Aviation Boardroom Guides by AvBuyer Ltd.

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BUSINESS AVIATION AND THE BOARDROOM

Control: Business Aviation’s Unique Advantage. Possibly the world’s most recognized expert on the value of Business Aviation, Jack Olcott is a former Editor and Publisher of Business & Commercial Aviation magazine and Vice President within McGraw-Hill’s Aviation Week Group. He was President of the National Business Aviation Association from 1992 through 2003, and today Jack’s network and personal knowledge of Business Aviation uniquely qualifies him to oversee Business Aviation and the Boardroom. More information from www.generalaerocompany.com

Business aircraft offer many benefits, but none is as significant as an operator’s ability to influence the safety and effectiveness of air transportation, contends Jack Olcott.

alk to your associates and friends about Business Aviation. Ask them if they are familiar with this form of transportation, and if so what are their opinions? You may be surprised by what you learn. Recently I was introduced to a retired gentleman who had a long and impressive career with a manufacturing company that did business throughout the world. As a marketing expert with the firm, which was founded in 1898, he had been responsible for company activities in various locations in the Americas as well as in Australia. One of his assignments required him to be based for several years in Canada. With no other motivation than facilitating our friendly conversation, I mentioned that I was a Director of a Canadian firm engaged in aerospace. Noting the aviation connection, my new acquaintance said he was a frequent passenger on a Learjet 36 owned by the company and used to reach Canadian customers his firm served in remote locations. Without any prompting on my part, he expanded upon the importance of the business aircraft in reaching areas of Canada where public air transportation was limited or non-existent. “The aircraft was essential to our operation," he volunteered. “Our company made many products including large conveyer belts used in the mining industry. We were able to meet with our Canadian customers at their work sites promptly to address their needs. That Learjet was a great way to travel. Fast, ample for our small team of sales and engineering specialists, and very fast. We were able to use airports that bigger jets didn’t serve.”

PUT FAR-AWAY PLACES IN THE PALM OF YOUR HAND WITH BUSINESS AVIATION

WORLD AIRCRAFT SALES MAGAZINE – June 2013

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What the Boardroom needs to know about Business Aviation

BENEFITS BEYOND ACCESS

Being able to reach remote locations is just one of the many benefits of Business Aviation. Placing the right person or sales team at the right place at the right time, ahead of the competition, is simply good business. The duration of a meeting depends on what is being accomplished rather than being constrained by Airline arrival and departure times, sluggish security screening and boarding delays. In addition to being effective, use of business aircraft demonstrates commitment to customers. The mobility provided by Business Aviation reflects the high value a firm places on employees, clients and time. But there is much more to the benefits of this form of transportation. In particular, consider broader issues of control beyond those of scheduling. Individuals deeply engaged in Business Aviation often say that control over the nature and implementation of transportation is the benefit they value most.

ONE USER’S RESPONSE

A provocative response to the benefits question was given by an entrepreneur who owned a company with business aircraft. ”One word is my answer,” he said. “‘Control’—pure and simple! “Business Aviation,” he continued, “more so than any other form of transportation, provides our company with the greatest ability to influence factors that impact safety, security and effectiveness. Our Board, working with the experts we hire within the company’s flight department, sets the safety standards of our operation. We establish best practices and monitor the implementation of those policies and procedures. Advertising Enquiries see Page 8

“While other providers of air transportation, such as the scheduled Airlines and major charter operators, have excellent safety records, we don’t want to be dependent on someone else—someone who we do not know as well as we know our company’s flight personnel—to be responsible for safe and secure travel. In essence, when we use public transportation we abdicate control over the wellbeing of our most important assets—our employees—to parties over which we have neither control nor detailed knowledge of their behavior.” Re-enforcing his reasoning, he said, “Unlike automobiles and even to some extent trains, business aircraft are rarely involved in collisions with other vehicles. Thus we have a very low risk that our company aircraft will be blindsided by another aircraft, and we can strictly adhere to policies that minimize even the low risk of mid-air collisions. “Other safety issues, such as what weather conditions are acceptable, are stated in our operations procedures and followed with pride by our crews. Because our pilots know our employees and recognize who is the lead passenger on each flight, security is assured. Nothing is more effective in countering terrorism than facial recognition. “Because operating our company aircraft provides us with more control compared with other forms of transportation, we feel more secure—and that is a good feeling,” he concluded.

“ Individuals deeply engaged in Business Aviation often say that control over the nature and implementation of transportation is the benefit they value most.”

Do you have any questions or opinions on the above topic? Get them answered/published in World Aircraft Sales Magazine. Email feedback to: Jack@avbuyer.com Business Aviation and the Boardroom continues on Page 36

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BUSINESS AVIATION AND THE BOARDROOM

Trends Favoring Business Aviation ” ...it is clear that our nation requires the added dimension of transportation that Business Aviation provides.”

Responding to high fuel prices and stockholder demands for greater returns, scheduled Airlines in the USA are adopting strategies that increase passenger load factors by reducing capacity and focusing on hub airports—trends that reflect the need for Business Aviation, notes Jack Olcott.

eport No. ICAT-2013-02 published in May 2013 by the Massachusetts Institute of Technology’s International Center for Transportation describes a recent trend by scheduled Airlines in the USA to reduce the number of flights available for passengers as well as increase concentration of activities at hub airports. As shown in the charts below, since 2007 the number of departures by scheduled air carriers has fallen by over 14 percent at all domestic airports and by over 21 percent at smaller airports, due mainly to major Airlines reducing frequency of service to large hubs and removing direct flights to small and medium-sized communities. Furthermore, the report concludes that the trend toward frequency reduction and hub concentration—a policy it calls “Capacity Discipline”—is likely to be practiced throughout most of the next decade.

