Business Aviation Advisor March-April 2018

Page 1

MARCH / APRIL 2018

Time for a New Aircraft – or Not? Consider Three Options When Your Needs Change

Higher Standards

Improving Ethical Business Aviation Transactions RU READY FOR RMU? 1-2-3-4 CONNECT! COSTLY ASSUMPTIONS ACCURATE INSURANCE OFFERS ASSURANCE DEMAND DRIVING UP PILOT PAY A Business Aviation Media, Inc. Publication

W W W . B I Z AVA D V I S O R . C O M


rolls-royce.com

CorporateCare® Relax, we’ve got you covered. CorporateCare delivers comprehensive worldwide support adding value and liquidity to your aircraft - so relax, Rolls-Royce has you covered. For more information, email corporate.care@rolls-royce.com.

Trusted to deliver excellence.


M a r c h /A p r i l 2 018

10

6

06

• Volume 5 / I s sue 2

F E AT U R E S Time for a New Aircraft – or Not?

Consider three options when your needs change

14

14

Costly Assumptions

by DAN D UGG E R

Understand fractional fair market value

by H . LE E ROH D E

Accurate Insurance Offers Assurance

08

16

Higher Standards

by S TE PH E N P. J OHNS

by PH IL G IB SON

10

RU Ready for RMU?

Increase the comfort, appearance, and value of your aircraft

by S IMON KO E N IG

by G IL WOLIN

12

1-2-3-4 Connect!

18

Washington Report

by J IM JAN AITIS

by DAVI D COLLOG AN

16

The hidden risk of over-insuring your aircraft

Improving ethical business aviation transactions

Communicate your connectivity needs

05

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

“Privatizing” Business Aviation

Demand driving up pilot pay

18

Want to Learn More About Your Investment In Business Aviation? Join us for Business Aviation Advisor’s exciting new webinar series, on the business of owning and flying business aircraft – from entry portals, to acquisition and operations, to management, insurance, finance, and more.

BUSINESS AVIATION ADVISOR

2018 WEBINAR SERIES The Information You Need, From Experts You Can Trust

Pre-register or find out more at www.bizavadvisor.com/webinars w w w. B i z AvA d v i s o r. c o m

Ma r c h /A p r i l 2 018 B U S I N E S S AV I AT I O N A DV I S O R 3


Learn why savvy owners are turning to operating Leases.

An operating lease is a popular financing tool that can provide you with the benefits of a private aircraft without the traditional risks of aircraft ownership. There are several different options, but in each case you do not take ownership of the aircraft, but have the full use of it as if you did. Plus instead of a large down payment, you put down a more modest security deposit and return the aircraft at the end of the lease term to Global Jet Capital. You can choose to: · Enter into a sale and leaseback arrangement for your current aircraft · Identify a new or pre-owned aircraft for us to purchase · Assign your purchase contracts to us for your new, on-order aircraft

Balance Sheet Assets:

Loan

Liabilities:

Lease

Allocation of Capital

Lower Residual Value Risk

Predictable Costs

Off Balance Sheet

If you’re thinking about a true operating lease, give us a call at +1 (844) 436-8200. We’ll get you in the air. globaljetcapital.com

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 ASSISTANT EDITOR Michael B. Murphy mmurphy@bizavadvisor.com WASHINGTON EDITOR David Collogan dlcollogan@gmail.com CONTRIBUTORS Dan Dugger Canvas Aviation dan.dugger@canvasaviation.com Phil Gibson SevenJet philgib@gmail.com Jim Janaitis AirDog53@gmail.com Stephen P. Johns LL Johns sjohns@lljohns.com Simon Koenig Jet Aviation simon.koenig@jetaviation.ch H. Lee Rohde Essex Aviation lrohde@essexaviation.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 2018 by Business Aviation Media, Inc. All rights reserved Printed in the USA

