Not silver but sustainable business aviation dominated the two-day event at the resort amid the tall saguaro cacti. Prickly topics under discussion included the health of the US economy, particularly the impact of high interest rates, the disillusion of some first-time buyers and business aviation under attack.

But there was more gain than pain when it came to the upbeat assessment of the US economy from Gus Faucher, chief economist, PNC Financial Services Group. Without minimising the impact of high interest rates, which could (but not necessarily will) pitch the US economy into recession, Faucher highlighted positive factors likely to lead to steady growth this year and into 2025.

“The US economy is in very good shape right now,” he said. “The economy is 8% larger than it was before the pandemic. Some 22m jobs were lost due to the pandemic but those have been regained and another 8-9m jobs added to where we were before the pandemic.” Strong labour markets underpin consumer spending power, which was driving broad-based economic growth across the US, he added.

Returning rates to 2%

But there are reasons for pessimism. The “inverted yield curve” – meaning short-term interest rates were higher than long-term interest rates – was often associated with recessions. Faucher estimated the likelihood of a US recession at about 35%. However, he felt confident that the Federal Reserve would be successful in returning rates to its goal of 2% from their current level of just over 5%.

“There is likely to be slower growth this year but still growth,” he summarised. “Spending will continue to support growth in 2024, with the Fed cutting rates later this year for technical reasons [partly to cool wage growth] starting in July and in 2025. That will support growth this year and into 2025.”

Interest rates are affecting the decision to buy aircraft but not in the obvious way of affecting decision-making, said Shawn Dinning, senior partner, Dallas Jet International. “I don’t see a situation where a prospective buyer or borrower is looking at rates and saying, ‘I can’t afford this deal’. We are not seeing a delay in decisions to buy. About 70% of our business lately has been cash.”

But interest rates are affecting the core business of his clients – principals and corporations. “We do a lot of multi-family-type real estate companies and two years ago they were printing money, now they went from a nice positive cash flow position to bleeding hundreds of thousands if not millions of dollars because of interest rates,” said Dinning. In some cases, owners need the liquidity on the airplane. “They have to prioritise, so the airplane gets the axe,” he added.

On a more positive note, he said: “Demand continues to surprise me in a good way and it’s keeping up with this increase in inventory in a pretty good way.”

‘More transactions in Q1’

Wayne Starling, executive director of International Aircraft Dealers Association (IADA) agreed. “There were more transactions in the first quarter of this year than there were in the first quarter of last year,” he said, based on his association’s latest report.

But Johnny Foster, president and CEO, OGARAJETS reported growing frustration and disappointment among first-time buyers. Before the pandemic, almost every year consistently, first-time buyers accounted for about 5% of the purchases of aircraft. But that figure rose to 38% of buyers between 2020 and 2022, he said.

They came into the market, often buying legacy aircraft with the promise of bonus depreciation and excessive demand for charter. “Now we are hearing and seeing these first-time buyers are disenfranchised with the model because their aircraft is not flying 600 or 1,000 hours a year [through charter]. It’s flying 100 hours a year,” he said. “And their pilots’ salaries have tripled over the past three years, and they are now being told they have to have three pilots instead of two pilots.”

These frustrations were compounded by their first main maintenance event, which “has caught many by surprise”. The legacy aircraft that cost only $2m or $3m to buy could be facing inspection costs of half a million dollars, said Foster.

‘Full-scale attack’

From disappointment to hostility. Business aviation is under “full-scale attack” and not just in Europe, warned Ed Bolen, president and CEO, National Business Aviation Association. “There is an effort to find ways to disparage our industry which is not consistent with data and our strategy. We see it in a lot of ways,” he said. Examples include the February 21st announcement by the Internal Revenue Service (IRS) that it intended to step up its aircraft owner audits.

Other examples cited were the five-fold increase in fuel tax over five years and the plan for longer depreciation periods. Combating these and other threats would rely on a coordinated industry response and lobbying policy-maker, he said. Not least via the NBAA’s Climbing.Fast campaign.

