotiate business terms, but often will agree to adjust insurance or default provisions via a separate amendment. Operators who offer jet cards often subcontract to other charter operators for additional lift during their busiest times. Charter Safety Screening All charter operators must be licensed by the FAA, which requires that they hold a Part 135 Air Carrier Certificate. In addition, there are several organizations that audit Part 135 air carriers and rate their safety practices and records. Wyvern and ARGUS are two such companies. Both companies’ websites allow you to check the safety rating of any particular operator in their program. It is important that you request the name of your trip’s actual operator, even when you have a contract directly with a charter operator. This will ensure that the particular charter company that is operating your trip complies with your safety standards, and that if it has subcontracted the flight to another operator, that operator also meets your safety standards. If you have engaged a charter broker, be certain to obtain the name of the operator. You also can request that charter companies or brokers engage only Wyvern-registered or ARGUS-rated (a Gold Plus or Platinum ARGUS rating indicates the operator has earned the International Standard for Business Aircraft Operations certification) charter operators for your flights. Certificate of Insurance To make adequate provisions for insurance, you should request that the charter company name you, the customer, as an additional insured with respect to liability coverage — not only for you, but also for any officers, directors, shareholders, members, and/or managers, even if you own an aircraft and your own policy covers flights aboard non-owned aircraft. Although you are not operating the aircraft, you still have a liability risk in case of an accident, since everyone involved usually is named in a lawsuit. The additional insured status also should include a waiver of subrogation by the insurance company in your favor, with respect to the aircraft’s physical damage coverage. You should request a clause stating that the insurance provided by the charter company is primary to any other insurance available to you, and that written notice of deletion, cancellation, or material changes in coverage for the charter company’s insurance policy be provided to you in advance. Request that the charter company provide you with a Certificate of Insurance from the insurer verifying these coverages before the flight. Be certain there is adequate insurance coverage w w w. B i z AvA d v i s o r. c o m

ALL CHARTER OPERATORS MUST BE LICENSED BY THE FAA, WHICH REQUIRES THAT THEY HOLD A PART 135 AIR CARRIER CERTIFICATE. for the size of the aircraft and the type of mission. Small aircraft insurance coverages vary from $50-$100 million and large aircraft could be $300 million or more. International flights may require certain minimum coverages or special types of policies; check with your risk manager as to what is required, and then verify that the operator has appropriate coverage. Should your request for additional insured status be denied, or if the charter operator is hiring third party operators to complete your flight, you have the option of purchasing your own NonOwned Aircraft Liability policy, if you do not already have such coverage. This will provide coverage for all the aircraft you charter or lease. Company Default Provisions As a charter customer, especially if you are making a large deposit in advance for charter hours, be sure any agreement contains provisions describing default of the charter company, including bankruptcy, lateness, or cancellations not caused by force majeure (an extraordinary event or circumstance beyond the control of the parties, such as a strike, war, riot, crime, or severely disruptive weather), and also surrender, suspension, or revocation of the company’s FAA Air Charter Certificate. The charter company or broker should be required to return any unused deposit funds in the case of a charter company default. Confidentiality Charter companies and brokers usually will accommodate customer requests for confidentiality provisions, including requiring its personnel to sign individual Confidentiality Agreements. However, if you require the crew to sign, be aware that this may happen at the last minute, even as you are boarding the flight, as final crew assignments may not be made until the day of your flight. Counsel Finally, if charter is part of your business plan, do have both experienced aviation counsel and your risk management department or insurance broker review the charter agreements before you fly. This will ensure that you, your executives, and your company, as well as your family and friends, are all properly protected when flying aboard any chartered aircraft. Remember: while insuring personal safety is always first, business safety should never be far behind. BAA K ATHLEEN H . BRECKENRIDGE of Cooling & Herbers,

P.C., in Kansas City, MO, is a second-generation aviation attorney. She holds an L.L.M. in Taxation, and serves as Board VP of the National Airline History Museum.

