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Taking The Emotion Out Of The Aircraft Sale & Pre-buy

by David Wyndham 27. April 2011 13:35
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Last month I attended the NBAA Maintenance Manager's Conference in San Diego. It was an excellent opportunity to meet some of our industry's maintenance leaders as well as to sit in on many excellent presentations geared toward the maintenance professional.  One of the topics that struck me particularly was in the area of the aircraft sale and pre-buy process. Listening to several folks comments about the good and bad experiences they had it became evident that even among the professionals in attendance, emotion plays a factor in aircraft deals.

We've heard stories about the owner buying a particular aircraft solely because it looks sexy or because their spouse liked the color, not because it was a best fit or a great deal.  Even among we professionals, emotion comes into play. When we are in the process of buying or selling an aircraft we need to pay attention to those emotional cues. The aircraft deal is a business process, not a marriage courtship. 

As a  professional, we take pride in our work. Our aircraft is a reflection of that professionalism, especially to a maintainer. That person works daily on the upkeep and safety of the aircraft. If during a pre-buy the prospect provides a list of squawks or issues, it is very easy to feel our pride being wounded. "How dare they talk about MY airplane that way!" Our defenses come up and we seek to dismiss their issues or to minimize them as meaningless or even as an attempt to screw us out of money. We need to take a deep breath and reflect on each of those pre-buy issues, evaluate them in a neutral manner, and to put ourselves in the buyer's shoes. 

In the 1980s the US was in negotiations with the Soviet Union regarding nuclear arms reductions. Then President Reagan used the term "trust but verify" to describe the negotiation process. It is the same with the  aircraft. Whatever we agree to must be verifiable.  The buyer is seeking to verify the status of the aircraft. The fact that the deal is in pre-buy indicates a level of trust that the aircraft is what they want. The pre-buy inspection is to verify the state of the aircraft so that the deal can be completed with no surprises.

One way to minimize the emotional issues of a pre-buy as a seller is to understand that we no longer own the aircraft. The day you list the aircraft for sale, you have relinquished ownership and are acting as caretaker for the next owner.  Remember when you first took delivery of the aircraft, whether from the factory or a dealer or wherever. You did (or should have done) a pre-buy and acceptance of the aircraft. You trusted the aircraft was as advertised, but you just wanted to check everything over for yourself. At the resale, you need to take a close look at the aircraft as if you were evaluating it for purchase all over again. 

Unchecked emotions have wrecked more deals than they have made. The best deals are made when both parties prosper: the seller gets an amount for the sale that is satisfying and the buyer gets the aircraft that expect. My grandmother's adage of "When you are angry, count to ten before your respond" holds true. The Aircraft sale/purchase process is stressful and needs to be done with a level head. Had a deal go south due to emotions getting out of hand? Click reply and let us know (keeping the names of the guilty anonymous!), we would love to hear about the ridiculous and the serious. 

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David Wyndham

March aircraft flight activity shows significant increase over the previous month.

by GlobalAir.com 13. April 2011 13:52
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ARGUS Releases March Business Aircraft Activity

 

 

Cincinnati, Ohio, April 13, 2011….ARGUS TRAQPak data is serial-number specific aircraft arrival and departure information on all IFR flights in the US (including Alaska and Hawaii).  The tables below reflect business aircraft activity data for March 1-31, 2011 vs. February 1-28, 2011 and March 1-31, 2011 vs. March 1-31, 2010 respectively.  Note: Part 135 charter certificate flight activity reflects flights of aircraft on Part 135 charter certificates irrespective of the mission type.

 

March flight activity shows significant increase over the previous month. TRAQPak data indicates March business aircraft activity was up 17.2% over February. Looking at operational categories, the Part 91 market segment saw the biggest month over month increase at 18.6%. The fractional segment came in second, up 17.0%, and the Part 135 market was positive as well at 15.0%. Reviewing aircraft categories, the turboprop market saw the biggest month over month increase, up 19.5%.  Small and mid-size cabin followed with increases of 18.2% and 15.2% respectively. The large cabin market also posted an increase at 12.7%.

 

 

 

Business Aircraft Activity

March 2011 vs. February 2011

Part 91

Part 135

Fractional

ALL

Turbo Prop

21.5%

17.0%

16.1%

19.5%

Small Cabin Jet

18.9%

17.4%

17.0%

18.2%

Mid-Size Cabin Jet

15.7%

11.5%

17.8%

15.2%

Large Cabin Jet

14.4%

8.3%

13.6%

12.7%

All Aircraft Combined

18.6%

15.0%

17.0%

17.2%

Source TRAQPak © 2011  ARGUS International, Inc.   +1 513.852.1010

 Comparing year over year results (March 2011 vs. March 2010), aircraft activity increased 4.7%.  The Part 91 and fractional markets both saw activity increase at 9.5% and 5.7% respectively. The Part 135 market was the only sector that saw a decline in activity, down 3.2% year over year. In reviewing aircraft category results, large cabin and mid-size jets were up 9.4% and 6.4%. The turboprop sector experienced an increase of 3.4%. Looking at individual market segments, Part 91 large cabin jets showed the largest gain with an increase of 12.1%.