Speaking to CJI after his presentation, Bolen set out his goals for the end of the decade. “By 2030, we will be ready to answer the SAF Challenge of 3bn gallons produced in the US,” he said. “We would like to see operators continue to look for ways to operate even more sustainably.” That means looking at good quality offset programmes and book-and-claim options. “And we are working hard to introduce advanced air mobility and hybrid solutions and the effectiveness of our air traffic integration.”

Despite challenges facing business aviation – not least high interest rates, supply chain difficulties and the shortage of pilots, airframe and powerplant technicians – the industry can look forward to a bright future as wealth generation and transfer continue to fuel demand, according to speakers.

Stephen Friedrich, chief commercial officer, Embraer summed up the reasons for optimism: “Over the next 20 years, we are going to see a $73trn wealth transfer from Boomers to Generation X and Millennials – and that is only just beginning. This is in addition to [aircraft] purchases by corporate flight departments and private individuals.”

Back in the 19th century the silver boom soon turned to bust, with fire consuming the mining town of Quijotoa in 1889. Attendees at the NAFA conference heard strong reasons to believe in a much more sustainable (and profitable) future for business aviation.

Prickly saguero cacti surrounded the conference venue. Inside, delegates discussed thorny topics such as the impact of high interest rates.

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It all began in 1956, with a call on his cousin at Dallas Aero. After serving as an aeronautics technician in the US Air Force, Jack easily mended a faulty automatic direction finder, which had frustrated the company’s workforce. He was hooked. After joining the company, he was soon running the radio shop. In the early 1960s, Jack was one of three employees at a new division of Qualitron Aero at Meacham Field, Fort Worth, Texas. The company later blossomed to more than 400 employees engaged in modifying government and corporate aircraft. Jack left as senior vice president.

In 1973, he found his footing in sales with Associated Air Center at Dallas Love Field. Five years later, he started his own company, Jack Prewitt & Associates. Along with his dedicated team, he built the business into an organisation that has sold more than 1,200 aircraft and tallied sales topping $4bn, according to the company. He was also a founding member of the National Aircraft Resale Association (NARA), now the International Aircraft Dealers Association (IADA).

Behind the detail is a life lived to the full. A life of hard work and even harder play, dedication to family and a passion for people – always tempered by his trademark Texas humour. 

Charles ‘Bucky’ Oliver, founder and chairman emeritus, Jetcraft remembers a lot of fun. “I can’t think of Jack without smiling,” Oliver tells CJI. “That Texas sense of humour. He was a visionary who could smell money.” But his business relationships always extended beyond finance, says Oliver, who met him in the early ‘60s. “You always took his call – you always worked towards a deal and you always ended up a friend.” He remembers: “The only thing Jack did harder than work was play.”

Many remember Jack’s willingness to share advice and the loyalty he inspired. Brad Harris, president and CEO, Dallas Jet International knew him for 25 years. Jack was a friend and a mentor. “He was like a grandfather to me, and I will remember him as such,” he tells us. “Jack was a true pioneer, visionary and laid the groundwork for success in transacting business aircraft.”

For Harris, Jack was the “Godfather” of the broker/dealer world. “His impact on the aviation community will live on for generations to come.” Harris particularly values sharing an office building with Jack and his company and their discussions about business and personal life. “I am grateful for the time I had with the one and only, Jack Prewitt. Rest easy my friend.”

Wayne Starling, executive director, IADA remembers Jack as being “bigger than life”. Everyone in business aviation knew or had heard of Jack. “He will be remembered for many things and for many reasons, but most of all, he will be remembered as a pioneer, a trail blazer, and an ambassador for our industry. He always gave more than was expected.” 

Johnny Foster, president & CEO, OGARAJETS recalls Jack Prewitt & Associates as perhaps the first true global aircraft dealer. “His name became synonymous with deal making – and big deals. Jack carried a mighty line of credit and was willing to buy and hold big-stakes inventory – and often served as a bank for smaller firms that did not have the financial horsepower, or courage, to make a big inventory play.”

Jack’s partnerships were always fair and transparent at a time when other operators felt less constrained by business morals. “Jack’s word was his bond – Jack lived it,” Foster tells us. “Today, aviation remains largely unpoliced, but back in the ‘80s and ‘90s, the industry was truly the Wild West, where most brokers were simply out to take care of themselves.”  

