The Asian Business Aviation Conference and Exhibition (ABACE) runs April 16-18 in Shanghai. This year’s event is especially exciting, given the substantial growth and potential for growth in the business aviation sector in Asia.
Organizers of the event, including NBAA, are celebrating record numbers:
- 6,284 registered attendees
- 34 aircraft on static display
This year, 80 U.S. businesses are attending ABACE, demonstrating an increase in trade between the two countries. Cessna announced at ABACE that it plans to start production of business jets and turboprops in China by the end of the year. And Gulfstream brought five aircraft for the static display, including the G650 and G280. According to Scott Neal, senior vice president of sales and marketing for Gulfstream, these two jets are especially suited for Asia-Pacific locales.
China is the fastest growing market for private aircraft, but demand for aircraft is only part of the success of the business jet market. The other part is creating and maintaining substantial infrastructure to accommodate the increase in flights and aircraft. To this end, Jing Ming, vice president of Shanghai Airport Authority, announced specific projects to support business aviation:
- New hangar and 600,000 sq. foot exhibition hall at Hongqiao Airport
- New FBO at Pudong Airport
- Working to increase capacity for air traffic control
These infrastructure improvements are good news for aircraft manufacturers. It’s exciting to see such enthusiasm for business aviation at ABACE this year. This is good news for the industry as a whole.
The ninth biannual Airshow China is going on right now in Zhuhai, Guangdong, through Nov. 18. Already there has been a lot of excitement!
In April, our blog covered the emerging aviation market in Asia pretty extensively. We covered everything from the explosive growth in the aviation sector to potential stumbling blocks to design preferences.
Helicopters have been a significant topic at Airshow China 2012. Sikorsky reports two contracts for sales of its S-92 and S-76D in China. American helicopter manufacturer Bell Helicopters announced it is officially requesting the U.S. FAA to increase the weight limit for its 429 model. Bell is also using the airshow to announce its plans to extend its presence in China. Part of that expansion includes a certified maintenance and training facility. Bell and Guangzhou Civil Aviation College signed a memo of understanding to construct the facility in the Guangdong province.
In other manufacturing news, Cessna continues its plan to assemble and sell the Citation XLS+ in China. The Wichita-based company announced a deal with China Aviation Industry General Aircraft Ltd. (Caiga)at the airshow.
Aviation Industry Corp. of China (Avic) brought an extra special model to the expo. Avic plans to energize the Chinese aviation industry with its China New-Generation Business Jet or CNGBJ. The developers boast the jet’s long range, roomy interior, lower emissions, and high speeds. Another deal for large airliners is in the works between Russian Irkut and Chinese COMAC.
As usual, there have been plenty of exciting displays. Check out this photo gallery to see what’s going on at Airshow China 2012!
What’s the problem with financing?
The problem lies in banks’ general lack of enthusiasm for loaning money to “anyone who really needs it to buy an aircraft,” Jeff Wieand writes for the Business Jet Traveler. Wieand notes that banks are performing stricter due diligence, taking a harder look at the aircraft while stretching out the loan-approval process to about eight weeks.
Although most lenders are making credit-based rather than asset-based aircraft loans, they still want an appropriate asset value in case they get stuck with repossessed and off-lease aircraft with depressed values, Wieand reports.
Borrowers considering cash, leasing
But it’s not just the banks holding the market back, Wieand says. Although financing costs are low, so are investment returns. Thus, many buyers who would otherwise finance an aircraft purchase are paying cash, according to Wieand. Some do so because they’re buying an older aircraft, and many banks have official cutoffs for providing debt financing for aircraft more than 20 or even 15 years old.
The alternative to paying cash or borrowing to buy an aircraft is a lease. A lease offers several benefits:
- A lessor takes tax depreciation, which is passed along to a lessee via low payments and lower implicit interest rates.
- In most states, sales tax is paid over the stream of the low monthly payments in lieu of the up-front acquisition cost, yielding a much lower sales tax liability.
