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2014 Business Jet Traveler Survey says...

by David Wyndham 3. October 2014 11:09
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Business Jet Traveler magazine's fourth annual Reader's Choice survey is in their recent issue. They had over 1,200 readers respond, a new record for them. The big take-away from the survey is that things should continue to improve for business aviation. While about half stated their flying would remain at current levels, almost 40% stated they would fly a bit more or much more in the next year. Less than 10% said they would fly less in 2015.

The survey is to be posted online at bjtonline.com/2014survey. if you don't have access to the magazine. Here are my observations of that survey.

Why people fly privately doesn't really change. It saves time and general aviation serves many more airports than the airlines. The most important features people are looking for are range, economics, and cabin.  I see that in my consulting. What was interesting in that group was that cabin amenities, product support and baggage were at the bottom of the important features list. I think it is because product support is generally good and everyone expects the cabin amenities to be about the same within categories. Baggage is likely a tertiary item, especially since seats are rarely filled on many trips. Safety is important with over half stating they only fly with operators that have passed a safety audit (I think it should be 100%).

Of the non-owned methods of flying, fractional, jet cards, and charter, all three rated very good to excellent in customer service and cleanliness of aircraft.  Concerning choices of aircraft and age of aircraft, fractional and jet cards rated better than did charter. I was surprised at the charter choice of aircraft rating below the others. 

When it came to value for the price paid, fractional and charter rated better than jet cards. I think jet cards took a hit there as they also took a lower rating for transparency/explanation of charges.

For the owned aircraft category, BJT separated fixed-wing and helicopters. Since people valued range, economics, and cabin, I looked at those related ratings from the owned group. 

For the fixed wing: With respect to cost of maintenance, Embraer came out with the best ratings at 75.1% rating them excellent or very good. None of the other aircraft manufacturers listed had greater than 60% excellent or very good. Gulfstream rated over 99% excellent or very good for reliability. Everyone rated over 90% for reliability. Regarding cabin amenities, both Dassault and Gulfstream rated the best of the group. As both concentrate mostly on the large cabin jets, it makes sense that owners would be please with the offerings of the large cabin aircraft. Overall satisfaction was very good for everyone, but Dassault, Embraer and Gulfstream did rate a bit higher then the others. 

It looks like there were not a lot of responses from helicopter operators as only Airbus Helicopters (nee Eurocopter) and Bell were represented. Other than reliability, the helicopter manufacturers did not get as favorable ratings as did the fixed-wing. Cost of maintenance was a big knock against the helicopters with no one rating Airbus as excellent and Bell getting only 17.1% excellent ratings for their maintenance costs. I wonder if it is due to generally more complex maintenance requirements of a helicopter versus an airplane, especially with respect to time and cycle-limits on a helicopter's many components. 

BJT did ask its reader's that if they could get a year of complimentary flying, which aircraft would it be for various categories of aircraft? Read the article to see what folks favored. For me, they didn't list a P51 Mustang nor an amphibious Twin Otter so my top choices were not there. 

I'm hopeful that the BJT reader's interest in flying more in 2015 is representative of business flying in general. We shall see.

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AIRCRAFT SALES | David Wyndham | Flying | News

The New Normal For Used Business Jet Values?

by David Wyndham 1. August 2014 12:06
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Since there is lots of new aircraft news coming out of Oshkosh, I though I'd tackle used aircraft.

As part of our aircraft cost database updates, we do keep a close watch on market values of used aircraft. We use residual value data from The Aircraft Bluebook Price Digest, Vref Aircraft Value Reference, and HeliValue$.  Many times those publications agree, but there is enough differences that we are not relying on a sole source for the numbers. I think the residual values have made a significant change since 2008. Of course 2008 to 2010 saw a significant recession and along with it, aircraft values plummeted. But since then we have entered a global recovery.  We are seeing a different market for used aircraft prices than pre-2008, especially among business jets.