“Privatizing” Business Aviation

On February 27, Congressman Bill Shuster (R-Pa), Chair of the House Transportation and Infrastructure Committee, finally abandoned his pitch to privatize the U.S. air traffic control system, citing insufficient support. So, kudos to you and others who added their voices to the more than 200 aviation associations who helped defeat this misguided effort. A curious collection of ATC privatization supporters had taken up the opposing banner, including the Wall Street Journal, in a February editorial entitled “Private Jet-Setters Against Better Air Travel.” Editorials like the Journal’s attempted to pit those who travel between and among the nation’s 5,000+ airports against those who use only the 514 commercially served airports – by using the word “private” when referring to business jets. Yes, you want privacy when you fly – but also security, both business and personal. That’s because your flying is primarily for business, not pleasure. The arguments for ATC privatization were specious, at best, and simply a retread of those previously found unacceptable by Congress. One was that privatization would make flying safer. While not perfect, the U.S. air traffic control system is the safest in the world, an achievement made more remarkable by the sheer volume of flights it handles. According to the FAA, that’s more than 87,000 commercial flights daily among the 514 airports with commercial service, plus another 11,000 business jet flights among the other 4,500 U.S. airports with sufficient runway. That’s not “private” flying. That’s business flying, by executives like you, who answer to your Board of Directors and shareholders for all such aviation expenditures. Shuster and his supporters were attempting to hold business jet users responsible for most aviation woes. That ploy diverts attention from the real problem in air travel – the lack of concrete and gates to support commercial airline traffic. Delays and discomfort are the two issues that dominate commercial airline traveler complaints, neither of which would have been addressed by ATC privatization. The real cause is twofold: for delays, it’s that lack of space at the airports they do serve, inducing long waits on taxiways on both departures and arrivals; for comfort, it’s the move by most airlines to cram more seat rows into their aircraft, reducing leg room and carry-on luggage space. The rise in delay and discomfort is fueling business aviation’s growth, driving more corporate travelers to move to business aircraft to meet their air travel requirements via shared flights and charter. So if your aircraft is on a charter certificate, that trend bodes well for your 2018 charter revenue. Now, the government can focus on those real issues facing our aviation system – and you can continue to fly safely, securely, and productively aboard your business aircraft.

Gil Wolin — Publisher gwolin@bizavadvisor.com Ma r c h /A p r i l 2 018 B U S I N E S S AV I AT I O N A DV I S O R 5


■ AIRCRAFT SALES & ACQUISTION

Time for a New Aircraft – or Not? BY H. LEE ROHDE

P

Essex Aviation / lrohde@essexaviation.com

erhaps your travel mission recently has changed, and you’ll be flying to new destinations. Or you’re interested in having more cabin space, amenities, and upgrades. Maybe the lease on your current aircraft is coming up for renewal and you want to be sure you’re using the most appropriate aircraft. Or your aircraft is fully depreciated and there are tax considerations to your continued ownership. Is buying a new aircraft your only – or the best – option for you? Today’s business aviation market offers current aircraft owners a broad range of options to meet those evolving needs. Here are three different avenues to consider:

ONE: Upgrade or Refurbish Your Existing Aircraft

The first option is to refurbish the interior and exterior of your current aircraft while also considering upgrades to meet your new mission or regulatory requirements (see “Time Flies …Will Your Aircraft? BAA January/February 2018). This option offers the obvious benefits of not having to go through the search, inspection, and purchase process inherent in buying a new aircraft. It also 6 B U S I N E S S AV I AT I O N A DV I S O R

Ma r c h /A p r i l 2 018

reduces the unknowns, since you are familiar with and know the history of the aircraft you currently own. The downside is that you will have to take your aircraft out of service while the refurbishment and/or upgrades are completed. You’ll have to weigh the costs of the refurbishment and/or upgrades coupled with the costs to use alternative lift while the work is being completed. Depending on your mission requirements, typical upgrades to consider would include but are not limited to: ■■ Avionics upgrades ■■ FANS/ADS-B Compliance ■■ Enhanced Vision Systems ■■ Cabin Management Systems ■■ In-Flight Connectivity and Entertainment Systems ■■ Galley Layout and Equipment Interior and exterior aircraft refurbishment can involve all or some of the following: ■■ Exterior Paint ■■ Floorplan Modifications ■■ Seating Design and Upholstery ■■ Cabinetry Veneer ■■ Carpet w w w. B i z AvA d v i s o r. c o m

ISTO CKPHOTO

Consider Three Options When Your Needs Change


■■ Headliner and Sidewall Covering ■■ Improved Lighting

Upgrading and/or refurbishing your existing aircraft is usually recommended if you plan to keep your aircraft for at least four or five more years. If you’re thinking of selling sooner than that, work with your aviation advisor to consider which upgrades will help with the aircraft’s resale value and marketability, and which probably would not provide a substantial return.

TWO: Supplement Your Existing Aircraft

Another option is to keep your current aircraft and supplement it with an additional asset — such as charter, fractional ownership, or a membership or card program. This option can be an ideal combination if you enjoy your current aircraft but have encountered additional travel requirements that it is not best suited to support. For example, perhaps you currently own a large cabin aircraft and need to make regular short trips throughout the Northeast, to Long Island, or to one of the several island destinations during the summer months. That may be much more aircraft than is needed and not cost effective given the short distances to be flown. In many cases, using a fractional share, charter, or membership/card program for these trips can be more efficient, and frees up your aircraft for other travel. Some options for supplemental, alternative lift are:

Charter

When you charter an aircraft, you are essentially renting the aircraft for a certain mission and period of time. Charter is best for quick trips since you’ll keep the plane with you for the duration of the trip, and the aircraft is exclusively available to you. If you are traveling for a two-week vacation and plan only to use the plane to get you there and back, retaining the chartered aircraft can be expensive compared to other options. One of the benefits of chartering is schedule flexibility, which normally allows you to change your travel plans as needed.

