Business Aviation Advisor July/August 2017 by Business Aviation Advisor Magazine

JULY / AUGUST 2017

WAAS Up Next, FANS? NextGen: More Than ADS-B

Understanding Charter Safety Ratings Knowing which standards operators meet allows you to make more informed charter choices FOUR CHECKPOINTS FOR PERSONAL SAFETY BACK IN BALANCE? INSIDE VIEW CAPITAL DECISIONS ACCESSING THE E-VTOL NETWORK 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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J u l y / A u g u s t 2 0 17

• Volume 4 / I s sue 4

F E AT U R E S WAAS Up Next, FANS?

Back in Balance?

Four Checkpoints for Personal Safety

NextGen: More than ADS-B by A ARON H ILK E M ANN

Accessing the e-VTOL Network

Capital Decisions

Is a shared helicopter on your screen?

The ups and downs of residual values by ROLL AN D VIN C E NT

Today’s security plan must-haves

by M I C H AE L S C HUL S TA D & J US TIN K E LLE Y

by S COT T A S HTON

Lease options in an uncertain market

by B E N M UR R AY

Inside View

Eight steps to a successful pre-buy process by R ALPH M I C H IE LLI

D E PA R T M E N T S Publisher’s Message

Algorithms and Binary Decisions

by G IL WOLIN

Washington Report

by DAVI D COLLOG AN

Understanding Charter Safety Ratings

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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Ju l y/A u g u s t 2 017 B U S I N E S S AV I AT I O N A DV I S O R 3

Ask why smArt businesses Are turning to operAting leAses.

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PUBLISHER’S MESSAGE ■ PUBLISHER Gil Wolin gwolin@bizavadvisor.com CRE ATIVE DIRECTOR Raymond F. Ringston rringston@bizavadvisor.com MANAGING EDITOR G.R. Shapiro gshapiro@bizavadvisor.com ASSISTANT EDITOR Michael B. Murphy mmurphy@bizavadvisor.com WASHINGTON EDITOR David Collogan dlcollogan@gmail.com CONTRIBUTORS Scott Ashton Associated Aircraft Group scott.e.ashton@lmco.com Aaron Hilkemann Duncan Aviation aaron.hilkemann@duncanaviation.com Justin Kelley MSA Security jkelley@msasecurity.net Ralph Michielli ExcelAire ralphm@excelaire.com Ben Murray Global Jet Capital bmurray@globaljetcapital.com Michael Schulstad Greystone Intelligence mschulstad@greystoneintel.com Rolland Vincent Rolland Vincent Associates rvincent@rollandvincent.com BUSINESS MANAGER JoAnn O’Keefe jokeefe@bizavadvisor.com BUSINESS AVIATION MEDIA , INC . PO Box 5512 • Wayland, MA 01778 Tel: (800) 655-8496 • Fax: (508) 499-2172 info@bizavadvisor.com www.bizavadvisor.com Editorial contributions should be addressed to: Business Aviation Advisor, PO Box 5512, Wayland, MA 01778, and must be accompanied by return postage. Publisher assumes no responsibility for safety of artwork, photographs, or manuscripts. Permissions: Material in this publication may not be reproduced, stored in a retrieval system, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording, or otherwise) without the prior written permission of the publisher. The views and opinions expressed in Business Aviation Advisor are those of the authors and advertisers, and do not necessarily reflect the policy or position of Business Aviation Media, Inc. Articles presented in this publication are for general information and educational purposes and do not constitute legal or financial advice. Postmaster: Please send address changes to: Business Aviation Media, Inc., PO Box 5512 • Wayland, MA 01778, USA ©Copyright 2017 by Business Aviation Media, Inc. All rights reserved Printed in the USA

Algorithms and Binary Decisions Economics – the allocation of scarce resources

hat used to be confined to physical resources – like coal, iron, oil, gas, and manpower. Macroeconomics 101’s classic allocation, “guns or butter,” was an ‘either/or” decision, graphed on an X/Y axis. “Guns” competed with “butter” for those resources: raw materials and production time. The simple binary algorithm, when it comes to physical resources, is less simple when it comes to time. Time allocations are more complicated, less clearly defined, and often overlapping: time for work intersects with recreation, recreation with family and friends, and each may intersect with volunteer time. No longer a simple “either/or” equation, allocating time among competing demands is more a series of “sometimes/always/never” decisions. But time spent on a particular endeavor is not just about time – it’s about attention and focus, and how you allocate those resources. In business, this means success in meeting objectives. In the cockpit, it means completing a flight safely and cost effectively. Once you’ve boarded and the aircraft is buttoned up, your flight crew is required to focus its attention on monitoring the aircraft’s adherence to the prescribed flight plan; the operating status of engines, airframe, and cabin support systems; and the positions of other aircraft whose flight paths might intersect with yours. Attention, like any other resource, is finite, and like all other resources, must be carefully allocated for optimal results: a better bottom line, a better relationship, or a safer flight. According to studies done by David Strayer, professor of psychology at the University of Utah, multitasking is a myth for about 97% of the world’s population. The vast majority of “multitasking” is actually sequential tasking, quickly switching between or among the various jobs at hand. His and other studies show that for those in the 97%, effectiveness and efficiency suffer by as much as 40% when attempting to accomplish tasks simultaneously. That is why cell phone use while driving – whether talking or texting – is comparable to “driving under the influence,” and now illegal in most states. And that was true before texting, before social media amplified the stress on our attention reserves. The improved connectivity in business aircraft may help make your in-flight time more productive, but be aware – it also puts you at the mercy of those other demands on your attention. Efficient and effective use of your time may be the primary reason you travel by business aircraft. But in-flight privacy, permitting you to focus on projects without interruption, runs a close second in today’s 24/7 always-connected world. Being connected may be mandatory, but knowing where the “off” switch is located – and when to use it – is critical to both personal and professional success. BAA