- Custom leasing provides flexibility for upgrade and/or early buyout options.
- True operating leases qualify for off-balance-sheet accounting treatment, providing shareholder sensitivity benefits.
- Leases provide 100 percent financing in most cases.
- Experienced corporate aircraft lessors take aggressive residuals that yield residual value protection to a lessee, which has provided significant value to lessees with diminishing aircraft values.
What does loan financing require?
If your company stands at the threshold of truly taking off but needs the boost of a private jet to do so, know that loan financing for the purchase of private aircraft is similar to a mortgage or automobile loan.
A basic transaction for a small personal or corporate aircraft may proceed like this:
- Borrowers provide basic information about themselves and their prospective aircraft to the lender.
- The lender performs an appraisal of the aircraft’s value.
- The lender performs a title search based on the aircraft’s registration number to confirm no liens or title defects are present. In many cases, a title insurance policy is procured to protect against any undetected defects in title.
- The lender then prepares documentation for the transaction:
- In some cases, surety from a third party
- At closing, the loan documentation is executed and funds and title are transferred.
A lender’s resources and costs required to finance a small aircraft and a large aircraft are virtually the same. Therefore, large aircraft should garner more favorable rates as a lender has the opportunity to recoup its costs over a larger dollar volume borrowed. Generally, however, the other provisions of the financing (e.g., advance amount, note term, amortization) will be somewhat consistent for both small and large aircraft.
Both floating and fixed rates are available, and often lenders offer hybrid rate structures. The best interest rate structure for you should be determined by the interest rate climate at your time of closing and how long you plan to own/lease the aircraft. Your aviation lender should be able to offer you insight into the interest rate structure best suited to your specific transaction.
Regardless of how you decide to finance your purchase, count on the experience of a professional aircraft broker to guide you through the entire purchasing process.
The safest in the world. So safe that people take it for granted. When was the last time you saw someone actually paying attention to the flight attendants’ safety demonstration before takeoff? And the flight crew certainly makes sure your seat is in the upright position and your smartphone is turned off during landings.
So what about this letter from the Office of Special Counsel to the White House? It was released May 8 and describes a “pattern of failure” by the Federal Aviation Administration (FAA) and the Transportation Department to respond to whistleblowers’ allegations. Some of these accusations seem pretty serious:
- Controllers sleeping, watching movies and leaving early while on duty
- Improper fuel tank maintenance and wiring by a major airline
- FAA guidelines failure to guarantee safe separation for landing at Detroit Metropolitan Wayne County Airport
- Jets flying too close to each other in busy airports (Newark Liberty International Airport)
In fact, the special counselor’s office has received 178 disclosures, 87 of them safety-related, since 2007. Apparently, more disturbing than the safety allegations themselves is the slow response from the FAA to correct the problems.
Safety first, right? We wrote in our newsletter last August about how safe private jet travel is —even safer than commercial flights. You can read that here.
If you’ve identified the perfect plane for your needs, then it’s time to start thinking about financing. Before reaching out to a lender, it makes sense to prepare for the process and answer a few basic questions.
What to expect during financing
The aircraft financing process is very similar to the application process for a home mortgage. The lender requests financial information from the loan applicant, then conducts an appraisal to determine the value of the aircraft. The lender also executes a title search to ensure no outstanding liens or issues exist.
Finally, the loan paperwork is initiated by the lender. Documents include a security agreement (in the event the borrower defaults on the loan) and a promissory note that outlines the terms of the loan. At closing, the paperwork is signed, and the new title is transferred to the aircraft owner.
Before you begin
Here are some of the key questions to weigh before sitting down with a lender:
- Who will be responsible for repaying the loan? Will the loan be extended to your corporation, an individual or a corporate subsidiary? Are there extenuating circumstances that may require backing by a third-party, such as a partner or investor?
- What are the preferred loan repayment terms? How much is the company or individual prepared to offer for down payment? Will payments be made on a monthly or quarterly basis?