Fractional Ownership

With fractional ownership, you are either purchasing or leasing a share and percentage of allotted flight time in a specific aircraft type. Typically, fractional programs require a minimum of 50 hours per year to participate. Fractional ownership does not offer as much flexibility in terms of scheduling change as does charter. Fractional shares can be beneficial if you plan to stay at your destination for a longer period of time, since you pay only for the occupied flight time you use, albeit at a higher per hour cost than for occupied round trip charter.

Membership/Card Programs

Membership/Card Programs are ideal if you don’t need to fly frequently during the year, and if you appreciate flexibility in the w w w. B i z AvA d v i s o r. c o m

aircraft available for each trip. On these programs, you typically will be required to use a minimum of 25 hours per year. When evaluating these programs, it is critical to understand how each provider sources its aircraft and the safety ratings of the operators they use, as well as the terms and conditions of the funds being put on the account.

THREE: Replace Your Existing Aircraft

You also may choose to replace your existing aircraft altogether. For example, if your destinations have changed and you need an aircraft capable of landing on shorter runways, you need a larger aircraft to travel internationally, you want to stop less frequently to refuel on longer flights, or you just need more room for more passengers. As you think about replacement, you will need to consider several questions, including but not limited to: ■■ How will you be using the aircraft? For business or personal use, or a combination of both? ■■ How many trips do you take annually? What is the average duration? ■■ Do you travel to airports with runway restrictions or that are limited to certain size/performance aircraft? ■■ For how many passengers do you need seating? ■■ Is international travel anticipated? If so, where and how often? ■■ Do you want a cabin with stand-up headroom? ■■ How many and what type of sleeping locations do you desire? ■■ Do you carry a lot of baggage or other equipment when you travel? You also will have to decide whether you want to buy a new or pre-owned aircraft. Purchasing a new aircraft will allow you to fully customize it, but will require a longer time for final delivery. Or you could acquire a “white tail,” which is an aircraft that has already been built and completed, but whose original purchaser failed to take delivery. While you don’t have the same ability to customize, you’ll benefit from a much quicker final delivery and entry into service. A pre-owned aircraft also offers you the option, if desired, to refurbish or upgrade the aircraft to meet your needs. If your mission requirements have changed or you anticipate a near term change, consider all the options. An unbiased aviation consultant or advisor, not affiliated with a specific operator or third-party provider, can help you evaluate your options and offer recommendations based on your current and future travel needs.BAA H . LEE ROHDE , founder, President, and CEO of Essex Aviation,

a business and private aviation aircraft acquisition and consulting firm, has 30+ years experience in financial and operational analysis, manufacturing, distribution, and corporate business development.

Ma r c h /A p r i l 2 018 B U S I N E S S AV I AT I O N A DV I S O R 7


■ INDUSTRY UPDATE

Higher Standards Improving Ethical Business Aviation Transactions Headlines, December 2017: ■■ A young Denver charter broker pleaded guilty to ID theft,

fraud, and was sentenced for racking up more than $70,000 on a client’s credit card. ■■ Industry sources forecast changes in senior leadership at

an aircraft manufacturer, to facilitate the chances of a settlement of corruption allegations. ■■ A Florida pilot and an aircraft maintenance technician were

arraigned on charges of conspiracy to commit aircraft parts fraud, after allegedly removing and reselling usable components from an aircraft, reported to the FAA as destroyed.

BY PHIL GIBSON

I

SevenJet / philgib@gmail.com

n an effort to provide guidance for its membership, the National Business Aviation Association (NBAA) in December created a new document: “Ethical Business Aviation Transactions.” It is designed to give NBAA members – flight departments, flight department management companies, vendors, Original Equipment Manufacturers (OEMs), charter aviation services and equipment providers, and corporate and individual owners and operators – the tools and best practices to use when conducting transactions in the business aviation industry. It seeks to provide all industry participants – whether representing the buyer or the seller of any products or services – guidance for conduct that seeks to avoid even the appearance of improper behavior when engaging in business transactions.

Why Now?

According to industry experts, some of the impetus behind the 70-year-old NBAA’s new effort may be the recent rise in unethical behavior in business aviation practices, informed by the 2008 economic downturn. What factors may be driving some of these shady actions? ■■ Plentiful late-model used aircraft now are on the market at bargain prices. That puts pressure on resale brokers AND on the OEMs, who must compete with low-time, almost-new aircraft. ■■ Less flying. For maintenance shops, that means fewer hours flown, so less-frequently-required maintenance work. And until the past six months or so, charter operators and charter brokers hadn’t been selling as many trips. ■■ New alternative lift programs, such as jet cards and shared ownership, entered the market, creating additional downward pricing pressure on other options. 8 B U S I N E S S AV I AT I O N A DV I S O R