Business for Jack was more than making money. “Of course, Jack was a business man – a damn good one – and he made a lot of money during his reign, however, he also aimed to create genuine relationships with his clients and fellow brokers. He helped bring the industry to a higher-level where buyers and sellers felt more trusting of the process and players.”  

The last words go to Jack himself. It comes courtesy of his advice to Starling from IADA, the organisation Jack helped launch. “Son, if you want to compete and be successful in this industry, you will have to put in hard work and build relationships based on trust and value.”  (Photograph courtesy of IADA).

The post OMW: Remembering Jack Prewitt (in three words) appeared first on Corporate Jet Investor.

Mesinger said: “We are busier than we were in 2004-2007. There is a huge influx of first-time buyers, all High Net Worth Individuals [HNWIs], but almost the entire corporate side of the industry has retreated, except to sell – transition selling – where they might have gone to the OEMs, ordered a couple of airplanes and are having us relinquish the old planes.

“There is a supply right now that is not intruded or impacted so negatively by demand meaning that prices are going down as much as 5-20%. But compared to 2008 or 2015-17, where the market was going down 4-5% a quarter, we’re still enjoying a high degree of transactions and not such a residual loss to sustain.”

Harris said that 2020 would be the company’s first or second-best year in terms of revenue, in its 29-year history. “Our team has never been busier – we are also seeing a lot of first-time buyers, or HNWIs upgrade [about 90%]. It is a weird time, but Covid has not impacted the pre-owned sector transactionally,” he said.

Scott McCreary, attorney at McAfee & Taft, agreed with both, saying his firm is seeing lots of transaction activity. But he pointed out that it is not always about buying and selling aircraft.

“It could be someone wanting to get out of the market or restructure their debt or looking into the sharing the use of their aircraft,” he said. “On the new or pre-owned aircraft side though, we are working with a lot of new entrants.”

Another reason why Mesinger and Harris might be busy, according to McCreary, is that many of these transactions are coming “through established brokers”. He said they are the brokers picking up more deals than competitors who would normally pick up one-off deals.       

All noted that corporate clients are getting out of the fractional ownership programmes, while individuals – especially groups of individuals such as friends – are keener wanting to purchase or co-own jets.

Even Harris, who usually sells whole aircraft, is getting asked about charter and jet card memberships.

“Many people who enquire with us are possibly those who were finally ready to get off the fence, some after years of sitting on it, and act on it – by paying our retainer, hiring us and entering the market,” said Mesinger. Safety of private travel and the ease of access are foremost reasons.

However, Harris highlighted the lack of corporate demand: “When that comes back up, in the next few years, 2022-23, what’s going to happen to supply and pricing?”

Watch the full session here:

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When an aircraft broker consults with a client about the ideal aircraft, it is important that they thoroughly understand the clients’ transportation needs in order to help them select the best aircraft.

Not surprisingly, cost is usually the most important factor. Of course, major considerations also include speed, range, cabin size and dispatch reliability of the aircraft. But what sometimes surprises clients is the difference that operating costs can make to the total financial picture.

MUST-READ: Is it time to upgrade your business jet?

In some cases, operational costs can have such a significant impact on the total investment profile of an aircraft that it becomes a financially sound decision to purchase a newer, larger, or otherwise more expensive plane that has lower operating costs. We will illustrate this as a case study in a future article.

What follows is a discussion of the key factors we consider as we guide our customers through the aircraft selection process.

Operational costs

Operational costs include all of the expenses required to own and operate the airplane, including fuel, pilots and crew, scheduled and unscheduled maintenance, hangar, insurance and many other factors.

WATCH: How to sell your business jet

Operational costs are further divided into variable costs and fixed annual costs.

Understanding variable costs

Variable costs are linked to the number of hours the aircraft is flown.

Fuel is the largest operational expense. Just as smaller, lighter cars get better fuel economy than large SUVs and RVs; smaller, lighter aircraft are usually more fuel efficient. Smaller, simpler jets may have lower crew and maintenance requirements. Landing and parking expenses are also lower for smaller business jets.

