business jet

NAFA member, Anthony Kioussis, President of Asset Insight, shares report on In-Service Aircraft Values and Maintenance Condition.

Asset Insight’s market analysis on December 31, 2018 (covering 94 fixed-wing models and 1,591 aircraft listed for sale) revealed a 4.3% decrease to the tracked inventory fleet (71 units), with all four groups contributing to the reduction...

Small Jets led the way with a 6% decrease, Medium Jets were next at 5.1%, Turboprops decreased 4.3%, while Large Jets posted the smallest inventory fleet decrease at 2.8%.

Sales transactions put a serious dent in the inventory fleet during the last month of 2018. Large Jets won the 2018 value competition, while Medium Jet sellers absorbed the largest value loss. Small Jets and Turboprops experienced a minor value change – the former an improvement and the latter a decline.

Inventory Fleet Maintenance Condition

Fleet asset quality remained steady as 2018 closed. Large Jet transactions focused on lower quality, and higher priced assets (presumably due to good values) while the asset quality of Medium Jets sold was mixed.

Higher quality assets traded among the Small Jet group, while Turboprop inventory quality recorded a 12-month best with respect to the number of upcoming maintenance events for the remaining fleet, although these will, on average, be more expensive to complete. Overall, the tracked inventory posted the following:

The Quality Rating remained in the ‘Excellent’ range, although it decreased a bit to 5.300 on Asset Insight’s scale of -2.5 to 10.

The year ended with Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) remaining virtually unchanged since November and, at $1.415m, the figure was slightly better (lower) than the 12-month average.

Maintenance Exposure to Ask Price (ETP) Ratio

The ETP Ratio is a useful indicator of an aircraft’s marketability. It is computed by dividing the asset's Maintenance Exposure (the financial liability accrued with respect to future scheduled maintenance events) by its Ask Price.

‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s time on the market increases, usually by more than 30% and, during Q4 2018, assets whose ETP Ratio was 40% or more were listed for sale over 57% longer on average than aircraft whose Ratio was below 40% (246 versus 386 Days on Market).

December’s analysis revealed that nearly 53% of all tracked models and over 62% of the tracked fleet posted an ETP Ratio above 40%. The tracked fleet’s ETP Ratio worsened slightly to finish 2018, increasing to 65.6% from November’s 65.1%.

Click here to read the full article.

This article was originally published in AvBuyer, Vol. 23, Issue 2 2019, p. 22.

NAFA member, William Quinn, Founder and President of Aviation Management Systems, Inc. (AMS), discusses how permanent crews are getting harder to find and the pros and cons of using contract pilots to fill the shortage.

Many owners, unable to find a permanent crew due to the pilot shortage, are turning to contract pilots. Others find that they prefer them. But even if you use contract pilots only when your own pilots are in recurrent training or on vacation, be aware that the rules are changing. What will it take to hire contract pilots in the days ahead?

Most contract pilots charge daily rates for the actual flying, travel time to and from the aircraft, and layover days. While some charge for travel time and layover days at different rates, many charge the same daily rate as for flying. They maintain that their time has value, whether or not they are positioning themselves to and from a flight or in a hotel during layover days.

Contract pilot rates for business jet aircraft have been escalating gradually for the last ten years. In 2008, they earned from $850 to $1,000 a day for domestic trips, and $1,000 to $1,200 for international trips. Today’s rates start at $1,200 a day for domestic trips, with some pilots charging as much as $1,750 a day for international trips. It’s likely that these rates will continue to increase. Here’s why.

The benefits associated with being a full-time contract pilot are compelling. They can control their schedules by accepting or rejecting trips, which improves the “quality of life” aspect of flying increasingly important to today’s younger pilots.

But the downsides include: no regular paycheck, responsibility for training expenses ($30-$50,000 a year), health insurance, workers compensation, and liability coverage ($30-$40,000); plus payment of the full FICA tax at 15.3%. Interestingly, some contract pilots roll the dice when it comes to insurance, which can be problematic both for the pilot and the aircraft owner/operator should a claim arise.

So what are the actual economics of being a full-time contract pilot? A pilot charging $1,200 a day, who flies 15 days a month or 180 days a year, could earn a gross annual income of $216,000 a year. Given the estimated expenses above, that equates to an average pre-tax income of approximately $121,000. Assume that the contract pilot has a non-exclusive anchor client who agrees to pay for his or her training in exchange for a commitment of 10 days a month, at a discounted rate of $1,000 a day. This payment is made monthly whether the pilot flies or not. So that pilot forfeits $24,000 in income, but saves $50,000 in training expense, which nets another $26,000.

