All posts tagged 'Aviation forecast'

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.

The Emissions Trading Scheme Debacle, i.e. “The Carbon Tax.”

Before I start with the meat and potatoes of this month’s article, I do want to publically state that I am not a believer in the ‘Sky is Falling’ point of view regarding ‘Global Warming.’ So before any reader starts to berate me for having a biased point of view, or acting like an ostrich by sticking my head firmly into the ground to avoid seeing what is going on around me, please allow me to at least explain why I take this stand of non-belief:

When I was attending my local Comprehensive Secondary Education High School back in Rural England in the nineteen seventies and eighties, I distinctly remember the world’s scientific community trying to whip up the public’s attention and concern regarding the then great fear that we were on the edge of a modern Ice-Age and all life on Earth was in mortal danger thanks due to ‘Global Cooling.’ Now today, thirty five years later, scientists are proclaiming that the planet is now in massive danger thanks to ‘Global Warming.’ Apart from saying “I wish that they would make their minds up” I do know that much of the data created by both Mr. Gore and his scientific cronies was either misinterpreted, misrepresented, and/or hyped beyond the value of what it can tell us (Please watch The Great Global Warning Swindle, that was produced for Channel Four in Britain in 2007, as well as exhaustive research and documentation that is available on the counter-view against Global Warming.) You know the phrase: “79% of all statistics are pulled out of someone’s rear-end.” I know that there are many indications of a change in nature, but obviously the Global Warming activists do not believe in the ability of the earth to manage its own environmental systems better than mankind will ever be able to.

Okay, with that said onto the main feature...

The European Commission, a cabinet government that consists of twenty seven bureaucrats who conduct their legislative assembly in Brussels, are an executive arm of the European Union (E.U.) The Commission has taken on the perceived issue of climate change as one of their top priorities. Their belief is that the production of carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulphur hexafluoride and their release into the earth’s atmosphere by humanity is the principle cause of global warming due to a greenhouse effect. They have mandated that all E.U. member countries starting in 2013 must cut their carbon emissions by 30% of what they were measured to be in 1990, within the next eight years (year-end of 2020.) When that milestone is reached, further reduction shall be mandated.

This mandated reduction will be achieved by the E.U. by requiring their member states to require all greenhouse producers (i.e. all companies that operate in the E.U.) to measure, monitor and record their averaged historical production of carbon dioxide, and then dispense a wallet of Carbon Trading Credits to them all in an amount that is equal to 85% of their credit need, as well as selling credits to make up the 15% shortfall and also to non E.U. members who shall be emitting greenhouse gases within the borders of the E.U. These wallets all go into effect next year (2013.)

Even though most of the documents available at the Commissions website regarding the Emissions Trading Scheme, are peppered with the phrase ‘un-due burden’ as references to the many legal challenges against the scheme, the commission believes that ETS is as a simple, fair and cost effective measure against global warming, as well as recognizing that it is creating a brand new commodities market that is based entirely on the trade of unused ETS credits. The credits are loosely labelled by the E.U. as ‘financial instruments’ and frighteningly as far as I see it, they are viewing the trading of credits as a new creator of venture capital that will be injected into the economies of the E.U. member states, further shoring up the damage wreaked upon them by the Global Financial Crisis. Officially these credits are also called European Union Allowances or EUA’s. One credit (EUA) and shall have an opening price on January 1st, 2013 of €25 or approximately $33.50 at today’s rate of exchange.) 1 Credit = 1 Metric Tonne of Carbon Dioxide release.

Jet-A apparently, has 21.537 pounds of carbon dioxide locked up inside one U.S. gallon. This is released when it is burnt.

A typical current production, mid-size business jet is purported to emit 6.2 LBS of carbon dioxide per NM. For a flight from the Midwest U.S. to London or Paris, the total carbon dioxide emission shall equal 24,800 LBS (12.4 Short Tons or 11.272 Metric Tonnes.) At the rate of $33.50 per Metric Tonne, the Carbon Tax shall equal $377.62. It is predicted however, that due to speculating traders and government meddling, the cost per credit will go up by as much as 700 times the initial offered value, i.e. almost $24,000 per credit. Never say never regarding this not happening, because no-one ever expected a change in the Italian government that occurred recently, whereby the new Prime Minister and his cabinet are implementing a residency tax on all private aircraft per visit that can amount to almost $400,000 per visit for a Gulfstream sized aircraft as an example.

