NOVEMBER/DECEMBER 2016
Safety Guards Aviation Safety Starts at the Top, With You, the Executive Leader
Who Should Own Your Aircraft? Is Ownership the Same As Control?
TIME TO BUY AN AIRPLANE? DUAL CONTROLS MORE THAN JUST A BLANK CHECK SOMETHING TO HIDE DECISIONS, DECISIONS 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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F E AT U R E S
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Decisions, Decisions
Safety Guards
Carefully consider your aircraft operations options
by DON H ALOBUR DO
Aviation safety starts at the top, with you, the executive leader
by PE TE AGUR
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Something to Hide
Keep your leather interior looking fine
Who Should Own Your Aircraft?
by BRYAN G R AV E S
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Is ownership the same as control?
by ROB E R TA RO M B E RG
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05
Dual Controls
Your pilot is also your asset manager
D E PA R T M E N T S Publisher’s Message
“Motivated Owner – Make Offer”
by ANTHONY K IOUS S IS
by G IL WOLIN
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More Than Just a Blank Check
Washington Report
by DAV E L ABROZ Z I
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by DAVI D COLLOG AN
Specialist lenders offer expertise, new alternatives
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Time To Buy An Airplane?
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The Business of Business Aviation The Information You Need, From Experts You Can Trust Aircraft owners and charterers now have a resource to help you make the most effective use of your investments in business aviation. Business Aviation Advisor provides the information you need, without technical jargon, on the business of owning and flying business aircraft – from operations to acquisition, to management and finance.
Business Aviation Advisor: the Business of Business Aviation
Subscribe to our digital edition at www.bizavadvisor.com/subscribe
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No v e m b e r/ D e c e m b e r 2 016 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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LEASING & LENDING SOLUTIONS FOR PRIVATE AIRCRAFT
Easily adjust to changing needs
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 Pete Agur The VanAllen Group PAgur@vanallen.com Bryan Graves Hub Leather Repair & Restoration service@hubleatherrepair.com Don Haloburdo Jet Aviation Flight Services, Inc. donald.haloburdo@jetaviation.com Anthony Kioussis Asset Insight, LLC akioussis@assetinsightllc.com Dave Labrozzi Global Jet Capital dlabrozzi@globaljetcapital.com Roberta Romberg Romberg Law Office PC roberta@romberglaw.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 2016 by Business Aviation Media, Inc. All rights reserved Printed in the USA
“Motivated Owner – Make Offer” At least half a dozen emails with that subject line hit my inbox daily. While business jet sales activity has increased in recent months, it’s only because the “offers made” have been getting lower. Thanks to several years of a worldwide down economy, there are more current owners willing to part with their very clean, well-maintained aircraft than there are interested buyers. And that makes it tougher for aircraft manufacturers to sell new ones with virtually the same flight capabilities. It doesn’t help that this is a U.S. presidential election year. I’ve watched this cycle now for several decades: every four years, company executives and high-net-worth individuals sit on their wallets, waiting to see who wins before making significant capital investments, whether in plants and equipment – or business turbine aircraft. Unfortunately, these aircraft are too well-built, too safe, and too reliable. And until recently, too good an investment. After all, business jets are built to the same standards defined in Federal Aviation Regulation (FAR) Part 121 as are commercial airliners. Properly operated and maintained, their useful life can easily run forty or more years. And they do. In 1973, business jet manufacturers delivered fewer than 300 total aircraft worldwide. In 2015, they delivered well more than twice that many, 689 aircraft, and have delivered almost 14,000 new business jets in the last 20 years. The vast majority of all those aircraft are still flying today – a testament both to the quality of manufacture, and to your commitment to safe operations. But in the current world economy, we just don’t need all of them. Seth Seifman of JP Morgan Securities summed it up quite nicely in his September 2016 Business Jet Monthly report: The most consistent theme is that there are still too many aircraft for sale, resulting in residual values that continue to decline and depreciation curves that get steeper. Residual value