Ma r c h /A p r i l 2 018

■■ Today’s

transactions are more complex and the industry is much larger, creating more options and opportunities for those willing to work in the shadows. Recognizing these relatively recent unfortunate developments, NBAA’s ethics statement is designed to guide your flight operations and aviation advisors to be alert for these and other questionable behaviors: ■■ “Referral fees” to bring your aircraft to a particular maintenance facility. ■■ “Recommendation fees” or “finder’s fees” paid by an aircraft broker to your flight department for its support of the purchase of a particular new or preowned aircraft. Note that some OEMs and other companies find such payments acceptable IF and ONLY IF there is complete transparency with the owner/actual customer – a practice necessary to establish a long term, repeat business relationship with you, the owner or end user. ■■ Making illegal payments to government officials in any country for a preferred landing spot, customs clearance, or other favored treatment.

Review or Create Your Own Policies

As you review your own company’s practices, and – if you have not already done so – together with your flight department, create policies and procedures that will offer proper guidance to your employees, you will want to familiarize yourself with the five key areas identified by NBAA: ■■ Honest and ethical conduct ■■ Avoiding conflicts of interest, and the appearance of conflicts of interest ■■ Proper handling of company funds and other assets ■■ Maintenance of complete and accurate business and financial records ■■ Compliance with state, Federal, and international laws The document (https://goo.gl/7cBVKf) suggests that your operation be able to properly answer this question: “How would my actions appear on the front page of a national newspaper?” That is, would your actions and those of your flight department appear honest, professional, and ethical? Or could such exposure cast negative light on your reputation and that of your company and the industry? BAA PHIL GIBSON is Director of Operations, SevenJet. A Wyvern

Operations Auditor and IS-BAO Lead Auditor, he owns Crosswind Consulting, and is Adjunct Professor, The Corporate Aviation Management Certificate Program, at Embry-Riddle Aeronautical University.

w w w. B i z AvA d v i s o r. c o m


It’s not just a place to land.

Visit signatureflight.com or call +1 888 367 0673 Private Aviation Terminals | Fixed Base Operations | Aircraft & Engine Maintenance | Aircraft Charter | Aircraft Management


■ AIRCRAFT MAINTENANCE

RU Ready for RMU? Increase the Comfort, Appearance, and Value of Your Aircraft BY SIMON KOENIG Jet Aviation / simon.koenig@jetaviation.ch

1

2

3

10 B U S I N E S S AV I AT I O N A DV I S O R

Ma r c h /A p r i l 2 018

inflight entertainment system, or simply re-upholster a chair. If you can explain why a particular feature of your aircraft such as an avionics system doesn’t work for you or what you’d rather have instead, a good refurbishment center can help you prioritize your needs, make recommendations, and present design concepts. Define the scope of work. It is important that your refurbishment partner fully understands your requirements, which precise planning and delineation of priorities can help ensure. A well-defined scope of work eliminates ambiguity (does “new carpet installation” apply to the entire cabin or just the galley?), can facilitate breakdown of the project for better time management (the seats need to be removed and mended before the CMS can be installed) and ultimately supports higher quality project execution, saving time, effort, and money. Expect transparency. Aircraft refurbishments often are extremely personal, and you’ll want a reliable business partner who is willing to go the extra mile. Ask to see copies of the company’s documentation, which should reflect a customer focus through work that was properly supervised and accounted for. Transparent pricing indicates a high regard for the customer, as well as conviction in the services provided. Similarly, when the time estimates for required work are accurate and schedules kept, this shows reliability that you can trust. A single point of contact also helps establish a solid relationship with the facility, which can lead to greater understanding and clarity, and both parties’ satisfaction. BAA

4 5

SIMON KOENIG is Head of Refurbishment Interior Design at

Jet Aviation in Basel. He previously worked as a non-aviation Product Designer in the Netherlands and Germany and holds a degree in Industrial Design.