By reading the ETS legislation that is applicable to aviation, you will find that no aircraft is exempt if it produces more than 10 Metric Tonnes per annum. As you have seen, this allowance is pretty-much obliterated on the first flight across the pond from the U.S. to Europe.

The ETS legislation that targets the aviation industry reads as follows:

Aviation Flights which depart from or arrive in an aerodrome situated in the territory of a Member State to which the Treaty applies. This activity shall not include: (a) flights performed exclusively for the transport, on official mission, of a reigning Monarch and his immediate family, Heads of State, Heads of Government and Government Ministers, of a country other than a Member State, where this is substantiated by an appropriate status indicator in the flight plan; (b) military flights performed by military aircraft and customs and police flights; (c) flights related to search and rescue, fire-fighting flights, humanitarian flights and emergency medical service flights authorised by the appropriate competent authority; (d) any flights performed exclusively under visual flight rules as defined in Annex 2 to the Chicago Convention; (e) flights terminating at the aerodrome from which the aircraft has taken off and during which no intermediate landing has been made; (f) training flights performed exclusively for the purpose of obtaining a licence, or a rating in the case of cockpit flight crew where this is substantiated by an appropriate remark in the flight plan provided that the flight does not serve for the transport of passengers and/or cargo or for the positioning or ferrying of the aircraft; (g) flights performed exclusively for the purpose of scientific research or for the purpose of checking, testing or certifying aircraft or equipment whether airborne or ground-based; (h) flights performed by aircraft with a certified maximum take-off mass of less than 5700 kg; (i) flights performed in the framework of public service obligations imposed in accordance with Regulation (EEC) No 2408/92 on routes within outermost regions, as specified in Article 299(2) of the Treaty, or on routes where the capacity offered does not exceed 30000 seats per year; and (j) flights which, but for this point, would fall within this activity, performed by a commercial air transport operator operating either: fewer than 243 flights per period for three consecutive four-month periods, or flights with total annual emissions lower than 10000 tonnes per year. Flights performed exclusively for the transport, on official mission, of a reigning Monarch and his immediate family, Heads of State, Heads of Government and Government Ministers, of a Member State may not be excluded under this point."

Is there any way to avoid the Carbon Tax?

Our only hope is that the 26 or so countries that include the U.S.A., China, Russia and India, that all oppose this legislation that is being foisted upon all visitors to Europe, will manage to defeat it through trade embargos and other means. With as much financial strife that the Eurozone is feeling now especially with Greece, let’s not allow this Euro-Tax scheme to become cause for a military war.

So, what do you think about all of this? Do you think ETS/Carbon Tax is a good thing, or do you find it demonstrable like I do?

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

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

 

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Media Contact:     Julie Stone                          912-898-8673

ARGUS Contact:  Kendra Christin                    513-852-1010

GENERAL AVIATION NEEDS A ZIPCAR OF THE AIR

Where does the general aviation industry go from here? Well, this looks to be a year of transition, from the old economy that we knew prior to 2008 to the new economy that should start to really see growth in 2012. Growth will come with a different look than it has in the past, driven by technology innovation in the market and increased globalization. The United States will no longer be alone in the drivers seat. Traditional market general aviation growth will happen in China, India and other developing economies.

Growth here in the U.S. has to come from market innovation. We need to do more than get used to it. We need to adapt and embrace it, and determine where the opportunities are for those of us in general aviation in the U.S. and in Europe.

Our company finished 2010 with a strong run to the end of December, and the first few months of 2011 look strong in aircraft charter and FBO fuel sales. Is this a sustainable trend? I hope so. My major concern is the volatility of fuel prices. We don’t know if the economy, let alone the aviation industry, can stand oil prices 30% to 50% higher than they are today.

Setting concerns aside, when I look out to 2011 and beyond, I see opportunities for general aviation to capture the traveler in a new way. The number one reason more people don’t fly general aviation aircraft is price. I have written a lot about this over the past 18 months. I’ve thought about this problem (opportunity) for many years prior, as I talk with people who use or want to use our service almost every day for the past 28 years. There are some ideas worth considering in a good book I’m reading right now called “What’s Mine is Yours: The Rise of Collaborative Consumption” by Rachel Botsman and Roo Rogers.