 

 

Business Aircraft Activity

March 2011 vs. March 2010

Part 91

Part 135

Fractional

ALL

Turbo Prop

10.4%

-6.0%

6.0%

3.4%

Small Cabin Jet

10.0%

-7.0%

-5.8%

2.5%

Mid-Size Cabin Jet

5.4%

5.6%

8.3%

6.4%

Large Cabin Jet

12.1%

2.2%

11.1%

9.4%

All Aircraft Combined

9.5%

-3.2%

5.7%

4.7%

Source TRAQPak © 2011  ARGUS International, Inc.   +1 513.852.1010

 

 

 

 

 

TRAQPak Aircraft Categories

Turbo Prop

Single Engine Turboprop Aircraft and Multi-Engine Turboprop Aircraft

Small Cabin Jet

Very Light Jets (VLJ) and Light Jets (LJ)-Jet aircraft with a maximum takeoff weight of less than 20,000lbs.

Mid Size Cabin Jet

Mid-size Jets (MJ) and Super Mid-size Jets (SMJ) - Jet aircraft with maximum takeoff weight of over 20,000 to 41,000 lbs.

Large Cabin Jet

Large Jets, Ultra-Long Range and Heavy JetsJet aircraft with maximum takeoff weight of over 41,000 lbs. For weight over 41,000 lbs and Ultra-Long Range and Heavy Jets having an NBAA IFR Range above 6,000NM.

 

Notice of Disclaimer:  Readers are advised that this report is issued solely for informational purposes.  ARGUS also makes no promise and/or warranty to maintain and/or update the published information. Suspension of this service may occur at any time at the discretion of the Institution.  ARGUS shall not be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or any delay or interruptions in, the transmission thereof to the users.

 

About ARGUS

ARGUS International, Inc. (ARGUS) is the industry leader in providing specialized aviation services to companies that manufacture, finance, operate, maintain, and market commercial and business aircraft, as well providing products and services to end-user consumers worldwide. ARGUS is the worldwide leader in performing on-site safety audits for corporate flight departments, charter operators, and commercial airlines. Founded in 1995, key ARGUS services include Charter Evaluation & Qualification (CHEQ) and CHEQPoint, PRISM Safety Management Support systems and training, TRAQPak market intelligence data service, aircraft operating cost reports, market research, and aviation and travel consulting.

 

ARGUS is headquartered in Cincinnati, OH, with additional offices in Philadelphia, PA, Denver, CO, and Columbus, OH.  For more information, visit www.argus.aero

 

###

 

Media Contact:     Julie Stone                          912-898-8673

ARGUS Contact:  Kendra Christin                    513-852-1010

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Aviation Technology | News

Is the market for new business jets really on the upswing?

by Allen Howell 11. April 2011 15:11
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Molly McMillin of the Wichita Eagle recently reported  that the market for new business jets “appears poised for a new growth spurt, although it’s coming from a severely depressed base”.

 

She is not kidding about the severely depressed base. Wichita has experienced something closer to the great depression than a severe recession. Who could have predicted in mid 2008 what has happened to the business jet market in the past two and a half years. Production of new aircraft has fallen though the floor and hit the basement. In the mean time competition from down south in Brazil is not going to go away.

 

Will this upturn continue up if jet fuel goes up another dollar a gallon this year? What happens if we get into an inflationary cycle that slows the economy down?  And what will happen to the economy when the states and the feds realize they cant keep spending like they have in the past two years. Most honest economists will say that curtailing government spending in a serious way will at least temporarily slow the economy down, especially when the money being spent is borrowed and will not come back to the private sector.

 

I don’t get the same warm fuzzy these analysts get about the upturn in business jet demand in the US.

Our industry has been operating on the same old business models for a couple decades now.

 

The last real innovation in business aviation was the fractional concept pioneered by NetJets and successfully copied by others. That concept brought in a whole new market of business jet travelers (fractional owners) because it disaggregated the costs of owning a jet. It was brilliant and it kept the manufacturers and others in the supply chain alive throughout the 2000’s. Fractional operations have a permanent place in business aviation but they won’t save us in the next 10 years.

 

If we as an industry want to grow the market, I would suggest that we can’t count on the US economy, or quantitative easing monetary policy, or bonus depreciation to do it for us.

 

We have to innovate and come up with new ways to reach the market of travelers with what we sell.  Travelers really want what private aviation has to offer which is hassle free, time saving, user friendly,  and socially productive travel. The limiting factor has always been price, especially when compared against airline ticket prices. 