Gil Wolin — Publisher gwolin@bizavadvisor.com Ju l y/A u g u s t 2 017 B U S I N E S S AV I AT I O N A DV I S O R 5

■ INDUSTRY UPDATE

WAAS Up Next, FANS? BY AARON HILKEMANN Duncan Aviation / aaron.hilkemann@duncanaviation.com

s you know, your aircraft must be upgraded to Automatic Dependent Surveillance-Broadcast (ADS-B) Out by January 1, 2020, if you plan to fly above 10,000 feet or use any large or most small airports – to avoid being grounded. But this is just phase one. ADS-B Out is a relatively new technology that lets properly equipped aircraft broadcast their precise locations to Air Traffic Control (ATC). The ADS-B Out mandate requires all aircraft operating in U.S. airspace to have a certified GPS position source and be able to transmit data from the aircraft’s transponder without prompting. The data (including the aircraft’s position, altitude, velocity, and identification number) must be transmitted continuously from the time of takeoff until the aircraft has landed and taxied to the gate. In the FAA’s NextGen Implementation Plan Document (dated March 2011), the FAA outlines not only ADS-B, but Wide Area Augmentation System (WAAS) with Localizer Performance with Vertical Guidance (LPV) approach procedures and Future Air 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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Navigation System (FANS) and Controller Pilot Data Link Communications (CPDLC). And while WAAS and FANS currently are not included in the FAA’s ADS-B mandate, many industry experts believe that mandate will be coming soon. What Is WAAS? In 2007, the FAA completed and certified a significant upgrade to the satellite-based Global Positioning System (GPS). This new Wide Area Augmentation System, designed for civilian aviation, is a navigation system that makes highly accurate precision instrument approaches possible. WAAS is a series of 25 terrestrial-based reference stations across North America (including Alaska, Hawaii, Puerto Rico, Canada, and Mexico) designed to check and correct GPS data, which may have slight variations as the result of satellite orbit errors and disturbances in the ionosphere. These corrected data provide highly accurate vertical and horizontal position information about the aircraft. WAAS is designed to allow flight crews to rely on GPS for all phases of flight, providing a capability for the development of w w w. B i z AvA d v i s o r. c o m

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NextGen: More Than ADS-B

WHILE EARLIER GENERATIONS OF GPS WERE ACCURATE TO WITHIN 15 METERS (LESS THAN 50 FEET), THIS NEW GENERATION OF GPS IS ACCURATE TO WITHIN LESS THAN 3 METERS (LESS THAN 10 FEET). more standardized guidance for approximately 4,100 runways and hundreds of heliports/helipads in the U.S. airspace. While earlier generations of GPS were accurate to within 15 meters (less than 50 feet), this new generation of GPS is accurate to within less than 3 meters (less than 10 feet). Localizer Performance with Vertical Guidance (LPV) is a procedure that uses WAAS to accurately determine an aircraft’s position on an approach, guiding a pilot down to between 76-61 meters (250-200 feet), even in conditions with low visibility. WAAS/LPV replaces the traditional radio navigation with the far more accurate and precise satellite navigation systems. There now are more than twice as many WAAS/LPV approaches than Instrument Landing System (ILS) approaches in the U.S. LPV approaches are considered more accurate and more desirable. WAAS also provides increased accuracy in position reporting, allowing for more uniform and higher-quality worldwide air traffic management. How Will Having WAAS Benefit You? WAAS permits the use of more fuel-efficient flight planning, as it allows your pilot to land in poor weather conditions and low visibility, rather than having to reroute your aircraft to a different airport. Landing as scheduled prevents the cost overruns resulting from delays and extra fuel. WAAS-approved units also incorporate navigation procedures to take advantage of preferential flight routing. Because WAAS/ LPV increases the accuracy of aircraft positions, ATC can see and track aircraft more efficiently than with the old radar- and radiobased tracking systems. This tracking results in cost and time savings because ATC can safely fit more aircraft into a specified airspace. Early-adopting owners already benefit from ATC’s “best-equipped, best-served” priority in the national airspace. How Can You Upgrade to WAAS? To upgrade to GPS WAAS, certified equipment appropriate to your aircraft must be installed, and then properly approved by the FAA or an authorized designee. Your aircraft’s GPS-based Flight Management System (FMS) will require modification or replacement. There likely will be some relatively minor wiring modifications involved. Depending on the avionics platform in your aircraft, there may be some factory-installed or factory-authorized modifications to the display or flight control systems. The GPS antenna(e) will require replacement with an upgraded version, which may have a different external contour, requiring structural modification. What is FANS? Future Air Navigation Systems (FANS) is a data-link system that lets pilots and ATC communicate directly, using digital text transmissions that appear on the cockpit panel Control Display Unit. Developed by the International Civil Aviation Organization, Boeing, Airbus, Honeywell, and others, FANS was an early data-link standard. w w w. B i z AvA d v i s o r. c o m

