Acquisition and Financing
Written and Produced by Mark Patiky
“Business has gone global and there’s no going back,” says David Wyndham, Vice President of Massachusetts-based Conklin & de Decker, an aviation cost-analysis firm. “That’s driving demand for business aircraft. These days, thinking forward is no longer enough. You have to start thinking upward.”
Around the world, the owners and operators of more than 21,000 business aircraft agree. They’ll tell you their planes are the ultimate tool for saving time and creating opportunity. They prove daily that a business aircraft is more than just a way to get there. It’s an essential factor along the road to profitability.
What’s the alternative? Things are not looking up for commercial air travel. The traditional hub-and-spoke system funnels 70% of all passengers through just 30 busy hub airports. For any trip involving a change of plane, no matter how short the distance, airline travelers can count on losing most of a day. The forecast is even gloomier: The FAA projects that annual passenger traffic on U.S. flights will hit the 1 billion mark by 2023. That translates to more delays at the departure gate, on the taxiways and in the air.
The travel penalty associated with commercial air travel is energizing strong interest in business aviation. “It’s all about productivity,” says a representative from NetJets, a worldwide leader in private aviation. “Private aviation services offer the one return on investment that no one can purchase—time.”
Your Guide to Creating Time
In a recent 2010 study of the S&P 600 companies by NEXA Capital Partners, a Washington, DC-based financial advisory firm, Managing Director and CEO Michael Dyment points out that business aviation users were less affected during the downturn and outperformed nonusers across every fundamental driver of shareholder value including profit and revenue growth. “Speed and access are what business aviation is all about,” Dyment says. “Access creates the ability to close deals faster, service customers better and accelerate transactions.” The NEXA study showed average total returns were 245% higher for companies utilizing a business aircraft than for companies that were not.
“It may be more expensive to fly privately, but it’s worth it,” says Conklin & de Decker’s Wyndham. “What’s the cost of missed opportunity? What’s the value of your time? Ask not what an airplane costs but instead, what does it cost not to have one?”
That’s where this handy how-to guide comes in. The Business Aircraft Acquisition and Financing Guide is your resource for discovering the wide variety of ways to gain access to business aircraft and all the productivity and timesaving benefits they offer. It details some of the most popular options and uncovers some more surprising approaches. It offers smart strategies for first-time buyers. And it speaks to key industry executives who can help you chart the best course for your own needs and develop a customized plan for managing the costs.
“It may be more expensive to fly privately, but it’s worth it. What’s the cost of missed opportunity? What’s the value of your time? Ask not what an airplane costs but instead, what does it cost not to have one?”
David Wyndham, Vice President, Conklin & de Decker
While the economic downturn had a major impact on business aircraft acquisitions, “I think the worst is behind us,” says Dave Labrozzi, President and CEO of GE Capital Corporate Aircraft Finance. NetJets agrees. “The business aviation market is making a gradual comeback that is characterized by increased levels of flying. We are experiencing improved demand for NetJets fractional ownership, and as the economy improves, there are more reasons to travel privately in order to conduct business in a productive manner.”
“If you are not showing up somewhere overseas to market or to manufacture, you’re going to lose out,” says Joe Dini, President of financial consulting firm Air Credit Alliance. “A business aircraft is a total necessity to be there, be efficient and be competitive.” That’s something NetJets’ owners have discovered. As the only global private aviation company with operations in the U.S. and Europe, and an affiliation in the Middle East, NetJets is uniquely equipped to accommodate owners’ international travel needs. NetJets indicated that U.S. owner demand for inter-European flights through the NetJets Europe program is up nearly 25% compared with the first half of 2009.
Something for Everybody
From charter to low-commitment jet cards to fractional and outright ownership, there have never been so many choices for gaining access to business aircraft and their many advantages. Now, innovative programs are offering blended solutions to provide a customized approach and maximize capability and benefits.
The major business aviation providers continue to respond with elastic solutions for travel and payment. NetJets, for example, established a team to develop new products and enhance programs with flexible terms and billing and financing options. The company evaluates how often individuals will be flying, their intended destinations and their anticipated passenger loads, among other factors, to determine the most appropriate share size and the most suitable aircraft. NetJets also offers many lease and loan options that provide owners with the financial flexibility to meet specific needs.