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■ IN-FLIGHT COMMUNICATIONS

Upgrading Your IFE or CMS Three Keys to Success BY TONY BAILEY here was a time when a state-of-the-art aircraft In-Flight Entertainment system was a Lear Jet Stereo Eight Track tape player, and the best Cabin Management System was an overhead reading light and fan. While today’s owners have many more options, it may surprise you to know that the entertainment system in your car is probably better than that in your aircraft. If you are ready to upgrade your Cabin Management System, upgrade from an In-Flight Entertainment System (IFE) to a Cabin Management System (CMS), or simply upgrade your IFE, it’s important to understand the difference. The IFE System usually is comprised of monitors, a sound system, and an input device, such as DVD, Blu-ray, or Satellite Television. The CMS is an integrated control system which has all IFE elements, and also allows you to regulate other in-cabin systems, such as lighting, temperature, and window shades. Some aircraft are equipped only with an IFE, while others have a CMS. So what are your upgrade options? ■■ Upgrade the IFE — You may wish to include a HD monitor or a Blu-ray player for better onscreen display. This option is significantly less expensive than upgrading or installing an entire CMS, as most IFE Systems use commercial equipment, like a big box store DVD player. However, those less-expensive systems may not integrate well with more complete CMS systems, nor will they meet all of the aircraft-installed equipment regulatory requirements. ■■ Upgrade the CMS — If your system is older, you may not be able to find parts. If you upgrade to a new digital system, be prepared to purchase a top-of-the-line system, as anything less may not offer a discernable difference. ■■ Install a new CMS — While the most costly because of the certification requirements, this option has the advantage of being the most responsive to your specific needs and wants. When preparing to refurbish or improve your aircraft’s systems, before soliciting any vendor RFPs, first determine your needs: ■■ Virtual Office Capability — Can you connect to the world just as if you were behind your desk? Can you connect with ground stations as well as with satellites, and do you need to do so? Is the system compatible with Euro ISDN protocols (if you or your guests bring on European computers and equipment)? Will you print or store documents? Must the system be completely secure from cyber threats? Do you want Wi-Fi connectivity and seamless phone calling? Currently there are two options for onboard Wi-Fi: GoGoBiz (formerly 8 B U S I N E S S AV I AT I O N A DV I S O R Ja n u a r y/ Fe b r u a r y 2 015

AirCell) for U.S.-only coverage, and Swift Broadband/ Inmarset for coverage worldwide. A third option, SmartSky, recently announced that it will offer 4G connectivity worldwide at near-ground-based speeds later this year. ■■ Entertainment — Will the system connect to outside entertainment like Satellite TV or will it all be internal? Do you want the system to be controlled by a smart phone or other intelligent device? Will it have moving maps or ticker-tape news? Do you want to be able to connect other devices such as iPad, laptop, or phone for video or music? Do you want to store movies onboard and get automatic updates? ■■ Cabin Control – Should the CMS control the shades, dim the lights, adjust the temperature, and control the seats? Does the controller have a touchscreen interface? Can the flight attendant make adjustments at the Galley Controller? If you are considering upgrades to either your IFE system or CMS, the three keys to success are: selecting a reputable and technically- experienced installation facility, determining your needs, and precisely communicating those requirements to the facility. These will help insure that they “get it right the first time,” critical with the newest computer-based systems. When chosen, set up, and installed correctly, your system will respond to your every command. BAA TONY BAILEY is the President and COO of Spirit

Aeronautics. His aviation career – in avionics, engineering, maintenance, operations, acquisitions, and both domestic and international executive leadership – spans more than 30 years.

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FLYING COLOURS CORP.

Spirit Aeronautics / tbailey@spiritaeronautics.com

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■ AIRCRAFT FINANCE

Demystifying Aircraft Costs: An Owner’s Primer BY NEL STUBBS

Conklin & de Decker / nel@conklindd.com

nless you are a financial executive, you may not be familiar with the basic terms of financial and tax accounting as they relate to your flight department. Below is a short guide to some of these terms: Financial Depreciation, or Book Depreciation, is a system to distribute the cost or other basic value of tangible assets, in this case your aircraft, less any residual value, over the estimated useful life of the asset in a systematic, rational way. Straight line depreciation is the most widely used method. Ten years is a common, though not the only, “estimated useful life” for aircraft for financial accounting purposes:

$2,000,000/10 (useful life) = $200,000 (per year depreciation expense for 10 years) Market Depreciation is a widely changing variable based on the value of the aircraft in the marketplace. Market depreciation percentages are based on historical residual values. The exact value of an aircraft is unknown until it is sold, so until the sale, market depreciation is only an estimate. Prior to the recent recession, residual values declined by 3%-4% per year for jets. The difference between retail value and wholesale value was insignificant because of the high demand. However, there is a big difference post-recession. The residual value (with no inflation) for new aircraft is, on average, 76% of purchase price during the first year. It drops an average of 6% per year thereafter. While the first-year drop on a used aircraft is not quite as significant, much larger drops during the second or third year often bring the residual value percentage in line with that of a new aircraft. Tax Depreciation is the annual deduction allowed to recover the cost or other basis of business property with a useful life of more than one year. The Modified Accelerated Cost Recovery System (MACRS) is mandatory for most tangible depreciable property placed in service after December 31, 1986. Property is depreciable if it wears out, has a determinable life that exceeds one year, and is used in a trade or business or for the production of income. Aircraft used primarily for commercial (Part 135 charter) purposes are depreciated over seven years. Non-commercial (Part 91) aircraft, and all helicopters, are depreciated over a five year period. Depreciation deductions reduce the tax basis on a dollar-for-dollar basis until the basis has been reduced to zero. 10 B U S I N E S S AV I AT I O N A DV I S O R Ja n u a r y/ Fe b r u a r y 2 015

Depreciation deductions are allowed only on the business use of an aircraft, which are: A business aircraft owner is allowed an annual deduction on its income tax return for depreciation business aircraft that are used in a “trade or business” and are subject to “exhaustion, wear and tear, and obsolescence” over time (IRC §167). Aircraft costs directly associated with flying are divided into two categories: variable and fixed. For example, fuel costs vary in direct proportion to the number of flight hours, as do the costs for engine maintenance programs, landing fees, catering, crew expenses, etc. Fixed costs do not depend on the number of hours flown, and include, for example: insurance, training, crew salaries, and hangar and management fees. Other Costs are those associated with the ownership and operation of an aircraft, such as taxes, interest, lease payments, depreciation, etc. The Chart of Accounts is a list of accounts used to categorize all expenditures for accounting purposes. At the company level this may just be 1 line titled — Aviation Department. It may be up to you to show where all the money is spent. While the recent recession did not change the tax laws, it may have affected your aircraft’s anticipated residual value. Be sure to review your own depreciation schedules — and adjust your tax planning expectations accordingly. BAA NEL STUBBS , VP Conklin & de Decker, advises aircraft owners

and companies on aviation tax issues. Her 25 years’ experience includes developing NBAA’s tax seminar. She has a BA in Mathematics and a Master of Aeronautical Science.

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HONDA AIRCRAFT COMPANY

$2,200,000 (acquisition cost) – $200,000 (residual value) = $2,000,000 (available depreciation)

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■ FLIGHT OPERATIONS

NextGen – Why? What is NexGen, and What Impact Will It Have On Your Flying? BY NANCY RISSO Risso NextGen Aviation Solutions / rissoaviation@gmail.com

extGen is an FAA upgrade to the U.S. air traffic control system, from ground-based to satellite-based technology, which is being implemented in phases through 2025. Designed to shorten routes, save fuel, reduce air traffic delays, and increase the number of aircraft in the sky at a given time, it also enables controllers to manage aircraft with a wider margin of safety. One fairly new such technology already in use is Automatic Dependent Surveillance-Broadcast (ADS-B). If your aircraft is ADS-B-equipped, its position is transmitted to Air Traffic Control (ATC) and to adjacent aircraft also equipped with ADS-B. The Global Positioning System (GPS) on board your aircraft sends its position via a “transponder” to ATC. While a simple concept, it is not yet widely used. Currently, ATC gets position information from radar facilities that bounce signals off your aircraft. As the aircraft distance from the radar increases, radar information becomes less accurate; not so with ADS-B. Radar is expensive and has a limited service volume, especially in mountainous terrain; again, not so with ADS-B. While 634 ADS-B ground stations already