Data Comm is the FAA’s name for digital, text-based messaging, and it may eventually replace voice communication between ATC and pilots. The goal is to automate routine tasks that currently require multiple voice/radio exchanges. Voice communications can pose significant problems due to indecipherable accents, language barriers, and poor-quality radio connections. If the information isn’t perfectly clear, both parties repeat requests and information, wasting time and causing delays. Eventually, pilots and ATC will be able to exchange clear and concise digital reports, instructions, and flight requests instead of relying on voice communications. An added benefit is that the entire flight crew can review text messages and instructions from ATC. Benefits extend beyond the cockpit, too, saving you time and fuel and increasing your safety by giving ATC a more accurate view of where your aircraft is in relation to others. What is FANS 1/A? FANS 1/A is a later communication standard for flights over remote areas, including oceans. It has two components. Controller Pilot Data Link Communication (CPDLC), the text-messaging component, allows two-way, digital communication between ATC and pilots when the aircraft is out of range of the analogbased voice-radio communications. Automatic Dependent Surveillance-Contract (ADS-C) sends surveillance information (aircraft position, altitude, speed, and meteorological data) automatically to ATC from the aircraft when ATC requests it. Pilots do not interact with ADS-C, nor can they disable its reporting function. If the flight crew sends a Mayday message, ADS-C automatically triggers a report with time, position information, altitude, and airspeed that goes to ATC. The equipment needed varies, depending on the current configuration of avionics in your aircraft’s cockpit. At minimum, an FMS, a data-link unit, and Satcom are needed. Commercial airlines have used FANS 1/A for more than four decades for oceanic surveillance and text-based communications between pilots and ATC, and it soon will be required by all business aircraft. Upgrade Now The FAA stated repeatedly that the ADS-B deadline will not change. To avoid being faced with fully booked qualified facilities and technicians as the deadline draws near, schedule your upgrade now. NextGen is important for the safety and future of aviation as a whole. We share the responsibility to understand the various initiatives and how they will affect business aircraft operations. BAA A ARON HILKEMANN is the President and CEO of Duncan

Aviation, the world’s largest independent MRO provider. He currently serves as Chairman of the General Aviation Manufacturing Association (GAMA).

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■ ALTERNATIVE LIFT

Accessing the e-VTOL Network Is a Shared Helicopter On Your Screen? BY SCOTT ASHTON Associated Aircraft Group / scott.e.ashton@lmco.com

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If you choose, soon not only will you be able to share a helicopter flying a known route at a known time, but you will, through social-media-like technologies, be able to define your own itinerary, and post it to specially designed platforms, so others who want that same trip can join you – lowering the cost for everyone. The looser the constraints that the trip originator puts on the trip (“I can leave anytime on Thursday,” instead of “Thursday at 4:00 p.m.”) the more likely that others will join, and the lower the price per seat will be. This ad hoc self-aggregation could greatly enhance the flexibility of business aviation by allowing the “shared economy” to be applied to any city pair for true point-to-point transportation, rather than depending only on the most frequently traveled routes (such as NYC to East Hampton, or White Plains to West Palm Beach). Of course, the true benefits of business aviation will always be the convenience, privacy, security, and flexibility that it affords. (See “Four Checkpoints for Personal Safety,” page 18). A primary benefit of business aviation is specifically that it is not shared. However, for those who don’t mind sacrificing their privacy, have some flexibility, and maybe even look forward to meeting new and interesting people on each flight – as well as saving money – the “shared economy” may have some great things in store for business aviation. BAA SCOT T ASHTON , President, Associated Aircraft Group, a

Sikorsky subsidiary, has 25+ years’ aviation experience. An NBAA Certified Aviation Manager, he is New England Air Museum Board Chair, and a volunteer pilot for Patient Airlift Services.

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CA RTER AVIATION TECHNOLO GIES