CHART A - SCHEDULED DOMESTIC DEPARTURES FROM ALL U.S. AIRPORTS

Not Lg Hub

2 0

Large Hub 2007 2008 2009 2010 2011 2012

Not Lg Hub 4.33 Large Hub 5.4

3.9 5.3

3.75 4.95

3.7 4.9

3.6 4.9

CHART B - SCHEDULED DOMESTIC DEPARTURES AT SMALLER U.S. AIRPORTS

12 8 Millions of 6 Departures 4

Coupling this trend with the reality that business aircraft have traditionally provided access to nearly 10 times the number of airports with any scheduled service and about 100 times the locations with schedules that meet the demanding needs of many business travelers, and it is clear that our nation requires the added dimension of transportation that Business Aviation provides. Transportation in its many forms is a necessity for our nation’s economic recovery. Rural America is primed to welcome companies willing to establish a new plant or expand existing facilities, thereby creating jobs. As scheduled Airlines increase their concentration on established hubs, Business Aviation provides access to emerging opportunities.

5 4.5 4 3.5 3 Millions of 2.5 Departures 2 1.5 1 0.5 0

Non Hub Sm Hub

Med Hub 2007 2008 2009 2010 2011 2012

Non Hub 0.75 0.75 Sm Hub 1.475 1.25 Med Hub 2.15 2

3.43 4.8

0.75 1.1 1.8

0.75 1.15 1.7

0.75 0.75 1.1 1.05 1.65 1.575

SOURCE: MIT SMALL COMMUNITY AIR SERVICE WHITE PAPER NO. 1, MAY 2013

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BUSINESS AVIATION AND THE BOARDROOM

BizAv Services Use Policies. How will you prioritise use of your Company’s airplane? Peter Agur Jr. is managing director and founder of The VanAllen Group, a business aviation consutancy with expertise in safety, aircraft acquisitions, and leader selection and development. A member of the Flight Safety Foundation’s Corporate Advisory Committee and the NBAA’s Corporate Aviation Managers Committee (emeritus), he is an NBAA Certified Aviation Manager. Contact him via www.VanAllen.com.

Boards set policy, and Business Aviation must not be an exception to this ethos. But each policy should reflect the unique needs of the corporation, assert Pete Agur and his associate Don Henderson.

hen I started my aviation consulting career, one of my first clients told me; “Once you’ve seen one company’s use of Business Aviation, you have seen one company’s use of Business Aviation.” His point was straightforward: The business, organizational and cultural challenge related

to “who can use the company airplane” is unique to each user. The “one-size-fits-all” approach to policies can degrade the benefits that business aircraft create. Before policies can be developed, it is critical to answer three questions: 1. What is your business’ Strategic Intent? 2. What is your corporate Organization and its resulting Culture? 3. How does Business Aviation support each?

STRATEGIC INTENT

Is your business growing or maintaining? If you are maintaining (i.e., focusing on holding cash) then cost management is a major part of your strategy, which may be mutually exclusive to the premium costs of Business Aviation. On the other hand, if your goal is growing, you are more focused on revenue development through offering new products or services, reaching underserved markets, or seeking horizontal or vertical acquisitions. The impact of time on the key people making growth happen has a leveraging effect on your business’ success that far outshadows the marginal cost of Business Aviation over the Airlines. The highest and best use of Business Aviation is, therefore, in support of accelerating and assuring the achievement of your enterprise’s Strategic Intent.

CORPORATE ORGANIZATION AND CULTURE

The use of Business Aviation is an effective method to support the enterprise’s structure and to communicate its corporate culture. For example, if your company is organized around a small team of key executives, you will liberate them to make the most ! continued on page 46

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Aircraft Index see Page 4

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What the Boardroom needs to know about Business Aviation

HOW DOES YOUR BUSINESS AVIATION USE POLICY DEFINE WHO HAS PRIORITY IN YOUR CORPORATION ?

of their time by saving them three hours for every leg when you put them on business aircraft. One Airline trip per week will cost over 300 hours per year (which is the equivalent of five executive work weeks or 10% of their work year, assuming the average hard-driving executive puts in 60 hours per week) of wasted time per executive. Business Aviation puts that time, and much more, back in the plus column for your company for each frequent-traveling key executive. On the other hand if your organizational structure is flat, supported by a culture of collaboration, then egalitarian aircraft use policies that are based on highest and best business purpose, cost vs. benefit, and first-come, first-served, may be appropriate.

BUSINESS AVIATION SUPPORT

Business Aviation services offer several significant benefits. They: • • • • • •

Allow key individuals or teams to participate in multiple meetings at disparate destinations in days instead of weeks; Provide access to communities and business sites that are not served by other forms of transportation; Leverage senior leaders’ and other key individuals’ time; Act as a powerful sales and branding tool; Support a corporate culture committed to providing quality of life for employees; and Recognize that respecting an executive’s wellbeing is an effective and approprtiate incentative.

