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Business Aviation Industry Focus: The Cessna Citation

by Jeremy Cox 1. January 2009 00:00
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To say that it all started because of a horse would be a lie. Cessna's long running series of business jet designs was born because of the eventual success of a dynamic company that was founded by a Kansas/Oklahoma farmer named Clyde, Vernon, Cessna. Duane Wallace, the long serving Chairman and CEO of Cessna, is the person who actually started this immensely successful program in 1968. A horse named Citation only lent its name to the program.

Citation was a Lexington, Kentucky born thoroughbred racing horse that earned the third-place rank on the list of 'Top 100 U.S. Thoroughbred Champions of the 20th Century.' This long-lived (25 year life-span) Equus Caballus, Cheval, or as most of us know it: Horse, earned its fame as a three-year old by becoming the eighth ever horse to win the prestigious 'Triple Crown' (1 ¼ mile Kentucky Derby race at Churchill Downs, Louisville, Kentucky; 1 3/16 mile Preakness Stakes at Pimlico Race Course in Baltimore, Maryland; and the 1 ½ mile race at Belmont Stakes race at Belmont Park in Elmont, New York.) Later in the same year, 1948, this Bay Stallion - Citation was recognized by the Chicago based, Daily Racing Form Newspaper as the Horse of the Year. Three years into his comfortable retirement in 1959, Citation was inducted into the National Museum of Racing's Hall of Fame in Saratoga Springs, New York. His death in 1970 was about thirteen month's before the business aircraft that was named in his honour, received its official birth certificate from the FAA (Type Certificate.) The official logo-motif of the Cessna Citation line is a horse shoe.

The first jet aircraft built by Cessna Aircraft Company in Wichita, Kansas, was the 1955 U.S. Airforce T-37 'Tweetie Bird' Jet trainer and A37 Dragonfly attack aircraft variant. Its second was the Fan Jet 500, which was later named the Citation thanks to Cessna's marketing guru, Jim Taylor.

Having sold his company in 1936 to three of his relations, one of which was his nephew Duane Wallace, Clyde Cessna was never actually involved in the Citation series, even though the company continues to bear his name. After finding success with the T-37 and A-37 series, Cessna Aircraft Company believed that it was time for them to enter the civilian jet-age by designing and building an eight-seat business jet that would be the logical 'step-up' from their 400 series piston twin aircraft, instead of losing their clients to Beechcraft with their king Air turboprop. The Fanjet 500 was announced at the 1968 NBAA convention in Houston, Texas.

The philosophy behind the Cessna Citation 500, was that it would be a safe, easy to fly aircraft (as easy as a King Air), that could operate in-and-out of short airfields that are normally served by piston and turbo-props, and yet it would deliver jet-speeds. Unfortunately it would prove to normally provide about 340 knots TAS, and therefore became known within some piloting circles as the 'Slow-tation.' Its IFR range was a little light too, at 950 NM. None the less, in its favour, it did also become known as the 'King-Air killer.' The final production Citation 500 was rolled off the production line with a pair of Pratt & Whitney JT15D engines installed. This engine delivered 2,200 lbs of T/O thrust each, to carry this straight winged, 10,850 lb MGTOW aircraft aloft to a service ceiling of 35,000 feet. Thrust reversers (T/R) were optional, and most people chose not to take-on the weight penalty inflicted by the T/R's.

Due to its low MGTOW, the Citation was a pioneer aircraft, in as much as it was the only non-military jet design aircraft that was approved for civilian single-pilot operations, after the Cessna engineers were able to prove to the FAA that their aircraft design was docile enough to permit single pilot operations. This is one of the major features of the Citation that enabled it to outsell all similar sized competing aircraft, as many private businessmen and women were excited to be able to get into their own jet and not be burdened with the expense of having to employ a co-pilot. The realm of single-pilot certification was exclusively ruled by Cessna, until Beechcraft announced their Premier in the mid 1990's.

The Pennsylvania based, Levitz Furniture Company was the very first customer to take delivery of a Citation 500, and between 1971 and 1977 a total of 347 Citation 500 aircraft were produced and delivered to clients around the world. The Citation 500 - Citation I, Citation 550 - Citation II/ Citation Bravo, Citation S550 - Citation S/II, Citation 560 - Citation V/Ultra, Citation 560 - Citation Encore/Encore+ and also the Citation 560XL - Citation Excel/XLS, models have all been built and approved under the same FAA Type Certificate (A22CE) with 3,201 of these specific Citation models have been produced. To-date (Jan 2009), 5,706 Citation series aircraft have been built, and based upon unit sales, Cessna is the world's largest manufacturer of general aviation aircraft. This Wichita, Kansas manufacturer currently produces an impressive line-up of light and midsize business jets, utility turboprops and single engine aircraft. According to the Cessna website, "…Cessna has sold and delivered more aircraft than anyone else in history - 190,000 and counting. …with 15,000-plus dedicated employees worldwide and billions of dollars in orders…" It has designed, built and sold 89 different models since it was founded in 1927. Several more are on the drawing board now, including the new intercontinental range, large cabin-eight passenger, aluminium and composite constructed Citation 850 Columbus, which should start delivering in the mid-next decade (2010-2020.)