ADS-B IS BEING INSTITUTED IN SPECIFIC AREAS AND ALTITUDES THAT CAN BENEFIT THE MOST FROM BETTER FUEL EFFICIENCY. have been installed in the U.S. to provide full domestic coverage, ADS-B will not be required in the U.S. until January 1, 2020 — a date unlikely to change. However, ADS-B now is required in many foreign countries including: Australia, Canada, China, Fiji, Hong Kong, India, Indonesia, Singapore, Seychelles Islands, the Sanya Flight Information Region (FIR), Taiwan, and Vietnam. This list is continually growing. As with many NextGen technologies, ADS-B is being instituted in specific areas and altitudes that can benefit the most from better fuel efficiency. If your aircraft is not ADS-B equipped, you may be held at a lower altitude below Flight Level (FL) 290 (29,000 feet), where much more fuel will be consumed. One Fortune 500 company recently made a two-week trip to Asia without the benefit of ADS-B. The flights were held at altitudes below FL 290 for much of the trip — versus a more advantageous FL 400. That company estimates an additional $10,000 to $15,000 was spent on fuel, due to the dramatically increased 12 B U S I N E S S AV I AT I O N A DV I S O R Ja n u a r y/ Fe b r u a r y 2 015

fuel burn at the low, less efficient altitude. Immediately after that trip, it installed ADS-B and applied for FAA approval. Most jet aircraft will require a “kit” to modify the current transponder to an “extended squitter,” or ES format, operating on frequency 1090ES. One Challenger operator says that he spent approximately $25,000 per aircraft to upgrade the transponder and install wiring to the GPS receiver to become ADS-B compliant. This cost will vary widely, depending upon your aircraft type, and the age of both the aircraft and GPS unit on board. When you are ready to upgrade to ADS-B, your flight department will select a shop approved by the manufacturer of the ADS-B equipment they’ve selected, to avoid installation error. A quick, easy, and no-cost way to be sure that the ADS-B is properly installed and configured, is to send an e-mail to: 9-AWA-AFS-300-ADSB-AvionicsCheck@faa.gov

Your crew can enter your aircraft tail number and request an ADS-B avionics check. As soon as you fly your aircraft above approximately 1,500 feet anywhere in the U.S., an ADS-B ground station will receive and evaluate your ADS-B transponder information for accuracy. A report will be emailed to you within a couple of days, according to Jim Marks of the FAA Flight Standards Maintenance Division, who provides this service. If you are flying to foreign countries now, and you wish to “beat the rush” that is sure to ensue as January 1, 2020 approaches, consider gaining your ADS-B capability now. BAA NANCY RISSO , owner of Risso NextGen Aviation Solutions,

consults to business aircraft operators and the FAA. An ATP rated pilot and engineer, she previously worked as the FAA’s Flight Standards Eastern Region NextGen Branch Manager.

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■ AIRCRAFT MANAGEMENT

Hire Standards It’s More Than Skills and Experience BY SHERYL BARDEN Aviation Personnel International / sabarden@apiaviation.com

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Carefully Vet All Applications — In an August 2014 survey, Careerbuilder.com noted that 58 percent of employers have caught a lie on a resume, which only makes one wonder: how many were not caught? Allow sufficient time to investigate a candidate’s background and experience, and always check references. As the old saying goes, “4000 hours of flight time can be one hour repeated 4000 times.” That’s not the kind of varied and challenging flight experience required to fly trans- or intercontinental flight legs. Consider outsourcing psychological testing and background checks for all candidates: your life may depend on it. Rely On Your Instincts — A candidate who does not “show well,” or who presents a sloppy résumé full of grammatical errors or misspellings, is not likely to be someone you would trust to handle your aviation investment — or your safety. That’s why the inperson interview is such a critical part of the hiring process. It’s where your instincts intersect with your knowledge of the job and your company. And it is a cross-check on whether the candidate’s background, education, experience, and attitude are a match with your existing flight department personnel. Following these simple, common sense steps to recruiting will help ensure that your future aviation hires are “good hires” — even great ones. BAA SHERYL BARDEN , BS, MBA, is CEO of Aviation Personnel

International, where she helps business aviation and HR teams select great hires with the same values, passion and safety focus as their potential employer.