w w w. B i z AvA d v i s o r. c o m

JE T AVIATION

You may be considering refurbishing, modifying, or otherwise upgrading your aircraft to increase its comfort or resale value, particularly if you fly or operate an older aircraft. If you want to invest in your aircraft to improve its comfort and longevity, or to increase its resale value, how will you determine which RMU (Refurbishment/Retrofit, Modification, Upgrade) center is best able to meet your requirements? Follow these five tips to help ensure your aircraft refurbishment project goes per plan — so you get the look, feel, and functionality you expect: Plan ahead and look for a service provider that has experience in RMUs. The aircraft RMU business operates within a fast-paced, technical, and highly innovative industry and you want a refurbishment partner that is equally flexible, inventive, and versatile. Unexpected events can and do arise, whether corrosion is found under your carpet or the new one isn’t in stock. An experienced RMU partner knows how to meet aviation requirements, while maximizing space and minimizing cost. They will respect your taste and preferences, while meeting your budget and timeframe. Read up on and enquire about the center’s reputation in the industry. Don’t hesitate to ask about the qualifications and experience of their personnel and, though the company may not be at liberty to disclose images of previous RMU projects, you can request customer referrals. Give regard to in-house capabilities. Most aircraft refurbishments are scheduled to coincide with maintenance inspections in order to reduce downtime and costs. The more experience the center has with your particular aircraft make and model, the better its understanding of what is possible given the structure, layout, compatibilities, and possible restrictions of your aircraft. Consider whether the refurbishment center supports maintenance for your aircraft type. Similarly, a one-stop shop can considerably reduce the risk of unpleasant surprises, delays, and escalating expenses. Onsite design, cabinetry, upholstery, fiberglass, sheet metal, and paint shops, for example, offer greater quality control and efficiency. To ensure your aircraft is properly supported, examine the center’s certifications and approvals. Authorization from the Original Equipment Manufacturers (OEMs), for example, is an excellent indicator of high professional standards. Know your aircraft and your needs. Depending on your budget and how you intend to use the aircraft, you may wish to completely refurbish your cabin interior, upgrade your


SEAMLESS CONNECTIVITY Introducing an exclusive Connectivity Service with Satcom Direct. Enjoy total flexibility, endless options and Gulfstream signature service. Gulfstream. Unparalleled support. (蔡海文) herman.chai@gulfstream.com +86 10 8535 1866 or +86 139 1064 2948 | HERMAN CHAI (許建鈿) peter.hoi@gulfstream.com +852 2918 1600 or +852 6928 6988 | PETER HOI (刘自强) ziqiang.liu@gulfstream.com +86 10 8535 1866 or +86 159 0115 7089 | MATTHEW LIU GULFSTREAM.COM/CONNECTIVITY

For your personal consultation, email connectivity.service@gulfstream.com.


■ CABIN OPERATIONS

1-2-3-4 Connect! Communicate Your Connectivity Needs BY JIM JANAITIS AirDog53@gmail.com

In today’s fast-paced environment, having the right connectivity tools on your aircraft is increasingly important. Follow these four steps to make the right choice for your travel communications needs.

1

Find out what’s available

The business aircraft connectivity industry is very dynamic, continually introducing new technologies and functionality. Numerous systems, service providers, and hardware can be installed in various combinations to provide a specific user experience. Current technology includes: ■■ Aircraft Trip Information Display: New technology, displayed on Personal Electronic Devices (PEDs), has supplanted the cabin map and data displays. Instead of a stand-alone system, newer systems can eliminate the need for extra equipment. ■■ Phone: Stand-alone phone systems using a satellite or groundbased cell network provide excellent sound clarity. Today’s flight operations typically have a data system that provides a few channels of phone without requiring expensive additional equipment. Voice Over Internet Protocol (VOIP) enables you to use your own mobile phone. ■■ E-Mail, Social Media, Web Browsing: Large e-mail downloads, video streaming, TV channel streaming, and web browsing now are possible with higher end satellite and terrestrial (groundbased) cellular data systems, but require large fuselage-mounted antennas. This limits the connectivity available on smaller aircraft. Satellite systems required for overwater communications typically cost $700,000 and take two to three weeks to install. Usage costs can run as high as $20,000+ per month, based on the amount of data used – making movie streaming very expensive. Cellular systems typically cost $200,000 or less with two weeks of downtime, but work only within the U.S. and parts of Canada. ■■ Streaming Video Entertainment and Onboard Gaming: Some cabin data systems contain media storage and automated content downloads when the aircraft is on the ground, so do not require use of the expensive satellite systems and can provide a wide range of features and content. Gaming typically doesn’t require an internet connection; ask for provisions to show the games on cabin monitors during cabin modifications. ■■ Data Security: Data transmitted through the aircraft wireless system are reasonably secure from your device (See “Internet 12 B U S I N E S S AV I AT I O N A DV I S O R

Ma r c h /A p r i l 2 018

Security in the Clouds, BAA July/August 2015). Using encryption

or VPNs greatly reduces the possibility of hacking. On the ground, the risks are similar to any public building. Some aircraft connectivity service providers offer enhanced security with dedicated lines and firewalls.

2

Determine what you need and want

If you are an aircraft owner or aircraft spending decision maker, you can decide what connectivity functions are important to you. Or you can opt to let your aircraft manager decide what to install. Fractional owners and charter users also can request specific cabin connectivity functions; the broker or fractional company may have aircraft that meet your needs. To learn more about your options, the NBAA website offers an excellent FAQ page: (https://goo.gl/qDyVWf).

3

Clearly communicate with your aircraft manager

Whether you employ an aircraft management company, or maintain your own flight department, know that most technical providers think in terms of hardware, software, satellites, certification challenges, and vendor relationships. We try to match this technical knowledge to what we think passengers want, but it’s up to you to communicate clearly, to ensure that what gets installed in your aircraft is what you want and need. Talking with your trusted maintenance person early in the process is critical.