- What are the tax implications of this purchase? Research the best place to register the aircraft to reduce sales tax. Discuss with an accountant the best method to handle depreciation so that overall tax liability is reduced.
- How many hours will the aircraft fly each year? Will the plane be maintained by private staff or an external management company? Will the jet be made available for charter or a third-party for use?
What’s trending in lending
Because of continued uncertainty in the financial markets, lenders are applying tighter controls to loan terms. In the past, many banks required that the age of the aircraft combined with the term of the loan not exceed 30 years. Unfortunately, that guideline has dropped recently to just 20 years, making newer aircraft an attractive option for many buyers.
Lenders also expect to build strong relationships with borrowers, meaning companies must be candid about the health of their business and proactive about turning over financial information.
Financing is one of the most important steps in the buying process because of its impact on the total cost of aircraft ownership. Taking time to prepare and think about the best loan arrangement will lead to a sound strategic investment — and more enjoyment of that investment.
Two major events happened in the past week in aviation. From the super-huge Boeing Intercontinental to the lightweight, fuel-efficient Volta Volare GT4, advances in aircraft design are certainly moving in opposite directions.
Let’s see what each development brings to the world of aviation.
After six years of troubleshooting, the Boeing 747-8 Intercontinental was finally delivered to Lufthansa in Seattle, Wash. The 467-passenger jet will start service June 1, flying between Frankfurt, Germany, and Washington, D.C. This double-decker airplane has the newest wing-engine combo, and it marks the launch of the lie-flat business class. Larger cabins, thinner economy-class seats and roomier cargo bins are new features for the interior. You can see a slide show of the jet here.
At the other end of the spectrum is the tiny Volta Volare GT4. This four-passenger aircraft is an electric hybrid plane that has a range of 300 miles on batteries before the engine kicks in to carry the Volare a maximum of 1,000 miles. The batteries weigh about 900 pounds, and the 1.5 liter gasoline engine uses a 23-gallon tank. No lie-flat seats or first-class cabin are included.
I would guess the Boeing is more comfortable, but the Volare offers a more adventurous experience. So which one would you rather fly in?
There’s no getting around it: As news reports continue to expose corporate (and government) excesses in spending, public outrage lingers. Unfair or not, the corporate jet has perhaps become one of the easiest targets for shareholders, the media and people looking for evidence of corporate greed and fiscal mismanagement.
However, it’s important to recognize that this public sensitivity doesn’t mean private air travel isn’t a practical, financially smart option for many business travelers. The benefits for companies that use private jets can be significant.
Flying privately increases work productivity during travel. In addition, doing business in a global economy often exposes high-profile corporate executives to security threats, and sticking with private flights reduces some of that personal risk. In many cases, it makes good business sense to fly privately when lost hours on the ground can mean a corresponding loss in revenue.
Full disclosure
Still, with the convenience of private air travel comes the responsibility to establish and enforce corporate guidelines about private jet use. Most business aviation experts agree that companies should seek to be as transparent as possible when communicating with shareholders and employees about the business reasons behind owning or using private aircraft.
To help make the case for private air travel, keep meticulous records of each flight including destination, purpose and costs, along with potential revenue impact. Also, if corporate executives are allowed to use a company jet for personal use, provide documentation that outlines how the company will be reimbursed for those costs.
Share the wins
Make sure to communicate the successes that result from private air travel. If your CEO was able to avert a customer service nightmare by hopping a last-minute private flight to the client’s location, release the details of the trip and the amount of revenue that was protected. Openly discuss how back-to-back sales calls at multiple client locations spread around the country brought in unexpected revenue in just a few short days — and cost less than multiple longer trips.
When the trip is appropriate and aligns with the demands and goals of the business, allow employees at all levels of the company access to the company’s private plane. Leading an organization with the example of open and proactive communication about private air travel can head off resentment from employees and mistaken assumptions by shareholders. And that can translate to even more business success in the future.