today has little to do with an aircraft’s original purchase price, or the current value carried on the owner’s books; it’s completely dependent on what the market will pay. And an email with “Make Offer” or “Must Sell” in the subject line is an open invitation for that market to pay less, and less, and less… This means that if you’re looking to trade in because you want to upgrade, or because your travel requirements have changed, you’ll likely be confronted with reverse “sticker shock” as you look to sell. But at some point, you’ll have to make a move. Heavy maintenance on aging aircraft, combined with new regulations requiring expensive retrofits, may make a newer aircraft a better buy – and finally put those older aircraft out to pasture. BAA
Gil Wolin — Publisher gwolin@bizavadvisor.com No v e m b e r/ D e c e m b e r 2 016 B U S I N E S S AV I AT I O N A DV I S O R 5
■ AVIATION SAFETY
Safety Guards Aviation Safety Starts at the Top, With You, the Executive Leader
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ircraft owners and executives directly contribute to aviation risks. They do it day-to-day, flight-by-flight. They do it actively, passively, overtly, and through neglect. As a result, the quality of business aviation safety has no correlation to the size or quality of the company or family office. It directly correlates to safety leadership. And that starts at the top. The most common executive failure is to assume that trip safety is the sole responsibility of their aviation professionals. But aviation safety starts with you, the executive leader. With effective executive leadership, business aviation safety can be twice as good as it is today. The business aviation accident rate can be cut in half. Eighty percent of professionally flown aircraft accidents can be traced to “human error.” According to data from the FAA and the National Transportation Safety Board, during the past 20 years, more than 60% of fatalities have had three causes: 1. Loss of Control-Inflight (LOC-I): 27% 2. Controlled Flight Into Terrain (CFIT): 22% 3. Runway Excursions (RE): 12% LOC-I and RE have the potential for getting worse in the short term, while CFIT has declined due to technology improvements. 6 B U S I N E S S AV I AT I O N A DV I S O R
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Taking the following three steps will make a dramatic impact on the safety performance of your business aviation operations: declare, lead, and verify.
Declare Your Commitment to Safety Excellence
Many executives assume, “If we’ve not had an accident, we must be safe.” Not so. Safety is not an “either/or” but lies along a continuum. It is up to you to define and declare your intended level of aviation safety. Most passengers, as well as aircraft owners, prefer that their aviation department operate to the highest level of safety. Executives’ approach to business aviation safety can be quite variable. Examples, from terrible to terrific, are: ■■ “If you won’t do it, why do I have a jet?” – An owner’s response to a crew’s stated reluctance to extend an unplanned duty day beyond 14 hours. ■■ “We have some of the best pilots in the business. Time and again they’ve taken me through some of the worst weather you can imagine.” – Oh, really? Was that weather unavoidable? What other safety corners are they cutting? ■■ “Prior to each departure I shake my pilots’ hands and ask how they and their families are doing. As much as I care about them, I am actually assessing their readiness for the trip.” – An executive explaining why he takes a personal interest in his crewmembers. w w w. B i z AvA d v i s o r. c o m
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BY PETE AGUR The VanAllen Group / PAgur@vanallen.com
Your aviation operation’s level of safety readiness and operations fall into five categories: 1. World Class – Anticipatory identification and mitigation of all risks. This level requires a substantial budget, as well as a willingness to accept occasional inconvenience for safety’s sake. 2. Best Practices – Proactive identification and mitigation of probable risks. This level typically is seen as the “best bang for the buck.” 3. Standard Practices – Attempted prevention of failure through compliance with regulations and policies. Often mistaken for “Best Practices.” 4. Substandard Practices – Acceptance of modest risks, often to improve service. May include extension of duty hours, expediting departures and landings, etc. 5. Unacceptable Practices – Deliberately incurring significant risks. This rarely is a chronic situation, but most often happens as a direct trade-off for passenger service and convenience. Your first responsibility, as an executive and the safety leader, is to declare which of these levels of safety you expect from every facet of your aviation operation: flight, maintenance, and scheduling.