The new normal is quite an adjustment. While aircraft still hold their values better than most other capital assets, the previous norm of appreciating values in a good economy followed by a correction in a down economy does not appear to be the norm any more. While the US is still the single largest market for turbine business aircraft sales, the percentage of global sales within the US has been close to or below 50% even pre-recession. New aircraft are showing up in numbers all over the world, and the market for used aircraft is also seeing a bigger global market. Buyers are smarter than ever, and no longer is a buyer going to by the aircraft just because it is US N-registered. They are looking for and getting great prices. Here is what we are finding is the new normal:

  • 2008 to 2010 saw an unprecedented drop in used aircraft values.
  • From 2010 to today, we have seen values continue to decline, but at a much lesser rate.
  • We are in an economic recovery, but aircraft values remain low.
  • Today, more than ever, requires buyers to know the individual model’s residual value history. 

Aircraft values are behaving more and more like stocks. While the stock market may be up, not all stocks are performing so good. What we are seeing is that different aircraft, again, especially among business jets, with vastly different market depreciation rates. Almost all are seeing declines, but there are differences between models. So while our cost database residual value curve represents an average, that average is based on a group of aircraft types. Within that group are significant variations. So we caution you to use our residual value data as a benchmark, but do additional due diligence when evaluating specific models. Much like the stock market, individual aircraft (stocks) will behave differently than the market as a whole.

Many thanks to Vref Aircraft Value Reference for the following charts.

This chart is one that Vref calls their Late Model/Mid-Size Jet Index. It is comprised of 2008 models of the Challenger 300, Challenger 605, Citation XLS+, Citation Sovereign and Gulfstream G150. These are all popular aircraft with good sales histories. From 2008Q1 to 2014Q1, that index dropped 50.5%. Look at the curve and while 2008-2010 saw the biggest drop, that past two years (in a recovery) are not seeing values of this group correcting back or leveling off significantly. 

Looking at Vref's market indices for the business jets shows this group fared pretty well by comparison:

  • Light Jets dropped 83% over six years.
  • Midsize jets dropped 73.5% over six years.
  • Large Jets dropped 74% over six years.
  • The Late Model Midsize Jets dropped 50.5% over six years.

Looking at one model, the Challenger 300, shows much more of a bifurcated curve.

The 2008 Challenger 300 dropped 50% since late 2007, slightly better than its index. But its value curve has a hockey stick shape. The 2008 CL300 dropped over 36% in the first two years of the recession. It has plateaued off since then and several brokers have mentioned this aircraft as a good value with a good future ahead of it. This aircraft has done quite well. 

Not to embarrass any models, but I've seen 75% to 85% drops in other 2008 business jets from 2008 to today. There are many excellent used aircraft selling for great prices. But among individual models there are significant variances. Two take-aways here:

  1. Don't plan on your used aircraft appreciating. A model here or there may be the rare exception, but don't plan on it.
  2. Looking at the general market is not the same as the market for your specific make/model/model-year. 

You need to know the macroeconomics of course, but also need the guidance of someone who knows the microeconomic climate for your aircraft. Despite all the great information available on the Internet and in the aviation news, you still need good advice from knowledgable professionals. 


 

 

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AIRCRAFT SALES | David Wyndham | Aircraft For Sale

How much information do you need to effectively manage your costs? Part 1

by David Wyndham 1. July 2014 14:23
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TLDR (1): If you don't have time to read the entire post, I'll summarize it for you: To manage your costs, you need all the cost information available. It needs to be organized and presented in a manner that has meaning for you.

 

Step one with the costs is to collect them. You have to pay the bills, so the collection is part of making sure the bills are valid.  Information is in the invoice, the credit card receipt, and in your email. But just having collected this information does not lead to effective management. You have to make some sense of it. 

Step two is to organize the costs into accounts, or categories: fuel, insurance, hotels, parking fees, catering, salaries, taxes, and so on. If you have more than one aircraft, then you should separate the costs by aircraft, even if they are the same model. If your maintenance costs for two jets are $1,000 per hour, are they $500 per hour per aircraft, our $300 per hour for one, and $700 per hour for the other? There is a difference. Once organized into categories then next step if to also organize by behavior.

To manage the costs collected, you also need to understand how they behave. In further organizing your costs, consider the behavior of the cost. How will costs change with changes in utilization? How does the cost behave with a change in activity? Two categories are variable and fixed costs.