This pilot flies 120 days a year for $120,000, and another 60 days a year for $72,000, for a total gross income of $192,000. Now the pre-tax income jumps from approximately $121,000 to $147,000.
A pilot willing to give up some quality of life, flying 200 billable days a year, could gross $240,000 a year. Minus expenses and taxes, the net could be approximately $144,000.

Why Use Contract Pilots?

From an employer’s perspective, using contract pilots can be advantageous. Companies with healthy benefit packages may pay as much as 30% overhead on a pilot’s annual compensation. So employing one permanent, full-time pilot for $150,000 a year actually costs $195,000.
Depending upon your company’s needs, using contract pilots for upwards of 120 days a year could net savings of 26% in labor costs. But be mindful of the pitfalls of using contract pilots who are not properly trained or insured. Exercising due diligence is critical for both the company and the contract pilot.

Because of the need to cover most of their own expenses, it looks like contract pilot rates are only going to go up – not necessarily a negative, considering the advantages for those employers who want to keep both their head count and basic overhead down.

This article was originally published in Business Aviation Advisor on November 1, 2018.

NAFA member, David Wyndham, Vice President and Director of Business Strategy, with Conklin & de Decker, discusses the need to consider QUALITY of time saved with business aircraft.

Business aircraft provide many advantages for busy CEOs. Yet David Wyndham demonstrates that simply measuring time savings does not give the full picture…

The July/August edition of Harvard Business Review published the results of research looking at how CEOs spend their time. The study collected, coded and analyzed data for over 60,000 CEO-hours in 15-minute increments. The average annual revenue of the companies these CEOs run is $13.1bn.

The data was well researched and quantified, and it proved what seems obvious: CEOs are busy people. What also should become clear is the benefits that a business aircraft can have for these busy individuals, when used effectively.

To fully grasp those benefits, however, we need to consider more than just the time saved by using business aircraft. We need to consider the quality of that time, too.

The Travel Need

One take-away from the study is that where CEOs choose to spend their time is critical to their own effectiveness and signals the priorities for others within the company.

According to the research, about half of the polled CEO’s work time was spent outside the company headquarters – so with the CEOs averaging 62.5 hours a week, about 33 hours are spent outside of headquarters.

Face-to-face communication is the best way to learn what’s going on and to demonstrate to the entire organization what’s important. Spending time with frontline employees, on the factory floor, in the showroom and out in the field demonstrates more than any well-crafted email or video that everyone has an important role to play towards the success of the company.

These frontline visits also enable the CEO to get reliable information as to what is going on. Sales are an indicator of the health of a company, but so is talking with the sales clerk at the store. CEOs need to meet with investors, senior leadership teams, divisions heads, the board of directors and more.

More than one-third of a CEO’s time was found to be spent reacting to and dealing with unfolding developments. This could be a crisis (i.e. a fire shutting down a factory, a developing trade war impacting future costs, a strike), or an opportunity to purchase a competitor or complimentary organization.

Meanwhile, spending time with customers is also considered important, though the study showed that CEOs only spend about 3% of their time with customers, relying on others within the organization to be the interface.

The CEOs polled within the research felt this was too little time.

All the above should indicate clearly that a CEO is on-the-move, needs to be in many places, and plenty of travel is required to enable them to be face-to-face. The use of a business aircraft comes to mind of course, but why not just use the airlines?

The Business Aircraft Travel Advantage

We’ve highlighted many times before how the use of business aircraft results in less time spent traveling. Much of the travel time reduction is the result of being able to travel to airports located convenient to the facility or customer; direct, non-stop flights (avoiding the need for connecting flights); and the fact that the business aircraft departs and waits on the CEOs schedule.

In studies I’ve undertaken with clients, the travel time differences can range from a few hours to several days. I had one client that could fly to their plant in Nevada, have a four-hour meeting, and return home in a 12-hour day on the business aircraft. Undertaking that same trip via the airlines would have cost the client two nights away from home, due to the poor Airline connections.

Yet even with city pairs well served by the airlines (i.e. New York to Chicago or London to Berlin) the business aircraft can take less time – and given the demands on a CEO’s time even an additional two hours weekly can be worth their weight in gold.

The Business Aircraft Quality Advantage

Business aircraft add value in other ways that airline travel cannot, taking us into the realm of quality of time. For example, the Harvard Business Review’s study also discussed the urgent need for CEOs to find room to think, reflect, relax, exercise and eat well.