Be a Safety Leader
Great leadership is not easy. It requires: ■■ Foresight, to ensure the success of your aviation team. You must declare and commit to your standards, policies, and practices. ■■ Discipline, to consistently demand and support adherence to those standards, even under the pressures of time, dollars, and challenging passengers. ■■ Allocation of sufficient resources needed for success: staffing, training, systems, and technology. Leadership always requires understanding when the aviation services department should behave like the core company and when it should not. For instance, one of the biggest sources of corporate success is also one of the most insidious threats to aviation safety: doing more with less. The highest safety standards require specific staffing, time, and dollars. To inappropriately demand more output or to reduce access to those key resources significantly raises safety risks. To do so even once sets a new, lower standard. It is imperative to maintain a constant match between mouth and movement when it comes to safety. As a safety leader, you can ensure the mitigation of the greatest risks. For instance: ■■ Loss of Control-Inflight occurs when crewmembers don’t respond effectively to an abnormal flight condition. That response requires specific training and practice. Most military pilots get it, but unfortunately, many civilian pilots do not. Simulator training is not enough. Experiential training is best. Demand that your crews are trained and w w w. B i z AvA d v i s o r. c o m
current in “upset recovery” procedures and techniques. Your life, and the lives of your passengers, depend on it. ■■ Controlled Flight Into Terrain is diminishing as a source of accidents due to greatly improved technology. Make certain your aircraft is equipped with Enhanced Ground Proximity Warning Systems. Synthetic Vision and Enhanced Vision systems are even better. If you frequently operate in challenging weather conditions and at night, especially at a wide variety of airports, these technologies greatly reduce risks. ■■ Runway Excursions can occur during takeoff or landing. On takeoff, these happen most often when the aircraft is not performing properly and the crew is slow to abort the departure. Landing runway excursions usually occur when the crew lands too fast, too far down the runway, or with too much tailwind. Countermeasures for both are very straightforward: Crews must train aggressively to recognize when to abort a takeoff or landing and practice those procedures to a high level of competence. The single best procedure for avoiding an RE on landing is to always conduct a Stabilized Approach. This means that during the last minute or more of the approach, the aircraft is on course, on glide path, on speed, and in the landing configuration. Any variance significantly raises the risk of the aircraft going off the runway.
Verify That Your Team Is Doing It Right
As a leader, you have both the opportunity and responsibility to verify aviation safety performance. Don’t just sit down, buckle up, and shut up. You can reinforce your crew’s professionalism. Let your crew know you’re paying attention. Research shows that people perform to a higher standard when they believe they’re being observed. That impact deepens when the observers are knowledgeable and attentive. Obvious examples include: ■■ Maintaining a professional demeanor and pace. ■■ The routine and comprehensive use of checklists. ■■ Adherence to Sterile Cockpit procedures, which require pilots to refrain from non-essential activities during critical phases of flight, normally below 10,000 feet. Mandated by FAA regulations for commercial flights, it is highly recommended for all. ■■ Consistent adherence to Stabilized Approach procedures. The single biggest opportunity to improve safety lies with you, the owner and executive. Declare, lead, and verify your aviation operation’s adherence to the highest standards of safety. BAA
PETE AGUR is the chairman and founder of The VanAllen Group,
a management consulting firm that specializes in the business of business aviation.