A Variable Cost will vary in proportion to the level of activity. As activity increases, the total cost will increase but the cost per unit will remain constant. A good example of this is fuel. An increase in hours flown will have a corresponding increase in fuel consumed. However, the cost per gallon of fuel will not be affected. Hourly guaranteed maintenance programs will also vary in relation to the hours flown. If you use contract flight crew, that would also be considered as a variable cost.

A Fixed Cost as the name implies, remains essentially constant for a given period or level of activity. A pilot's annual salary is a fixed cost. Whether you fly a little or a lot, the pilot still is paid their same salary. The cost per unit will change with a change in activity. A pilot making $100,000 annually and flying 250 hours would be a cost of $400 per hour. If the pilot flies 300 annual hours, the salary as a per hour cost is $333.33. Your hangar cost, hull and liability insurance, cost of refresher training, and property taxes are all considered as fixed costs.  

Two other ways to differentiate the behavior of a cost is to look at how well you can connect the cost to a particular function. If the elimination of the function would also eliminate the cost, then that cost is directly associated with that function, and thus, is a Direct Cost. If the cost is not closely tied into that function, then it is an Indirect Cost. If the function is eliminated, the Indirect Cost won't go away. Depending on the function, or the levels within the organization, a cost can be classified as Direct and Indirect.

Consider the pilot salary from before. If that pilot flies a single aircraft, say a Hawker 800, then the pilot salary of $100,000 is a direct cost for the Hawker 800. If the pilot also flies a Bell 206, then the pilot salary is not directly associated with just the Hawker 800 as it is also associated with the Bell 206. If the Hawker is sold, but the pilot still is flying in the Bell 206, the pilot still gets paid. So with regard to the Hawker 800, the dual-rated pilot salary is an indirect cost. 

If the aviation department consists of the Hawker 800 and Bell 206, the $100,000 pilot salary is a direct cost. Close the aviation department and the pilot salary goes away. If your aviation department is just a single aircraft, then the direct versus indirect distinction can be ignored. But for operations of two or more aircraft, the distinction will be important as you track, allocate, and budget your costs.

Now that these costs are collected and organized by cost category and behavior, you are ready to start the process of managing these costs. It is necessary for creating a budget, for planning for future costs, and for understanding what changes in costs will have on your total cost of operations. Next month we'll continue the article.

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David Wyndham

Having an AMT on Staff makes Financial Sense

by David Wyndham 29. May 2014 14:19
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Having an Aviation Maintenance Technician (AMT) on staff can be invaluable to a business aviation flight department. Some operators will whole-heartedly agree with this, and others may not be so sure. Lets take a look at the numbers.


Reduction in unscheduled maintenance. Prior to trips, the AMT can perform a more thorough pre-flight than the pilot can do. When the aircraft is not flying, the AMT will be doing minor tasks and cleanup items versus waiting to have them done during a scheduled check. A little TLC can help keep an aircraft reliable.

Higher rates of dispatch reliability. The response time of an in-house AMT is immediate. A flat tire or burned-out landing light can delay a trip by many hours when waiting for the local FBO to send someone over to look at the plane. Plus, they may not have the tire or bulb needed.

What is the cost of a delayed or missed trip? It isn't easy finding a last minute charter. A minimum delay needed to find, book and have a charter aircraft on hand may be four to eight hours, if you are lucky. If there are three senior executives cooling their heels in the pilot lounge, how much is their time worth? If they have a combined salary of $1 million, their worth to to corporation can be 5-10 times that. So $5 million annually could be costing you $2,500 per hour in waiting time for those executives! A four-hour delay can cost $10,000 in lost productivity of the passengers.

The cost of the charter itself is not inconsequential. Assuming $3,500 per hour for a mid-size business jet, and an 8-hour round trip, the charter cost is $28,000. You avoid the operating cost of your own aircraft. Accounting for that variable cost, assuming $2,000 per hour, still results in an increased cost for the trip of an added $12,000 (more if an overnight and waiting times are needed).

What if the trip is cancelled? What if the cancelled trip results in a delayed opening of a new factory, or a lost opportunity to land new business? There is no way to easily calculate this lost opportunity cost, but it can be huge. It was important enough to have an aircraft and schedule the trip.