he “Disruptors” – those companies attempting to reshape the way consumers interact with services or goods – made a splash at the recent Uber Elevate conference in Dallas, Texas. Uber, known for disrupting the on-demand ground transportation industry (taxis), is working to apply the same concepts to the on-demand air transportation industry by conceptualizing a network of electric vertical takeoff and landing (e-VTOL) aircraft for personal and shared mobility. The disruption comes as the result of the convergence of two technological and behavioral trends. Technology comes in the form of apps that can be accessed from any personal device, as well as the use of Big Data, ad hoc scheduling systems, and of course the personal eVTOL helicopter-like aircraft that are a hybrid of UAVs (Unmanned Aerial Vehicles, or “drones”) and helicopter technologies. The more significant disruption, however, is the societal trend toward the so-called “Shared Economy” – that is, people who are now willing to share assets on a short-term, ad hoc basis. There is a new generation who is very comfortable with sharing – albeit for a fee – their car, their home, and even their helicopter ride in order to lower costs. The “Shared Economy” trend, and the technology that enables it, may have long term effects on the use of business aviation – but at a price. While Uber and others are concentrating on the aeronautical technology to enable a fleet of autonomous, electric-powered eVTOL aircraft, the societal changes that will enable this trend are happening much more quickly. The “Shared Economy” for business aviation has been years in development. Among the first to conceptualize ride sharing were DayJet and Pogo, two companies who were working to take advantage of the upcoming very light jets to create “air taxis.” Although neither company survived, they paved the way for today’s entrepreneurs like Wheels Up, Surf Air, and Blade. As more passengers are willing to share a business aircraft or helicopter, new technology may even disrupt today’s disruptors. One of those working to redefine these technologies is EvoLux, founded by Ray Leavitt. Leavitt was part of the original DayJet VLJ (Very Light Jet) team. He saw the need for a platform in which clients could create their own trips among themselves – a concept known as “self-aggregation.” EvoLux recently won the Sikorsky Innovations Entrepreneurial Challenge Competition for its social-media-integrated platform aimed at enabling “ad hoc self-aggregation.”

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■ AIRCRAFT FINANCE

Capital Decisions Lease Options in an Uncertain Market BY BEN MURRAY Global Jet Capital / bmurray@globaljetcapital.com

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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■■ Deliver access to management and charter companies,

giving you the option to receive additional operational support as well as the potential for charter revenue. ■■ Offer the stability of an ongoing relationship with you and your aircraft. His or her familiarity and connection will help you decide what to do with your aircraft coming off lease. ■■ Propose a clear strategy for end-of-lease aircraft. While some lessors simply want to dispose of the aircraft as soon as the lease ends, they may not provide the same input during the lease as those who seek to keep the aircraft within their portfolio. Those who wish to maintain and grow their portfolios are more likely to work with their clients during the lease to ensure maximum value from the aircraft. If you currently are using charter and/or own a fractional share, and if your growing use of business aircraft has you thinking about acquiring a whole aircraft, consider a transition to a short lease, then to the longer term lease options described above, and later to full ownership. Taking this graduated approach reduces your exposure to risk, and allows you to proceed at your own pace, rather than stepping into the unknown. BAA BEN MURR AY is Senior Managing Director of Asset

Management for Global Jet Capital. With more than 17 years aviation experience, he previously held senior positions at Landmark Aviation, XOJET, and NetJets.

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uying your first business aircraft can be a daunting prospect. Two main deterrents often are the significant investment required, and the logistics involved in moving from charter or fractional usage to ownership. This is true even when, depending on your annual volume and current usage patterns, owning a whole aircraft could be more cost-effective than other methods of accessing business jet travel. A third deterrent is the uncertainty over the residual risk, especially in the current market. You may have heard about falling aircraft prices due to an oversupply of pre-owned aircraft for sale, and that many pre-owned models are taking longer to sell. So how can you avoid being left with a costly asset on your balance sheet – one which you might not be able to sell as quickly as you’d like? Consider an operating lease to help mitigate the residual risk of aircraft ownership. Here the lessor (your lender) owns the aircraft. Your lease payments are fully tax-deductible, but the tax benefits of asset depreciation accrue to the lessor. Operating leases are a highly effective way of ensuring that any risk of diminished residual value at lease end remains with the lessor, rather than with you. While this approach is used most commonly when acquiring a new aircraft, it also can be applied if you already own an aircraft, by entering a sale and leaseback arrangement. By selling your current aircraft to the lessor and then immediately leasing it back, you transfer the resale value risk to the lessor. Your lease payment remains tax-deductible. Transferring the risk enables you to free the capital tied up in aircraft ownership, while continuing to meet your current business travel requirements.” For those with an existing financial lease (one carried on the balance sheet), working with specialists to move to an operating lease can help you make the most cost-effective use of your asset. When choosing a specialist, consider one who offers these advantages. He or she will: ■■ Manage a large portfolio of aircraft. The advantage is helping you select the right aircraft management structure, as well as negotiating operating and maintenance costs, thus reducing your risk and expenses. ■■ Provide you with advice and input into making the right decisions at the right time. For example, how to change your aircraft’s interior configuration to make it more suitable for outside charter, support an avionics upgrade, or see that your aircraft is enrolled in an appropriate hourly cost maintenance program (See “Managing Your Maintenance Budget,” BAA March/April 2017).

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■ AIRCRAFT SALES & ACQUISITION

Inside View Eight Steps to a Successful Pre-Buy Process BY RALPH MICHIELLI ExcelAire / ralphm@excelaire.com

Whether you are buying your first aircraft or your fifth, the “pre-buy” process can be overwhelming. Follow these eight steps to make it easier and more efficient:

1 2

Identify the aircraft you’d like to purchase, and determine that you are willing to pay the costs of the pre-buy inspection.

Conduct an initial review of the aircraft records. Look at their consistency from when the aircraft was manufactured, including the manufacturer’s build records (a detailed account of all work performed on the aircraft during production). They will describe any damage done and then repaired during manufacturing. Also look for any subsequent damage history and check that the interior fire-blocking paperwork is in order. These are the records confirming that the interior complies with the Federal Aviation Regulation (FAR) enacted to stop flames and toxic gas from spreading.

