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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Agriculture accounts for a quarter of Brazil’s economy and with some economists forecasting that this is the start of a long-term commodities boom it could soon be more. The hottest new Brazilian telenovela is Terra e Paixão (Land and Passion) where a teacher takes over her murdered husband’s farm.

When you think of South American agriculture companies buying aircraft you probably picture farmers buying crop dusters like Embraer’s Ipanema. The largest agri companies think a lot bigger. JBS, a Brazilian meat producer, had sales of R375bn ($71bn) last year, for example, and has 260,000 employees in more than 20 countries. Large multinationals like this are increasingly looking for options.

“We are seeing strong demand in Brazil. The economy is strong and we are seeing a lot of interest from agribusiness as well as services and retail,” said Stephen Friedrich, chief commercial officer, Embraer talking to CJI in Brazil last week. “We see buyers looking to fly within Brazil and a lot of demand for the Praetor 600’s ability to fly from São Paulo to Miami. A lot of businesses appreciate that.” (Pictured is a Praetor 600, courtesy of Embraer).

The atmosphere at LABACE in São Paulo last week was visibly upbeat. With all the manufacturers attending seeing interest from potential customers. “It is a great time for business aviation in Latin America, we are very excited about Brazil,” said Marcelo Moreira, vice president sales, Textron Aviation.

Moreira says they are seeing strong demand across the Textron range. Textron has delivered more than 250 new turboprops and jets to Brazil over the past five years. He adds: “It is a great market and we have invested a lot into it.”

Brokers are seeing similar interest for pre-owned aircraft. “Agribusiness is our tech industry,” says one Brazilian broker, “but we are also getting a lot of demand from other sectors post-Covid just like in the US.”

Getting aircraft into the country is still complicated. The World Bank used to publish a ranking of the easiest countries in which to run a business. (Ironically it stopped in 2020 due to ethical concerns about the data.) In its last report Brazil ranked 124th.

But Brazil came 184th for ease of paying taxes. In 2019 the World Bank estimated that it took companies an average of 1,500 hours per year (or 187 workdays) to comply with Brazilian tax laws. A Singaporean company would expect to spend just 64 hours.

Tax can be charged at federal, state, and municipal levels and each can have different approaches. There are a lot of taxes involved in importing aircraft – state VAT, import tax, industrial products tax and others. In 2012 Brazil’s tax authority famously seized a number of N-registered jets, but these problems are in the past.  

Large trading companies like Timbro, Comexport, Razac, Sertrading and Savixx have simplified imports and are key players in the market. They were some of the biggest exhibitors at LABACE this year.

Politicians across all the major parties are committed to simplifying the tax system. The lower house approved the first draft and this is now in the Senate. Lawmakers are hoping to have reached agreement by the end of the year although it will take years to come into effect.

“The whole concept of simplification is a good one, but for now the only thing we know for sure is that the Senate will make changes – nothing is finalised yet,” says João Paulo Servera, who heads the aviation group at law firm Veirano Advogados.

One benefit of the import taxes is that aircraft that have been brought in tend to stay in the country. But the real reason they stay is that companies with aircraft in Brazil have a real advantage.

“Brazil is similar in size to the US, but has a lot of room to improve with airline connectivity. We are seeing a lot of businesses looking for aircraft to give them flexibility and efficiency,” says Textron’s Moreira. 

Businesses are waking up to business aviation and smelling the coffee. 

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During the question-and-answer session, Khan was interrupted by two (uninvited) climate change protesters who burst into the conference shouting: “Aviation is ruining our future.” It was a sharp reminder for our record audience (of around 600 delegates) about the importance of addressing sustainability topics and green concerns, while focusing on keeping their businesses in the black.

Recovering swiftly from the surprise interruption, the EBAA secretary general went on to say business aviation should be proud of what it has achieved already but could do more to promote its contribution to the global economy, to individuals’ lifestyle and to humanitarian causes, such as medical flights. “Business aviation is the Formula One of the skies,” said Khan. “It is the test bed for aviation innovation [particularly sustainability]” that points the way for commercial aviation.

While the sector faced “unjustified demonisation”, if it “can show more of itself”, it could persuade more people of its merits. “By drawing from our many strengths, we can shape the narrative [about business aviation] to our perspective,” he said.

Many speakers noted how aviation needs to improve its environmental record. “The business aviation industry has been slow to pick up on sustainability,” conceded Chadi Saade, vice president Commercial, Airbus Corporate Jets. “But in the past six months to a year, things had changed fast. Sustainability is not an option. We have never experienced a time when we need to change as fast as now. It’s all about safety – the safety of our planet.”

In the medium to long term, innovative research and new technologies, like electric and hydrogen propulsion, offered scope to cut or eliminate business aviation’s carbon footprint ahead of the zero emissions target of 2050. But for now, Sustainable Aviation Fuel (SAF) offered the best practical means to cut emissions (alongside carbon offsetting schemes) and to be seen to do by global opinion, according to speakers.

Nancy Bsales, chief operating officer with the sustainability consultancy 4Air returned to business aviation’s pioneering role. “What you have to remember is that we are the people who are laying the foundation for the rest of aviation,” she said.