How you wish to address each of these questions shapes your Business Aviation use policies. As the competitive arena shifts or the corporate culture

WORLD AIRCRAFT SALES MAGAZINE – June 2013

evolves, those use polices also may need to be adjusted.

WHAT USE POLICY SERVES YOUR CORPORATION?

Regardless of culture, Business Aviation use policies should be thoughtful, clearly defined, and published. They should be endorsed or reviewed by the highest leadership group within the corporation (Board of Directors, owner, etc.). And they should address as a minimum the following: • • • • •

Access—who has the right to request the company aircraft? Authorization—who approves use of the company aircraft? Scheduling—who resolves conflicts for competing use of the company aircraft? Justification—what method evaluates the benefit/cost issues of company aircraft use? Purpose—a clear and concise statement of why Business Aviation serves shareholders.

There are a number of other important policies that should be addressed overtly, including: •

•

Operational Standards – What standards will be expected of Business Aviation services? How will those be determined and measured? Will they emulate Airline standards? Will they be just regulatory compliant or Best Practices? How do we align the Business Aviation operational standards with our other corporate quali ty initiatives, strategic intent and Business Aviation Use Statements? Policy Exceptions – Policies cannot be written for every situation. It is important to declare if ! www.AvBuyer.com

“Regardless of culture, Business Aviation use policies should be thoughtful, clearly defined, and published. They should be endorsed or reviewed by the highest leadership group within the corporation (Board of Directors, owner, etc.).”

continued on page 50 Aircraft Index see Page 4

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What the Boardroom needs to know about Business Aviation

•

exceptions are allowed, and if so, under what circumstances, with whose authority and with what mitigating controls? Passenger Pairing or Co-Rider Issues – Are there passengers who should not ride together in the interest of business continuity? Tactically, passenger-pairing policies may be perceived as unnecessarily restrictive and not cost effective. Strategically, business continuity is a factor in passenger pairing policies and brand protection. Furthermore, the highly remote possibility of a mishap may have an impact on market capitalization for publically traded companies. Even an aircraft incident without injuries can disrupt investor confidence if too many leaders are on the same aircraft. Co-rider policy exceptions may be allowed in predetermined circumstances where risks are deliberately mitigated. Routine exceptions, or variances, indicate the policy is either being ignored or needs to be reviewed.

There are additional supporting Business Aviation policies that deserve top leadership review and approval to assure the effective support of the enterprise: •

Business Aviation service limitations and distribution can be accomplished by a number of methods – o Constrain the number of aircraft available: Ideally this leads to a negotiation for highest and best use, especially challenging for companies with only one or two aircraft and little or no supplemental support from fractional/charter aircraft services. User negotiations for access requires open and adult dialogue and is least effective in organizations with substantial internal politics or an informal power structure. o Elevate the point of trip authorization: The higher the executive to whom trip requests go, the greater the political visibility (and liability) there is. This situation acts as an effective constraint on use in most organizations, and it usually is in place because one or more top executive feels a high need to control Business Aviation services for all potential users. o Use an internal transfer fee for the aircraft use (typically called a chargeback): Internal chargebacks can meter the use of the aircraft, depending upon their costs versus commercial alternatives as well as the latitude the requestors have within their budgets. This method may have a high administrative costs, but it can reduce the need for senior executives being burdened with managing aircraft use. Tacticly, it may allow the company to subsidize the expense of the aircraft for lines of business that are under time and performance pressures. Internal charge rates range from artificially nominal to full cost recovery. WORLD AIRCRAFT SALES MAGAZINE – June 2013

WHO HAS THE AUTHORITY TO APPROVE/ DENY ACCESS TO YOUR COMPANY AIRPLANE ?

Personal Use: Is personal use allowed? How is it documented? How will imputed income be calculated, and who is responsible for reporting that income to the IRS? Is the impact of personal use on the company’s tax treatment of aircraft depreciation considered? Public Officials – What is the policy for the transportation of public officials? Charter Aircraft Use – Are all on-demand forms of transportation subject to the same procedures and standards as the corporate aircraft? What are the the corporation’s quality assurance standards, processes and practices for charter aircraft services? Charitable Use – Is charitable use allowed? Is the business expense risk (loss of depreciation expense) considered? How are requests handled? Empty Seats – Are the unused seats available to other traveling employees? Does the user of the aircraft have the authority to not allow others on the aircraft? Is the expense shared, or do the “add-ons” ride for free? o

• •

•

Your use of Business Aviation is unique because your business is unique. That requires you to develop your own policies. Even so, a dialog with other owners and operators as well as with outside experts can ensure the development of a robust, yet efficient policy structure. The graphics overleaf present a framework for aligning corporate ! characteristics with Business Aviation benefits. www.AvBuyer.com

“Your use of Business Aviation is unique because your business is unique. That requires you to develop your own policies.”

continued on page 54 Aircraft Index see Page 4

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What the Boardroom needs to know about Business Aviation ACCESS POLICY

Who has the right to request the use of the aircraft? Is there a specific role (i.e, the CEO) or group (the Senior Leadership Team) who should always have access? Are specific individuals or lines of businesses excluded from Business Aircraft use? Are specific types of trips or individuals provided preferred or denied access?