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■ AVIATION LAW
Who Should Own Your Aircraft? Is Ownership the Same As Control? BY ROBERTA ROMBERG Romberg Law Office PC / roberta@romberglaw.com
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Choices for Ownership
■■ Your Own Name — Nothing prohibits you from owning an air-
craft personally, but almost no one does that, usually for reasons of privacy and concerns about potential liability. ■■ Shell Entity — Unless you have an existing shell entity with no assets or liabilities already in place, acceptable to your lender, you must form a new one. ■■ Limited Liability Company — While various forms of entity are eligible to own an aircraft (e.g. corporation or partnership), many owners elect to form an LLC with the beneficial owner(s) being member(s) of the LLC. This provides the protection of limited liability with the ability to elect to treat the LLC as a partner ship or pass-through entity for income tax purposes. You and your partner can both be members, or in nearly all states, either one of you can form a single-member LLC. Consult with your accountant before making a final decision as to which type of ownership is best for you. Once you’ve determined the owner, you need to plan how and who will operate the aircraft, and decide if generating revenue by making the aircraft available for third-party charter is necessary to help offset your own costs. In this case, the owner will not necessarily be the operator. Under FAA rules, a special purpose entity with no other business cannot be the operator. One approach is for the owner to 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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lease the aircraft without pilots (called a dry lease), to whomever will use it, and that lessee is the operator. When the aircraft is used for business trips, the lessee could be one or more of your business entities. It also could be leased occasionally to the owner(s) personally and/or to a charter company for use in that company’s charter operations, provided the aircraft itself meets applicable charter regulations. In each case, there must be an actual written lease containing terms regarding the equipment, with the buyer/owner as lessor and whoever is using the aircraft as lessee. Pilots need to be hired separately from the aircraft and from the lessor, otherwise the lease could be construed to be an illegal charter agreement. The lease can be periodic (flight-by-flight) or longer term. However, the lessee for any particular flight is the legal operator of that flight, and the pilots are legally responsible to the lessee operator, with certain safety exceptions. Your aircraft helps make effective use of your time – make sure that its ownership structure makes the most effective use of your capital as well. BAA ROBERTA ROMBERG , Principal, Romberg Law Office PC,
advises businesses and individuals worldwide on tax-efficient structures for owning and operating general aviation aircraft, including purchase, sale, leasing, management, and charter arrangements.
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ou’ve convinced your business partner that your business deserves its own aircraft. You agree that if you can manage it financially, you’d prefer not to make the aircraft available for third party charter, although you want to leave open that possibility. Your aircraft broker has identified a couple of aircraft that meet your criteria and, with a bit more negotiation, you might get within striking distance of an acceptable price. Your lawyer recommends that the aircraft be owned and operated by one of your existing operating business entities, but your business lender requires that title to the aircraft be held in a separate entity with no other business operations nor debt obligations, and all ownership interests pledged to the lender as collateral. You are ready to prepare an offer. At this stage, you can use your name, your business name, or “an entity owned or controlled” by either you or your business. While this can change before the sale closes, avoid taking title in one entity, then deciding that the aircraft should be held in a different entity. Transferring ownership after the sale is another sale, potentially triggering sales or use tax.
■ AIRCRAFT FINANCE
Dual Controls Your Pilot is Also Your Asset Manager BY ANTHONY KIOUSSIS ears ago, a company aircraft was used primarily by the chief executive and a few senior people. Today, business aircraft operate more as middle management transportation vehicles, increasing corporate efficiency by reaching airports not served by the airlines – but that’s just what’s visible. Flight departments today generally operate with the same level of business sophistication as any other unit within a corporation. They have budgets to which they must adhere, and operational performance goals they must achieve. The person managing the department is not merely a pilot focused on addressing the travel needs of a select few, but an experienced manager, often holding a degree in business, with a Director or Vice President’s title. He or she also can fly the aircraft proficiently when required. Recognizing the need for today’s aviation manager to have more comprehensive business skills, in 2003 the National Business Avi-
