I was just discussing funding of the FAA and how the business aviation industry works with those issues through the fuel tax and not through usage fees. It seems that they will need to dip into the fuel tax to fund a problem they are having with their Next Generation Air Transportation System (NextGen). The problem is in the software of the new system. AIN recently reported the issues with the NextGen as it stated:
“the FAA’s new, $2.1 billion en route automation modernization (Eram) computer system, originally scheduled to be operational at all 20 air route traffic control centers (ARTCC) last year, could incur repair costs for the agency of up to $500 million.”
This is a set back for the agency and can mean some difficulties for the industry going forward. The full report from the DOT Inspector General was sent to Congress.
The technology that we currently use is more than 30 years old and is in need of replacement. The current system is being replaced by Lockheed Martin. It was also reported that in July, the IG found that subsequent operational testing at the St. Louis ARTCC raised more than 15,000 software issues, requiring a continuing estimated $12 million per month to troubleshoot and repair–at the FAA’s expense. This is not good news for the FAA budget, and it is not putting a lot of confidence in the new system set to replace its older counterpart.
The new Florida governor is keeping a promise to residents of Florida and is selling off the private jets owned by the state. The newly elected Rick Scott has directed his staff to liquidate the two business jets owned, a 2000 Beechcraft King Air 350, and a 2003 Cessna Bravo. This is seen as a political move that will obviously be seen as a way for the state to cut back on costs and will add to the difficulties faced by the business aviation industry to not be seen as a perk business for others. Florida’s governor stated:
“The privilege of using a state-owned aircraft is an unnecessary burden to taxpayers, especially when lower-cost travel options exist.”
An interesting understory to the issue is that the governor used his own private aircraft during the campaign trail to be elected to the governor’s spot. According to the Florida Aviation Trade Association executive director, Paula Raeburn, the governor knows about the benefits of using the business aircraft as a business tool as she stated:
“Scott used his own corporate aircraft extensively during his campaign, so he knows what a resource and business tool an aircraft is.”
The business aircraft will be sold at auction on February 9, and experts are believing that the bids on the aircraft will begin at about $2M. The average of the cost of the aircraft is about 2.75M according to reports. It will be interesting to note if the new governor will use his own aircraft and bill the state for its use or asked to be reimbursed for the use of his own aircraft.
The Chinese business industry is continuing it meteoric rise and the numbers coming from China related to its business market can be staggering. This is good news for the likes of business jet sellers all over the world. The demand for business jets in the country are rising as fast as the business market itself. Recently in the world of business aviation it was announced that the trend continues. David Tang, the attorney and business aviation consultant for Minsheng Financial Leasing has announced the intention of the company to increase its fleet and its intent to purchase more jets for its fleet. At the end of the year in 2010, Minsheng Financial has placed orders of 17 business jets.
The jets that have been ordered include Gulfstream, Hawker Beechcraft, Cessna and Dassault Falcon. It is unclear what numbers are associated with each company however the company has already taken delivery of a Gulfstream 450. The company was formed under backing from a couple financial institutions in April 2008. The company is seeing its future rise and the needs for its business aircraft is increasing as well. This is indicative of the market in China and we will see many new companies formed and their needs for corporate jets rise throughout the coming years. My friends in China or those doing business with the country are all trying to keep up with demand. Business jet sellers and buyers might look to the country as a place to do further business.
Many people increase their travel in and around the holidays. This means good news not only for the commercial travel industry but for the private and business aviation as well. The travel increase means that for most charter companies that provide jet travel saw an increase in their booked flights and saw prices increase a little. Now that the holiday season is over and we are going back to the status quo in the world of private travel, In fact it has been reported that private charter flights are now down 50% from this time last month. Charter flights are down and the bookings of that type of travel has gone back to pre-holiday levels. It is nice to know that people are still booking at the previous level.
Further good news is that prices are not only staying current but might have had some of an upswing in charter jet prices. The global price index was stated by Avinode at 97.37 and that is up almost a point from this time last month. We here in the North American market may not have the same increase s prices for charter flights were seen as “softened”. Hopefully, we will see increased usage of private jet across the industry in the future.
I talked earlier about the fact that the holidays were over for charter jet companies, however, it does seem that at least one wholly owned company in the charter jet world is seeing growth over this time last year. XOJet, based out of Brisbane and California, is reporting that they are up 50% over the same time last year and in fact they are increasing their fleet to meet the demand. They are adding to their fleet to meet the demands of customers by adding a Bombardier Challenger 300 series and has added last month its first ever Challenger 605. The company is reporting that it plans to add additional jets in its fleet in the future in 2011.
As a company they have increased its numbers by 50% but in the large market cities of Los Angeles, New York and San Francisco it has seen larger numbers. The commercial operations leader of the company, Brad Stewart has stated:
“Our growth in New York, Los Angeles and San Francisco continues to accelerate, with all three markets growing more than 70 percent in recent months and exceeding 80 percent overall growth in November.”
I hope XOJet continues to see the growth in its industry and they continue to be a leader in chartered jets.