Move on to the formal pre-buy inspection, assuming you are satisfied with these findings and are ready to purchase the aircraft. Included in the official purchase agreement will be an inspection scope of work. As you select a location for the pre-buy inspection, make sure you are comfortable with the reputation of the facility, and that it has experience with the manufacturer of the aircraft you are purchasing. While you may go directly to the manufacturer for the inspection, avoid taking the aircraft to the facility that has been maintaining it, so as to prevent any conflict of interest. Once you’ve booked the facility, the inspection will take approximately two weeks – depending on what you and your advisors want to assess – and will cover many areas, ranging from examining the engine interior for damage via boroscope, to pulling up the floorboards in the lavatory, galley, and entryway to look for corrosion, among others. 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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5 6

Perform a thorough review of the records to ensure that all scheduled and unscheduled repairs and maintenance were completed, in accordance with FAA regulations.

Schedule the acceptance “test flight,” to check out the flight characteristics of the aircraft. This flight gives you and your advisors assurance that the aircraft operates according to the manufacturer’s specifications, and that all of the repairs are completed before you take acceptance. Include on the test flight an avionics technician, an interior technician, and a mechanical technician. While the seller’s pilot navigates, you can have your own pilot in the cockpit as an observer. Be sure that your “observer” pilot is familiar with the specific aircraft.

Invite your on-board experts to share any discrepancies they observed during the test flight, and to make a detailed list of any issues found. This list may include items such as: problems with avionics, trim issues with the flight controls, a dripping faucet, etc. Typically, the seller is responsible for repairing or correcting any items on the list, and these items will be included and agreed upon as part of the purchase negotiation.

Finalize your deal, and purchase your new aircraft. With a good understanding of these eight steps, you’ll be better prepared to manage the pre-buy process, from choosing your aircraft to signing the deal. BAA R ALPH MICHIELLI , Chief Operating Officer, ExcelAire, a

Hawthorne Global Aviation company, serves as technical liaison between Hawthorne and its aircraft owners. An FAA-licensed airframe and powerplant jet aircraft technician, he helped launch ExcelAire in 1993.

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Retain an aviation professional with specific maintenance experience in the make and model aircraft you’ve selected to travel to the target aircraft’s location to inspect it visually. That individual will look at the quality of the paint and the interior, paying close attention to areas likely to have corrosion, as well as to the overall condition of the aircraft. The trained eye usually can determine if the aircraft was hangared for most of its life or if it was run hard and not given meticulous care.

HOURLY COST MAINTENANCE PROGRAM COVERAGE VALUE? MAJOR SECTO ADDING /DETRACTING VALUE? CURRENT AND PROJECTED ASSET INSIGH INDEX FIGURES? CURRENT MAINTENANCE EQUITY? LOW PRICE OR GOO VALUE? ASSET QUALITY RATING? ESTIMATED MAJOR MAINTENANCE COSTS FORECASTED MAINTENANCE EXPENSE? CURRENT MAINTENANCE EXPOSURE FORECASTED VALUE AT TRANSACTION CLOSING? ORDERLY LIQUIDATIO VALUE OVER THE NEXT FEW YEARS? PROJECTED QUALITY RATING? HOW DOES IT COMPARE TO& Maintenance THE “FOR SALECondition FLEET? FUTURE MARKET IMPACT Value Analytics ON ASSET FAIR MARKET VALUE? FUTURE MAJOR MAINTENANC Optimize Your Aircraft Investment. DATES? FUTUREtoRE-MARKETABILITY? RESIDUAL VALUE WITHIN A FEW From simplifi overviews to detailedPROGRAM analytics, weCOVERAGE generate in realVALUE? time MAJO YEAR? HOURLY COSTedMAINTENANCE the information you need toVALUE? make informed decisionsAND with confi dence. SECTOR ADDING /DETRACTING CURRENT PROJECTED ASSE up-to-date information via our online dashboards or downloadable reports.PRICE O INSIGHTView INDEX FIGURES? CURRENT MAINTENANCE EQUITY? LOW GOOD VALUE? ASSET QUALITY RATING? ESTIMATED MAJOR MAINTENANC COSTS? FORECASTED MAINTENANCE EXPENSE? CURRENT MAINTENANC EXPOSURE? FORECASTED VALUE AT TRANSACTION CLOSING? ORDERL LIQUIDATION VALUE OVER THE NEXT FEW YEARS? PROJECTED QUALIT RATING? HOW DOES IT COMPARE TO THE “FOR SALE FLEET? FUTURE MARKE IMPACTS ON ASSET FAIR MARKET VALUE? FUTURE MAJOR MAINTENANC DATES? FUTURE RE-MARKETABILITY? RESIDUAL VALUE WITHIN A FEW YEAR? HOURLY COST MAINTENANCE PROGRAM COVERAGE VALUE? MAJO SECTOR ADDING /DETRACTING VALUE? CURRENT AND PROJECTED ASSE INSIGHT INDEX FIGURES? CURRENT MAINTENANCE EQUITY? LOW PRICE O GOOD VALUE? ASSET QUALITY RATING? ESTIMATED MAJOR MAINTENANC COSTS? FORECASTED MAINTENANCE EXPENSE? CURRENT MAINTENANC EXPOSURE? FORECASTED VALUE AT TRANSACTION CLOSING? ORDERL LIQUIDATION VALUE OVER THE NEXT FEW YEARS? PROJECTED QUALIT RATING? HOW DOES IT COMPARE TO THE “FOR SALE FLEET? FUTURE MARKE Simplify Complex Relationships