But high prices and low availability meant sustainable fuel faced a big challenge. Toby Edwards, CEO, Victor told delegates: “Last year, we [SAF] only accounted for 0.1% of aviation fuel. So, getting that to 10% by 2030 is going to be a huge challenge,” he said. But he reported rising demand, as clients realised the sustainability and reputational benefits of using the fuel. “What we are seeing that is super exciting, is that one in five customers are requesting and using SAF when they book with us.”

Karl Mills, chief commercial officer, Europe, TAG Aviation saw SAF delivering business as well as sustainability benefits. “Sustainability is a very powerful sales tool, which has been overlooked,” he said. “In the future aircraft owners may choose a management company based on their sustainability record, especially corporate clients.”

Corporate interest in SAF was confirmed by Elouisa Dalli, senior vice president, Marketing and Communications, Jet Aviation. ”You are seeing corporate flight departments use SAF to meet their ESG targets, some even going as far as using 100% using the book-and-claim system.”

New legislation is becoming a big incentive to invest in SAF now, said Jonathan Wood, vice president, Renewable Aviation, Neste. “Policy is going to be incredibly important in SAFs future. In the EU around 2% of all fuel used in aviation will need to be SAF by 2025.”

But it wasn’t just green topics that dominated discussion at this year’s London conference. Staying profitably in the black also framed much of the debate. Many speakers thought that while private jet aviation market may be cooling, significant gains had been made on pre-pandemic levels. Myles Walton, MD Wolfe Research acknowledged the business jet market may be slowing down but said it is still 15% to 20% ahead of 2019 levels.

The North American market may continue to grow but “in Europe, they are going to have a tough time continuing to grow”, he said. Overall OEMs were facing both supply side and certification restraints.

Growth was very much on the agenda of most companies, including Jetex. “Last year was a massive year for us,” said Adel Mardini, president and CEO, Jetex. The company handled more than 71,000 flights compared with 51,000 in 2021. Regions singled out for growth were Europe and Asia.

Answering the question are we seeing a more balanced market, Andy Priester, chairman and CEO Priester Aviation said: “We are still playing catch up. We got so far behind with the human capital infrastructure that we still have years of catch up, but at least it’s not as bad because there aren’t as many new entrants.”

Stephen Friedrich, chief commercial officer, Embraer Executive Jets said the North American market had coped with soaring demand. “The US has been able to absorb it [rapidly rising demand] because we have the infrastructure.”

Fabian Bello, CEO Journey Aviation said: “I had a handful of clients who bought at the right time and their aircraft appreciated. In the last three months with pilot issues increasing and pilots quitting, [new clients] are saying they’re going to sell their airplane, pocket the money and be done. I do think there’s going to be a shake-off where these new assets go right back into the market.”

While pre-owned jets inventories are now climbing for some categories, Zipporah Marmor, vice president, Aircraft Transactions, ACASS highlighted soaring business last year. “The surprise of 2022 was what a great year it was, after a record 2021. At the end of 2021, I thought we would never see a year like that and we saw an even better one [in 2022].”

Chris Miller, managing partner, Shearwater Global Capital predicted: “In six months’ time, we will look back and see this as the start of more normal depreciation.”

Turning to cybersecurity, Katie Bancroft, associate, Jaffa & Co said aviation was becoming more aware of the risks. “People are taking steps to protect their sensitive personal data. But it is not a one-and-done thing. You need continuous improvements to ensure your information remains cybersecure.” 

Andrew Douglas, founder, Make Tech Fly put the scale of the challenge into perspective. “If you knew some of the cyber threats out there, you would probably go back to pen and paper.”

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Friedrich will report to Michael Amalfitano, president & CEO of Embraer Executive Jets, he will be responsible for the direct management of the global sales organisation for new and pre-flown aircraft as well as the oversight of relationships with customers and industry collaborators.

“Stephen brings a wealth of experience in sales, marketing, finance, customer support and services, and aftermarket programs from over 30 years in the leasing and aerospace sectors.”

Michael Amalfitano said: “Stephen brings a wealth of experience in sales, marketing, finance, customer support and services, and aftermarket programs from over 30 years in the leasing and aerospace sectors. With our strategic shift to focus on value, his dynamic leadership will strengthen our global sales team and challenge us to create more comprehensive solutions for our customers to outperform.”

Previously serving as vice president for Sales and Marketing at Rolls-Royce Civil Aerospace, Friedrich was responsible for leading a global sales team and the marketing activities for business aviation as well as forecasting and pricing of services. Since joining Rolls-Royce in 2001, he also served in the aviation finance group. Prior to Rolls-Royce, Friedrich held leadership roles in banking and aviation finance.

Stephen Friedrich added: “This is an exciting time to join Embraer Executive Jets as it prioritises the value of its portfolio. Embraer’s revolutionary jets have set new standards in comfort, performance and reliability, delivering outstanding value to customers.”

Embraer’s shift to focussing on value comes after the appointment of Michael Amalfitano as CEO earlier in 2017. A financier by trade, Amalfitano took the decision to focus on the value that Embraer brings to the market following the company’s top ranking in several trade surveys.

The surveys, run independently from Embraer, ranked Embraer as the top manufacturer when it came to the value paid for an aircraft, as well as the best value when it came to service offerings.

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