It’s one thing to decide on the aircraft and another to estimate how much flying you’ll actually do this year and in the future. “With all of our programs, whether the Edge Card, the Axis Membership or the fractional program, we can adjust hours upward or downward to flexibly adapt as needs change,” comments Avantair’s Matthew Doyle, Senior Executive Vice President, Sales and Marketing.
Flexjet offers a wide-ranging array of fractional shares, jet cards and on-demand charter as well as whole ownership through its parent company, Bombardier. “Customers realize a blend of programs could help to optimize their dollars,” explains Flexjet’s Robert Knebel, Vice President of Sales and Marketing. “With the ability to own fractional shares in different models, you can create the ideal solution.” In addition, Flexjet’s unique Versatility Plus program enables owners to right-size their needs by selling unused hours or buying more hours in the same or other aircraft—without borrowing against future-year usage or adding greater commitment.
Cessna Aircraft’s ties with sister company CitationAir highlight the trend toward “mix and match”—combining wholly owned and fractionally owned aircraft. “We have customers who want to have their own airplane, but occasionally need additional aircraft to transport board members to and from monthly meetings,” comments Roger Whyte, Cessna Senior Vice President, Sales and Marketing. “That’s where we can offer them a tailored combination solution.” CitationAir Senior Vice President and Chief Revenue Officer Woody Harford points out that by supplementing whole aircraft ownership with a CitationAir Jet Card or Jet Share for one-way flights, corporate flight departments can utilize their own aircraft much more effectively. In addition to this increasingly popular supplemental lift program, CitationAir offers Jet Shares, Jet Cards and whole aircraft management.
Innovative programs are offering blended solutions to provide
a customized approach and maximize capability and benefits.
Owning your own plane opens up a world of possibility, but it also adds a significant level of responsibility. Should you manage the aircraft in-house or outsource to third-party professionals? What about the tax, legal and insurance aspects? And which aircraft should you choose?
GE Capital’s Dave Labrozzi, like many other industry experts, says to select the plane that fulfills your needs 80% of the time and use charter, jet cards, fractional share or a combination for your remaining requirements. There’s a wide variety of aircraft to choose from, and each one has unique character and advantages.
Cessna, with more jets flying worldwide than any manufacturer, continues to develop new products. The capable and affordable Citation Mustang makes the dream of jet ownership a reality for a wider audience than ever before. Then step up to the light-jet Citation CJ series, the larger Encore, the midsize XLS or the Sovereign, with stand-up cabin and coast-to-coast range. Top of the line is the ultrafast transcontinental Citation 10, which flies at nearly the speed of sound.
There are significant bargains on the pre-owned aircraft market right now, but Cessna’s Roger Whyte is bullish on the new-jet market. Buyers are attracted by the latest design improvements and cabin enhancements for connectivity and comfort. New aircraft warranties reduce the initial cost of operation and offer attractive tax advantages, says Whyte. Cessna’s product-line similarities ease maintenance and parts concerns, and make the transition to other Cessnas undemanding. And while you’re waiting for your brand-new jet delivery, Whyte notes, you can gain full access to the Cessna jet fleet through CitationAir’s supplemental lift program.
Shawn Vick, Hawker Beechcraft Executive Vice President, adds that the allure for new buyers is advanced technology, greater capability, enhanced utility and increased fuel efficiency. In addition, Hawker Beechcraft is experiencing strong interest in the new super-midsize, transoceanic-range Hawker 4000 which, Vick says, is driven by growing demand for internationally capable aircraft essential for exploring emerging global markets.
At the other end of the turbine-powered Hawker Beechcraft product line is the top-selling King Air turboprop, which offers remarkable capability, including access to airfields too challenging for many jets. “It’s an amazing airplane in terms of reliability, payload-carrying capability and short-field performance,” says Vick. The company also produces the fast, all-composite, small-cabin Premier; the Hawker 400, one of the most popular light jets; and the midsize Hawker 750 and 900XP, which offer coast-to-coast range and enhanced performance.
Select the plane that fulfills your needs 80% of the time and use charter, jet cards,
fractional share or a combination for your remaining requirements.