The table below lists the estimated cost per hour for five popular business jets:

Understanding annual fixed costs

Whether the aircraft is flown or not, annual fixed costs accrue. Crew salaries, required training costs, hangar, insurance, avionics software updates, and many other expenses must be paid to keep the aircraft ready to fly when you need it.

While some maintenance requirements are based on the number of hours flown, there are also maintenance requirements that are based on the age of the aircraft. These time-based maintenance items are counted as annual fixed costs.

The chart below illustrates the difference in annual fixed costs across these aircraft:

The post How much does it cost to own a business jet? appeared first on Corporate Jet Investor.

A Brazilian-registered Challenger 300 (Photo: J.P. Gosselin).

A real-world example can be very helpful in understanding the importance of balancing acquisition cost with operational cost.

A client approached us with this very question several months ago. He owns a 1990 Bombardier Challenger 601 for the last 10 years. The operational costs seemed high, and the aircraft was not serving his needs as well as it used to.

Dallas Jet International (DJI) performed an analysis of his current aircraft value and recent sales of comparable aircraft. We also performed our usual process for analyzing his current needs, including, among many other factors:

• Budget for the acquisition
• Annual budget for operational costs
• Usual range of travel
• Passengers/Luggage
• Conditions of typical destinations (high, hot, short runways, other considerations)
• City Pairs
• Domestic/International travel needs
• Cabin and amenity preferences and requirements

Based on our client’s needs, we provided a short list including a (newer) Bombardier Challenger 300, a Citation Sovereign, or a Falcon 2000. We provided information and discussed the particulars, and decided upon a Citation Sovereign as the ideal solution for their needs.

Together, we determined that a Citation Sovereign was the ideal aircraft. Our client requested that DJI begin looking for on- and off-market Citation Sovereigns available to acquire.

Here’s a simplified breakdown of the numbers:

So far, it certainly seems as though our client is spending considerably more money. But the “rest of the story,” as Paul Harvey used to put it, is this: Our client flies approximately 300 hours per year. At that rate, they save about $720,000.00 per year in operating costs.

If our client keeps the aircraft for nine years, he has saved more than enough to cover the additional outlay in acquisition cost, including the interest or opportunity cost of using that money.

In addition to the cost savings realized over time, our client also enjoys many benefits of an aircraft that is seventeen years newer:

• Faster, easier and less frequent required maintenance
• Better dispatch reliability
• A safer, more reliable airplane
• More advanced avionics
• A much newer, more luxurious interior

As always, it’s our objective to find the best outcome for each client’s individual situation. A newer, more expensive airplane may NOT be the best choice for you. But if you’re flying an older aircraft, you fly a lot, and you find that your airplane is becoming less reliable and potentially facing expensive repairs, please give us a call and let’s talk about your situation and options.

The post Is it time to upgrade your business jet? appeared first on Corporate Jet Investor.

Data from Jetnet reflects this. It says jet sales were up 11.2 per cent in the first seven months of 2011 and average aircraft asking prices were up $2.7 million in July 2011 from a year before. But three leading brokers say it is less clear. Demand for large aircraft is definitely up but it some small cabin aircraft values could still fall.

Corporate Jet Investor interviewed:

Oliver Stone, managing director at Colibri Aircraft, which specialises in the marketing, resale and purchase of pre-owned private aircraft worldwide.

Brad Harris, founder and CEO of Dallas Jet International, a firm specialising in representing buyers and sellers, as well as aircraft marketing, aircraft trades and factory-new purchases.

Josh Mesinger, vice president at J. Mesinger Corporate Jet Sales, which acts as broker to buyers and sellers, as well as working with its clients in aviation asset management.

Corporate Jet Investor: What aircraft types are selling?

Stone: The big stuff is currently doing very well. G550s and Global XRSs are hard to find, the G5 is still selling well. The reason the big stuff has recovered much quicker is individuals buying this sort of aircraft are wealthy enough that even if they lost half their wealth to the financial crash they can still afford it. The level of transactions is now much better compared to, say, 2009, which was a miserable year for everybody.

Harris: Our first quarter this year was the best we’ve had in a long time. In the second there was a bit of a slowdown, but there was an uptick in the third and the fourth is looking very strong. There are lots of deals being done and the trend
in sales looks much more promising.

