Industry analysts project $40 billion of private aircraft sales coming from the Asian market over the next 10 years. So what does this increased demand mean for both new and pre-owned aircraft industry?
It’s important to note that the current status of the global private aircraft market is not necessarily an indicator of where it’s headed. In terms of inventory, North America currently rules the air, maintaining 40 percent of the world’s private jet fleet, while Asia holds only 5 percent.
There are a number of reasons why Asia has lagged behind in private aircraft adoption. Private jet ownership was outlawed in China as recently as 2003. Plus, the West has already overcome many of the hurdles that Asian countries currently face like steep airport taxes and insufficient airport infrastructure. However, there’s evidence to suggest that Asian governments are working hard to correct these issues, paving the way for increased sales over the next two decades.
A shift in demand
Burgeoning economies in countries like China, Indonesia, Singapore and Malaysia were comparatively unaffected by recent economic recession from which Europe is still reeling. In addition, many U.S. companies are still hesitant to splurge on private aircraft until their balance sheets show further improvement.
Demand from Asia is helping to offset some of the negative news found elsewhere in the world, contributing to an overall positive industry outlook in the months ahead. Most analysts agree that the next 10 years of private aviation sales will be dominated by the surge in demand from Asia.
A new plane today is a great deal tomorrow
Buyers from Asian countries overwhelmingly prefer new aircraft. Peering ahead a few years, those jets will become available for sale in the pre-owned space, creating plenty of aircraft inventory with attractive pricing options for savvy buyers.
In a previous blog, we reported that in January 2012, a number of key measurements including available inventory, price, days to sale, and number of transactions indicated the shift to a seller’s market.
With the first quarter of 2012 just drawing to a close, it may be too soon to start high-fiving just yet. However, with the Asian demand for aircraft showing no sign of slowing, there are a number of positive indicators to suggest that a seller’s market is upon us.
Any serious discussion about the future of private aviation has to factor in the explosive growth of Asia’s economic wealth. Asia is expected to contribute $40 billion in private aircraft sales over the next 10 years.
China takes center stage
China is driving much of the demand for private aircraft. In 2011, the number of Chinese billionaires grew by 66 percent (compared with the rest of Asia, where the number grew by 32 percent). Analysts predict China’s current fleet of just over 150 aircraft will grow to a staggering 2,470 by 2030.
China has not been immune to the economic uncertainty of the past four years, but the country is still considered a growth market and has the second largest economy in the world, behind the U.S. In addition, the country’s significant land mass supports continued economic and population expansion.
Unfortunately, some Chinese government regulations and restrictions continue to hinder private jet adoption. High aircraft import taxes, significant user fees and an underdeveloped airport infrastructure have had a dampening effect on sales from the region, but industry insiders believe the situation will improve over time.
Indonesia and Asia Pacific showing strong demand
Indonesia is also a key player in the Asian market, with a growing class of high net worth individuals (HNI) supported by a strong economy. Also, Indonesia’s geography of more than 17,000 islands spread out over 3,000 miles makes flying by private aircraft the most practical option for the business traveler. The government is now taking a proactive approach to expanding airport facilities in this mostly rural country and is also implementing routine safety inspections of its private aircraft fleet.
The number of billionaires found in Asia Pacific now exceeds all of Europe, so it wasn’t a surprise when Gulfstream Aerospace recently reported that almost half of their 2011 third quarter orders came from the region. Of course, economic enthusiasm is diminished somewhat by Japan’s ongoing efforts to recover and rebuild from last year’s devastating earthquake and resulting tsunami and nuclear disaster.
Many private aviation analysts believe the global market for private jets is on the brink of a modest rebound in 2012. It looks as if Asia’s continued economic expansion is the fuel for that recovery.
Charles Lindbergh relied on the credit of several St. Louis businessmen to raise the capital for his dream plane, The Spirit of St. Louis, back in 1927.The numbers are much higher now, and most individuals and businesses still finance their aircraft purchases.
