All posts tagged 'international business'

Business Travel is up with Airlines and Business Aviation

News of the past two weeks indicates some signs of recovery in travel overall and maybe even the beginning of a recovery in the business aviation sector of travel.

But is it a real recovery across the entire industry?

USA Today reports that business travel is up, and surveys of travel executives indicates that their company’s people will travel more in 2011. Even though travel will be up there is a new mindset that is more frugal about how travel dollar are spent.

Excerpts from the USA Today article:

The economic downturn has left its mark. The ACTE survey finds that 54.1% of corporate travel executives in the U.S. are “encouraging or mandating” alternatives to travel, such as videoconferencing. And a survey by Egencia finds that 56% of North American travel managers say they increased advanced-ticket bookings in the last year to keep expenses in check.

“In general, travel managers and purchasers have decided this new frugality is working well, and it’s allowing them to do a lot with a limited travel budget, and they’re sticking with it,” says Noah Tratt, vice president, supplier relations for Egencia Americas.

That can mean squeezing two or three clients into a trip. Corporate fliers are more likely to be sitting in coach when criss-crossing the U.S., though they might be able to book business class for flights overseas. And business travelers may be asked to use the frequent-flier points they’ve accrued on business trips if they want to upgrade to a premium section.

A NY Times article reports that Gulfstream orders in the 3rd quarter were the best since 2008 and deliveries are up over last year. The catch here is that the majority of Gulfstream aircraft now are being sold outside the US.

The good news is that people still need to travel to grow business. Video conferencing has not yet totally replaced the face to face meeting.

[more]The bad news is that Cessna laid off another 700 employees in September and slowed production so the recovery is not across the board here in the US. Used aircraft prices are still depressed indicating a lack of demand. The manufacturers think, or hope, this will change in 2012.

It seems to me that the US Business Aviation market is going to be stuck in a no growth mode for 2011 with maybe some recovery in 2012, barring a major economic game changing event.

Where the growth seems to be is in Asia, India and Latin America. There is great opportunity in China where there are only about 1000 GA aircraft in the country of 1.4 billion people compared to 200,000 GA aircraft here in the US.

Has the US Business Aviation market reached maturity in its life cycle?

If so, then we must find ways to reinvent the business if we want growth.  Or move to China.

China's awakening means vast changes to business and general aviation

As the Chinese Proverb goes: 昨天是历史; 明天是奥秘 or in English: “Yesterday is History; Tomorrow is Mystery.”

 

The waking process of the giant sleeping dragon that which is the vast country called The People’s Republic of China, is scheduled to begin on Jan. 1, 2011. When this giant does stir, the world order in Business and General Aviation as we know it today will undergo vast changes.

 

A bold statement, maybe, but as soon as the low altitude levels are released for unrestricted air movements, like the Chinese government has promised (read the Chinese News Agency Report at the end of this article), we, I believe, will see a rapidly building hurricane of activity that the world has never seen the likes of before.

 

According to a recent report in the press, there are an estimated 875,000 people in China worth over 10 million RMB ($1.46 million) and 51,000 worth over 100 million RMB ($14.64 million), therefore the number of people with the wherewithal to invest in and utilize business and personal aircraft is rapidly growing into a viable sector. Sixty of these people are officially billionaires.

 

In the United States, there is currently an estimated 9,000,000 people worth over $1 million, with 403 of these people officially billionaires. Armed with these statistics, we can make the following assumptions:

 

[more]There are 308,000,000 people that are legal citizens of the United States of America. This population total, currently-statistically supports/shares/enables approximately 30,000 turbine business aircraft to exist in the domestic fleet. Which if you divide this total population figure by this business fleet total, you arrive at 10,267 U.S. Citizens to each aircraft. Currently in China, there are 1,800,000,000 people, therefore potentially this population count in comparison, should translate to a business turbine-aircraft fleet of more than 175,000 aircraft! The landmass of China is about the same as that of the United States (China has 3% less.)

 

Boeing currently spends more than $600,000 on having parts, components, and subassemblies, including the vertical fin of the B787 built in China. Bombardier is the largest supplier of train rolling stock to China, and I have heard that they are trying to build on this success by expanding its commercial aircraft sales position in this country as well. The fact that neither Canada or the U.S. are members of the B.R.I.C. Community: Brasil, Russia, India and China (coined in 2001 by London based Jim O'Neill, the global economic research, commodities, and strategy research head at Goldman Sachs) is not lost on Embraer, who have to date, outsold Bombardier two-to-one with Regional sized aircraft. It stands to reason that Bombardier shall probably institute a similar manufacturing policy regarding China, like Boeing has already.