Okay so next month we shall end this long running business aviation focus by discovering the story behind the Canadair Challenger. Unfortunately for Globalair readers this series ends here, but it will continue in a book that is planned to be published and released later this year. In March I will then return with a current aviation topic, and if you have any particular issue or topic that you would like to see expanded upon here for discussion, please make yourself heard. If you do take the plunge is posting a thought or comment here, please remember that any input that you care to make will be of great interest to all of the readers here at Globalair.com. So don't be bashful. Go ahead and write your comments and suggestions without forgetting that whatever you write here, can be seen publicly by everyone that visits this page. Be funny, be inspired, but most importantly of all, please be nice.

 

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Jeremy Cox

Purchasing an Aircraft Hangar: Buyer Beware

by Greg Reigel 1. January 2009 00:00
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It always surprises me when a potential buyer of an aircraft hangar is unsure whether he or she should use a purchase agreement when buying the hangar. Most of these individuals have purchased homes and no doubt used a purchase agreement in such transactions. Yet, many of these same individuals would spend a comparable amount of money to purchase an aircraft hangar without the protection of a written purchase agreement.

A purchase agreement should be used in hangar purchase transactions. First, the law in most states requires that a contract for an amount greater than $500.00 be in writing in order for it to be enforceable. This is called the statute of frauds. Although exceptions to this legal doctrine exist, complying with the law is usually safer than hoping you will be able to take advantage of an exception.

Further, using a purchase agreement can also help avoid confusion and misunderstandings. If the agreement clearly explains how the transaction will happen, when it will happen and what is included in the deal, the greater the likelihood that the buyer and seller will each know the other party's expectations and the likelihood of surprises or misunderstandings is greatly reduced.

What Terms Should Be Included?

The number and complexity of the terms that should be included in an aircraft hangar purchase agreement will often times be dictated by the size, location and value of the aircraft hangar being purchased. Although by no means inclusive, the following terms provide a good place to start.

Identify the Parties. The agreement should identify who is selling the hangar and who is buying the hangar. Although this sounds simple to do, it isn't always clear who each party is. It is very common for an aircraft hangar to be registered in the name of a corporation or limited liability company. In that case, the individual with whom the buyer is negotiating is not the owner of the aircraft hangar and should not be listed as the seller. The actual owner of the aircraft hangar should be identified as the seller.

The buyer on the other hand, can be an individual or a corporation or limited liability company. If an individual is the buyer, that person will be listed and upon execution and filing of the bill of sale will be the record owner of the aircraft hangar

If a corporation or limited liability company will be purchasing the aircraft, the purchase agreement should identify that entity as the buyer. Alternatively, an individual can sign an agreement as the buyer and, as long as the agreement allows the buyer to assign his or her rights under the agreement, that individual could still assign the agreement to a corporation or limited liability company prior to closing. The corporation or limited liability company then becomes the buyer and can close on the transaction without the individual even entering the chain of title. From a liability perspective, this can be important.

Identify the Hangar. The purchase agreement should identify the aircraft Hangar with as much detail as possible. At a minimum, it should include the size and location of the hangar. This is typically done using the lot number of the property on which the hangar is located. Ideally, a list of any additional items of personal property being sold with the hangar should be included in the agreement. Also, if the seller intends to retain certain items, those items should be specifically identified and excluded from the transaction. Taking the time to detail exactly what is and isn't being sold will hopefully prevent misunderstandings when the hangar is delivered at closing.

Purchase Price. The agreement should specify how much is being paid for the aircraft hangar. If the buyer will be giving the seller a deposit or earnest money, that fact should be included. Also, what happens to the deposit when it is given to the seller? Will the money be placed in escrow or simply held by the seller? If an escrow agent is not involved, the buyer will need to obtain some assurance that his or her deposit will not simply disappear into the seller's pocket making the buyer's recovery from the seller difficult or impossible if the transaction does not close. The agreement should also state under what conditions the seller must refund the deposit to the buyer.

The buyer's method of payment should also be stated. Is it a cash transaction or will financing be involved? If financing is involved, the buyer may want to include language that makes the transaction contingent upon the buyer obtaining financing on terms acceptable to the buyer. That way, if the buyer isn't able to obtain satisfactory financing, the buyer will not be forced to complete the purchase on financially unacceptable terms.