A few weeks ago, we reported in Corporate Jet Insider about the potential for an improving private aircraft market. Some positive signs in the pre-owned market in January 2012 indicated a turnaround. Inventories are lower, jets are spending fewer days on the market, prices are increasing, and the number of transactions is higher.
This is all great news for sellers, but buyers still have time to snatch up a great deal. And finding financing is the next step. This aspect of potential aircraft ownership is a necessary hurdle for most buyers. Here are some trends in the aircraft financing world right now.
- Lenders demand a relationship with you, not simply a one-loan-stand.
- 20 rule: Loan term and age of aircraft should add up to less than 20.
Thus, you’re going to have better luck financing your aircraft if it was manufactured in the past five years and if you already have a relationship with a financier.
As with any major purchase, you’ll want to take your time making a decision and seek out the help and advice of professionals. There are many steps to purchasing a jet, everything from financing to pre-purchase inspection to simply finding the right aircraft for your needs. The experts at L & L International can help you every step of the way.
Flying isn’t just the most convenient and fastest way to travel for business — it’s also the safest.
Christine Negroni reports in Executive Travel on safety protocols on airplanes: “From the plane seats to the cabin air to the course and altitude of the flight, every decision in commercial aviation comes after careful consideration of its impact on safety.”
Advanced safety features
Modern-day jets now have electronic controls, making today’s pilot a manager of information and technology. Global positioning satellites, advanced displays and telecommunication have played major roles in improving safety statistics. Pilots are warned of approaching terrain or potential conflicts with other airplanes.
Other elements that make flying safe include movement detection monitors, compact aircraft flight controls, protective and fire-retardant seating and cabin insulation, and emergency lighting.
Even with all these features that ensure all commercial flights are safe, travel by private jet is still safer.
Taking security to the next level
According to Fred George, blogger for Aviation Week, flying by private jet has security advantages. For example, at most FBOs, front-desk personnel greet all visitors. Staffers quickly determine the purpose of individuals’ visits and how best to assist them — or escort them off the property if they don’t have a legitimate reason for being there.
“Business aircraft crew and passengers also spend very little time inside the FBO or GA terminal when they arrive or depart the airport, providing a relatively small window of time during which they’re potentially exposed to ground-based threats,” George writes.
Incidence of accidents
The National Business Aircraft Association has statistics, compiled by Robert E. Breiling Associates, Inc., that support the idea that flying by private jet is safer than commercial flying.
According to the NBAA, commercial airlines had 0.16 accidents — 0.0006 of which resulted in fatalities — per 100,000 flight hours in 2010 compared with 0.07 accidents with no fatalities per 100,000 flight hours for corporate/executive aircraft. That’s the lowest number of accidents for any flight designation. General aviation flights experienced 6.86 accidents with 1.27 fatalities per 100,000 flight hours last year.
At a time when many companies are rethinking the cost of operating business aircraft, the value of the enhanced safety and security benefits of traveling by business aircraft may be priceless.
A recent outcry about Xcel Energy, a leading utility company that operates in eight states, reminded the American public of the day back in November 2008 when the executives of the Big 3 auto companies flew private jets to Washington, D.C., to request an immense taxpayer bailout.
Xcel Energy just asked for a $142 million rate increase from its Colorado customers. Of that, $1.1 million is to pay for the leased corporate jets (two Bombardier Learjet 45s). Xcel Energy services 1.4 million electric customers in Colorado. While $1.1 million for private jet expenditures sounds like a lot of money, when it is divided by the 1.4 million electric customers, each one would pay $0.78, or $0.07 per month.
People don’t usually get this worked up about $0.78. You can’t even buy something from a vending machine for that price. But private jet travel tends to cause a knee-jerk reaction from many individuals — assuming unbridled greed and luxury on the part of corporate executives. Nearly every news outlet in Colorado is covering the story. (You could argue that the only bigger story is whether Peyton Manning will be wearing a Broncos jersey next year!)