4

Review proposals, make final decisions

Once your aircraft manager understands your needs, he or she will do research and then present you with options and/or specific proposals from appropriate vendors. Factors to consider are your budget, the amount of lead time needed to acquire hardware or find a slot at the service center, aircraft downtime required for installation, and what can get certified easily by the FAA (required for all installations). The right connectivity tools can enhance your productivity and your flying experience. BAA JIM JANAITIS , Maintenance Manager of Flight Operations at a

Fortune 50 Company, is co-chair of NBAA’s Maintenance Sub-Committee, working to develop an industry-wide standard for integrating cabin electronic systems. He was Chief Inspector at Bombardier Aerospace.

w w w. B i z AvA d v i s o r. c o m


IGNITING IDEAS.

PROVOKING CHANGE.

8TH ANNUAL JETNET iQ GLOBAL BUSINESS AVIATION SUMMIT NEW SEASON. NEW VENUE. NEW DATE. June 19-20 | The Ritz-Carlton New York, Westchester Three Renaissance Square, White Plains, NY Registration: jetnet.com/summit Join us this June in White Plains. 2018 Summit speakers and panelists will represent a virtual “Who’s Who” of business aviation—experts with unique perspectives on the industry’s present and future. Share the room and ask questions of global leaders, and sharpen your firm’s competitive edge with accurate and timely predictions. Register now online. 2018 Keynote Speaker: Brian E. Barents, Executive Chairman and CEO of Aerion Corporation; former President and CEO of Learjet and Galaxy Aerospace

The World Leader in Aviation Market Intelligence 800.553.8638 +1.315.797.4420 +41 (0) 43.243.7056 jetnet.com


■ ALTERNATIVE LIFT

Costly Assumptions Understand Fractional Fair Market Value BY DAN DUGGER Canvas Aviation / dan.dugger@canvasaviation.com

A

FMV is an “offer” by the fractional company to you. It is not an appraisal.

That means that the value of your aircraft share is comparable only to the value of other fractional fleet aircraft, not to all similar aircraft on the market. So instead of the “average of comparable sales” you might expect to define the value, it actually is based on some very specific criteria and assumptions about the aircraft’s condition. FMV is an “offer” by the fractional company to you. It is not an appraisal. If the offer is not what you expected, how might you do better? Assuming you are leaving the program, you can: ■■ Sell your share to someone else, keeping the provider’s offer as a back up if you cannot find a better deal. ■■ Ask to arbitrate the price. The rules are spelled out in your contract. Be prepared with an aviation dictionary and $5,000 to have a certified appraiser complete a “desktop appraisal” (one based 14 B U S I N E S S AV I AT I O N A DV I S O R

Ma r c h /A p r i l 2 018

on the aircraft’s age, and total airframe and engine hours; no visual inspection is involved). ■■ Ask your attorney to write a letter expressing your displeasure. This option could cost you one or two additional months of management fees plus legal fees, just to tell your fractional provider that you are upset. Arguing over FMV and exit penalties may be an unpleasant end to what otherwise was probably a good relationship and a safe flying experience. Avoid misunderstanding and disappointment by following these three tips: ■■ Read the contract carefully before you purchase, renew, or reinvest in a fractional share, to avoid any surprises when you leave. Be sure that the definition of “FMV” used by your fractional provider aligns with the ASA definition. ■■ Pay particular attention to the company’s return policy, and any possible penalties. Leaving the program before term end is never to your advantage, but may be necessary due to a change in your personal or business circumstances. Be prepared to pay the price for an early exit. And if you plan to re-up with the operator, use your newfound knowledge to negotiate better terms in your next contract. ■■ Once each year, ask your manager to send you a written estimate of your aircraft share value, and compare that to a current desktop appraisal. Recent market fluctuation and regulatory requirements could have a substantial negative impact on the value of your share. Keeping abreast of these developments can help prevent “reverse sticker shock.” BAA DAN DUGGER is President of Canvas Aviation. With 25

years in aviation, he was VP Sales for both NetJets and Marquis Jet. A Board member for JAARS, he is a commercially licensed private pilot.

w w w. B i z AvA d v i s o r. c o m

ISTO CKPHOTO

s a fractional share owner, you don’t want to hear that your aircraft share value has diminished, especially as you exit the program. If you’ve not recently reviewed your contract, you may be surprised to hear from your sales representative that the exit value is much lower than you expected. You may assume that an error was made, and the rep might gently suggest that you re-read what you signed. When you do, you’ll find the term “Fair Market Value (FMV)” describing your exit value. The American Society of Appraisers (www.appraisers.org) defines FMV as: “An opinion expressed in terms of money, at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts, as of a specific date.” You might reasonably assume that the FMV of your aircraft share is comparable to the price of a share in an aircraft of comparable age. But most aircraft of a comparable age average fewer than 400 flight hours annually – fractional fleet aircraft average more than twice that. And most non-fractional aircraft are enrolled in an hourly cost maintenance program for engines and airframes. Fractional aircraft like yours are enrolled in a customized airline fleet maintenance program, and its current value likely is not comparable to that of non-fleet aircraft.