APPROVAL POLICY

Will aircraft access be controlled by a specific individual or will multiple layers of approval be required to use the aircraft? Will any individual or position have the authority to use the aircraft without any additional approval (self-approval)?

SCHEDULING CONFLICT

If there are competing requests to use the aircraft, who will get priority? Will individuals or teams have the authority to “bump” others off the aircraft? If someone is bumped from the aircraft, will their needs be satisfied by another form of ondemand air travel (e.g., charter aircraft service, fractional aircraft service), and who will be responsible for the incremental expense?

JUSTIFICATION

Justification and documentation should be part of any policy, regardless of the traveler’s position on a cultural spectrum. It is imperative to be able to substantiate to the IRS the business purpose of each passenger on each leg. Otherwise the company’s ability to deduct the aircraft as a business expense could be jeopordized. Why the aircraft was used in comparison to another form of transportation is not an issue to the IRS, but it is relevant to the company’s internal culture. Value of time for key individuals or accelerating the business cycle can easily outweigh a clinical analysis of business aircraft vs. other transportation expense.

ACCESS POLICY E galitarian, Flat, Team Oriented I ndividualistic, Hierarchical, C ulture C ompetitive Culture • Access is defined by very • Access is limited to a select large groups or may not be few individuals. restricted. • Titles or specific individuals • The use of the aircraft is are named in the policy promoted. identifying access to the • Existence of the aircraft is aircraft. • Existence or use of the known across most of the organization. aircraft may be confidential.

AUTHORISATION POLICY E galitarian, Flat, Team Oriented I ndividualistic, Hierarchical, C ulture C ompetitive Culture • May have multiple layers of • Simplified, possibly only one approval. or two approvals required. • May have predefined • Approved only at senior “approved” uses. leadership level. • Multiple individuals (line of • May have a few individuals business leaders) may have with “self-approval” authority. final approval on aircraft use.

SCHEDULING CONFLICT E galitarian, Flat, Team Oriented I ndividualistic, Hierarchical, C ulture C ompetitive Culture • First-come, first-served. • Simplified, possibly only one • No “bumping”. or two approvals required. • Approved only at senior leadership level. • May have a few individuals with “self-approval” authority.

PURPOSE POLICY

A Business Use Statement that declares the alignment of the Business Aviation services with the corporate strategic intent reduces uncertainty about the purpose and value of the use of business aircraft. In the absence of specificity in policy, a broad statement may provide sufficient guidance. Examples of a Business Use Statement might be as simple as: ‘The use of Business Aviation services will be a primary tool to maximize the Senior Leadership Team’s time and impact for the enterpise’, or ‘Business Aviation is our primary method of reaching our customers. It helps us sell trust and demonstrate our uncompromised commitment to excellence’. Do you have any questions or opinions on the above topic? Get them answered/published in World Aircraft Sales Magazine. Email feedback to: Jack@avbuyer.com

JUSTIFICATION POLICY E galitarian, Flat, Team Oriented I ndividualistic, Hierarchical, C ulture C ompetitive Culture • May be based on a • May be very simple and comparison against the based on senior leadership expense of other forms of request only. transportation. • May be based on the value of • May have an additive factor business related to the for the value of time. specific trip. • May be used to help multiple • May be based on Line of approvers weigh appropriate Business (requestor). use. • May be different based on • May be based on corporate requestor. quality of life issues. • May be based on information security.

Business Aviation and the Boardroom continues on Page 56

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Aircraft Index see Page 4

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BUSINESS AVIATION AND THE BOARDROOM

Block Charter & Jet Cards: What are they, and when are they right for you. David Wyndham is an owner of Conklin & de Decker where the focus of his activities is on aircraft cost and performance analyses, fleet planning, and life cycle costing for clients. Mr. Wyndham can be contacted at david@conklindd.com

Continuing his series on methods for accessing Business Aviation, David Wyndham addresses Block Charter and Jet Cards...

raditionally, you charter a business aircraft on an “as-needed” basis with no commitment beyond the current scheduled flight. If you consistently make use of charter, however, you may be able to purchase hours in blocks of time for a set price. Block Charter and Jet Cards are both pre-paid arrangements to receive a specific number of charter hours. The Jet Card commonly refers to a formalized program whereby you purchase a “card” that entitles the holder to a prescribed number of charter hours. The idea probably came from the gift cards that are available from credit card companies and merchants. Essentially Block Charter achieves the same purpose, sans the card image and branding. With both, you agree to purchase a set amount of charter from a single provider. From here on, therefore, I will use the term Jet Card to apply to all methods of pre-purchasing a block of charter. The provider of Jet Cards may be a single company (such as Marquis NetJets), or a broker (such as Air Partner) that deals with several charter providers. So, what are the advantages and disadvantages of this form of charter? First, let us look at what Jet Cards offer. While program specifics vary from provider to provider, a typical Jet Card plan has the following features: !

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What the Boardroom needs to know about Business Aviation

• A block of 25-hours is purchased for a set price (e.g., 25-hours for $150,000). • The type of aircraft is specified (e.g. light jet), along with a specific service provider or category of provider. • There is a single point of contact for scheduling. • The price guarantee and length of contract has a time limit of a year; most programs will allow the use of unused amounts after contract end, but at a different price. • Availability may be guaranteed if booked in advance. You may get an aircraft with as little as 24-hours advanced notice for example. • The provider guarantees the level of service. • Some programs also offer concierge services by booking ground transportation, hotels and even obtaining tickets to special events or restaurant reservations.