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viation departments often operate with a lean staff, so when an employee retires, is terminated, or leaves, there may be a rush to fill that position. To avoid the most common hiring mistakes — which can be costly not only in financial terms, but also in loss of productively and morale — follow these best practices: Take Your Time — Finding the best match for your flight department is not likely to be quick or easy. The cost to replace a “bad hire” can be as much as five times their annual salary, according to the Society for Human Resources Management, so allowing sufficient time for the search will help ensure that you get it right the first time. Understand the Nature of the Job You Are Advertising — Your chief pilot, for example, does a lot more than fly. He or she will, among other duties, supervise and arrange to train the flight crew, create and operate within your defined budget, approve invoices, advise you on new purchases, choose the FBO for each flight, administer flight and maintenance records, oversee travel security, arrange for domestic and international permits, and much more. Write a Clearly Defined Job Description — In addition to technical duties, a key selection criterion of any aviation hire is whether the candidate can maintain and protect the value of the company’s assets. In writing the job description, focus on the value an individual can bring to your company. Your maintenance technician may save you more yearly by carefully shopping major inspections than your pilot saves on managing fuel flow. Do Not Rely Solely On Internet Recruiting — This practice often results in responses from those who are either unemployed or dissatisfied, not those who are happy and successful in their current role. It’s imperative that your team create a solid recruiting process with HR, use current industry best practices, and consider relying on outside help from a recruiter experienced in analyzing a candidate’s professional background. Have Reasonable Expectations of Your Current Staff — Do not expect your pilot to also be an expert recruiter, nor your internal recruiters to understand the technical nature of the open position. Seek Out a Culture Match — Candidates who share your company’s passion, vision, and culture will merge easily with your current staff. Even if the candidate has come from the flight department of a highly regarded company, or was referred by a friend, that does not ensure that he or she will be a good match for your company.

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■ AIRCRAFT FINANCE

Opt to Operate Without Owning Escalating Prices, Less Available Credit Make Operating Leases Attractive BY SIMON DAVIES ince the economic downturn of 2009, your ability to borrow funds for buying aircraft has been greatly diminished. Many lenders withdrew entirely from the aircraft market, retrenching to focus on their core business sectors. Others are requiring more stringent credit standards. Traditionally, you could borrow a large percentage of the purchase price, putting the aircraft and loan onto your balance sheet. Now, many lenders are reducing the percentage they are prepared to advance against the aircraft value, forcing you to make a larger down payment. (See: “The Changing Lending Climate,” BAA September/October 2014). The impact of this tighter credit is felt most acutely in the nonU.S. markets, especially for pre-owned aircraft buyers who are have difficulty finding an interested lender. At the same time, the global economic downturn raised additional concerns for aircraft owners. Companies were pressured by lenders to show more liquidity on their balance sheet. Owners who elected to dispose of their aircraft during this period faced cash shortfalls when the resale value of the aircraft was less than their outstanding loan balance. With aircraft prices now rising, there are more options as you decide how to pay for your acquisition. Some buyers still pay cash; others obtain a loan to reduce their cash payment. A third alternative — the operating lease — is becoming increasingly attractive. This financing structure involves a lessor (the financier) who purchases the aircraft that you (the lessee) want to fly. The lessor leases you the aircraft for an agreed term, with the lessor maintaining ownership throughout. What are the benefits to you? ■■ Typically, the lessor pays 100% of the acquisition cost. At closing, you would need only to provide a security deposit, substantially reducing the capital required to obtain the aircraft. ■■ In recent months, aircraft manufacturers have been announcing new models that will compete against older aircraft with similar capabilities. While the impact on the resale values of these older aircraft is uncertain, the introduction of new models traditionally has had a negative impact on residual values. With an operating lease, the risk to the residual value lies with the lessor, not with you. At the lease’s end, you simply return the aircraft in the agreed-upon 16 B U S I N E S S AV I AT I O N A DV I S O R Ja n u a r y/ Fe b r u a r y 2 015

condition, with no further obligation. An operating lease provides you with certainty of the capital cost required for the planned life of the aircraft’s use. ■■ With an operating lease, the lessor is both the legal owner and the owner for tax and accounting purposes. Usually, this means that the aircraft is not shown on your balance sheet, and the lease rents are recorded as an expense. ■■ An aircraft not shown on your balance sheet offers you more privacy and security. ■■ When the lessor acquires the aircraft, you do not have to pay the tax on the purchase price as a lump sum. You pay tax only on each rent payment, which eases your cash flow. For all these reasons and more, there is a robust market for operating leases, especially for U.S.-based aircraft. Many U.S. financial institutions will pass some of the tax benefits of ownership back to you in the form of lower rents, particularly if your credit profile is strong. For those with weaker credit, those interested in used aircraft, and for international transactions, the number of willing lessors has decreased. However, just in the past year, a number of new companies have entered the market to provide operating leases, offering some long-awaited relief. BAA SIMON DAVIES, Managing Director, Global Jet Capital, has 25+

years in senior-level aircraft finance positions for Sierra Advisors, Guggenheim Aviation Finance, and Bombardier, in non-U.S. markets. He holds a BA from the University of Western Ontario.