 

With so many of the business aircraft O.E.Ms building aircraft subassemblies and components offshore (especially in Mexico), it stands to reason that their production plants may well shift to China in the coming decade or two. This is where we shall see the biggest paradigm shift in our industry. However, as Dassault has found over the last two or three years, their marketplace has shifted already away from the traditional U.S. Market holding close to 80% of their global sales, now down to around 40%. It is a known fact that business aviation growth in Arabia (the number of aircraft entering this region) is outstripping the normal historical annual growth rate seen in the U.S.A., by three times this number (Arabian business fleet is growing in-number by 100% every five years. The U.S. growth is 33% every five years.) It is, I believe, inevitable that China shall eventually knock both of these figures into a ‘cocked hat’ based on scale.

 

In 1929, Curtiss-Wright partnered with the then Chinese Government to form the China National Aviation Corporation (CNAC). The purpose of this partnership was to establish, promote, and develop commercial air service throughout China. In 1933, the U.S. Flag Carrier Juan Tripp and his company Pan-American Airways took over the stake that Curtiss-Wright had established in China. This commercial arrangement was a complete success up until 1949, when communism became the new governing philosophy in China. Then all communications between the United States and China ended forthwith.

 

Almost 30 years elapsed until both commercial and political channels of communication reopened with China. Then in 1984, a Civil Aviation Cooperative Agreement and a Bi-Lateral Airworthiness Agreement between the U.S.A. and China was signed. From then on, the Civil Airworthiness Administration of China (CAAC) would assume FAA-type regulatory responsibilities, including airworthiness assurance.

 

Then in April of 2004, the U.S. Trade and Development Agency (USTDA), the Federal Aviation Administration, and many U.S. aviation corporations, launched the U.S.-China Aviation Cooperation Program (ACP). The founding members of the ACP included Boeing, General Electric, Honeywell, Lockheed Martin, Parker, Raytheon, Rockwell Collins, United Airlines, UPS, and United Technologies. Today there are 42 U.S. member corporations

 

What I have laid out for you thus far all bodes well for the U.S.; however, there is a definite move towards anti-U.S./American sentiment growing within the European Aviation Space Agency (EASA) and within the Business and General Aviation field on the continental mainland. I am referring to how EASA is attempting to outlaw domestic/resident aircraft operations that are carried out by FAA Licensed Pilots, and in FAA Registered aircraft.

 

What enables non-U.S. citizens to fly on and fly in U.S. aircraft that they own offshore, is the generous system of Licensing Reciprocity and Aircraft Ownership Trusts. Why does this practice thrive? It really boils down to cost.

 

I am pretty certain that I cannot be factually criticized if I say that none of the European Aviation Authorities has ever really improved aviation safety because of their philosophy of putting more checks and balances in front of applicants and operators. For instance, I have never really understood how a Commercial Pilot with a European license is a safer/better pilot because he/she was required to pass a written and oral test that includes the specific internal componentry and physics properties behind how a VHF Omni-Directional Radio Beacon ground station is constructed, repaired and operated. Unfortunately, this and other nonsensical knowledge requirements create an incredibly long series of hurdles that an aspiring Instrument or commercial pilot candidate must jump over to attain their license. Then of course, this valuable piece of paper must be maintained, not just by proving currency, but also the financial means to pay the incredibly high renewal fees levied against the applicants. No, I contest that the European system merely promotes vast layers of bureaucracy and “jobs for the boys” that are supported by massive, and for a large part totally unnecessary, licensing taxes and fees.

 

I mention all of this because of one reason - much of Europe truly has communistic leanings. The People’s Republic of China is one of the last remaining Communist State systems. With this said, I am genuinely worried that EASA will continue to take a ‘holier-than-though’ approach to Business and General Aviation certification and licensing, and the Chinese Aviation powers that be, start to pay serious attention to the EASA way of doing business, and elect to discount the simplicity and practicality of the U.S. system of aviation oversight. If this happens, then the market potential of the emerging Chinese business and general aviation market will be severely hog-tied, the industry there will be stifled, and either the Manx or U.S. Registries shall thrive through Trust Agreements in China, like they do now in Europe, (unless they are foolishly outlawed.) This in turn may spark the biggest trade and political war ever seen.

 

What can we Americans do to avert this potential calamity? I suggest that you call and write your Industry Association leaders, your representatives in Washington, and most importantly of all, start learning Chinese. A cogent, firm, but positive message must be sent to the officials both in Cologne and in Beijing: the U.S. is business and general aviation, and to discount our system, is a sure-fire way of hurting your systems.

 

So, back to how the Dragon is on the brink of waking up. According to the Caijing Business News agency: “…(Beijing) — China has decided to open the country’s airspace to altitudes lower than 1,000 meters and plans to build a nationwide low altitude aviation system with market oriented operation by 2015.