ADVANTAGES

Cost Savings: Purchasing charter in advance secures a guaranteed price that does not increase during the length of the contract. Many programs do stipulate a variable fuel cost surcharge to account for the volatility of fuel prices. Availability: With traditional charter, you do not have a guaranteed aircraft when you call. If the aircraft you require is not available, you may have to book a larger, more costly aircraft, or look elsewhere. With a Jet Card, if your aircraft category is not available, the provider will supply the equivalent or superior aircraft. So if the Hawker 900XP is not available, for example, you may get a larger, Gulfstream G200 at the same price. Service Consistency: Using a single provider should enable you to enjoy the same level of service each time you fly. Service levels may even improve as the provider learns your needs and preferences (Diet Coke, no ice. Cashews, not peanuts).

WORLD AIRCRAFT SALES MAGAZINE – June 2013

DISADVANTAGES (i.e., CAVEAT EMPTOR)

You need to be confident that you will use the allotted hours during the contract time. If you purchase a Jet Card and find the service is no longer needed, you may not be able to get a refund for the unused hours. If you do not use the allotted hours during the contract length, you may not be able to extend the contract without paying additional fees. Read carefully the terms of the contract: • Does the company provide for a refund of unused funds? Can you apply the unused funds to a new card? • Does the service provider have different sizes/capability aircraft? A client of ours flies a mix of short trips with few passengers and longer trips with many passengers. For them, a light jet and a mid-size jet are needed. • Be sure your special needs are specified in advance and are met by the terms of your Jet Card agreement. • Does the card have a pre-defined service area? If you travel internationally, does the provider offer the opportunity for charter in those regions? One client of ours is evaluating charter travel from the US to China. If the card provider also has the ability to offer charter within China, that would make the logistics of the trip planning much simpler. • What if the company providing the card goes out of business? This may be more of a risk with a smaller charter company, but even large companies are not immune to market forces. If traditional charter works for you, but you need 25 to 50 hours per year, the Jet Card can be a cost effective means of accessing Business Aviation.

“ If traditional charter works for you, but you need 25 to 50 hours per year, the Jet Card can be a cost effective means of accessing Business Aviation.”

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BUSINESS AVIATION AND THE BOARDROOM

Buying Wisely In An Unstable Market. Jay Mesinger is the CEO and Founder of J. Mesinger Corporate Jet Sales, Inc. Jay is on the NBAA Board of Directors and is Chairman of AMAC. He now serves on the Jet Aviation Customer and Airbus Corporate Jets Business Aviation Advisory Boards and is a member of EBAA and the Colorado Airport Business Association. Contact him via Jay@jetsales.com.

“The challenge for the buyer, therefore, is deciding what parameters apply when evaluating the purchase of a business aircraft...”

‘To buy or not to buy?’, that is the question. Noting instability in today’s market for business aircraft, Jay Mesinger reflects on the benefits of acquiring the right product now to serve today’s business opportunities and to move boldly into the future.

ome sales professionals say we are in the midst of a buyer’s market for business aircraft. Others look at prices trending down and ask if there might be a better deal tomorrow. With prices lower than ever in the recorded history of our industry, there is little doubt that the market favors buyers. We cannot say with confidence, however, that prices have bottomed or that clear signs of a rebound are present. Rather, I believe that our present market

for business aircraft is best described as unstable. The challenge for the buyer, therefore, is deciding what parameters apply when evaluating the purchase of a business aircraft in today’s unstable and unpredictable market.

UNIQUE OPPORTUNITIES

Resale prices of business aircraft are not the only factors that are attractive. The price of borrowing has never been lower, and many buyers can !

WHICH DIRECTION IS RIGHT IN THIS UNSTABLE MARKET ?

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What the Boardroom needs to know about Business Aviation self-fund an acquisition. Many corporations have either the borrowing ability or the ready cash to purchase. Buyers, however, are sensitive to the impact of price instability on the acquired aircraft’s residual value; they want to retain as much resale potential in the asset as possible. Such thinking may be the result of times gone by and thus be misleading in today’s dynamic business environment. In past markets it was possible to buy a business aircraft, fly it for a few years and then sell it at - or near - its purchase price. (In fact, there were unique situations in the mid-2000s when an aircraft garnered a higher resale price from buyers that wanted the advantages of Business Aviation without delay.) At the very least you might suffer what had been in the past a traditional depreciation factor of one to three percentage points a year. Any of those three scenarios (retention of purchase price, windfall, or nominal depreciation) would be acceptable to the buyer. Today, though, no one can say with certainty what will happen to residual values.