Despite world economic woes, Honda, well known for its success on the roadways, is taking to the airways with a brand-new advanced light jet. Stephen Keeney, Honda Aircraft Senior Manager—Corporate Affairs, anticipates it will capture the attention of a wide range of buyers fascinated by the sophisticated jet’s affordability and performance.
With its unique top-of-wing engine configuration, which allows for a larger, quieter cabin, the HondaJet offers outstanding comfort with seating for six passengers and a fully enclosed lavatory, which is not found on most light jets. It will top weather and traffic at 43,000 feet, zip along at 480 mph, take off from short, 3,200-foot runways and fly 1,300 miles without refueling (Miami to Portland, Maine). The latest avionics and engine technology place this new jet on the forward edge of aeronautical development. The first flight is scheduled for November 2010, and first deliveries are projected for third quarter 2012, says Keeney.
Could the dismal economy temper Honda’s enthusiasm? “Even though there is caution about investing, there is still a significant market segment that understands the value of business and private jet travel,” says Keeney. “They don’t want to give up the benefits and convenience, but they may be looking for a way to do it a little more efficiently.” The new HondaJet appeals because of its exceptional fuel efficiency, excellent performance and good value, he adds.
Making Aircraft Management Easy
“I think the biggest issue facing first-time buyers is how to manage the airplane,” comments Kevin O’Leary, President of Jet Advisors, a private aviation consulting firm. First-time buyers often express concern about day-to-day care, operation, legal compliance and staff demands.
Now programs from Flexjet, Avantair and CitationAir offer all the convenience and safety of a professionally run management program—including crews, maintenance, operation and other ownership requirements—plus whole owners can gain the unique advantages of fractional ownership. These include anytime, anywhere access and access to multiple planes at the same time. Further, a managed aircraft can be utilized within the fractional fleet, earning guaranteed revenue whenever the plane is not needed by the owner.
Says Cessna’s Roger Whyte, working in conjunction with CitationAir “we can facilitate management services and enable whole aircraft owners to have their jet operate within the CitationAir fleet.” It means added full-ownership benefits plus reduced cost of operation. CitationAir’s Harford adds, “It’s working out brilliantly for our customers. We’ve got a national demand so we’re able to use that customer’s aircraft all over the country.” They may own a Citation Sovereign, and for a specific trip, they may want a CJ3, says Harford. CitationAir provides guaranteed access to its entire fleet.
Avantair’s Doyle says, “We are seeing more requests for management services. Many whole Piaggio Avanti owners want to offset their costs. They can do that by leasing back a portion of their available flight hours to Avantair’s fractional program.”
Knebel mentions that Flexjet offers a couple of different managed aircraft products. One is called ‘Flexjet One,’ which he says can drive hourly operating cost to very low levels, something particularly relevant in the current economy. Flexjet One combines all whole ownership benefits with full fractional ownership advantages, so you can call for any fleet aircraft at any time, use multiple aircraft simultaneously, call for your aircraft anywhere and have it available within hours without concern for empty-leg flights.
“Speed and access are what business aviation is all about. Access creates the ability
to close deals faster, service customers better and accelerate transactions.”
Michael Dyment, Managing Director and CEO, NEXA Capital Partners
Jet cards offer fractional ownership consistency, service and quality but they also minimize financial and flight time commitment. Much like a debit card, flight time is prepaid, typically in 25-hour increments. “It’s not the least expensive way to travel but you can walk away and, in most cases, receive a full refund on the unused card balance,” says Jet Advisor’s O’Leary.
Each provider offers unique options:
Once considered a long-term commitment to a single aircraft, fractional ownership programs offer myriad ways for opting out, upgrading or downgrading and making countless other adjustments. In many cases, you can sell your shares and exit the program after one to two years.
Avantair is experiencing vigorous Edge Card and Axis Club Membership sales, but Doyle also sees a recovery in the fractional market. “Private aircraft travelers,” he says, “are not willing to go back to flying on the airlines. They need the ability to travel on their own schedule and get to airports closer to their final destination.” It’s not top executives who are traveling the most either. “It’s middle management visiting plants, store locations or customers,” says Doyle. “They are using their time in a smarter way.” The turboprop Avanti’s ability to negotiate shorter runways means far greater access than many jets can provide, and with cabin dimensions rivaling that of a midsize jet, the Avanti represents lower cost without compromise on space and comfort.