Jet brokers have the best advice about the process of buying a used aircraft that suits both your style and your pocketbook. You may know the features and styles you want, but you may not have a great deal of background knowledge or in-depth technical knowledge about private aircraft. Jet brokers know the advantages and disadvantages of each type of jet available and are able to advise accordingly.
A professional jet broker, for instance, will advise you not to shell out millions of dollars for a new aircraft and its current technology when a plane that will suit your needs is available on the pre-owned market. With the help of a broker, you’ll make your purchase based on fact — not whim or fancy.
Ensuring safety and accuracy
A jet broker is a useful ally for an individual ready to buy a jet. Here are a few of the services you can expect a reputable jet broker to complete.
- Determine the condition of the aircraft.
- Recommend an unbiased mechanical inspection firm.
- Make sure the taxes are paid in full.
- Compare asking price to true market value of the jet.
A professional jet broker will perform the due-diligence check, ensuring that you are buying a plane that will serve your needs so you don’t have to upgrade in a year, or pay extra for space, fuel and salaries when you don’t need to.
The right features, the right price
Jet brokers such as L&L International are experts in the investment opportunities of used airplanes for sale. They understand the needs of specific buyers and the qualities of each of the used airplanes on the market.
The first thing that a jet broker will do is a full cost analysis. The breakdown of your needs will factor highly in this. If you are looking for a small airplane to transport people around the country, then you won’t need to spend extra money on an ultra-long range jet capable of intercontinental travel.
L&L International understands what features buyers of used jets are searching for, and the qualities of specific jet airplanes that may be especially suitable to the particular needs of those clients.
So, whether you have used jets for sale or are looking to purchase a used aircraft, relying on a jet broker is the most efficient way to maximize your chances of success.
Sure, flight logs, regular maintenance, jet fuel, and an excellent pilot are important aspects of jet travel. Nobody wants to merely sit on the runway — you want to actually go somewhere. So we get it. The mechanics and practical details are essential.
But let’s move on. In-Flight Entertainment (IFE) is really where it’s at. This is what your guests are going to be talking about — how the movie played simultaneously on four different screens. Or how the bass was bumpin’ from the Bose surround sound. Or how the client played Modern Warfare 3 on the PS3 the entire trip.
A great IFE system will take your private jet experience to another level. It’s important, which is why we covered some basics in our newsletter a few months ago. And now our friends at BlueSky Business Aviation News just wrote a piece that reviews some advances in IFE. No matter the size of your aircraft, there’s an innovative, customizable IFE solution for you.
The options are nearly unlimited: On-board Ethernet, Blu-Ray player, game systems, satellite radio. Tell us — what’s the one thing your aircraft has to have?
A lot of attention has been given to the ballooning private aviation market in Asia — and rightly so! But what about other parts of the world? For instance, what’s going on in the Middle East?
The Middle East and Northern Africa region is one of the fastest growing and most attractive aviation markets in the world. Middle East Business Aviation Association (MEBAA) predicts growth of 15-20 percent in the area over the next six years, achieving a market value of $1 billion by 2018.
Even though political unrest troubles the Middle East, private aviation continues to grow. For companies serious about doing business there, a private jet is a serious competitive advantage. Many locations in Afghanistan, Iraq and parts of Africa are unreachable except by air, and commercial airlines don’t offer frequent flights there.
As in Asia, inadequate aviation infrastructure is certainly an obstacle to rapid growth of the private aviation market.
“The support infrastructure in the Middle East remains weak and does not meet the market demands,” explains Bilal Yousuf of Al Jaber Aviation LLC.
Most of the jets in the Middle East region are mid-sized, typically seating between six and 19 passengers. However, some of the largest private jets in the world are in the United Arab Emirates and Qatar, including this Boeing 747 V.I.P., which could seat 460 but instead has a two-car garage, horse and camel stables , and a rotating prayer room that always faces Mecca. Wow!