SIGNS OF INSTABILITY

The financial crisis that erupted in 2008 had a profound effect on the market for business aircraft. One would have thought that an aircraft purchased in 2010 might increase in resale value over its depressed purchase price, or at the very least might be an even ride. In fact prices continued a slide in every category of aircraft, and in many cases lost as much as 28-35% of value since the false 2010 bottom. Furthermore, following 2008 the lending community changed drastically. Borrowed money either was not available or was rather cumbersome to obtain, especially for some older aircraft. In the recent past, if you wanted a pre-owned aircraft that would retain its value based on historical markers you needed to buy a model currently in production but not over 10 years old. In some situations, the better option was purchasing an aircraft that was manufactured within the last five to seven years, and considering resale before it was 10 years old. No longer could you consider the older mainstays of the Business Aviation fleet as safe bets for retaining high resale valuations. In the words of songwriter Bob Dylan, “Times they are a-changing.” Today stock indices are at record highs. Business seems to be recovering. Airlines are curtailing service to smaller markets where growth appears to be emerging—routes where business aircraft really shine. Globalization continues to encourage increased travel internationally—another good arena for Business Aviation. Yet the US economy still has unresolved

issues, such as how business will be affected by sequestration. Considering the countering forces buffeting business, it is understandable that the market for business aircraft is best described as unstable. Within such instability, however, there lies unique opportunity. You may choose to buy an attractively priced aircraft knowing that the residual value component is somewhat uncertain but you have committed less capital. More significantly, you will have access to excellent transportation that enhances the ability of your company to grow even in a challenging economy.

PURCHASING FOR THE RIGHT REASONS

Business aircraft are good investments because they enable the best use of employee talent and time. Companies that embrace Business Aviation in one or more of its delivery forms—charter, fractional use, timesharing, or outright ownership— grow faster, reward shareholders with higher returns in dividends and stock appreciation, and garner more accolades for being well-managed than do their counterparts that do not use business aircraft. A timely purchase of an attractively-priced business aircraft is a corporation’s best strategy for dealing with market instability.

“ Airlines are curtailing service to smaller markets where growth appears to be emerging— routes where business aircraft really shine.”

Compare aircraft performance using our

Aircraft Performance Guide at www.AvBuyer.com And select from the World’s finest Business Jets, Turboprops and Turbine Helicopters for sale 62

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BUSINESS AVIATION AND THE BOARDROOM

Non-Owned Aircraft:

Insurance options for companies that use them. Stuart Hope is a co-owner of Hope Aviation Insurance. His career as an aviation insurance broker began in 1979, and today he is a frequent speaker/author on insurance & risk management topics. He also serves on the NBAA Tax, Insurance and Risk Management Committee. Mr. Hope can be contacted at shope@hopeaviation.com

Many companies that own an aircraft also use what aviation cognoscenti call ‘supplemental lift’ (i.e., utilize a non-owned aircraft to transport company personnel when their own is not available). A Board must have a true understanding of the risk exposure they take on when they select such an option, cautions Stuart Hope.

on-owned aircraft can take the form of a charter aircraft, an aircraft accessed through a dry lease or time-share agreement, or possibly a rental aircraft. You might think there is coverage for such flights under your Commercial General Liability policy or somewhere in your Business Insurance program, but you would be wrong. Such policies almost universally exclude the aviation peril. Insurance coverage IS available under a Corporate Non-Owned Aircraft Liability policy, however, which can cover nonowned fixedwing or

WORLD AIRCRAFT SALES MAGAZINE – June 2013

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rotor-wing aircraft, piston or turbine powered. Such a policy may stipulate the total seating capacity, what the approved use is, and who the approved pilots are in order to be valid. If your company owns an aircraft, you may already have this coverage under your policy – you can certainly add it for an additional premium if you don’t. Perhaps your company never charters aircraft so you don’t feel you needed to purchase this coverage. Imagine, however, that you have an employee who happens to be a licensed pilot and who (with or without your knowledge) decides to rent an aircraft (maybe he/she even owns an aircraft) and fly it on company business. Alternatively, an emergency could surface at any time that requires you or another executive of your company to suddenly charter an aircraft. Corporate Non-

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BG 6 June13_FinanceSept 22/05/2013 14:06 Page 2

What the Boardroom needs to know about Business Aviation

Owned Aircraft Liability coverage would automatically extend to protect the company in the event one of these employees is involved in an accident.

RISK MANAGEMENT TOOLS

In addition to carrying Non-Owned Aircraft liability insurance, there are other offensive measures you can take to mitigate this risk. You could practice risk avoidance by having a clearly-stated and communicated policy prohibiting the use of any mode of air travel other than Airlines when the company aircraft was not available. Keep in mind, however, that this will not relieve you of liability. If you have a rogue employee who either ignores the policy or “didn’t get the memo”, you still have the exposure. In any case, in today’s super competitive business arena, companies are using private aircraft as tools to gain an advantage over their competitors. Why handicap your company with policy or procedure that limits use of Business Aviation? If your company decides it will allow employees to operate employee-owned aircraft on company business, you should have a two-pronged insurance approach: 1) Have a written policy in force detailing exactly what coverage the employee-owner must carry. The firm’s policy for employee-owned or provided aircraft should prescribe a minimum acceptable liability limit, mandate the employer’s company be named as an additional insured, and specify that the insurance contract of the employee be primary, without right of contribution from any insurance the employer may carry. 2) Coordinate this information with the insurance underwriter (and agent) that provides your company’s Non-Owned Aircraft Liability policy. If your company owns an aircraft, you will already have some form of coverage for use of nonowned aircraft. Whether you purchase a standalone Advertising Enquiries see Page 8

policy or already have coverage under your owned aircraft insurance policy, the important point is that the structure of the non-owned coverage must match the exposure. Consult with your aviation insurance broker throughout this process. Be sure to purchase as high a liability limit as you can reasonably afford. Like all liability policies, you only find out if you bought an adequate limit after the loss has been settled. The average aviation wrongful death claim per person is now somewhere north of $5m USD.

