I was reading recently a report that talked about the summer numbers and how we have been doing here in the United States in the business aviation market and the numbers don;t look as great as we would like them, but they are stabilizing a bit in this crushing economic downturn. The sales of some of the companies out there are non-existent and some are actually having a decent year overall considering what they are dealing with around them. The reports point to an ever increasing strength of the US Dollar. This does not necessarily translate into better news for the industry overall.
Part of the problem with the industry is not the fact that the dollar has been weak and that we are seeing difficulties here, the problem can also be attributed to the slide in the economy and tough market indicators in Europe. In certain market segments, the number of European-owned aircraft available
greatly exceeds the number of American-owned available aircraft. The slowing European economy has a bigger impact on the business jet
market than the strong dollar and this is a growing trend. We will have to see how they react to the economic slide and how that will change how we do business here in the United States.
It was posted before about the possible strike for Cessna, but that seems to be averted although the news does not get better. It is reported the production line workers were required to accept the new contract. AIN reports that after that strike was averted, the news was not better:
[Citation] will lay off 700 more employees. Parent company Textron today reported that it is “adjusting aircraft production schedules and reducing headcount at its Cessna business unit due to continued weakness in new aircraft orders.” According to Textron chairman and CEO Scott Donnelly, “We have not yet seen a discernible improvement in business jet order activity. Therefore, we are taking further production and restructuring actions at Cessna.”
They are continuing to remain a force in the business aviation space and have taken these steps to continue that process.
In a note sent to employees today, Cessna chairman, CEO and president Jack Pelton said these production cuts will lower costs and keep the company competitive. “Our strategy is to defend and protect our current markets while investing in products and services to secure our future, but we can do this only if we succeed in restructuring our processes and reducing our costs,” he said.
They will not be providing information related to their production changes for the year but we can hope this means they will be better positioned for 2011.
It comes with the old saw of “buy low and sell high” as we have been taught from the beginning of business 101. In recent years the grim reaper seems to have gripped the economy and there seems to be a lot of gloom and doom in every corner of the business aviation industry. The good news for those that are looking to purchase a business jet is that this is a buyer’s market.
The industry is seeing good prices throughout each class of jet available. The used jet marketplace is seeing great pricing for those in the market and the charter business is still pretty solid which makes owning a decent option. This is not to say that all of the used jets on the market are a good buy. A buyers market can be a great time to purchase but when buying you must do your homework to make sure that what you are getting is truly a bargain.
Due to the increased inventory and the lower prices it can be a tough choice as to which jet may be the best to put into your asset column. With the economy may jets are being repossessed or have sat without being used for a while and their maintenance may not be up to date, costing the potential buyer a large fee to get it up to date. Paying attention to the jet you are buying is important. You should have someone that is an expert in assessing value based on the needs you have and the information provided by the seller to make your purchase the best possible it can be.
I had a chance to catch up on some of my reading this week on what is happening in the market and I found an interesting snippet at AINOnline:
“Elevated used inventory, attractive used pricing and macro uncertainty continue to hold down demand for new business jets,” JPMorgan Equity Research noted in its latest business jet monthly report, issued this morning. “As a result, OEMs are eating further into their backlogs, and if these don’t stabilize in the coming quarters, further [production] rate cuts seem likely.
This is obviously not good news for those that are producing new jets, but those that have inventory in used jets it means now is a good opportunity to make a push for sales with those jets they have. The report goes on to state:
As for pre-owned jets, JPMorgan said used inventory of in-production models edged up to 11.8 percent in August versus 11.6 percent in July, with all categories showing increased inventories.
“We believe this increase is a bump in the road and expect that inventories…will continue to decline gradually,” it added. Meanwhile, average asking prices for pre-owned jets increased 1.3 percent in August, reaching $11.4 million.
It seems that used inventories will be reduced which is good news for all. When those inventories are reduced the new jets coming into production will also increase.
We are continuing to get reports from all of the sectors in the industry that the slide has slowed and the recovery has begun. It may be wishful thinking on the part of many of the manufacturers at this point but not for two separate business jet companies.
Business Jet Traveler reports that Bombardier CEO and President Pierre Beaudoin opines that he feels that the economic recovery is shown through the idea that less cancellations are occurring from customers. He specifically states that Bombardier is “starting to see signs of recovery as shown by the significant reduction in business aircraft order cancellations”, and this is backed by the statistics that during the second quarter this year they only had 26 cancellations of ordered aircraft while the same time period last year showed 80 cancellations. It appears that their orders may also be on the rise.
It is also reported that Gulfstream is seeing the market begin to get better and that it is not where it needs to be in the big picture but it is on the rise and headed in the right direction.
With these two companies showing signs of improvement and other manufacturers beginning to report the same numbers and forecasts, we can begin to see that the economic problems for companies in this industry may soon be able to recover from some of the worst conditions seem in a recent memory.
Many people ask what the options are to more traditional travel of commercial airlines. We know that on a commercial airline flight there are different classes of travel, be it coach, or business class or first class, but what are the options if you want to fly via a private jet? There are 4 options outside of commercial air travel that should be discussed. The options are listed as:
Each of these four types of corporate travel come with their own unique opportunities but none of them can be argued as the best option than outright ownership. I listed private ownership as the top spot here because that is what makes most sense if your travel extends beyond those of normal passengers in the business sector. I like the chart and discussion that was put together in the Wheels Up article written by Jeremy R.C. Cox. This is a great analysis of four types of of corporate travel listed above. He has listed out the annual costs associated with each option by using a Cessna Citation X and the Pilatus PC12. The Cessna Citation X is becoming one of my favorites in that category and it was interesting to note his analysis using that model.