Closing Documents. Typically, aircraft hangars are considered personal property, as opposed to real property or real estate. That is, the aircraft hangar is a tangible asset that is located on real property which is usually leased from the owner or operator of the airport, but the hangar is not considered part of the real property. The aircraft hangar can be moved from one piece of real property to another; although physically relocating an aircraft hangar once constructed on a piece of real property is extremely rare.

When a buyer purchases an aircraft hangar, the buyer receives a bill of sale as evidence of the transfer/sale of the aircraft hangar from the seller to the buyer. Unlike an aircraft bill of sale, the bill of sale for an aircraft hangar does not need to be filed with the FAA and, in fact, the FAA would not accept the bill of sale for filing if it was sent to them. The FAA does not maintain a registry or any other record of ownership of aircraft hangars as it does with aircraft.

In most states, the aircraft hangar bill of sale will need to be recorded with the county in which the hangar is located. States require this filing in order to keep track of the owner for the purposes of imposing personal property taxes on the owner of the aircraft hangar. Similar to real estate taxes, once a year the county in which the aircraft hangar is located will estimate the fair market value of the aircraft hangar and then assess a personal property tax on that value.

Pre-Closing Inspection. In many transactions, the buyer will want to have an inspection performed on the aircraft hangar before the closing. The purchase agreement can specify who will perform the inspection and what qualifications that individual must possess. Also, the buyer should make the agreement contingent upon the buyer's satisfaction with results of the inspection. The buyer is usually responsible for the expenses associated with a pre-closing inspection.

Due-Diligence. The buyer will want to perform due diligence to confirm the status of the title of the aircraft hangar. Since an aircraft hangar is considered personal property, it typically does not have a title as an aircraft or real estate would. However, certain things can affect the seller's ability to convey clear title to the buyer (e.g. judgments, mortgages, liens etc.). As a result, the buyer will want to perform searches with the appropriate courts and state/county offices to confirm the seller actually owns the aircraft hangar and to verify the absence of any encumbrances that could prevent the seller from conveying clear title to the buyer.

Warranties. It is possible to include a variety of warranties in the purchase agreement representing certain conditions of the aircraft hangar (e.g. warranties of airworthiness, merchantability, fitness for a particular purpose etc.). From a buyer's perspective, the warranty of title is probably most important. This warranty ensures that the buyer receives title to the hangar free and clear of any liens or mortgages. Although the buyer will still want to confirm this by performing thorough due-diligence before closing, having the warranty of title included in the purchase agreement will help to minimize the risk of any unrecorded liens or interests in the aircraft hangar.

What Remedy Does An Aircraft Hangar Purchase Agreement Give The Buyer?

First, an aircraft hangar purchase agreement is not a 100% guarantee that a buyer will not have to sue the seller if he or she does not perform as required by the agreement. In this litigious world, a such a guarantee is impossible. Further, the purchase agreement alone does not make anyone do anything. If a seller does not want to comply with his or her obligations, the purchase agreement will not change that. However, the purchase agreement will give the buyer the ability to go to court and have a judge make the seller comply with his or her obligations.

Alternatively, the court may award money damages for losses incurred by the buyer. An example of this is when a seller refuses to return a deposit even though the buyer has complied with all of the terms of the purchase agreement and has a right to return of the money. In this situation, a court could enter a judgment against the seller in the amount of the unreturned security deposit.

Conclusion

An aircraft hangar purchase agreement is a valuable tool to ensure that a buyer purchasing an aircraft hangar receives what he or she is expecting. It prevents confusion and misunderstanding and provides security that the buyer will have recourse if the seller fails to perform as required. With minimal time and expense incurred up-front, buyers can protect their interests and maximize the likelihood of an uneventful closing and purchase.



Used Aircraft Buying Tips

by David Wyndham 1. January 2009 00:00
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The pre-owned aircraft market has swung dramatically from being a seller driven market last year to a buyer driven market today. If you are thinking of acquiring an aircraft (or downsizing what you have), how do you go about finding the one for you? Here are some tips to help in the process.

 

The first tip, as always, is to do your own research as to what your true requirements are. You need to quantify your requirements, separating must-have from nice-to-have items.

Things to consider in framing your requirements are:

 

·        Range

·        Passenger Loads

·        Baggage Requirements

·        Runway Requirements, especially short runways or high altitude runways

·        Support

·        Costs to operate

·        Compatibility with your existing aircraft, if you have more than one

 

In the most recent reports from pre-owned publications such as Vref and the Aircraft Bluebook Price Digest, prices have dropped about 10% to 12% from the previous quarter. Will prices drop another 5% or 10%?