BUSINESS IS A BATTLE. BE READY.

In nature, the falcon is a erce ghter. In business, the Falcon 8X is just as powerful and agile. Every inch reects its military DNA, with lean and mean aerodynamics and advanced Digital Flight Controls to get you to places others can t. Nothing ies like a Falcon because no other jet is built like one. Fierce. Fast. Agile. Falcon 8X.

WWW.DASSAULTFALCON.COM I FRANCE: +33 1 47 11 88 68 I USA: +1 201 541 4600


■ AIRCRAFT FINANCE

Accurate Insurance Offers Assurance The Hidden Risk of Over-Insuring Your Aircraft BY STEPHEN P. JOHNS LL Johns / sjohns@lljohns.com

T

$7,300,000 Repair Cost + $14,500,000 Salvage Value = $21,800,000.

This falls $9,200,000 short of “equaling or exceeding” the $31,000,000 insured value as required by the policy. Convincing the insurance company to pay a total loss is going to be a tough sell! Now, consider if the aircraft had been insured at the market value of $21,500,000. The math as outlined by the policy terms leads clearly to the aircraft being declared a total loss and paying the owner the agreed value indicated in the policy. $7,300,000 repair cost + $14,500,000 salvage value = 16 B U S I N E S S AV I AT I O N A DV I S O R

Ma r c h /A p r i l 2 018

$21,800,000 which equals/exceeds the agreed value, resulting in a total loss. The Bottom Line? The insured value must accurately represent the market value of the airplane. Although the insurance industry commonly uses value publications like the Blue Book or vRef, it’s best to have your aircraft evaluated by a qualified appraiser. He or she can provide a certified appraisal report based on an onsite physical examination of the aircraft and records, its maintenance history, specific equipment, and any damage history. The downside of over-insuring your aircraft may be more than just paying too high a premium: ■■ You may be forced to repair an aircraft that should be totaled. ■■ You may lose the use of your aircraft for a significant period of time: up to a year or more. While most policies have some provision for the “extra expense” of replacement charter or lease, this coverage is limited. ■■ You could be left with an aircraft that, even after repair, you and your passengers may feel is unsafe. ■■ You now may have a hard-to-sell aircraft which commands a lower sale price due to its damage history. These are the real potential dangers in over-insuring your aircraft, which make it imperative that your insurance policy accurately reflects the market value of your airplane. BAA STEPHEN P. JOHNS is President of LL Johns, a general and

business aircraft insurance broker. An active pilot, he holds both Property & Casualty Agent and Surplus Lines licenses, and is a Certified Insurance Counselor.

w w w. B i z AvA d v i s o r. c o m

GULFSTRE A M

he market — not you — determines the worth of your aircraft. In the case of aircraft disappearance or serious damage, that market value also determines what action your insurer will take. And therein lies the danger in overvaluing an aircraft on your insurance policy. Aircraft physical damage (or “hull”) policies are written on an Agreed Value basis. In the event of destruction of the aircraft, the insurance company will pay the Agreed Value in the insurance contract, less any deductible. When an airplane sustains significant damage, the insurance company will consider the cost of repair, the value of the salvage, and the insured Agreed Value in order to determine whether to pay for repair of the airplane, or pay to the owner the insured value as a “total loss.” For Example: in 2014 an owner took delivery of a new Gulfstream G450 and insured it for the purchase price of $42,200,000. During the next three years’ insurance renewals, the owner elected to reduce the insured value to $31,000,000 — despite the fact that the average retail price at the third renewal in 2017 was closer to $21,500,000, according to industry sources. This decision may have been driven by bank loan requirements, the stipulated loss value in the lease, or simply by the owner’s denial of the declining market value — motivation is immaterial. Later that year, the aircraft was struck by an airliner taxiing on the adjacent taxiway and sustained significant structural damage, with repair costs estimated at $7,300,000. Although the decision whether or not to repair ultimately is the owner’s, the agreed value insurance contract determines the insurance company’s payment responsibility. Every policy differs slightly, but most state that an aircraft will be considered a total loss and the insured value will be paid when: The cost to repair plus the salvage value equals, or exceeds the insured aircraft value. Using this formula, assume a salvage value of $14,500,000.