The market is strongly differentiated by size. Large cabin aircraft younger than 10 years are appreciating in value, and the G5 market is doing very well. The market has changed from high-supply-low-demand to a situation where some larger models are hard to find.

The big unknown today is 20 to 30 year-old aircraft like Lear 60s. They are still finding themselves; the Hawker 700 for example is now a throwaway aircraft.

We’ve witnessed a compression from the top in the pre-owned market over the last couple of years. Globals and G550s dropped in price, and the delta between the classes had to stay intact, so that forced the prices of all the smaller aircraft down as well.

Mesinger: The market is segmented by size and model, the long range models are in great demand with very little supply.

CJI: Where are the buyers based?

Stone: Half Gulfstream’s sales now go to Asia, but we’re still not seeing many pre-owned deals there. Asia likes to buy new. The big drivers at the moment are the emerging economies, with South America definitely the hottest market at the moment. Brazil in particular is showing plenty of interest, they have a good understanding and a passion for the product.

Harris: Asia is certainly the biggest market opportunity, but the infrastructure just isn’t there, it will take at least four or five years to reach anything like the sufficient level. Regulation is also a big obstacle. So Asia is certainly not a pre-owned market at the moment, and neither is India, they also like to buy new.

South America is the most active, places like Brazil, Peru and Argentina are bringing lots of business. Russia is starting to become aggressive once more and the Middle East is starting to spend, the US and Europe both dipped and are about even now. On average 72 per cent of all new aircraft delivery is now outside the US.

Mesinger: Europe has been slow for a while now. South America is certainly showing decent demand, but the hottest market right now is  probably Mexico, we’re seeing a lot of deals done there.

CJI: Who is buying?

Harris: I’ve discussed this with GE Finance and Bank of America, and they agreed that in the fourth quarter 2010 and the first quarter 2011, it was mainly large corporates and super wealthy individuals buying. In the second and third quarters this year we saw smaller corporations starting to buy small and mid-size aircraft and less wealthy individuals looking to buy also.

Stone: Every broker will tell you something different about who’s buying, I set up my own company recently and I’ve been dealing mostly with individuals.

CJI: How are they paying?

Stone: Most deals are still being done in cash, though there is more financing around today than there was in 2009.

Harris: Around 80 per cent of deals are in cash. GE Capital is also saying financing is out there, but the financiers have changed the rules. Now the age of the aircraft plus the term of the financing can’t be more than 20 years.

Mesinger: There is a little more financing around, though it is still very limited. Older aircraft are struggling for finance as most lenders won’t finance models that are older than 15 years.

CJI: Is it a good time to buy?

Stone: It’s a great time to buy pre-owned jets. There are some unbelievably low prices around at the moment. Legacy 600s, for example, are trading at half the price they were three-and-a-half years ago. There isn’t enough confidence in the market for an end to distressed sales. Aircraft tend to trade based on the last deal done, so when sellers accept a lower price for their plane the value of the next owner’s falls.

Harris: I wouldn’t say it’s a great time to buy everything. The G4 market, for example, is still falling so you could get a better deal further down the line. Having said that, there are some good deals to be had. We’ve seen a Falcon 50 recently down from $3.3 million to $2.5million, and even a G550 down from $38.9 million to $36.9 million.

Mesinger: Most markets are definitely buyers’ markets. There are some great opportunities at the moment in mid-size and super mid-size aircraft. Buyers should be stepping up with more confidence as they should get a really good deal.

CJI: Has the bottom been reached?

Stone: I don’t think all markets have reached the bottom in terms of prices. Again it depends on the size of aircraft, the larger cabins have started the turnaround, I think we’ll see some of the smaller cabins dropping further.

Harris: I would say newer small cabin aircraft have hit the bottom and are turning around. Mid-size aircraft like the Challenger 300 are stable. The larger cabins, of course, are doing very well. The big question for me is whether the G4 market will make a recovery. Buyers are becoming savvier and they are all looking for a deal, the G4 does a lot for comparatively little money but it is very expensive to run. I would say 60-70 per cent of markets are stable, but once they turn it will be too late as prices will rise very quickly.

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