Wikipedia says the following about this term I had not heard of until recently:

The term collaborative consumption is used to describe the cultural and economic force away from ‘hyper-consumption’ to re-invented economic models of sharing, swapping, bartering, trading or renting that have been enabled by advances in social media and peer-to-peer online platforms

The authors propose that in order for “Collaborative Consumption” to work, four underlying principles must be present:

* Critical Mass
* Idling Capacity
* Belief in the Commons
* Trust Between Strangers

Conditions one and two definitely exist in General Aviation and the subset of Business Aviation. We sit on a fleet of underutilized aircraft (idling capacity) , many parked and not flying at all, and even the active aircraft are not used anywhere near optimum levels. Critical mass is present but not properly managed and accounted for. In the U.S. there are 17,000 aircraft available for hire in charter service. Many more aircraft could be available if demand was sufficient to put them to work. Where are they and how do they work together as a synergistic fleet to serve the market? Today the fleet doesn’t work in a synergistic way.

[more]

The charter industry is fragmented and not optimized, but technology companies like Charter X / Avinode are making strides in providing a global distribution system for supply of aircraft availability across the fleet. The bigger problem seems to be finding the customer.

That customer is currently being pushed and shoved around by the airlines in a system that seems to become profitable only at the expense of efficiency, comfort and happiness of the traveler (the customer).  If Zappos is in the business of delivering happiness I sometimes wonder if the airline system is in the business of delivering misery.

On conditions three and four, we don’t know if there is a belief in the commons and trust between strangers in General Aviation. Are we willing to share a ride or flight, and do we trust who we are sharing with to sit next to them? The defining technology that will push us through these hurdles will be social media. I can see a day when we share a flight with others to a destination of common interest and long before we board the aircraft we know who we are flying with because we know them online. We see their Facebook profile and we are connected to them on LinkedIn. We have tweeted and texted them and maybe even used email (outdated) to connect to them, to discuss our common travel intentions.

And so our belief in the commons and trust between strangers centers on sharing a flight in a private aircraft together to safely and efficiently travel. And more than that, it will be enjoyable travel because the travel itself will have a social component to it that we don’t get when we travel on the airlines today. Traveling with old and newfound friends and business associates and family will be the new order of travel.

This is not going to happen on a large scale in 2011, but it will begin this year. By 2015 it will absolutely change travel by air in ways that most people cannot even imagine today.

Early adopters from the supply side will be those charter companies (new and established) who are not afraid to adopt new technologies and business processes to meet the new economy. As the critical mass increases and more travelers find this way of air travel, more suppliers will fill the demand.

From the demand side, those who are fed up with the current system of air travel are hungry, maybe even begging for a better solution to meet their need to travel. Social technology may discover that demand for what we have to offer far outpaces our ability to meet it with the supply where it sits today.

Eventually the airlines will have to reorder their business model when they discover that travelers don’t want to go when and where they are being forced to through the current system. It will take them a while to realize what is happening and some airlines that do understand innovation will figure it out. Many will not, due to their inflexible business models.

The next few years will be an exciting time in our industry as disruptive technology changes the way we travel. I look forward to seeing it happen and hopefully being in the midst of it.

Airbus in 2050: transparent fuselage and self-cleaning seats?

We missed this when it first came out of Farnborough this summer, probably just as we began our own preparation for EAA Airventure. Other outlets apparently did as well, however, and we thought it was too interesting not to pass up a second time.

German outlet Der Spiegel’s online version recently sat down with Airbus research director Axel Krein to discuss what its jetliners might look like by mid century.

Included among the possibilities listed in Airbus’s 2050 concept plane: a ceramic fuselage that can turn transparent, giving passengers a view of the world’s wonders below and the constellations above; self-cleaning seats that can shape shift to fit a passenger and sterilize themselves after use; an airframe skin that can detect cracks and repair itself with nano-capsules much like our own skin when cut; and holographic scenes of a bedroom or spa in a passengers’ in-flight, private cabin.

Wired Magazine noted that such concepts are common among commercial aircraft manufacturers, just as they are among automobile manufacturers.  If anything, such visions allow us a look at what we may see in coming years.

Such a trend supports greener, quieter aircraft that offer more efficiency to users and more flexibility to passengers. If anything, we can look forward to industry advancements in the next several decades that are just exciting as those we have seen in past decades of aviation.

Read the Der Spiegel interview here.

Check out Wired’s analysis from July here.

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