For many CEOs the time spent in a business aircraft gives them the space and opportunity to think and reflect. Brain research is showing that this quiet downtime, which was once thought of as unproductive, is necessary for the human brain to function at its most effective.

Little opportunity is provided in a security queue, sitting on a packed Scheduled Airline flight, or waiting for a cab for anyone to reflect and be thoughtful.

That four-hour round trip on a business aircraft, combined with allowing the time for a morning run and still being home for the kids’ bedtime is incredibly valuable to a CEO’s mental health and well-being to manage the immense demands placed on them every single day.

The quality of the time spent on the business aircraft in whatever way the CEO decides to use it may just be the secret weapon of the super-effective CEO.

This article was originally published in AvBuyer on September 25, 2018.

Tinton Falls, NJ – August 9, 2018: According to AMSTAT, 5.0% of the Heavy Jet market group turned over in the first six months of the year, the best first six months in this group since 2007.

The report breaks the market into Heavy Jet (>=40,000 lbs), Medium Jet (20‐40,000 lbs), Light Jet (<20,000 lbs) and Turbo‐Prop groups and then further reviews these groups using the following age segments: Newer (<=10 years), Mid‐Age (11‐20 years) and Older (>20 years). Below we use the abbreviation “H1” to describe the first half of the year.

First Half 2018 Resale Retail Transaction performance was better in Larger and Newer market groups and segments:

• At a macro level, there were modest increases in the number of Jets and Turbo‐props sold in the first half of the year compared to 2017 (see Historical Perspective charts 1 & 2), but the overall active population of these aircraft also increased. A more relevant comparison is to look at the percentage of the active fleet that sold by group and age segments (see Historical Perspective chart 3).

• Resale transaction activity in all Heavy Jet age segments performed better in H1 2018 than in the same period in 2017. In each Heavy Jet age segment the percentage of active fleet sold in H1 2018 increased over H1 2017 from: 4.2% to 5.7% in the Older segment, 5.0% to 6.0% in the Mid‐Age segment, and 3.2% to 3.9% in the Newer segment.

• In the Medium Jet group 5.1% of the fleet sold in H1 2018. This matched transaction activity in the same period in 2017 which itself outperformed the first six months of the previous two years. At a segment level only the Older Medium Jet segment performance in H1 2018 beat the same 2017.

• The Light Jet group did not perform as well with 4.8% of the fleet turning over in H1 2018 versus 5.1% during the first six months of 2017. Despite the overall Light Jet performance, 4.7% of the Newer Light Jet age segment turned over in H1 2018, exceeding 4.2% in H1 2017.

• In the Turbo‐prop group, 3.9% of the fleet turned over in H1 2018, modestly up from 3.8% during the same period the year before. The Newer Turbo‐prop slightly underperformed H1 2017 with 3.7% of the fleet turning over in H1 2018 compared to 3.9% the year before. H1 2018 transaction activity in the Older and Mid‐Age Turbo‐prop groups exceeded transaction activity in these groups in H1 2017.

  Most market groups and age segments are reporting inventories at their lowest in many years:

At a macro level, 9.1% of the Business Jet fleet is for sale, the lowest overall percentage since 1998; and 7.2% of the Turbo‐prop fleet is for sale, a historical low in this market. Historical Perspective chart 3 shows that the gap between major inventory peaks and troughs during the last two industry cycles was approximately 6 years. The contraction since the peak in inventory in 2009 has been running for 9 years so far.

• 6.8% of the Heavy Jet fleet is for sale compared to 9.0% a year ago. This is the lowest percentage of Heavy Jets for sale since 1998. The greatest year‐over‐year contraction has occurred in the Mid‐Age (from 9.0% to 6.3%) and Newer (from 7.6% to 5.2%) Heavy Jet segments.

• 9.2% of the Medium Jet fleet is for sale compared to 10.7% a year ago. This is the lowest percentage in this group since 2000. The greatest year‐over‐year contraction occurred in the Mid‐Age (from 11.6% to 9.6%) and Newer (from 6.2% to 4.8%) Medium Jet segments.

• 10.7% of the Light Jet fleet is for sale compared to 11.7% a year ago. Contraction in the last 12 months has been particularly noticeable in the Newer segment with 5.6% for sale today versus 7.9% a year ago.

• 7.2% of the Turbo‐prop fleet is currently for sale compared to 8.2% a year ago. This is the smallest amount of year‐over‐year contraction at the group level but a historical low for the Turbo‐prop market. The greatest year‐over‐year contraction in this market has been from 7.5% to 5.7% in the Mid‐Age Turbo‐prop segment.