CHARTER CONSIDERATIONS

If you charter aircraft, inquire about the charter operator’s insurance limits to ensure the coverage is adequate. Many prospective jet charter clients look for a minimum of $50 million combined single limit, bodily injury to passengers and property damage liability. However, you might require more insurance coverage or, depending on your situation and the operator’s needs, less insurance might be appropriate. Have the charter operator list your company, and any other appropriate parties, as an additional insured with waiver of subrogation status on their aviation insurance policy. In addition, have the charter operator endorse their policy to state it is primary without any right of contribution from any insurance your company may carry. Last, request 30 days’ notice of cancellation or material change and obtain a certificate of insurance/endorsement verifying compliance with these insurance requirements before riding in the aircraft. By doing all of the above, you should be well protected to fly non-owned aircraft on company business.

“...the important point is that the structure of the non-owned coverage must match the exposure.”

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BG 7 Jun13_FinanceSept 21/05/2013 09:29 Page 1

BUSINESS AVIATION AND THE BOARDROOM

The Medium Jet Value Among the many advantageous aspects of Business Aviation, the broad spectrum of solution options suggests Medium Jets can be just the right fit for many operators.

“Using the latter approach makes it possible for a Medium Jet to cover multiple stops and get home at the day’s end, without buying fuel along the way.”

rom Entry Level Jets, through Light Jets and on to the heady realm of the VIPconfigured airliners, an airplane exists that will accommodate your requirement for speed, range and capacity. Of all the business jet categories, however, none does more to balance capability with utility than the Medium Jet segment (loosely defined by aircraft with a maximum take-off weight between 20,001-40,000 lbs); and no segment provides more options, either. Medium Jets, as their label indicates, fall between the Light Jet and Large-Cabin Jet segments in numerous ways, while leaning closer to the LargeCabin segment in several specific areas. This category of jets will tend to be not too big, not too small, and not too expensive.

CABIN VALUE

A smaller Medium Jet can only improve incrementally on the cabin space of the largest Light Jets, while the largest Medium Jet could dwarf the volume of that same Light Jet model. Medium Jets,

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however, tend to cruise at the upper-end of the private jet speed range – between Mach 0.78 and Mach 0.85. If there’s a contest to identify a specific give-back element to the Medium Jet segment, most would opt for runway flexibility. Runway requirements for Medium Jets are generally longer than the average length needed by a Light Jet. But Medium Jets typically can use a significant percentage of the secondary airports serving most of the 150 largest metropolitan areas in the U.S. In general the average Medium Jet can reach most of the U.S. non-stop from almost anywhere in the U.S. as Medium Jets typically can fly from several hundred miles to more than 1,000 miles farther than the Light Jet average. That range capability also gives the crew the flexibility to string together a sequence of stops that total the same distance. Using the latter approach makes it possible for a Medium Jet to cover multiple stops and get home at the day’s end, without buying fuel along the way. This capability to avoid refueling on a multi-leg !

Aircraft Index see Page 4

BG 7 Jun13_FinanceSept 22/05/2013 14:09 Page 2

What the Boardroom needs to know about Business Aviation trip is called “tankering”, and it makes the Medium Jet a more-suitable solution than a Light Jet for the operator who regularly needs to fly 2,000 nautical miles or more on a leg – or who may cover that much in a day or two flying multiple legs.

CONSIDER A MEDIUM JET IF…

While on average faster than the Light Jet, a Medium Jet’s superior speed generally provides only a few minutes of gain on the typical Business Aviation trip of 350 to 500 miles, but the difference will be noticeable on legs as long as the average Light Jet’s typical maximum range. There’s no disputing the advantages of space in the comfort equation, particularly when applied to longer trips. That is ultimately where the Medium Jet’s basic advantage comes into play. Medium Jets deliver plenty of added space and comfort over the typical Light Jet, but at costs still significantly below those of the Large Cabin segment. Indeed, Medium Jets generally can match their Large Cabin kin in terms of speed and, to a point, range while providing reasonable office amenities that are competitive with most larger aircraft.

All things considered, it is little wonder that the Medium Jet segment is the biggest selling, deepest segment across the business aircraft market.

MEDIUM JET PRICE GUIDE

The following Medium Jets Retail Price Guide represents current values published in the Aircraft Bluebook – Price Digest. The study spans model years from 1994 through Spring 2013 (20 year period). Values reported are in USD millions, with each reporting point representing the current average retail value as published in the Bluebook by its corresponding calendar year. For example, Bombardier’s Learjet 45XR values reported in the Spring 2013 edition of Bluebook shows $4.7 million for a 2005 model, $5.0 million for a 2006 model and so forth. Aircraft are listed alphabetically. Aircraft specifications for many of the following models can be found in the Specifications and Performance section in this issue (page 104). Do you have any questions or opinions on the above topic? Get it answered/published in World Aircraft Sales Magazine. Email feedback to Jack@avbuyer.com

“Medium Jets deliver plenty of added space and comfort over the typical Light Jet, but at costs still significantly below those of the Large Cabin segment.”