Certainly Xcel Energy has figured out that leasing two private jets is an economical choice for its travel needs. The problem here is that the public utility hasn’t explained the use of the jets in a way that makes sense to people. The only explanation that the news media give is that executives must commute between Denver and Minneapolis, and that seems ridiculous to most readers. After all, most workers don’t get paid for commuting time or compensated for fuel.
Surely Xcel Energy’s public relations department can do a better job of explaining the use of the jets. Private jets save time, and time is money. This public perception that private jets are extravagant luxuries hurts the entire private jet market, from pre-owned jet sales to orders for new ones. Many companies feel they shouldn’t have to justify their private jet use, but crafting a message that improves the common perception benefits everyone.
Have you been holding on to your private jet since 2008, waiting to see prices rise again? If so, it may be time to get that beauty in shape for potential buyers.
Finally, indicators point to the beginning of a seller’s market in the pre-owned private jet industry.
JetNet reports these trends for business jet sales, comparing January 2012 to January 2011.
- Increase in prices: +14.3%
- Decrease in inventory: -0.9%
- Reduction in average days on market : 126
- Transactions increased: 3.7%
Of course, these improvements are for only one month, but it looks like the trend may continue. One factor is the strong Asian market. The Asian buyers tend to prefer brand new aircraft, but some may purchase pre-owned jets to avoid waiting until 2014 for a new Bombardier.
What do you think — will prices continue to improve for 2012?
You took your time, shopped around and found the perfect aircraft. It’s a sweet little Cessna, with soft leather interior and custom cabinetry. You locked in a great interest rate, and the seller is motivated. Nothing but blue skies ahead, right?
Not so fast. One of the most critical — and complicated — steps in the buying cycle is the pre-purchase inspection. If the inspection is mismanaged or rushed, you could end up on the hook for expensive repairs and/or Federal Aviation Administration fines for some time to come.
The inspection process revealed
The pre-purchase inspection should be conducted by a qualified third-party repair center and not by the repair center where the aircraft is maintained. Inspectors will examine maintenance records and logs to ensure the aircraft received routine and proper care over its lifetime. They will also verify that parts and components were replaced on schedule. Incomplete, missing or shoddy records can indicate a neglectful repair history.
The inspection also requires review of compliance with Aircraft Directives (AD), an extensive set of instructions from the FAA to guide repairs and part and component replacement. ADs are numerous and unique to each plane’s model and serial number. There are additional ADs with special instructions for any modifications made to the aircraft components.
AD review can be a time-consuming, frustrating process, but your broker has the experience to spot red flags or suspicious gaps in record-keeping.
Your broker — more than just a pretty face
During the pre-purchase inspection process, brokers play two pivotal roles. The first is to ensure that the inspection is exhaustive, thorough and conducted by an independent service center.
The second role of the broker is to help you understand and assess the severity of any repair problems that are discovered. Inspection of a pre-owned jet is bound to reveal at least a few hitches, but your broker will advise you when these issues are cause for undue concern.
Repairs: The small, the significant and the show-stoppers
Many issues that pop up during inspection are cosmetic or relatively minor. The repair of scratched or cracked fixtures, burned-out panel lights and similar problems are not unusual or unexpected. Your broker, however, will make recommendations when the total repair costs of these secondary issues exceed what is considered acceptable or reasonable.
Of course, major problems that affect the airworthiness and safety of the airplane need to be addressed by the seller. Your broker can guide you through the next negotiation steps. The seller may be asked to handle and show proof of repairs, or your broker may request a reduction in the asking price of the plane. In extreme cases, your broker will know when walking away from the deal is your best option.
Don’t let pre-purchase inspection headaches kill the thrill of jet ownership. Rely on your broker to wrangle with the details. You can spend that time planning where your newly purchased plane will take you.
Contact L & L International if you need assistance in purchasing or selling a private jet. You can reach our sales specialists today at sales@L-Lint.com, call us any time at 877-453-8276 or visit our website.