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■ AIRCRAFT FINANCE All Responses – Q3 2016- Q1 2017 Surveys

The Ups and Downs of Residual Values

3.3%

BY ROLLAND VINCENT

5.3%

Rolland Vincent Associates / rvincent@rollandvincent.com

hile business aviation flight activity is on the rise after the sharp post-crisis downturn, a quick glance at residual value trends indicates that we are not yet at full recovery. Business jet inventory-for-sale levels are hovering near 11% worldwide – back down to pre-2008 levels – but prices and residual values for pre-owned aircraft continue to decline, suggesting that supply continues to outstrip demand. Do healthy markets need to be in balance? Do lower prices encourage more first-time buyers to enter the market? Aren’t Original Equipment Manufacturer (OEM) discounts a sign of healthy competition and highly active markets? Well, yes and no. Many consumer markets with relatively low barriers to entry are naturally unbalanced, as competitive forces ebb and flow as customers actively shop the competition in search of better deals and more appealing options. But in business aviation, barriers to entry are generally quite high, especially for the highly regulated aircraft OEMs and their aerospace suppliers, due to the lead time and cost to develop and certificate new models. Back in the “good old days” of 2003-2007, when prices were firmer and residual values were relatively stable, few, if any, analysts were saying that the markets were balanced. The various supply chains were stretched to capacity, straining to keep up with demand and the incoming flow of aircraft orders. That market favored both OEMs and pre-owned aircraft brokers. It makes intuitive sense that lowering the price of entry will encourage more people to consider and purchase or use a business aircraft. The advent of business aircraft fractional ownership some thirty years ago broadened the market of potential customers by dramatically lowering the cost of entry as well as the exposure of an individual shareowner to residual value risk. Jet cards and other lease-type products are in demand by customers whose needs for lift are irregular and whose appetites for residual value risk or tax benefits associated with ownership are more modest. With talk of “Uber-of-the-Air” and other disruptive types of business models, it is likely that we will see some similar entrepreneurial success story written in business aviation. Without underestimating the massive capital investments and time required to ultimately succeed with such a venture, the expansionary impact on the industry could be dramatic. This may provide more than enough upside potential to warrant some serious experimentation by well-funded aviation-oriented entrepreneurs. The recent rash of new aircraft discounting by OEMs that has dampened residual values hangs like a heavy cloud over the industry. Clearing away this cloud is – or at least should be – an industry imperative. Why? Those sharply lower-than-expected residual values have 14 B U S I N E S S AV I AT I O N A DV I S O R

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7.5%

22.4%

14.3%

5.6% 6.8%

3.7% 3% 10.7% 16.9%

Over-production of new aircraft

Highly utilized fractional/charter aircraft for sale

Too many aircraft models

Drop in fractional and charter demand

Deep discounting of new aircraft

Discounting for quick sale (avoid capital gain, etc.)

Rapid technology change (obsolescence)

Economic/business slow downs

Cost of regulatory upgrade requirements

Other

Number of late model pre-owned aircraft for sale

Uncertain

caused many current aircraft owners to hang on to their aircraft, despite their age or the allure of an all-new design. The gap between the price of a new aircraft and the trade-in or residual value of an existing model has grown dramatically post-2008, to the point where it is a clear factor in delaying replacement purchases. Three consecutive worldwide surveys of business aircraft owners and operators, recently conducted by JETNET IQ, confirm that much of the residual value problem can be explained by factors that ultimately are controllable. Among them are: heavy discounting, a proliferation of new and improved aircraft models, and delayed decisions to lower new aircraft production rates feeding the inventory glut. So, while business aviation flight activity is up, thanks in some measure to commercial airline service missteps, there is more room for improvement. Lots more, especially for the well-funded entrepreneurial organizations seeking to deliver business aviation services in new ways to new and eager customers. BAA ROLLAND VINCENT is President of Rolland Vincent Associates,

an aviation and aerospace market research, forecasting, and strategic planning firm. His 30+ years’ experience includes work with manufacturers, commercial operators, and international organizations.

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DATA S OURCE: JE TNE T

Back in Balance?

