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FBO Mergers and Acquisitions What Next?

Not unexpectedly, the subject of FBO mergers and acquisitions was one of the many talking points at this years’ EBACE, the annual European Business Aviation Conference and Expo, held at the end of May in Geneva, Switzerland.

The BBA acquisition of Landmark Aviation at the start of the year and subsequent rebranding as Signature Flight Support took many by surprise. Having divested itself of six Landmark locations, Signature still find themselves with 199 worldwide stations.

EBACE hosted the “Big is Beautiful” consolidation discussion with Mark Johnstone, Managing Director, EMEA region, BBA Signature Flight Support, Laura Pierallini of Studio Pierallini, Patrick Hansen, CEO of Luxaviation Group, Greg Thomas, President and Executive Chairman of PrivatAir and myself representing Global FBO Consult. Moderator was Taunya Renson-Martin. Looking at business aircraft management, the FBO sector and charter operations it became clear quite quickly that there was agreement among the panellists that mergers and acquisitions in the FBO sector will certainly continue for some time. Consolidation in the sector offers advantages of branding, purchasing power and economies of scale. For the smaller FBO chains or independents finding themselves sharing the ramp with a new or rebranded, well-funded competitor, it is not good news and can lead very quickly to a price “race to the bottom”.

 

And BBA are not the only movers in the FBO market place of late. Just a day ahead of EBACE, Dubai based JetEx announced that is has secured a tender from the Moroccan National Airports Authority to establish five new FBOs, the first such facilities in the North African country. It has already begun business aircraft ground support at Casablanca Mohammed V International Airport, Marrakech Menara and Rabat-Salé, where Swissport was also chosen to provide handling services. At the seasonal destinations of Agadir-Al Massira, and Dakhla, Jetex was named as the exclusive ground services provider. Jet Aviation, a General Dynamics company, seemed to be strongly hinting on their stand at two new locations to come very soon!

Luxaviation Group, new owners of well-established Execujet, Unijet (France), MasterJet (France), Abelag (Belgium), London Executive Aviation (UK), sound very bullish, so we can expect them to keep up the momentum for a while yet.

In the week following EBACE, French company Sky Valet announce it has completed the acquisition of JetBase, Portugal’s leading FBO network. JetBases’ ten FBOs, situated at the main Portuguese airports of Lisbon, Porto, Faro, Cascais and Beja, on the islands of Madeira, Azores and Cape Verde and in central Africa in Mozambique and Angola, will now operate under the commercial name of Sky Valet. This move follows on from the acquisition by Sky Valet in Q2 2015 of Gestair, Spain.

The addition of these new destinations consolidates Sky Valet’s international expansion strategy, which aims to create a network of FBOs located in the most iconic areas. The company already provides ground handling support services at Madrid, Barcelona, Gerona, Valencia, La Coruna, Santiago de Compostela, Palma de Majorca, Ibiza and Malaga airports. Dominique Thillaud, chairman of the management board of Aéroports de la Côte d’Azur (ACA) and Sky Valet, commented, “This acquisition allows us to expand our expertise across a new attractive area of the Iberian peninsula with a reach that even extends to Africa.”

Last April, Florida based Sheltair Aviation announced it had given its FBO network in the Sunshine State a major boost with the purchase the Tampa International Jet Center.

In the same month there were further notable indicators pointing to the continuing trend of aviation fuel suppliers actively expanding their services and branding across the industry, working closely with independent FBOs.

Skylink Services, the lone ground handling service provider for business aircraft at Cyprus’s Larnaca International, became the 52nd Diamond Service member of the World Fuel Services (WFS) Air Elite Network, the international group of FBOs established in 2011 from the remnants of the Avitat network.

WFS and Deer Jet Group expanded their eight-year relationship by signing a memorandum of understanding for the former to provide global aviation support solutions for Deer Jet’s eight FBOs in China and business aircraft handling subsidiary Honor Aviation.

Under the agreement, World Fuel Services will allow Deer Jet FBOs and Honor Aviation to accept its Avcard charge card for payment. More than 30,000 aircraft operators and pilots use Avcard worldwide for aircraft purchases such as fuel, ground handling and maintenance. Avcard is accepted at more than 7,600 locations in more than 190 countries.

If you consider the known facts, talk to key personnel, listen to the rumours, filter out the uninformed comments, you will get a broad sense of how the FBO sector will evolve over the next five to ten years. I believe mergers and acquisitions will be accompanied by co-branding, strategic partnerships and franchising. Realistically the worlds’ capitals and most major cities are fully populated by FBOs, restricting expansion for those not already present in these centres, with many airports restricting the amount of FBO licenses they will issue compounding the problem. Other factors to be considered are the forthcoming sale of a number of airports (France, Germany for instance) and the issuing of new FBO franchise agreements by governments (Morocco just completed, Oman in the process and many more in the pipeline). Right now Africa, Central and South America, India and some of the Pacific Rim countries are getting a lot of attention, maybe it will be from these regions that we will see the next exciting developments emanate!