■ WASHINGTON REPORT

Demand Driving Up Pilot Pay Business Aviation Pilots Lured By Airline Incentives BY DAVID COLLOGAN dlcollogan@gmail.com

I

18 B U S I N E S S AV I AT I O N A DV I S O R

Ma r c h /A p r i l 2 018

In order to assess the magnitude of the problem, the National Business Aviation Association commissioned a survey of more than 1,300 business aviation pilots in 2017 to ask about career satisfaction and quality-of-life concerns. The results revealed that more than 50 percent of respondents were actively considering transitioning to airline jobs! That includes 58 percent of pilots working for Fortune 500 companies and a whopping 69 percent of those flying exclusively for Part 135 certificate holders. The potential to boost one’s salary from 50 to 100 percent is a huge incentive for highly qualified business aviation pilots to consider seeking a job with a scheduled carrier. Nearly as important are the retirement benefits, with some airlines matching their pilots’ 401(k) contributions up to 15 percent of their annual pay. Juicy pension plans, firm schedules a month in advance, and 1214 guaranteed days off every month are also attractive. Business aviation managers in all segments of the industry are scrambling to retain current pilots and find replacements for those who decide to leave. But it is going to require some outside-the-box thinking to avert widespread and disruptive personnel dislocations. A paradigm shift in how business aviation pilots are valued is necessary because they really are becoming rarae aves. 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.

w w w. B i z AvA d v i s o r. c o m

ISTO CKPHOTO

n a world where ride-hailing apps on your smart phone can summon a driver and vehicle from Lyft or Uber in seconds, there may be a temptation to under-value the people behind the wheel because they seem so easily replaceable. That term is not applicable to the pilots at the controls of your business aircraft. Ride-hailing services, which require little more than a warm body, a driver’s license, and a car, have millions of potential job applicants to choose from. Pilots responsible for the safety of high-value aircraft and passengers must meet a lengthy and expensive-to-obtain list of training, experience, regulatory and medical requirements… and their numbers are scant. For a variety of reasons, there simply are not enough qualified pilots to go around, and demand for them is rising sharply. Less than a decade ago, a young person with an FAA commercial pilot’s license and 250 hours of piloting experience was qualified to hire on as an airline first officer. But the price of gaining enough experience to qualify for an airline job got exponentially higher in the wake of the Feb. 12, 2009 crash of a DHC-8-400 turboprop. All 49 persons aboard perished. NTSB’s detailed investigation of that accident, which occurred as Colgan Airways Flight 3407 was on approach to Buffalo, N.Y., revealed numerous training and operational shortcomings. Spurred by an intense and emotional lobbying effort by the families of the 45 passengers who died, Congress weighed in. One of the most far-reaching consequences was a new requirement that applicants for airline pilot jobs had to have an Air Transport Pilot rating and at least 1,500 hours of total flight time. The much higher cost ($100,000 and up) to obtain those qualifications drove down the already declining number of new student pilots. With regional airlines then paying new pilots $20,000 to $30,000 per year to start, it was difficult for young pilots to justify the time and expense to log those 1,500 hours. So, in order to maintain a steady stream of new pilot applicants, the regional carriers began upping the ante, instituting paid training programs, and raising wage levels. The large U.S. airlines, which effectively achieved oligopoly status some time ago, are now racking up record revenues and profits year after year. An impressive slice of those profits is being passed on to employees, particularly pilots. As a result, the business aviation community is facing the loss of thousands of experienced pilots who are being lured by the much higher salaries, bonuses, and benefits the expanding airlines are offering.


CHALLENGE. CREATE. OUTPERFORM.

INTRODUCING FLEETLOGIC THE FLIGHT BY EMBRAER DEPARTMENTS For the world’s most successful corporations, a well-tuned flight department OF TOMORROW offers a formidable competitive advantage. ARE THOSE But, faced with ever-increasing, shared-transportation options and persistent OPTIMIZED demand for financial return, corporate flight departments today are compelled to maximize the return on their aviation assets and operations while reducing FOR MAXIMUM risks, enhancing safety and ensuring a high-level customer experience. VALUE TODAY. Building on a history of success with complex aircraft operations, Embraer has developed the industry’s first, fully comprehensive, analytics-based fleet optimization solution for corporate flight departments — FleetLogic by Embraer. With our history of innovation, industry-leading product portfolio — including four clean-sheet designs — and our #1-ranked product support team, there is no OEM more qualified to show you the way. With FleetLogic, you’ll have the tools to help your company get the most out of its aviation assets and add maximum value to the bottom line. Contact us and let us show you how. FleetLogic@embraer.com +1.321.752.8500 embraer.com/fleetlogic


PATENTED

TESTED CERTIFIED

SECURE

STREAM MORE SPEND LESS UNLIMITED DATA. LIMITED-TIME OFFER. Sign up now for the transformative connectivity of the SmartSky 4G LTE-based beamforming network. Use all the data you want for an affordable, fixed monthly fee on the Enterprise plan.

Go to smartskynetworks.com/unlimited to see how much you can save.

800.660.9982 • info@smartskynetworks.com • smartskynetworks.com


Turn static files into dynamic content formats.

Create a flipbook
Issuu converts static files into: digital portfolios, online yearbooks, online catalogs, digital photo albums and more. Sign up and create your flipbook.