  The Average Asking Price data shows recent increases in the newer aircraft segments:

• The Average Asking Price for Newer Heavy Jets is at $26.5M up 8.1% year‐over‐year and 17.7% year‐to‐date. As always, we caution that this is a very small population of aircraft and so the Average Asking Price metric for this segment can be moved considerably by only a few changes. In this case, the Average Asking Price for Newer Heavy Jets jumped in June / July due to additions to the Gulfstream G650 and G650ER, Dassault Falcon 8X and Boeing Business Jet markets at asking prices that substantially moved the average. In contrast, the Average Asking Prices of Older and Mid‐Age Heavy Jets have remained largely unchanged on a year‐over‐year and year‐to‐date basis.

• The Average Asking Price for Newer Medium Jets is at $7.2M up 4.4% year‐to‐date, although off 3.1% year‐to‐date. In comparison, the Older and Mid‐Age segments are off 16.9% and 9.5% year‐over‐year and 3.0% and 4.2% year‐to‐date.

• The Average Asking Price for Newer Light Jets is at $3.3M off 2.0% year‐over‐year but up 4.8% year‐to‐date. In comparison, the Average Asking Price for Mid‐Age Light Jets is up 5.2% year‐over‐year and up 9.8% year‐to‐date to $1.9M. The Average Asking Price for Older Light Jets is now below $700K.

• The Average Asking Price for Newer Turbo‐props is up 11.1% year‐to‐date to $2.9M and up 5.4% year‐over‐year. The Mid‐Age Turbo‐prop Average Asking Price is flat year‐over‐year but up 4.4% year‐to‐date to $1.7M. Average Asking Prices for Older Light Jets continue to slide.

  Read the full Market Update at AMSTAT.

Tinton Falls, NJ – May 2, 2018: According to AMSTAT, the first quarter of 2018 was a mixed bag for resale retail transactions but consistent, from an inventory perspective, as the availability of used aircraft tightened across all market segments.

The report breaks the market into Heavy Jet (>=40,000 lbs), Medium Jet (20‐40,000 lbs), Light Jet (<20,000 lbs) and Turbo‐Prop groups and then further reviews these groups using the following age segments: Newer (<=10 years), Mid‐Age (11‐20 years) and Older (>20 years).

Q1 Resale Retail Transaction performance was inconsistent across market groups and segments:

• In the Older Heavy Jet segment, 2.7% of the fleet turned over during Q1 2018 compared to 1.6% in Q1 2017. In the Mid‐Age Heavy Jet segment, 2.4% turned over in Q1 2018 versus 2.0% in Q1 2017 and in the Newer Heavy Jet segment, 1.9% turned‐over in Q1 2018 versus 1.1% in Q1 2017.

• In the Medium and Light Jet groups, the Q1 2018 performance in the various age segments was generally below or the same as for the same period in 2017. For example, while 2.2% of the Newer Medium Jets turned over in Q1 2017, only 1.5% turned over in Q1 2018; and while 2.1% of the Newer Light Jet segment turned over in Q1 2017, 2.0% turned over in Q1 2018.

• In the Turbo‐Prop group, Q1 2018 performance was generally on par with Q1 2017 with between 1.7% and 1.8% of active fleet turning over in each of the age segments.

  All market groups and age segments are reporting lower percentages of the fleet available for sale:

  • In the Newer Heavy Jet segment, 4.9% of the fleet is available for sale, compared to 8.0% a year ago. This the lowest percentage of this fleet for sale since 2013. In the Mid‐Age Heavy Jet segment, 7.3% of the fleet is for sale, compared to 10.2% a year ago. We have to go back to 2008 to see the last time that this segment was at this level.

  • In the Newer Medium Jet segment, 5.6% of the fleet is for sale, compared to 6.9% in April 2017. The percentages are currently higher in the Mid‐Age and Older Medium Jets at 10.0% and 13.9%, but these percentages are also down from a year ago when they were 11.6% and 14.9% respectively.

  • In the Newer Light Jet segment 5.8% of the fleet is for sale compared to 8.6% a year ago. This is lowest percentage in this particular market segment since AMSTAT has been keeping records. As with the Medium Jets, there is a higher percentage of the Mid‐Age and Older Light Jet segments for sale, but these percentages have also come down from a year ago.

  • In the Newer Turbo‐Prop segment, 5.0% of the active fleet is for sale, down from 5.9% a year ago. The Older Turbo‐Prop segment is at 9.4% and the Mid‐Age segment is at 6.2%, down from 10.2% and 7.9% respectively a year ago.

Read more at AMSTAT.