Aviation Managers Need to Know Their Assets From Their Elbows ation Association (NBAA) established its Certified Aviation Manager (CAM) program. Accredited by the National Commission for Certifying Agencies, and akin to an aviation-specific MBA, the CAM program provides qualified aviation managers with the business knowledge and tools required to manage these expensive capital assets using current financial best practices. Just as other company departments have their own specific-use systems, flight department personnel already employ sophisticated, computer-based tools to address their operational needs, such as crew scheduling, maintenance tracking, and flight following. The increased acceptance of business aviation also has led to sophisticated financial tools able to track an aircraft’s maintenance equity and directly influence its value. Owners now can treat an aircraft purchase the same way they would treat the acquisition of controlling interest in a public company’s stock: ■■ Paying the lowest possible price for the best aircraft (purchasing a strong company’s stock at the lowest market price), ■■ Continually evaluating their asset and comparing it to aircraft on the market (monitoring how their stock investment is performing relative to competitors’), ■■ Improving their asset as required by market conditions (influencing how the company is managed), and ■■ Selling the asset at the most opportune time with the lowest possible investment (thereby optimizing their financial return). 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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For those operators who prefer to eliminate their residual value risk and reduce legal and tax issues, leasing the aircraft allows them to do so. “If FAA compliance, corporate governance, state taxes, and shareholder liability are not enough to sway you to lease your aircraft, then the certainty of cost and shifting the future value residual risk of an ever-depreciating asset to the lessor should certainly convince you to consider a lease alternative,” says Michael Amalfitano, Executive VP, Senior Managing Director – Business Aviation at Stonebriar Commercial Finance. Dave Labrozzi, COO for Global Jet Capital, believes: “the value proposition of leasing a business jet has never been higher. Significant and volatile market value swings, driven by uncertain global macro-economic factors, are causing traditional long-time business jet owners to rethink the use vs. own equation.” Owners also can guarantee their greatest “expense wild card” – maintenance costs. “Hourly cost maintenance programs make sense because they fully align the interests of OEMs and aircraft owners, as OEMs are incentivized to provide exceptional service repairing the aircraft and returning it to service as quickly as possible,” said Stephen M. Friedrich, VP Sales & Marketing at RollsRoyce. “In addition, owners enjoy several financial benefits, such as decreased cash flow volatility, increased aircraft residual value, and greater sales liquidity.” Managing a flight department’s assets today requires equal amounts of operational knowledge and management expertise in business aviation. Up-to-date tools are available to owners meet their aircraft investment objectives. The wise owner and flight department manager will use them to enhance their financial investment in a non-core asset which can substantively improve efficiency in their company’s core business. BAA ANTHONY KIOUSSIS is president of Asset Insight, LLC,
which offers an Asset Grading System Process to evaluate an aircraft’s maintenance condition. His 35+ years in aviation includes GE Capital Corporate Aircraft Finance, Jet Aviation, and JSSI.
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Asset Insight, LLC / akioussis@assetinsightllc.com
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■ AIRCRAFT FINANCE
More Than Just a Blank Check Specialist Lenders Offer Expertise, New Alternatives BY DAVE LABROZZI fter nearly eight years of market downturn, business aircraft activity – particularly in the light, mid-range market– appears to be on the rise, while the long-range, mid-sized to heavy jet market remains stagnant, due largely to the glut of good quality used aircraft. Is now the time to buy? And if so, where will you look for financing? A May 2016 study, conducted by Corporate Jet Investor, of 200 business aviation professionals reveals growing optimism. For example, slightly more than half (51%) expect the level of financing available to purchase business aircraft will increase during the next three years, compared to 21% who think levels of funding will fall. In 2015, some 522 mid-sized to heavy business jets were delivered globally, with approximately 277 to the U.S., according to a General Aviation Manufacturers Association (GAMA) March 21, 2016 report. Although these numbers are down slightly from previous years, and current values remain depressed, the long term outlook for the sector appears to be improving. This improvement may be due in part to the new specialist