It isn't too hard to see a single lost or significantly delayed trip can easily cost a company $100,000 or more. One trip saved by your in-house AMT can be the break-even point!

Other areas the AMT is well worth having around is in the ability to save money on scheduled maintenance. Turbine aircraft maintenance facilities charge around $85 to $125 per hour shop labor. The AMT typically has the tools and facilities to do much of the minor, routine checks. If that capability is outsourced to a facility an hours' flight time away, the travel time and costs are higher.

When major maintenance is being performed, the AMT can monitor the progress of the tasks and represent the aircraft owner. This "babysitting" of the aircraft can result in an on-time, on-budget completion of the maintenance task. A great service center will make every effort to get the job done right, and having your AMT on hand will enable them to do just that.

Lastly, a good AMT knows his or her aircraft better than anybody else. I've seen maintenance manuals with pages of handwritten notes in them. Those notes represent the knowledge of your AMT with respect to your aircraft and are much more valuable than the manuals themselves.

If your flight department has more than two aircraft, the decision to hire an AMT is an easy one. Even for a small, turbine flight department, the AMT can make sense from both a financial and effectiveness perspective. When considering hiring an AMT, look at the benefits and you will likely agree the cost is worthwhile. 

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Aviation Technology | David Wyndham | Maintenance

Develop Your Next Aviation Manager with CAM

by David Wyndham 28. April 2014 13:58
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Professional development is a given expectation within management. Within aviation, this expectation clearly extends to aviation-specific training. Pilots get recurrent training in simulators, maintenance technicians get recurrent training on the airframe, engine or avionics. But we do these men and women a disservice when we promote them from a technical position into a managerial position without giving them the tools they need to be successful managers.

I have seen instances where a senior captain who has done an exemplary job in the cockpit is congratulated and promoted into the aviation department manager position. What seems like a logical move turns sour when the pilot-turned-Manager finds himself facing a budget cut, a problem employee, and OSHA regulatory issues in the hangar. None of these situations was addressed during engine-out training! They got frustrated and either seek a return to the cockpit or leave for another flying position with no management duties. Future aviation leaders need training and experience in the managerial arts.

Commanding a second person in the cockpit takes special skills. But those skills need additional development for leading a large team. Corporate aviation leaders need to understand the vision and mission of the corporation and how aviation is an essential business tool. They need to know how to  align their aviation department goals with the overall corporation's goals. They then need to develop a leadership and communication style appropriate to their personality that will inspire they aviation team.

Aviation department leaders need to develop skills in operations management. This extends well beyond aircraft operations to include business risk analysis, cost benefit analysis, record keeping and audit requirements, OSHA and hazardous materials regulations, and more. As part of their operations management the aviation leader is often a facilities manager. 

Lastly, the aviation manager needs skills in all the remaining business management skills. The aviation manager is running a small business. They need financial skills in budgeting, forecasting, cost management, and taxes. They need to know what the record keeping requirements are and to be able to understand asset management of the aircraft and facilities.  The aviation manager needs to understand the corporate HR domain, and be able to communicate those policies to all the employees. This training combines both regulatory requirements and personnel management skills, or soft skills.

Within business aviation, we are fortunate to have a customized program geared to develop aviation professionals into management professionals: The National Business Aviation Association (NBAA) Certified Aviation Manager (CAM).

The NBAA CAM certification and education program offers credit for professional experience, college courses, and professional development programs offered within the aviation community. The CAM program is a rigorous professional certification that is designed to maximize a busy aviation professional's time in developing the skills need to be managers in leaders.

Don't overlook maintenance technicians for this CAM training. I see the pilot career path progress from First Officer to Captain to Chief Pilot to Aviation Department Manager. But too often the maintenance technical career path ends at Chief of Maintenance. Even that position requires management and leadership skills. Maintenance Technicians are an overlooked source of future aviation department leaders. They often have a significant understanding of the aviation operation beyond the toolbox that the pilots have yet to learn. 

Promote personal development for your flight department personnel, just as a company does for middle managers seeking career advancement.


 

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David Wyndham | Flying





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