New Wi-Fi solutions for King Air Operators

By Mark Wilken
Director of Avionics Sales at Elliott Aviation

www.elliottaviation.com

With growth brings increased travel demands and so does the importance to stay connected to the office and your clients. Think wi-fi is out of your price range? Think again! Photo courtesy www.FreeDigitalPhotos.net

The importance of connectivity is often understated during flight. Historically, the use of your cell phone or internet in-flight was never an option. However, that paradigm seems to be shifting as businesses tighten budgets and workload increases. Business aviation continues to play a key role in shaping the future of many companies. With growth brings increased travel demands and so does the importance to stay connected to the office and your clients.

As employees and passengers alike travel more, a business may see flight time as an opportunity to recap an important meeting or prepare for the next. Or perhaps catch up on email to make sure you are responding to your customers’ needs in a timely manner. Your key employees can get work done on the aircraft so they don’t have to later that evening with the family. While the cost-analysis of productively over downtime might be somewhat intangible, ways to increase productivity have always been attractive to a CFO.

Wi-Fi providers for business aviation are delivering cost-effective solutions to the consumer, with owners and operators recognizing the benefits to these systems. However, King Air operators have long been searching for Wi-Fi solutions. Typically, only larger aircraft had Wi-Fi options available that made sense for the size and mission needs of their aircraft. Now, King Air owners and operators have a cost-effective solution with the Aircell ATG 2000for a fraction of the cost of the larger systems. Having your King Air equipped with Wi-Fi will keep you connected and your productivity high.

Recently, Aircell announced promotional pricing for the ATG-2000. From now until December 31, 2014, customers can own this system for $45,000, plus installation costs. In addition to lower installation costs, Aircell has lowered their monthly subscription costs and added a pay-as-you-go option.

The Aircell ATG-2000 provides Gogo Biz® in-flight Internet access for up to five connected personal devices. Passengers will have the ability to check email and browse the web. Additionally, the system allows for voice services via either the Gogo® OnePhone cabin handsets or on personal devices through the Gogo® Text & Talk service. The Gogo® Text & Talk service allows passengers to use their own smartphones and mobile phone numbers to call and text in-flight.

The Aircell ATG system operates in the 1.5 – 3.0Mbps range with future initiatives to increase speeds. Most information available on the web, including simple pictures in emails, has increased from 100K to 5,000K (5MB) in data size. This type of usage requires high-speed data transfer to view most content. Recently introduced systems have entered the market for a lower cost, but these systems only reach download speeds up to 100Kbps. Remember the days of 56Kbps dial-up service? This isn’t even twice as fast. With Wi-Fi routers, you now share that single data stream with multiple users further congesting the network. With an Aircell unit, you won’t waste your time and money waiting for an attachment to download.

In addition to Wi-Fi connectivity, the ATG-2000 allows operation of Aircell’s all-in-one cabin entertainment system, Gogo® Vision. Gogo® Vision is business aviation’s first turn-key, on-demand, in-flight entertainment system that puts movies, TV episodes, news, weather, flight progress and more at your fingertips. It allows access to a full library of some of the best titles in entertainment via personal tablets and laptops. The service is delivered by Aircell’s UCS 5000, an all-in-one smart router and media server.

Mark Wilken joined Elliott Aviation in 1989 as an Avionics Bench Technician. He was promoted to Avionics Manager in 1996 and joined the sales team in 2003. Mark has led many highly successful avionics programs such as the King Air Garmin G1000 avionics retrofit program. He recently led efforts for Wi-Fi solutions in Hawkers, King Airs and Phenom 300’s. Mark holds a Bachelor’s Degree in Aviation Management from Southern Illinois University and is a licensed Pilot.

Jurassic Jets

Are older business aircraft even sellable? And how old is OLD?

At the recent NBAA convention in Las Vegas, I sat in on several briefings about the state of aircraft sales and residual values. It was unanimous that older aircraft are not selling. No news there. It's been that way since 2008. What was interesting is the speakers' definition of "old."

I've been going with older than 15 years as "old" in terms of the ability to sell at a reasonable price within a reasonable amount of time. Age 15 also works with getting financing: The Aircraft Age + Length of Lease/Loan should not exceed 20 years. Age 15 allows for a five year financial deal. It seems like the new "old" is younger than that. And no, we can blame it on the Millennials. Blame it on the economic booms of the late 1990s and again in the mid-2000s.

An "old" business airplane is now older than age 10 in terms of maintaining a residual value and being sellable.

Glancing through the GAMA shipment database by year, business aviation saw significant increases in sales and deliveries during the past 15 years. Many manufacturers saw their sales double, peaking in delivery backlog in about 2008. Thus, there are a large number of relatively recent vintage airplanes available that are in the 5 to 15 year group, and especially aged 5 to 10.

The future air navigation systems that have been developing are in place or will be in the next decade. New or nearly new aircraft are either capable of using the full airspace, or can be easily upgraded. Older aircraft may not be so easily updated, especially older business jets that need the upper altitudes for efficient flight.

Older business aircraft, especially jets, have operating costs significantly higher than their new equivalents. A second or third overhaul on most turbine engines will be very costly due to retirement components within the engine. Unscheduled maintenance is also much higher for these older aircraft.