lenders that have entered the market in the past few years, as well as to increased lending from those already established. Traditional banks and lenders are tightly regulated and are less likely to take large risks because they report to shareholders. They also face pressure to remain profitable in this market segment, where residual values fluctuate frequently. Financed by private equity firms, specialist lenders are not subject to the same stringent regulations as banks, and are able to assume greater risks: an important factor in that large-cabin/ long-range market, where good deals now abound. With purchase prices in the mid-to-high eight figures, aircraft acquisition financing potentially has a much greater impact on the prospective owner’s balance sheet, available working capital, or lines of credit with existing lenders than in previous years. Also in this market, time frames for both planning and ownership often are significantly longer than for smaller aircraft. Owners and buyers therefore should address their financial structure over the longer term. If you are in the market, particularly for a long-range, heavy jet, what can a specialist lender do for you? ■■ Specialist lenders who focus on this market segment evaluate each opportunity based on the entire useful life of the asset, rather than simply on the duration of the financing term. ■■ In taking that longer-term view, those seeking financing need to understand where the largest percentage of their financial risk 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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falls. Specialist lenders can help, as they may be willing to assume the residual asset value risk – something most traditional lenders are hesitant to assume given current market conditions. ■■ And unlike most other lenders, they are prepared to offer alternative financing vehicles such as operating leases. Potentially much more financially favorable than other loan products which require you, the buyer, to assume the majority of the risk, an operating lease requires a higher degree of market insight and understanding by the lender than by those who make more traditional bank loans. ■■ Assessing each individual situation and asset enables a specialist lender to offer attractive financing options for pre-owned as well as new aircraft, something mainstream lenders may avoid. ■■ Specialist lending firms are staffed by business aviation finance experts, who have an in-depth knowledge of the market. ■■ Buyers today are looking for that greater depth of knowledge and support over the long term. Consequently, many are seeking financing from companies whose focus is clearly on business aviation, rather than those who offer many lending segments, or use aircraft financing to cross-sell other financial services. Before you purchase your next aircraft, consider what a specialist lender can offer you. BAA DAVE L ABROZ ZI , Chief Operating Officer of Global Jet
Capital, has spent 22 years focused on financing business aviation. Previously President of GE Capital, Corporate Aircraft, he also served on the NBAA Associate Member Advisory Council.
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Global Jet Capital / dlabrozzi@globaljetcapital.com
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■ AIRCRAFT MANAGEMENT
Decisions, Decisions Carefully Consider Your Aircraft Operations Options BY DON HALOBURDO Jet Aviation Flight Services, Inc. donald.haloburdo@jetaviation.com
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■■ Will routine maintenance be performed onsite by your own
technician, or outsourced? ■■ Will pilots be provided by you, or hired and employed by the management company? ■■ How much charter business does the company produce? How will it generate the charter activity you require? For example, if you intend to buy a mid- or large-cabin airplane, and the company you’re considering has many such aircraft on its air carrier certificate, and has multiple sales offices, you’re more likely to get the charter hours you need. ■■ Will you be comfortable with strangers aboard your aircraft? How does it vet potential charter customers? ■■ Does the company focus on creating a cabin environment that is both professional and comfortable? Once you choose a company, have realistic expectations: ■■ If your aircraft will be available for charter during peak holiday travel periods, be sure to give your management company plenty of notice. ■■ If you fly 300 hours a year, it will be difficult to achieve another 300 hours of charter on the airplane. The scheduling conflicts between your flying and charter would make this prohibitive. ■■ And perhaps most important to know is this: while you can reasonably expect charter to offset some of your fixed costs of flying, it should not be counted on to cover all of them. Carefully examine the wide variety of intersecting safety, financial, usage, and personal considerations before choosing your aircraft operating model. BAA DON HALOBURDO , is VP and General Manager of Jet
Aviation Flight Services, Inc. A former U.S. Navy pilot, he has more than 7,100 hours flight time, and serves on NATA’s Air Charter Committee.