 

The airline experience has not improved in the last year. In some ways it has deteriorated, as load factors have climbed to all time highs causing most flights to be packed. My  three recent experiences in the airline system have all involved delays, lost baggage, rerouting of flights, and full cramped flights. As you walk through airline terminals you can see the fatigue and frustration on the faces of the road warriors.    

 

Can Social Technology be a part of the next innovative breakthrough in how people buy private aviation? I would suggest that it can by facilitating people to aggregate around their travel intentions and buy flights as a group but pay by the seat, thus breaking through the price barrier that has limited our ability to reach a larger market.

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Ultra Long-range Jets - Thumbnail Guide

by Jeremy Cox 5. April 2011 17:31
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I focused on the Large Cabin business aircraft market last month, and through this piece you saw that this market segment is the most active in used transactions in this post global financial crisis era, more so than all of the other used aircraft markets. Regarding a large cabin aircraft usually It is fair to say that this class of aircraft also comes with a long-range capability more-so than smaller aircraft cabin sizes.

 

The newest developments in business aircraft design strategy appear to be following a competitive mandate that allows for ultra long-range capability that stretches intercontinental travel capability up-to and beyond a quarter of the distance around the globe, following either a meridian or a great circle path along the widest circumference of the earth.

 

No-one clearly defines what the classification of an Ultra Long-Range Jet really is. Some say that Short Range is defined in time, as anything that takes 0.1 to 1.5 hours to fly; Medium Range is 1.51 to 4 hours; Long Range is 4.1 to 8 hours in duration, while Ultra Long-Range is anything that takes more than 8 hours to fly. I don’t believe that this definition fits the Business Jet model. Alternatively, Boeing defines three market segments for its 777 aircraft series aircraft in miles, as follows:

 

A market (Short)                               3,900 to 5,200 nautical miles (7,200 to 9,700 km)
B market  (Medium)                        5,800 to 7,700 nautical miles (10,800 to 14,250 km)
C market  (Long)                                8,000 nautical miles (14,800 km) and greater

 

I personally like the following definition as it, I believe, most closely applies to the Business Jet Aircraft arena, that which most, if not all of the readers of Globalair.com deal within:

 

Cox Definition of the Ultra long-Range Jet

Short Range Aircraft are:              up to 750 miles (up to 2 hours flying time);
Medium Range Aircraft are:        750 to 2,500 miles (2 to 5 hours flying time);
Long Range Aircraft are:                                2,500 to 6,000 miles (more than 5 hours flying time); and,
Ultra Long-Range Aircraft are:    in excess of 6,000 miles (more than 12 hours flying time).

 

Typical flights of more than 6,000 nautical miles (NM) might include:

 

                Sydney to Cape Town                    Sydney to Buenos Aries                                Los Angeles to Shanghai

                Los Angeles to Wellington            New York to Dubai                          New York to Beijing

                Moscow to Rio de Janeiro            Moscow to Bali                                 Bombay to Juneau

                Bombay to Vanuatu                        Lima to Athens                                  Lima to Johannesburg                                   

Only four aircraft, that are currently manufactured by four separate aircraft companies actually fit into this Ultra Long-Range category. These are the Airbus ACJ, the Boeing BBJ Series, the Bombardier Global Express/XRS series, and the Gulfstream GV/G500/G550 series. On the distant horizon there are new aircraft on the way that will up the ante within this category. These are the nearly certified Gulfstream G650 (deliveries expected in 2012), and the ‘many years out from now’ Bombardier Global 7000 and 8000 aircraft, which are both slated to start delivering to buyers in 2016/17.

 

Aircraft

Range

Speed

Time to 6,000 NM

Average Used Price

Airbus ACJ

6,000 NM

462 KTAS

13 hours

$60 Mil. U.S.D.

Boeing BBJ

6,200 NM

450 KTAS

13 hours, 25 minutes

$52 Mil. U.S.D.

Bombardier Global Express

6,700 NM

488 KTAS

12 hours, 20 minutes

$27 Mil. U.S.D.

Gulfstream G550

6,900 NM

480 KTAS

12 hours, 30 minutes

$41 Mil. U.S.D.

Future Aircraft

Gulfstream G650

7,000 NM

530 KTAS

11 hours, 25 minutes

$59 Mil. U.S.D. est.

Bombardier 8000

7,900 NM

488 KTAS

12 hours, 20 minutes

$65 Mil. U.S.D. est.

           

 

With Ultra Long-Range Aircraft Operations, extra steps in precautionary safety measures must be incorporated and used by the owner/operators of these aircraft. These measures include, for instance:

 

Additional Crew Members that enable especially pilots to operate within a safe and healthy duty-time allotment. Often one crew shall fly the first part of the ultra long mission, while the second crew takes over for the second part, i.e. a take-off crew, and a landing crew.