 

Selling price isn't everything. On a used business jet, the acquisition cost is only about one-third of the total cost to acquire and operate the aircraft for 10 years. If you factor in the residual value, the ownership cost (acquisition less residual value) is down to 10% to 20% while the operating costs command the remainder of the budget. Good quality pre-owned aircraft are always in demand. Long term, you are better off finding the aircraft you want, versus waiting for the price to drop and then finding an aircraft.

 

Factor in upgrades. If the aircraft is a popular model that has been around for a long time, there is likely to be a number of upgrades available. In general, performance enhancements that make the aircraft go faster on the same fuel, or engines that burn less fuel, can be desirable. Another item that adds value may be winglets that can reduce your fuel consumption as well and increase speeds. Adding additional baggage certainly helps if you need the extra storage, and the model you are evaluating is a bit short on room.

 

Look for a used aircraft with many of the upgrades already installed. This will save you time in entering the aircraft into service, and the previous owner will have already absorbed some on the "new features" depreciation.

 

Work with a broker or consultant who knows the aircraft type(s) you are looking for, has knowledge of the market, and has connections. If someone you know has recently bought or sold an aircraft, ask them for their recommendations. A skilled broker will know the process and be able to guide your acquisition team through the myriad of procedures and negotiations that a successful acquisition entails. Many times the best aircraft is not located in your country. Look for someone with experience in importing/exporting aircraft.

 

Once you have a candidate aircraft identified, get a thorough pre-buy inspection on the aircraft.  As a condition of the sale, the aircraft needs to be "opened up."  Make sure the facility performing the inspection is not the one who routinely services that specific serial number aircraft. They should be a disinterested third party with regards to that aircraft.

 

Doing your research in advance, knowing your true requirements, and having an idea of what aircraft meet those requirements is all part of being an educated consumer. There are some great aircraft available at great prices. Prepare yourself and choose wisely and you will end up with an aircraft that will provide many years of good service.

 

Are you going to be acquiring an aircraft in 2009? Whether replacing what you currently have, or adding on, please let us know.

 The pre-owned aircraft market has swung dramatically from being a seller driven market last year to a buyer driven market today. If you are thinking of acquiring an aircraft (or downsizing what you have), how do you go about finding the one for you? Here are some tips to help in the process.

 

The first tip, as always, is to do your own research as to what your true requirements are. You need to quantify your requirements, separating must-have from nice-to-have items.

Things to consider in framing your requirements are:

 

·        Range

·        Passenger Loads

·        Baggage Requirements

·        Runway Requirements, especially short runways or high altitude runways

·        Support

·        Costs to operate

·        Compatibility with your existing aircraft, if you have more than one

 

In the most recent reports from pre-owned publications such as Vref and the Aircraft Bluebook Price Digest, prices have dropped about 10% to 12% from the previous quarter. Will prices drop another 5% or 10%?

 

Selling price isn't everything. On a used business jet, the acquisition cost is only about one-third of the total cost to acquire and operate the aircraft for 10 years. If you factor in the residual value, the ownership cost (acquisition less residual value) is down to 10% to 20% while the operating costs command the remainder of the budget. Good quality pre-owned aircraft are always in demand. Long term, you are better off finding the aircraft you want, versus waiting for the price to drop and then finding an aircraft.

 

Factor in upgrades. If the aircraft is a popular model that has been around for a long time, there is likely to be a number of upgrades available. In general, performance enhancements that make the aircraft go faster on the same fuel, or engines that burn less fuel, can be desirable. Another item that adds value may be winglets that can reduce your fuel consumption as well and increase speeds. Adding additional baggage certainly helps if you need the extra storage, and the model you are evaluating is a bit short on room.

 

Look for a used aircraft with many of the upgrades already installed. This will save you time in entering the aircraft into service, and the previous owner will have already absorbed some on the "new features" depreciation.

 

Work with a broker or consultant who knows the aircraft type(s) you are looking for, has knowledge of the market, and has connections. If someone you know has recently bought or sold an aircraft, ask them for their recommendations. A skilled broker will know the process and be able to guide your acquisition team through the myriad of procedures and negotiations that a successful acquisition entails. Many times the best aircraft is not located in your country. Look for someone with experience in importing/exporting aircraft.

 

Once you have a candidate aircraft identified, get a thorough pre-buy inspection on the aircraft.  As a condition of the sale, the aircraft needs to be "opened up."  Make sure the facility performing the inspection is not the one who routinely services that specific serial number aircraft. They should be a disinterested third party with regards to that aircraft.

 

Doing your research in advance, knowing your true requirements, and having an idea of what aircraft meet those requirements is all part of being an educated consumer. There are some great aircraft available at great prices. Prepare yourself and choose wisely and you will end up with an aircraft that will provide many years of good service.

 

Are you going to be acquiring an aircraft in 2009? Whether replacing what you currently have, or adding on, please let us know.

 



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