Factors Driving Lower Residual Value

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■ WASHINGTON REPORT

Understanding Charter Safety Ratings BY DAVID COLLOGAN dlcollogan@gmail.com

obert L. Sumwalt, the longest-serving member of the National Transportation Safety Board, has been discussing the subject of safety ratings and audits of air charter operators in the wake of NTSB’s investigation of a fatal accident. On Nov. 10, 2015, a Hawker 700 operated by Execuflight making a nonprecision localizer approach to the Akron Fulton International Airport in Ohio crashed into an apartment building. Both crew members and all seven passengers were killed. In a concurring opinion to the accident report, Sumwalt expressed his frustration with the many operational and procedural missteps investigators found. He described it as “a litany of failures – both in the organization and in the cockpit.” Sumwalt also expressed concern “that an organization that had so many safety-related issues could have an ARGUS Gold rating and be Wyvern Registered,” referring to ARGUS International, Inc., headquartered in Cincinnati, OH, and Wyvern, Ltd., based in Yardley, PA. “Discriminating customers look to, and trust, such ‘seals of approval’ when selecting their air travel provider,” Sumwalt said. 16 B U S I N E S S AV I AT I O N A DV I S O R

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In an effort to clarify what goes into those rating and registration labels, BAA contacted the principals of both companies, Joe Moeggenberg, the president and CEO of ARGUS, and Art Dawley, the CEO of Wyvern. Both men acknowledged there could be confusion among charter customers about what the ratings mean and what goes into determining them, not to mention how charter operators may use those ratings in their marketing campaigns. Moeggenberg noted that many Part 135 operators are not eligible to attain any ARGUS rating due to their poor accident/incident history. Dawley said operators with a spotty safety record “have a reasonable expectation that they would probably not fare well in an assessment of their organization so we rarely come across those. Our reputation for stringent adherence to our standard is well known.” To achieve an ARGUS Gold rating, operators must supply a lengthy list of data to ARGUS including information on their pilots and aircraft in their fleets. That data must be updated by the operator every 90 days, or “the operator loses their rating,” Moeggenberg said. w w w. B i z AvA d v i s o r. c o m

ISTO CKPHOTO (2)

Knowing Which Standards Operators Meet Allows You to Make More Informed Charter Choices

“We vet all that information,” Moeggenberg said, adding that in the last 12 months the company entered nearly one million pieces of data in their system. “We go through all the available databases to make sure there’ve been no accidents, incidents, violations. We do background checks on every pilot in our system. We take this very, very seriously,” he said. “But the issue is, frankly, we do not do go on-site. The Gold operators provide us info, but it’s basically a desktop audit.” Dawley emphasized that “Wyvern only has one rating, the Wingman certification, and that is benchmarked against a publicly available standard that can be obtained on our website.” Wyvern uses the International Standard of Business Aircraft Operations (ISBAO) Standards and Recommended Practices as the primary baseline criteria for the Wingman Program audit process. Dawley said his company also has a “Wyvern Registered Program that allows an operator to provide data about FAA-approved and company specific documentation… but this program does not provide a safety certification rating. The Registered Data program is not intended to be anything but a repository for those non-audited operators that wish to supply information to Wyvern data clients and that has nothing to do with a safety certification or rating,” he said. The information received from Wyvern Registered Program participants is run through the FAA’s National Vital Information Subsystem (NVIS), he said. Pilot and operator background checks are run on a daily basis via the U.S. government’s Freedom of Information Act request portal. Those checks also include accident/incident data and any enforcement actions against operators or pilots by the FAA. Moeggenberg and Dawley each said they had talked personally with Sumwalt regarding his concerns of possible confusion among charter customers about their company’s programs. Dawley said Wyvern “has embarked on an education campaign through our website to ensure that customers understand there is only one rating (certification) and that reference to any other data products should not be construed as having anything to do with safety assessments or certification.” Moeggenberg said ARGUS has added a new “click-to-verify” button to their system. If a charter customer goes on the website of a charter operator who has an ARGUS rating, the new feature verifies what the rating is, and now provides a full explanation of what that rating means. In addition to its Gold rating, ARGUS offers two others: ARGUS Gold Plus, and ARGUS Platinum. Operators seeking a Gold Plus rating also must cooperate with an on-site audit of the company’s maintenance and operations systems and procedures. The Gold Plus rating is approved only if the audit does not find any safety-of-flight discrepancies or findings. To get an ARGUS Platinum rating, a charter operator must meet the Gold benchmarks and have undergone an on-site audit that reveals no adverse findings. Platinum operators also must have a functioning Safety Management System (SMS) and w w w. B i z AvA d v i s o r. c o m

Emergency Response Plan (ERP) in place. Wyvern’s Wingman program also requires operators to have an SMS and ERP. Charter customers should make it a point to visit both the Wyvern and ARGUS web sites to view the standards and benchmarks they use, and range of services that each offers. Both companies maintain lists of operators in their programs on those websites. And both firms follow similar protocols for their on-site audits, employing two-person teams comprised of a flight operations specialist and a maintenance specialist who spend two days at the operator’s facility reviewing a wide range of records, procedures, and other pertinent data. Audits are repeated every two years. Wyvern’s Dawley said there are slightly more than 2,000 Part 135 operators in the U.S. At the beginning of June, there were 382 Data Registered operators in the Wyvern system, and 142 Wyvern Wingman operators. Moeggenberg reported similar numbers: 510 total operators in the ARGUS system, of which 120 have a Platinum rating. When asked how expensive it is for an operator to obtain a Wyvern Wingman rating, Dawley responded, “committing to a higher level of safety and operational efficiency is a big investment, and not one all operators are willing to make.” But for those who choose to make that investment, “the return on investment is well worth it,” Dawley said. Charter companies willing to have their data vetted or submit to outside safety audits suggest they are serious about safety. But ratings and audits are only a guide, not a guarantee. If you are considering booking a charter with an operator you’re not familiar with, you owe it to yourself to do some research. Finding out the operator has an impeccable safety record and a SMS should provide peace of mind. Discovering the opposite should inspire you to find another charter operator. 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.