 

A passenger and crew movement, and exercise schedule to thwart the onset of Deep Vein Thrombosis (DVT.)

 

Proper provisions for a suitably quiet, dark and, comfortable rest area that can be used by both the crew and passengers alike.

 

Clean and safe galley areas that allow multiple meals to be both stored and served.

 

Sufficient stored water supply systems commensurate with the duration of the ultra long-range flight to be undertaken.

 

 The ability to step on board a private jet aircraft and then step off a little over 12 hours later, having travelled a full quarter of the way around the globe is attractive to many companies, individuals and government agencies. The need for this ultra long-range capability is evident when both the used and new aircraft sales picture is viewed as an individual stand-alone market against the rest of the market. Deliveries and transactions average 75 aircraft per year compared to about 1,100 transactions for all other aircraft, which places this market segment at almost 7% of all worldwide transactions. The general demand trend for Ultra Long-Range Jets is increasing.

Boeing Business JetGlobal Express

Gulfstream G550Airbus Corporate Jet

The Time Value of Money - A powerful tool in evaluating different cash flows

by David Wyndham 5. April 2011 10:22
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Aviation is an expensive pursuit. When looking at various options for air transport alternatives, we need a way to compare the costs of those alternatives.

One way that many get caught on is just looking at a single cost, such as the acquisition cost. Aircraft A costs $1 million while Aircraft B costs $1.5 million. So buy Aircraft A.  The US Government got into using that as the sole determinant on picking between various acquisitions. Once bidders knew the rules, they underbid the acquisition cost and grossly overpriced the costs of support, spare parts and upgrades.  In the early 1960s Secretary of Defense McNamera put an end to that practice and specified that they would look at the total cost of a project, including the cost to acquire, operate, and dispose of the asset.  This was called Life Cycle Costing.

In aircraft life cycle costing, you attempt to consider all of the costs associated with the aircraft. While acquisition cost is important, so too are the operating costs of the aircraft. In fact, after a while, the total costs of operation exceed the initial acquisition expense. 

When you finally dispose of the aircraft by selling the aircraft, that residual value reduces the total costs of ownership.  So a simple life cycle cost might look like:

 

               Aircraft A.         Aircraft B.

Acquisition     $1 Million          $1.5 Million

Op. Costs       $1.4                $1.2

Residual Value ($0.5)              ($0.85)

Total:         $1.9 Million         $1.85 Million

In this simplification, Aircraft B actually has a lower life cycle cost. While this is a far superior method than just acquisition cost alone, we need, or should, do more of an analysis. Allow me a diversion for a moment.

Suppose that Jeremy Cox owes you $10,000.  He offers to either pay you now, or in 5 years. Jeremy is a man of his word, but yet, any of us would choose to get paid now. 

What if the reverse were the case. One of you owes Jeremy Cox $10,000.  If you had the same terms of paying now or in 5 years, again I think all of us would tell poor Jeremy to wait it out the full 5 years to get his money.

What we have just done is assigned a Time Value to money. In both cases, $10,000 is the sum. But we correctly chose to pay our debt as far into the future as we can while asking for our income or revenue up front. 

In the case of the debt, in order to pay Jeremy now, I need the full $10,000. But if I can wait 5 years to pay him, I can put about $6,800 into an investment that returns 8% per year.  After 5 years, I will have the $10,000 for Jeremy.

So with an 8% cost of money or rate of return, my future value of $10,000 is really $6,800 today. The Time Value of money assigns not only the cost, but assigns a time cost or value to when the money is paid out or comes in.  If you do this sort of analysis with every cost and revenue involving our Life Cycle Cost, you end up with a financial analysis that not only tells what the total costs are, but also assigns a time value to each of those costs.  Summing these time values up and considering our initial investment (aircraft acquisition) gives us what is called the Net Present Value of the proposition.  This is the tool to use when considering high dollar, complex proposals such as aircraft. 

With a business use aircraft, the analysis will include things such as tax depreciation, the cost of a lease or loan and the opportunity to use the money for the aircraft in other areas.  A high net worth individual may make more money with their investments than the cost of a loan.  If the aircraft is for personal use, that same individual cannot use the tax depreciation of a business, so a lease may be a better deal in terms of the Net Present Value.

To calculate a Net Present Value, a spreadsheet can be used.  Inputs are the costs, revenues, time, and the cost of money (also called rate of return or desired return on investment). 

The Time Value of money is a powerful tool in evaluating different cash flows. It need not be for a business. It can help you to evaluate complex finances and be used as a tool to evaluate the true costs of owning and operating an aircraft.

Have any of you been involved in the financial analysis of an aircraft acquisition (or any high dollar acquisition such as a costly computer network for a business)? If so please reply and tell us your experiences.  We all learn if you share.

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David Wyndham



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