Lastly, emerging markets outside the US can, and do, purchase mostly new or newer aircraft. Developing nations are adopting the EASA regulations as it relates to aircraft aging issues. Some even place an age limit on imported aircraft.

So we have a large number of recently produced aircraft, many with updated avionic systems, that can be purchased for quite reasonable prices. Financial institutions have the money to lend, provided the credit is excellent. The 20 or 30-year old airplane costly to maintain, and sending them to a developing nation to sell isn't viable. These aircraft are just not selling. Let’s take a look at an example.

Jet Years produced Percent Fleet For Sale Average Days Listed For Sale
Gulfstream GIII 1979-1987 18% 828
Gulfstream GIVSP 1992-2002 13.56% 375
Gulfstream G450 2005-current 7% 239

You can buy a used GIII for under $1 million. But almost no one wants one even at that price. Newer GIVSPs and especially the G450 have a market.

One of the speakers referred to the oldest business aircraft as "Jurassic Jets." They are from a bygone era of cheap gas. They are not selling and the financial institutions do not want them on their books. From what the speakers say, and I agree, this is not going to change. Many of these aircraft are with their last owner.

2011 Business Aviation Outlook

2011 Outlook

New Year’s Eve was an early night for me. I was fighting off a nasty cold and despite the intake of grape-related products, ran out of energy before 2011 said hello.  But as I didn’t sleep much either, I guess I was awake for the New Year. With some drugs in my blood, the cold’s effects are waning as I write this. If my outlook for 2011 is a bust, I will claim it is the after-effects of decongestants!

2010 was a year of what I’ll call a stagnant recovery. Economic signs were generally positive. The US stock markets finished 2010 with double digit gains versus 2009. NASADQ was the biggest gain up almost 17% over the year. However, rising corporate profits and stock indices have not resulted in job gains here in the US.

Business aviation is tied in with corporate profits, so that much bodes well for our industry in 2011. Aircraft sales are expected to be (relatively) strong for the last quarter of 2010 if the December activity of aviation tax and legal folks are any sign. Flight hours flown seems to be on the rise as well as charter activity. But again, new jobs and rehires are not showing strength just yet.

So here go my picks for 2011:

Business aviation activity will continue to show steady, but slow, growth. I think aircraft sales will slowly increase here in the US, be flat in most of Europe, and show some strong growth in the Middle East and Asia. As with the past several years, I think more than half of the new aircraft sales will be outside the US.  So for US-based aircraft brokers with International experience, this should be a better year for you.

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Are we losing our sovereignty and freedom in all things commercial, business and general aviation?

Even though this past year in aviation legislation has been a quiet one, there has been a discernable undercurrent of change seeping into the foundation of the commercial, business and general aviation industry these past several years. The changes that have been slowly seeping in under most of our ‘news radars’, and when viewed as a composite, are so significant that we all now need to take immediate action before our worst fears become an industry reality.

The changes that I am referring to, and a lot of them are not caused by the Department of Homeland Security (DHS) or Transportation Security Administration (TSA), are as follows:

Establishment of an International Aircraft Registry in March 2006. This program is mandated by the FAA, whereby a seller cannot warrant ‘Free and Clear Title’ to his or her aircraft, unless it has registered with the I.R. The treaty resulted from a diplomatic conference held in Cape Town, South Africa in 2001. The conference was attended by 68 countries and 14 international organizations. In all, 53 countries signed the resolution proposing the treaty. It took effect when ratified by eight countries: Ethiopia, Ireland, Malaysia, Nigeria, Oman, Panama, Pakistan and the United States.

Failed attempt to introduce Aviation User Fees in June 2007. Proposed by Sen. Jay Rockefeller, along with the then-ranking minority committee member Sen. Trent Lott, and wrapped up in Senate Bill S.1300. The airlines were all for this, because they saw an opportunity to deflect public scrutiny away from their intensely bad ways of managing their respective companies, while firing media shots at business and general aviation. This caused so much division within both houses of Congress that the FAA was put on probation starting in September 2007. Ever since then, the FAA has been on a month-to-month, and sometimes quarter-to-quarter basis for funding.

Failed attempt to introduce the Large Aircraft Security Program (LASP) in October 2008. This regulation would require all U.S. operators of aircraft (both Part 135 and 91) that exceed 12,500 pounds maximum take-off weight to implement security programs that would be subject to compliance audits by TSA. The proposed regulation would also require operators to verify that passengers are not on the No Fly and/or Selectee portions of the federal government's consolidated terrorist watch list.

Failed attempt to introduce an FAA Certified Repair Station (CRS) Security Plan in November 2009. Repair stations on and off airports are so different that it wouldn’t be possible to create a security plan and audit system to fit all of the stations. However, this plan required that all CRS facilities to implement security procedures and infrastructure such as access controls to the facility or aircraft, and a means to identify those who should have access to the facility. Additionally, there would have to be procedures established for challenging unauthorized people who are trying to get access to the facility, along with a security awareness training program for all employees.

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