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s you shop for an aircraft, one of the many decisions you will make is how you will operate it. Will you create your own flight department, or hire an outside management company? (See “Choosing a Management Company” BAA July/August 2015). The decision will be influenced by whether or not you want your aircraft exclusively for your own use, governed in the U.S. by Federal Aviation Regulations (FAR) Part 91; or to be available for outside charter and operated under FAR Part 135, either to generate outside revenue to offset the cost of your own flying, for tax reasons, or both. What factors might inform the “91 or 135?” decision? ■■ Which offers better tax options for depreciation and/or cost allocation? ■■ Will you need to offset some of the fixed costs of aircraft operations, perhaps to cover the added expense of owning a larger or newer aircraft? ■■ Do you have divisions, subsidiaries, or related companies which will use the aircraft? If so, would charter provide a better structure for chargebacks? ■■ Is the specific make and model of aircraft you want appropriate to make available for charter? Not all aircraft are Part 135 compliant and capable. Some may require expensive retrofitting; others are not very popular as charter aircraft. ■■ How will you pay for the aircraft (cash, financing, or lease)? Some leases have clauses that restrict whether the aircraft can be chartered commercially, and if so, for how many hours annually. Most owners who opt to offer their aircraft for charter choose to put it on the charter certificate of a management company, as obtaining one’s own certificate is a very difficult and lengthy procedure. In fact, in some countries it is not permitted. If you choose to make your aircraft available for charter, as you look for a management company, consider: ■■ Is the management company stable and financially strong? Does it value transparency in its dealings? ■■ How is the company perceived in the marketplace? What is its reputation? How long has it been in business? ■■ What is its safety record? Is it independently audited by a recognized third party, like Argus, Wyvern, or a respected aviation consultant? ■■ Where will your aircraft be based? If not at the management company’s home base, does the company have experience operating remote/satellite bases?
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■ AIRCRAFT MAINTENANCE
Something to Hide Keep Your Leather Interior Looking Fine BY BRYAN GRAVES Hub Leather Repair & Restoration / service@hubleatherrepair.com
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Rinse, Repeat – To remove stains quickly, grab a soft cloth, directly dab the spot with light pressure, then using a clean section of the cloth, dab (not wipe or swipe) again. Often you can reduce the stain to almost nothing, then have your maintenance crew follow up, using a professional leather cleanser to flush any additional residue through to the other side. ■■ Keep It Together – Small tears can be temporarily “tacked” in place with a piece of duct tape on the underside of the tear (not on the topside, as adhesives can remove the finish). With a little patience and ingenuity, you can prevent a larger tear until professional help can be secured. For liability reasons, many leather upholstery manufacturers state that nothing can be done in case of damage. However, leather is a durable material that can be cleaned, conditioned, resurfaced, and restored. In many cases, small tears and rips in the seam can be flawlessly repaired. With a few minimal supplies onboard and trained leather maintenance technicians at the ready, your leather interior can continue to be a source of pleasure and pride. Proper maintenance will keep it supple, stain-free, and protected, thus helping to maintain the value of your aircraft. BAA ■■ Wash,
BRYAN GR AVE S , master leather craftsman, is Founder and
President of Hub Leather Repair & Restoration, a 25-year-old Bostonarea based company which offers onsite leather cleaning, repair, and restoration for select retail and aviation clients.
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ou’re aboard your aircraft, toasting your new acquisition with a fine Bordeaux, when suddenly, you hit turbulence. Your gorgeous white leather seats are sprayed with red. Or your new client eagerly signs on the dotted line, with a fountain pen that leaks at altitude, right onto the armrest. Leather is a porous medium, highly susceptible to stains from pens, greasy foods, or an inadvertent cocktail spill. While pigmented interior leather has a clear finish that acts as a stain repellent, left untreated, these liquids can find natural paths through the pores and leave deposits and hard water lines. Your aircraft spends more time on the ground than it does flying. When parked outside and unoccupied, do its large windows let in sunlight? In Palm Springs, Miami, or even Aspen, if the window shades aren’t pulled, this can cause your upholstery – which began as a supple, jet black leather – to be worn to a charcoal grey hue. Over time, the sun’s power can bleach out color and zap out moisture, just as it does to your skin. Leather can become dried and brittle, increasing the probability of cracking, splitting, tearing, and stain absorption. What can you do to prevent sunburn, spills, or tears, or to remediate unavoidable damage? ■■ Sunscreen and Protect – Commercial products like Weiman’s Leather Wipes contain a UV-15 sunscreen, and are easy for your maintenance crew to wipe on and wipe off. Consider also keeping onboard a Leather Master Anti-Aging Kit, a mild cleaner and separate protection cream. Be sure your crew tests both of these products on a hidden area first, in case of a chemical reaction. If your interior is nubuck, suede, faux (microfiber), or unprotected leather, do not use a commercial wipe or kit, as these leather types have no protective barrier and will soak up the cleaning fluid like a sponge. Protective systems for these do exist, but require a bit more technical training and application. If your upholstery becomes faded or damaged and needs restoration, professional color systems can be custom tailored and sealed with a protective finish. ■■ Be Open to No Pens – Of course, you and your passengers need to work during the flight. For aircraft with Wi-Fi, encourage use of tablets, computers, or dictation devices. If pens are unavoidable, use retractable ones. ■■ Check Spot – Most small dogs will not disturb the upholstery, unless they circle and “nest.” However, their nails can puncture the seats, and dander can wear down the finish over time. Bring your pet’s favorite blanket to protect your seats.