JetNet provided some good news for those selling pre-owned business jets in recent time. According to their report, from January through October 31, business jet sales transactions climbed by 16 percent, followed by turbine helicopters (up 15.2 percent) and turboprops (up 4.5 percent). The report from JetNet went on to state that, pre-owned inventory went down over the same period last year for all but turbine helicopters, which rose slightly by 0.4 points, to 7.2 percent of the in-service fleet–but still below the 10-percent mark that delineates a seller’s market (inventory below 10 percent) from a buyer’s market (inventory above 10 percent).
Finally, pre-owned business jet inventory went down slowly but steadily to 15.2 percent at the end of last month, compared with 16.7 percent a year ago. Turboprop inventory decreased by 0.7 points, to 10.7 percent, edging closer to the 10-percent market equilibrium. Despite increased transactions and lower inventories as stated, the report from JetNet said aircraft are selling more slowly now than they did a year ago, ranging from 41 to 93 more days on the market, and in turn asking prices are down by double digits for jets and turbine helicopters–by -12.6 percent and -11.6 percent, respectively. JetNet reported that turboprop asking prices were 2.6 percent lower year-over-year.
These are numbers that might spell good news for corporate jet sales and will perhaps show the climb from current trends in the business aviation industry and private jets.
Inventory of used corporate jets is an indicator of the market and the inventories of used aircraft has fallen off last month which changes what the trend has been over the last three months. The demand for that used aircraft still remains low however. JPMorgan aerospace analyst Joseph Nadol III said in the monthly business jet report released last week that:
“While we expect gradual downward movement to remain the trend, it should be some time before enough used inventory clears to spark new demand if this pace does not pick up materially.”
The report went on to indicate that average asking prices decreased 1.1 percent, to $10.8 million, and that the new aircraft sales, the investment firm noted that third-quarter deliveries declined 32 percent from a year ago. Apparently, heavy jet indicators “remained strong,” with deliveries down only 5 percent. Light jet deliveries fell 54 percent, while midsize jets were down 41 percent. Cessna and Hawker were the hardest hit, with year-over-year deliveries down 62 and 60 percent, respectively, while Gulfstream was the only manufacturer to post an increase, with deliveries up 35 percent.
These indicators are not great news of the industry but they are well received as manufacturers and sellers and others are looking for any signs that the industry is looking to change its current slide and the trend of poor performance in business aviation sales.
There has been a jump in the use of private jets in charter flights this holiday season according to reports. Charter flights are being booked at a higher rate. The prices for charter jet prices seems to be decreasing somewhat in the US and increasing in Europe. AIN reported the following numbers from Avinode:
An early takeoff for seasonal holiday-driven traffic provoked a steep spike in demand for private charter flights. According to the latest forward-looking index from online charter portal Avinode, projected demand for this month was more than 75 points up on the November 1 level at 167.35. The December 1 index was almost 80 points above that recorded on the same day last year. There was more continuity in Avinode’s price index, which shows rates marginally up globally and in Europe, and very slightly down in the U.S. market. In North America, the average flight hour price for a Cessna Citation Excel stood at €2,428 ($3,180); Hawker 800, €2,530 ($3,314); and Challenger 604, €3,753 ($4,916). In international markets, the average rates for these types were €2,749 ($3,601), €3,260 ($4,270) and €4,836 ($6,335), respectively.
This is a bit of good news for those in the charter business and those wanting to get home for the holidays and traveling safely and in style for the holiday season.
This last week the business aviation industry gathered in Dubai at MEBA 2010 to hear all the latest in the middle east and from the jet manufacturers. Jet manufacturer from France, Dassault Falcon, imparted some good news at the gathering. Dassault reported to AIN,
“The Middle East business environment still remains challenging, but confidence levels appear to be rising,” said Dassault Falcon president and CEO John Rosanvallon. “Dassault has seen much greater demand over the last two quarters of the current financial year, with larger cabin jet sales and prices holding up better than smaller jets.”
The report goes on to states that there are about 60 Dassault Falcons based in the Middle East. The company sold 14 aircraft in the region in the last two years and has a backlog of 16 to be delivered to regional buyers by 2013 with the manufacturers delivery of its tenth this month in December.
It is also indicated that hours being flown by business jet operators in the Middle East has been increasing, while the client base is evolving beyond a small group of users to include “corporate heads, entrepreneurs and other business leaders”. Other areas of the world that are also showing signs of increasing in the business aviation industry include; India, South America and Asia.
It was reported last month that the European Union has approved on a formal basis the company’s manufacturing campus in Portgual. The company has already begun construction earlier in the Summer of 2009 but it has now been blessed by the EU. The facility is going to be a very large 330,00 square foot facility in Evora, Portugal. The first part of the facility is now set to be complete at the end of 2011.
“This announcement is faithful to Embraer’s practices where all regional development projects have to be formally and properly approved. We’ve been waiting for the European Union to give us its final okay,” Luiz Fuchs, president of Embraer Aviation Europe, stated. The first part of the construction is for a manufacturing complex for airframe structures and components in composite materials. Fuchs went on to state, “The construction of the second unit, dedicated to the production of metallic airframe structures, will begin shortly. Meanwhile, we are progressing with the selection of suppliers.” Fuchs indicated that Embraer studied its globalization process and identified Portugal as the country offering the best resources. “The historical connection between the two countries was an important factor,” he indicated in his statements.
This is good news for EU and for the people that work at the Embraer complex. We look for good things coming from Embraer in the coming years.