Remember that Jerry Seinfeld joke years ago about “making up time” on an airplane? The captain apologizes for the late start, but he is sure they will make up time en route and land on time. Jerry wonders why jets don’t go as fast as possible all of the time. (This isn’t that clip, but it’s pretty funny!)
There are a lot of factors that affect jet travel speed and range. If you’re thinking of purchasing a jet, make sure you know the range that will work best for your frequent, routine trips. Then, keep in mind that the range given for an aircraft is a general estimate that can change depending on many external factors.
Basically, the range depends on the aircraft’s fuel economy — fuel is often the limiting factor on trips. Be aware of these factors that affect fuel economy:
You can read more details about considering the range of an aircraft in the most recent newsletter from our friends at Conklin and deDecker.
On Feb. 6, the U.S. Senate passed a Federal Aviation Administration (FAA) bill that will expedite moving the nation’s air-traffic control system from radar to global positioning system (GPS)-based technology. The House passed the bill the previous week, and now it moves to the White House for signing.
Among other things, the bill sets aside $11 billion of the $63.4 billion, four-year budget for modernization of the air traffic control system. It’s about time — this technological upgrade is overdue.
The U.S.has the most complicated air space in the world thanks to a vibrant and varied general aviation community, so the U.S. should definitely have the safest, most advanced control system possible.
GPS-based air traffic control has many advantages over the radar system:
- Positions are updated every second, rather than every six seconds.
- Closer together, more frequent take-offs and landings are possible.
- Pilots know exact locations of other aircraft and obstacles on the ground.
- Steeper descents use less fuel.
Also, the FAA predicts a 50 percent growth in air traffic over the next 10 years. Without GPS, that growth would be very difficult, if not impossible, to accommodate.
The FAA bill requires that a GPS-based landing program be in place at the 35 busiest airports by 2015. Onward and upward! After we get the GPS air traffic control in place, then we can start worrying about unmanned drones (airspace for them is also mandated in the bill) spying on us from above. Did someone say Overlord?
In 2008, the economic downturn created a perfect but devastating storm for the private jet industry. Corporate aircraft owners sold off their jets to free up cash while potential buyers abandoned new and pre-owned aircraft orders in droves. The result was a market saturated with unwanted aircraft inventory, very little demand and a gloomy outlook for the future.
However, as 2012 gets underway, the future of the private jet market shows signs of a modest but growing recovery. Here are a few indications that the bottom of the buyer’s market has either arrived or, at the very least, is rapidly approaching.
Prices still decreasing as inventory ticks up slightly
According to a recent study, pre-owned aircraft prices continue to fall, albeit at a much slower rate than in recent years. This deceleration in pricing along with the slight growth of available inventory creates an ideal environment for buyers to act with confidence. Once the market has fully recovered, demand will siphon off the excess inventory, driving jet prices higher.
Meanwhile, attractive financing options look solid. Interest rates continue to hover at record lows, and the Federal Reserve Board is signaling that rates should remain steady through 2012.
Corporate demand predicted to grow
The economies of the BRIC countries (Brazil, Russia, India and China) continue to grow at an exponential rate, creating a booming class of wealthy individuals with both the desire and the disposable income to purchase private aircraft. As this trend continues, the market may quickly recover from the inertia of the past few years and eventually struggle to keep up with new inventory demands.
In the U.S., 2011 was a good year overall for many companies, with earnings and profits rebounding to (almost) pre-recession levels, triggering renewed appeal for private aircraft ownership.
Economy and politics creating uncertainty
However, many economists warn that a complete economic recovery in the U.S. may still be several years away. In addition, 2012’s election cycle and the politically-charged climate in the U.S. lead many to worry about future regulatory changes and tax increases for corporations of all sizes, adding to the overall unease in the market.
While much about the global economy remains unsure and unsettled, one thing is certain. Low prices, attractive interest rates and a healthy inventory of aircraft combine to create a near perfect climate for companies or individuals looking to land a great deal on a private aircraft.