The conclusions drawn by Cox in the article state:
“The Magic Formula: After analyzing the numbers listed above, you will see that there is a magic formula that comes in-to-play when you are deciding whether you should rent, or lease, or own. In this case we learn that you will have the lowest operating cost, per flight-hour ‘overall’, if you own your aircraft when your annual utilization is above 240 hours of flight-time.”
Having this type of analysis is crucial to the process of determining your own type of corporate or personal private jet usage. The analysis includes other costs that are not necessarily included in this formula such as your region, the type of travel you are doing and the Direct Operating Costs (DOC). This can be discussed at the time you decide on your own corporate jet purchase.
I was reading an article sent by a friend that indicates that studies have shown that corporate jet use is up and the month of June showed the increase as well. That means more and more companies are using their corporate jets for more travel and I am sure that personal use is up as companies and their executives use the aircraft for personal use associated with vacations. This increased use of the aircraft also means a possibility that you will have a higher maintenance budget. If you have budgeted for an amount certain for 2010, and that amount increases at all that may mean that your business aircraft or private personal jet may now be up for an inspection and those costs will be added to the yearly maintenance budget.
If your usage of your corporate jet increases over the year and it changes either your maintenance schedule or inspection, this can have a large effect on the annual budget you have for the use of that aircraft. You need to stay on top of that usage and the budget associated with the use so that it will not change your bottom line at the end of your fiscal year. Keep someone on top of the business use and the personal use and keep up to date with the maintenance of your aircraft. With the use of corporate jets increasing for both the business use and personal use it may be marking another indicator that the slide is over in this industry. It is good to hear that corporate jets may be on the rise.
There is always a number of people buzzing in the technology community when Apple comes out with a new product or there is a new press conference about its latest news. The Apple community is very loyal and they have a very sought after following in the mobile market. I am an Apple user in their laptops and computers, but I have not yet adopted the iPhone. It has to do with the service I use, but I still look forward to seeing what is the latest in the world of Apple. On Friday, Steve Jobs the leader of Apple held a press conference on the latest iPhone4 and I was one of the ones that paid attention to what was being said. The conference ended and they opened it up for questions and right out of the box, the first question asked Jobs how he was feeling and about his health. He responded by saying he felt better last week while he was on vacation in Hawaii and not working. This made me think about the way he travels.
Steve Jobs has been known for his salary of $1 per year, but he also has a number of things that are required under his compensation agreement. Part of that is his corporate travel. Steve Jobs chooses to travel on a corporate jet owned by the Apple company and I assume his latest trip to Hawaii was no different. What business jet does Steve Jobs use? He travels around in a well publicized Gulfstream V. The Gulfstream which is pictured here is top of its class and a great way for the Apple executive to get around on his many travels.
Jobs no doubt has many reasons to travel on the Gulfstream and security is probably a main component of that idea. With the secrecy of what goes on in Apple and the number of corporations looking to beg, borrow or steal from the innovations and for journalists looking to get the scoop on what is going on at Apple, I can bet that security is a big decision why Gulfstream is sailing through the skies with this top executive. You too can own a Gulfstream V for your corporation.
[Photo via John R. Beckman at Airliners.net]
I have been giving some thought to a few of the posts that talk about security and ease of travel that is brought out by many companies as to why they have decided to purchase a corporate jet or have decided to go with a private aircraft for their executive travel. It has to do with the flexibility issue of travel. I have been sitting in a line at an airport wondering if I had any chance to make my flight due to some mishap or weather problem or perhaps just a broken light that needs replaced in the galley. I also sit and wonder if I will make that connecting flight or if I will be sleeping in my own bed at the end of the day.
The stress of travel can take its toll over time and it does take a lot of that — Time. I have no control over the time I leave or the delays that occur and have no flexibility in how I travel. If a company has a private business aircraft that changes drastically. Yes, it still has to deal with weather issues, but ti does not have to deal with weather in other cities that cause delays in the system. It doesn’t fall prey to the problems of schedules and can be ready for travel anywhere in a short period of time. Executives like to have that flexibility and that is not as much of a perk as it is a business necessity in some cases.
When purchasing a corporate jet or company jet it is necessary to determine if you are purchasing the aircraft as a sole owner or if you are intending to be a co-owner of the aircraft. Each has its own set of issues related to the ownership.
A sole owner of a corporate aircraft or business jet means the company or person owns 100 percent of the aircraft and does not share in the ownership. This is by far the best way to own a corporate jet as it affords the owner the great benefits and flexibility. This allows the owner to use the aircraft at any tie and for any reason and it need not be shared with other owners and their needs and uses of the aircraft. This also allows the owner to have full control over the management of the aircraft including maintenance, safety and security and the amenities that the aircraft will have. It has been stated that if you intend to use the aircraft for 250 hours or more of travel it is beneficial for your company to won its own jet. This is merely a guideline of course and not meant to be a rule. Many companies use business jets for less or more.
if you are in a co-ownership situation this means that the owners all own a portion of the aircraft but are still responsible for the costs associated with its use. many companies handle their own costs and use, but it is also a common practice to have a management co0mpany provide all of the needs of the aircraft. If in a co-ownership role, it is not quite as flexible in the travel schedule and the personal use of the aircraft. It is important that this not be confused with joint ownership or partnership roles of ownership. There may be benefits or other business, legal or tax reasons for the different types of ownership and these should be flushed out before making your next purchase.