Ju l y/A u g u s t 2 017 B U S I N E S S AV I AT I O N A DV I S O R 17

■ AVIATION SAFETY

Four Checkpoints for Personal Safety

Today’s Security Plan Must-Haves

BY MICHAEL SCHULSTAD & JUSTIN KELLEY mschulstad@greystoneintel.com / jkelley@msasecurity.net

In today’s business aviation landscape, a robust security plan is no longer a nice-to-have; it’s a must-have. The safety and protection of people, property, and assets from rising security risks are simply non-negotiable. Recent events in the Middle East, Europe, the U.S., and other locations around the world emphasize the existing threats for those traveling. While criminal attacks, terror incidents, or other unforeseen disasters can occur anywhere and at any time, you can lower your risk by assuming more responsibility for your own security and protection. Often, the most challenging obstacle to overcome is an attitude of complacency. The best and most comprehensive security plan is a team effort that involves and requires ownership from all members of the aviation team. Owners, pilots, crew members, and passengers alike must be part of the process and prepared to acknowledge both the existence of potential threats and the control each has over mitigating them. The process must be well planned, multi-layered, consistent, understandable, and regularly tested, probed, and updated. And while each security plan is uniquely customized to address your specific likelihood and consequence factors, all must contain these components:

Comprehensive Threat Assessment: This is the only true way to understand vulnerability gaps and security deficiencies. A weak link can exist anywhere and because threats are constantly evolving, today’s weak link may not have existed yesterday. Most often best conducted by an independent consultant with risk assessment experience, the threat assessment delivers a fresh perspective on vulnerabilities that may be invisible to you or your team simply because of the regularity with which you experience a given circumstance. Any threat assessment should be far-reaching and address many areas, including personnel, boarding procedures, maintenance, deliveries, the hangar facility itself, and locations to which you travel frequently.

Background Checks: Every level of personnel operating in your daily environment – from facility workers to pilots to maintenance personnel – should be properly screened to include a thorough background investigation, drug screening, and social media screening. Insight into an individual’s social 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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media has become critical to the process, most often revealing his or her truest image.

Due Diligence: Security preparedness begins well in advance of departure. Be aware of the early building blocks of a security plan which, when constructed correctly, will support your entire security initiative. The best plans consider and outline methods of conflict avoidance. While your destination will be a driving force, pay attention to these key areas: ■■ The flight crew should be familiar with the passengers. ■■ All baggage should be properly screened and accounted for. ■■ The destination should be known and vetted well in advance of departure – including weather forecasts, local culture and activities, potential or ongoing civil unrest or discord, reputation for criminal activity, and local police.

Destination Preparedness: Once you and your crew arrive at your destination: ■■ Ensure that travel from the arrival point to local destination is pre-arranged. Avoid unregulated taxis and use only those taxis or shuttles that have been summoned via phone or dispatch. ■■ Carry cash separately from credit cards. Watch for pickpocketing scams and thefts of backpacks or purses. ■■ Always be aware of your surroundings and, if possible, travel in groups of three or more. ■■ If staying at a hotel, be aware of the information that may be unknowingly disclosed at the front desk, in the room, and common areas. Make sure the hotel is close by and has a solid reputation for safety. Never advertise arrival and departure times and, if possible, vary routes to and from the airport. Because business aviation security is subject to far less regulation than commercial aviation, employing an active and robust security program to measure and protect facilities, personnel, aircraft, and clients falls predominantly to you, the owner/operator and safety leader. BAA MICHAEL SCHULSTAD is the

Managing Director Investigations, Greystone Intelligence. He formerly served with the FBI. JUSTIN KELLEY is Vice President of Operations for MSA Security. He was Commander of the Connecticut State Police Bomb Squad.

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One Jet Aviation One Customer Experience

As president of Jet Aviation in our 50th anniversary year, I’d like to extend sincere thanks on behalf of the entire Jet Aviation team for your business and support over the years. To celebrate this milestone — which we would not be doing without your ongoing trust and loyalty — we launched our ‘One Jet Aviation’ initiative earlier this year. We are investing in One Jet Aviation to ensure consistent global standards and processes across our sites and portfolio of services for the next 50 years, and beyond. We look forward to seeing you soon!

Rob Smith I President, Jet Aviation

Many Advantages Maintenance, Refurbishment, Completions, FBO, Aircraft Management, Flight Support, Charter, Staffing.

www.jetaviation.com

THE WORLD CHANGES

SEPTEMBER 5-6

7th ANNUAL JETNET iQ GLOBAL BUSINESS AVIATION SUMMIT IGNITING IDEAS. PROVOKING CHANGE. NEW SEASON. NEW VENUE

September 5-6 | The Westin New York at Times Square | 270 West 43rd St., NYC When the aviation industry’s titans gather, where will you be? You’re invited to be in the same room, and play your part. Change the way you do business with inside knowledge and new revelations. Register now at JETNETiQ.com.