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Aircraft Index see Page 4

Retail Price Guide June13_PerfspecDecember06 21/05/2013 09:35 Page 1

BUSINESS AVIATION AND THE BOARDROOM

MEDIUM JETS AVERAGE RETAIL PRICE GUIDE 2013 US$M

SPRING 2013

2012 US$M

2011 US$M

2010 US$M

2009 US$M

2008 US$M

2007 US$M

2006 US$M

2005 US$M

2004 US$M

BOMBARDIER CHALLENGER 300

22.0

18.2

17.2

15.5

14.65

13.75

12.75

11.75

11.25

BOMBARDIER LEARJET 60XR

12.0

8.8

7.6

6.8

6.0

5.5 5.5

4.5

4.0

3.6

5.7

5.0

4.7

4.5

4.8

4.4

4.1

3.9

4.0

3.7

3.3

3.6

3.3

3.0

2.7

YEAR OF MANUFACTURE $ MODEL

BOMBARDIER LEARJET 60SE BOMBARDIER LEARJET 60 BOMBARDIER LEARJET 45XR

12.0

9.5

8.1

6.9

6.2

BOMBARDIER LEARJET 45 BOMBARDIER LEARJET 40XR

9.9

8.1

6.4

4.9

4.5

BOMBARDIER LEARJET 40 CITATION X 750

20.0

16.7

15.2

13.5

11.5

10.5

9.6

8.5

7.6

CESSNA CITATION SOVEREIGN 680

16.5

14.5

12.8

11.3

9.8

9.4

8.7

8.2

7.7

CESSNA CITATION XLS+ 560

11.8

10.0

9.2

8.5

7.8 6.1

5.5

5.3

4.9

CESSNA CITATION V1 650 CESSNA CITATION V11 650

CESSNA CITATION XLS 560

6.9

CESSNA CITATION EXCEL 560

4.1

DASSAULT FALCON 50EX

9.3

8.9

8.4

7.9

8.0

7.5

4.3

4.0

DASSAULT FALCON 50 GULFSTREAM G280

24.0

GULFSTREAM G200 GULFSTREAM G150

14.0

13.0

10.3

9.5

9.0

8.5

11.0

10.0

8.8

7.8

7.3

7.0

GULFSTREAM G100

4.6

GULFSTREAM/ ASTRA 1125 SPX GULFSTREAM /ASTRA 1125 SP HAWKER 4000

12.0

11.0

10.0

9.0

8.0

15.0

10.5

8.5

8.0

7.0

6.9

6.5

HAWKER 1000 HAWKER 900XP HAWKER 850XP PRO LINE

5.6

HAWKER 800XP PRO LINE

4.9 4.2

HAWKER 800XP

4.0

HAWKER 800 HAWKER 750

9.0

7.5

6.5

5.9

AIRCRAFT BLUEBOOK DATA - CARL JANSSENS, EDITOR. EMAIL: CARL@JETAPPRAISALS.COM

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Aircraft Index see Page 4

Retail Price Guide June13_PerfspecDecember06 21/05/2013 09:37 Page 2

What the Boardroom needs to know about Business Aviation

What your money buys today 2003 US$M

2002 US$M

2001 US$M

2000 US$M

1999 US$M

1998 US$M

1997 US$M

1996 US$M

1995 US$M

1994 US$M

11.0

YEAR OF MANUFACTURE $ MODEL BOMBARDIER CHALLENGER 300 BOMBARDIER LEARJET 60XR BOMBARDIER LEARJET 60SE

3.4

3.2

3.0

2.9

2.7

2.5

2.4

2.3

2.2

2.0

4.0

BOMBARDIER LEARJET 60 BOMBARDIER LEARJET 45XR

3.5

3.2

3.0

2.9

2.8

2.7

BOMBARDIER LEARJET 45 BOMBARDIER LEARJET 40XR BOMBARDIER LEARJET 40

7.0

6.6

6.1

5.6

3.1

5.1

2.8

4.7

2.7

4.5

2.6

4.3

2.4

CITATION X 750 1.8

1.7

CESSNA CITATION V1 650

2.2

2.1

CESSNA CITATION V11 650 CESSNA CITATION SOVEREIGN 680 CESSNA CITATION XLS+ 560 CESSNA CITATION XLS 560

3.9

3.7

3.4

3.1

2.8

2.5

7.5

7.0

6.7

6.3

6.0

5.7

CESSNA CITATION EXCEL 560 5.5

DASSAULT FALCON 50EX 3.8

3.7

3.6

DASSAULT FALCON 50 GULFSTREAM G280

7.0

6.5

6.0

5.6

5.2

GULFSTREAM G200 GULFSTREAM G150

3.9

3.6

3.4 3.4

GULFSTREAM G100 3.0

2.9

2.8

2.7

2.6

GULFSTREAM/ ASTRA 1125 SPX 2.0

1.9

GULFSTREAM /ASTRA 1125 SP HAWKER 4000

3.2

3.1

3.0

HAWKER 1000 HAWKER 900XP HAWKER 850XP PRO LINE HAWKER 800XP PRO LINE

3.6

3.1

2.9

2.7

2.5

2.4

2.3

2.2

2.0 1.9

HAWKER 800XP 1.8

HAWKER 800 HAWKER 750

______________________________________________________________________________________________________________ AIRCRAFT BLUEBOOK DATA - CARL JANSSENS, EDITOR. EMAIL: CARL@JETAPPRAISALS.COM

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