Flexjet is experiencing an uptick in new fractional owner interest, which has increased more than 50% compared to last year, says Knebel: “Businesspeople are exploring new opportunities. A business jet can get them there quickest.” Flexjet owners, he says, are going to more places than ever before and they are trying to do business at thousands of locations that commercial airlines don’t serve.
Through a unique program called “Versatility Plus,” Flexjet offers the opportunity to right-size usage as needs and circumstances change—enabling the purchase of additional hours or sale of excess hours in order to fine-tune requirements. Shares are available exclusively in Bombardier aircraft, including the Learjet 40XR, 45XR, 60, transcontinental Challenger 300 and intercontinental Challenger 605.
Flexjet customers traveling abroad commercially can take advantage of VistaJet in Europe, which operates a fleet of Bombardier aircraft. They have guaranteed access within Europe and the Middle East and can take advantage of preferred rates. No additional capital investment is required.
NetJets also continues to see a steady influx of new owners attracted by a wide range of benefits, including its global fleet of aircraft ready with as little as four hours’ notice, and safety and service standards that are the benchmark for the industry. NetJets, owned by Berkshire Hathaway, created the idea of fractional ownership and offers the widest range of aircraft—13 models in all. The company has the largest number of owners and operates fleets on both sides of the Atlantic. Owners have full interchange privileges wherever they reside.
New and existing owners are gravitating to multiple solutions, and NetJets, through its wholly owned subsidiary, Executive Jet Management, is addressing those needs with services ranging from fractional share and lease options to charter services. In addition, the company reports that many corporations with existing aviation departments utilize NetJets to supplement their flight operations.
Like other providers, CitationAir is experiencing flying rates that are closer to normal, signaling a turnaround in business activity. The company continues to offer fractional share ownership in three of the most popular and economical Cessna jets, but its focus has shifted to a more comprehensive approach. In coordination with Cessna Aircraft, CitationAir is offering management options, fleet-owner support and economical Jet Cards.
Two unique partnerships underscore the trend toward an integrated approach to business travel:
With wide-ranging aircraft choices and programs, a vital need for business mobility and prices at record-low levels, there has never been a better time to buy. Over the past two years, aircraft values have declined across the board and often exceeded a 30% drop, creating an opportunity for buyers entering the market because prices appear very favorable on a long-term basis.
In that regard, GE Capital’s Dave Labrozzi thinks leasing deserves a close look. Leasing has distinct business advantages for those who don’t want to tie up a large amount of capital or can’t gain additional tax benefits from depreciation, he says. Tax savings shifted to the lessor pass back to the lessee in the form of lower monthly payments. It’s a great way to gain the advantages of a business aircraft while retaining capital for other expansion opportunities.
A big hurdle for those seeking loans or leases has been credit availability. Labrozzi confirms that there are a smaller number of suppliers and credit standards are tougher, but credit is available for well-capitalized, creditworthy customers.
Leasing works as well for fractional shares as it does for whole aircraft financing. Flexjet offers a sensible lease product, called the Walk-Away Lease. It’s easy to get into, and should circumstances change, it’s very easy to exit, says Knebel. Over the past couple of years, this popular lease program has accounted for close to 40% of Flexjet’s business, he adds.
Fractional ownership programs offer myriad ways for opting out,
upgrading or downgrading and making countless other adjustments.
Much more than just a means of transportation, today’s business aircraft are taking countless companies and individuals to new heights of productivity and success. With careful evaluation of the many choices available, your company, too, can take advantage of the amazing benefits a business aircraft can offer. “Even in a world where communication continues to improve, there is no substitute for face-to-face meetings to build trust and to close transactions that are generally critical to corporate growth,” says NEXA’s Michael Dyment.
So go ahead. Join the tens of thousands of companies and individuals that have dramatically changed the way they do business and live their lives. Don’t waste another minute—it’s time you started seeing the world from a whole new perspective.
Written and Produced by Mark Patiky
Principal Photography: Paul Bowen
Editors: Carol J. Nelson
Designer: Jon Prinsky
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