■ WASHINGTON REPORT
Time To Buy An Airplane? Weak Market Demand May Translate to Substantial Savings for Business Aircraft Buyers BY DAVID COLLOGAN here are many attractive ways to avail yourself of business jet transportation that do not include plunking down a huge pile of cash to purchase an entire aircraft. Charter, fractional shares, and jet cards are all popular choices. But for those with heavy business travel schedules (more than 400 flight hours per year), it can make sense to own an aircraft outright. Likewise, companies or individuals with less demanding schedules may feel the costs of aircraft ownership are worth the price in terms of security and instant access. Whatever your situation, this is a really propitious time to find a good deal. It has been nearly a decade since the financial meltdown of 2008, and the subsequent years have been difficult for many aircraft manufacturers. Because banks and other lenders ended up having to foreclose on many aircraft loans post-2008, the requirements for new loans got a lot more stringent, including much larger down payments. Many financial institutions eliminated business aircraft loans from their portfolios, or would lend only to high-net-worth individuals. Prior to 2008, aircraft manufacturers were seeing an upturn in sales to the BRIC countries (Brazil, Russia, India, and China), and anticipating markets outside North America would continue to expand. But, as we learned during the run-up to the Rio Olympics, Brazil’s economy is in tatters and its political leadership is unstable. The drop in oil prices, and imposition of international sanctions, have had a negative effect on the Russian economy and sharply reduced demand for new aircraft there. The Indian market never developed, and China’s economy has been roiled by wild stock market gyrations and reduced demand for its products. “In a challenging global climate, every segment of the fixedwing and rotorcraft market showed declines for the first half of 2016,” said the General Aviation Manufacturers Association. Business jet deliveries were down 4.3% to just 292 units. Several aircraft manufacturers announced layoffs and ratcheted down production schedules this summer as demand remained anemic. Manufacturers have complained about “pricing pressures” affecting profit margins on some of their products, particularly light and mid-size business jets. Inventories of used aircraft for sale remain relatively high by historical standards. If all that sounds like bad news, it is – unless you are in the market for a new aircraft. In that case, it might be opportunity knocking. A completely finished business jet represents millions of dollars in labor and material costs. OEMs aren’t going to give those 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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airplanes away. But in the weak prevailing market manufacturers are much more likely to be flexible about pricing and providing equipment upgrades and other incentives to close sales and get airplanes off their books. In addition, owners of aircraft used for business may be able to take advantage of first-year bonus depreciation of 50%, depending on dates of purchase and entry into service. Growing demand for access to private air transportation has inspired entrepreneurs to launch new membership or charter programs in recent years, including Wheels Up, VistaJet and Executive AirShare. While employing different business models, many of the new entrants attempt to lower the price point of entry to make their service more affordable. For those who really want their own aircraft but believe their travel schedule can’t justify the expense, there is a new option. Partners in Aviation (PIA) developed a concept to sell one aircraft to two owners. Designed for individuals or companies who fly 200 hours or less annually, the PIA program identifies and matches two potential owners in the same geographic area. Working with a number of strategic partners, PIA plans to provide a range of services, including setting up a proprietary ownership structure, doing mission analysis and aircraft selection, arranging for a guaranteed maintenance plan, and providing consultation on aircraft and crew management. 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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T
dlcollogan@gmail.com
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