According to Tang Jilong, deputy secretary general of China General Aviation Association, China’s Central Military Commission and the State Council approved the guidelines on lower airspace restrictions August 23.

According to the new regulations, a pilot program opening the low altitude air space to general aviation will be launched at the end of 2011 in Changchun, Guangzhou, Shenyang, Zhuhai and Xinjiang. General aviation business covers a wide range of aviation services from private flying, flight training to air ambulances, and aerial firefighting.

The program will be expand nationwide by 2015, with low altitude airspace to be opened in the country’s five aviation control areas including Beijing and Lanzhou.

Between 2016 and 2010, China will take further efforts to improve the law and regulation system as well as infrastructure for low altitude aviation.”

While Business is 'Squirrelly as hell,' America is Not Like Europe

We are currently operating under extremely strange times as I see it personally. We officially sloughed off the “recession” label last year, and the activity within the marketplace has bourne this out as being accurate; so much-so that even the heavy iron is again selling now. However any used business aircraft transaction today is for want of a better phrase: “Squirrelly as hell” with buyers willing to walk at the drop of a hat, or the nod of a chin. I believe that this is directly attributable to the uncertainty that is rife within our global lives at the present.

Let’s take for instance the situation in the Greece, Spain, Portugal, Italy and Ireland (Eire); the economies of these Euro-zone countries, and the official currency of the same, are in severe jeopardy. This in turn has the World’s stock markets on the run again, most in the wrong direction, all the while the price of oil seems to be staying in a moderate band because the U.S. Dollar is climbing in value against other currencies, and the folks at OPEC are enjoying economic gains made for them from the foreign exchanges rather than from oil demand.

The rising Dollar is causing great angst amongst the multi-nationals of this great country, because their foreign earned profits translate into fewer Dollars at home here; adding to this pressure at the top, are the alleged socializing of the nation through the new legislation that is seemingly pouring out of Capitol Hill in an un-ending river of change. We are also fighting two wars abroad, and one of the largest natural disasters ever seen on our home shores thanks to deep-well drilling gone bad.

Add all of this up, throw an Icelandic volcano, and the ever present spectre of terrorism into this big pot of woe, and pretty soon the World’s lunch menu poses a bitter and uncertain meal for consumption, hence all of the indecision, flightiness, and all-round bizarre behaviour currently being played out by the buyer of the minute.

The Annual Meeting in Geneva in early May of the European Business Aviation Council was like at surfaced submarine that had been riding out a long period of enemy surface activity, sitting in the silent depths of the ocean. Everyone there was convinced that all enemy action was long-gone and their opportunity to bath in the sun under blue skies was safe, safe, safe. Okay so it sounds like I am writing in some sort of code, but the metaphors that I am using to describe the high-riding optimism of the business aviation industry on that side of the Atlantic Ocean, just didn’t fully jive with our current economic outlook.

You may call me a naysayer, but seeing that only about 8% of the business aircraft fleet resides in Europe, including Russia and the Baltic States, the optimism shown at this convention, might be read two ways: 1.) The industry over there is either in denial or is now experiencing a renaissance whereby the traditional modus operandi of using the airlines and railways to get from city to city is the first choice, with business aircraft service coming in second, is changing to a more American way of thinking; or 2.) We Americans had better start paying attention to how the nice multi-language folks over there, structure their small slice of this industry, because our share is contracting and we shall soon be seeing more and more people choose to charter and ride fractional aircraft over the American tradition of owning your own.

We are still not out of the woods when it comes to public and governmental perception of business aircraft use here, even though geographically, companies cannot achieve successful domestic growth by relying on ground transportation, and the legacy airline system. It is still thought to be passé of corporate management, and private individuals to be visible users of business aircraft. This prevailing point-of-view now active on our side of the Atlantic, has been the norm in Europe since the end of the Second World War, hence the prevalence of the charter and fractional providers over there.

I’m not saying that any of this is bad; however America is just not like Europe. Their model will not fit our business environment. Our industry will suffer mortally though, if the Middle East continues to take on debt without encouraging the much needed and generally forecasted growth, and Asia is unable to order itself into a politically stable region. If these scenarios remain in the so-called “bad zone”, we are all on the brink of a painful consolidation within our business sphere. I for one will shed a tear if Wichita and Seattle become second-tier, aircraft manufacturing cities due to a severe lack of demand, while the BRIC nations: Brasil, Russia, India and China take over and become the first tier. Okay maybe this is inevitable, but there is no reason why we can as a collective group, combat the European trend, and start educating the public and our elected officials, why the American way of doing business is the best for us, and largely for the rest of the World as well.

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