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Global Jet Capital / sdavies@globaljetcapital.com

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■ WASHINGTON REPORT

DCA’s Proximity Enticing BY DAVID COLLOGAN

espite rigorous security requirements, business flights are increasing at Washington National. With Republicans in control of both the House and Senate as the 114th Congress convenes, the possibility exists that Congress might actually debate and pass some important legislation this year. (Wild concept, eh?) If the legislative branch does start functioning again, an increasing number of company executives, trade association representatives, and individuals will be trekking to Washington to lobby their elected representatives. For those with access to business aircraft, there are three major airports to choose from: Washington Dulles (IAD), 27.2 miles west of Washington in Virginia; Baltimore-Washington International (BWI), 32.4 miles to the northeast in Maryland; and Washington National (DCA), 5.2 miles from Capitol Hill. Flying into IAD or BWI is pretty simple — tell your flight crew when you want to depart and off you go. When you arrive you’ll be facing an hour (or more!) on congested highways to reach congressional office buildings and most federal agencies in Washington, D.C. Passengers arriving at DCA can get to congressional office buildings in 10-12 minutes. But there’s a catch. Passengers and crewmembers on non-airline aircraft must adhere to a rigorous security protocol. In the aftermath of the 2001 terrorist attacks that brought down four U.S. airliners, security officials ordered numerous steps to prevent similar attacks, including installation of secure, lockable doors on airliners to keep intruders out of the cockpit. But it isn’t physically possible to install lockable doors in most business aircraft cockpits. So, because of DCA’s proximity to the White House and Capitol Hill, non-airline flights into DCA were prohibited. Formerly a very busy business aviation facility, Signature Flight Support’s fixed-base operation (FBO) became mostly silent, hosting only small numbers of military and government flights. That prohibition continued until 2005 when — after countless hours of meetings between members of the business aviation community and federal transportation security officials — agreement was reached on the DCA Access Standard Security Program (DASSP). Key elements included: vetting of security coordinators and flightcrews; screening/search of passengers, baggage, and aircraft for flights coming to and departing DCA; flight authorizations processed by TSA HQ; FAA slot reservations with assigned times; nonstop flights only to DCA and only from authorized FBOs at designated “gateway” airports; and, the carriage of an Armed Security Officer (ASO). 18 B U S I N E S S AV I AT I O N A DV I S O R Ja n u a r y/ Fe b r u a r y 2 015

Few operations were conducted under DASSP initially because crew vetting took time and there were only 12 gateway airports. But as more flight departments became acquainted with DASSP’s requirements, and more gateway airports and FBOs were added, flight operations grew — from a few hundred in 2007 to just more than 900 by 2010. In 2011, DASSP operations jumped to 1,400 after federal officials acceded to industry requests and permitted operators more flexibility in swapping out crews, aircraft, and permitting adjustments to arrival and departure times. Discussions continue about finding an alternative to the ASO requirement, with indications a resolution could come soon. There are now more than 200 DASSP-approved operators, and a significant number of others who have met all the requirements but are not currently flying into DCA — primarily because of the ASO requirement. Passengers, crews, and aircraft can now be cleared for flights to DCA at more than 170 FBOs and flight department hangars on 100 gateway airports in 40 states. Mary Miller, vice president, industry and government affairs for Signature, has been based at DCA since the days when having scores of airplanes parked on the GA ramp was the norm. She estimated DASSP operations would reach 1,500 by the end of 2014. “It’s not like the old days, but boy, has it come a long way,” she said. Particularly rewarding, Miller said, is observing a flight department making its first DASSP trip. “The back seat passenger has just experienced an eight-minute ride” from his meeting on Capitol Hill back to DCA. “He’s getting ready to go through the magnetometer, standing there smiling, saying, ‘This is great … we’ll be back!’” 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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dlcollogan@gmail.com

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