Aviation Boardroom Guides

Control:Business Aviation’s Unique Advantage.Business aircraft offer many benefits, but none is assignificant as an operator’s ability to influence the safetyand effectiveness of air transportation, contends Jack Olcott.

BUSINESS AVIATION AND THE BOARDROOM

32 WORLD AIRCRAFT SALES MAGAZINE – June 2013 Aircraft Index see Page 4www.AvBuyer.com

alk to your associates andfriends about BusinessAviation. Ask them if they arefamiliar with this form oftransportation, and if so what

are their opinions? You may be surprisedby what you learn.

Recently I was introduced to a retiredgentleman who had a long and impressivecareer with a manufacturing company thatdid business throughout the world. As amarketing expert with the firm, which wasfounded in 1898, he had been responsiblefor company activities in various locationsin the Americas as well as in Australia. One

of his assignments required him to be basedfor several years in Canada.

With no other motivation than facilitatingour friendly conversation, I mentioned that I

was a Director of a Canadian firm engaged inaerospace. Noting the aviation connection, my new

acquaintance said he was a frequent passenger on aLearjet 36 owned by the company and used to reachCanadian customers his firm served in remote loca-tions. Without any prompting on my part, he expand-ed upon the importance of the business aircraft inreaching areas of Canada where public air transporta-tion was limited or non-existent.

“The aircraft was essential to our operation," he vol-unteered. “Our company made many products includ-ing large conveyer belts used in the mining industry. Wewere able to meet with our Canadian customers at theirwork sites promptly to address their needs. That Learjetwas a great way to travel. Fast, ample for our smallteam of sales and engineering specialists, and very fast.We were able to use airports that bigger jets didn’tserve.”

Possibly the world’s most recog-nized expert on the value ofBusiness Aviation, Jack Olcott is aformer Editor and Publisher ofBusiness & Commercial Aviationmagazine and Vice President withinMcGraw-Hill’s Aviation WeekGroup. He was President of theNational Business AviationAssociation from 1992 through2003, and today Jack’s network andpersonal knowledge of BusinessAviation uniquely qualifies him tooversee Business Aviation and theBoardroom. More information from www.generalaerocompany.com

T

PUT FAR-AWAY PLACES IN THE PALM OFYOUR HAND WITH BUSINESS AVIATION

BG 1 June13_FinanceSept 20/05/2013 16:53 Page 1

BENEFITS BEYOND ACCESSBeing able to reach remote locations is just one ofthe many benefits of Business Aviation. Placingthe right person or sales team at the right place atthe right time, ahead of the competition, is simplygood business.

The duration of a meeting depends on what isbeing accomplished rather than being constrainedby Airline arrival and departure times, sluggishsecurity screening and boarding delays. In addi-tion to being effective, use of business aircraftdemonstrates commitment to customers. Themobility provided by Business Aviation reflectsthe high value a firm places on employees, clientsand time.

But there is much more to the benefits of thisform of transportation. In particular, considerbroader issues of control beyond those of schedul-ing. Individuals deeply engaged in BusinessAviation often say that control over the nature andimplementation of transportation is the benefitthey value most.

ONE USER’S RESPONSEA provocative response to the benefits questionwas given by an entrepreneur who owned a com-pany with business aircraft. ”One word is myanswer,” he said. “‘Control’—pure and simple!

“Business Aviation,” he continued, “more sothan any other form of transportation, providesour company with the greatest ability to influencefactors that impact safety, security and effective-ness. Our Board, working with the experts we hirewithin the company’s flight department, sets thesafety standards of our operation. We establishbest practices and monitor the implementation ofthose policies and procedures.

“While other providers of air transportation,such as the scheduled Airlines and major charteroperators, have excellent safety records, we don’twant to be dependent on someone else—someonewho we do not know as well as we know ourcompany’s flight personnel—to be responsible forsafe and secure travel. In essence, when we usepublic transportation we abdicate control over thewellbeing of our most important assets—ouremployees—to parties over which we have neithercontrol nor detailed knowledge of their behavior.”

Re-enforcing his reasoning, he said, “Unlikeautomobiles and even to some extent trains, busi-ness aircraft are rarely involved in collisions withother vehicles. Thus we have a very low risk thatour company aircraft will be blindsided by anoth-er aircraft, and we can strictly adhere to policiesthat minimize even the low risk of mid-aircollisions.

“Other safety issues, such as what weather con-ditions are acceptable, are stated in our operationsprocedures and followed with pride by our crews.Because our pilots know our employees and rec-ognize who is the lead passenger on each flight,security is assured. Nothing is more effective incountering terrorism than facial recognition.

“Because operating our company aircraft pro-vides us with more control compared with otherforms of transportation, we feel more secure—andthat is a good feeling,” he concluded.

Do you have any questions or opinions on the above topic?Get them answered/published in World Aircraft SalesMagazine. Email feedback to: [email protected]

Business Aviation and the Boardroom continues on Page 36

www.AvBuyer.com

What the Boardroom needs to know about Business Aviation

WORLD AIRCRAFT SALES MAGAZINE – June 2013 33Advertising Enquiries see Page 8

“ Individualsdeeply engaged

in BusinessAviation often

say that controlover the

nature andimplementation

oftransportationis the benefit

they valuemost.”


eport No. ICAT-2013-02 published in May2013 by the Massachusetts Institute ofTechnology’s International Center forTransportation describes a recent trend by

scheduled Airlines in the USA to reduce the numberof flights available for passengers as well as increaseconcentration of activities at hub airports.

As shown in the charts below, since 2007 thenumber of departures by scheduled air carriers hasfallen by over 14 percent at all domestic airports andby over 21 percent at smaller airports, due mainly tomajor Airlines reducing frequency of service to largehubs and removing direct flights to small andmedium-sized communities.

Furthermore, the report concludes that the trendtoward frequency reduction and hub concentra-tion—a policy it calls “Capacity Discipline”—is like-ly to be practiced throughout most of the nextdecade.

Coupling this trend with the reality that businessaircraft have traditionally provided access to nearly10 times the number of airports with any scheduledservice and about 100 times the locations withschedules that meet the demanding needs of manybusiness travelers, and it is clear that our nationrequires the added dimension of transportation thatBusiness Aviation provides.

Transportation in its many forms is a necessityfor our nation’s economic recovery. Rural America isprimed to welcome companies willing to establish anew plant or expand existing facilities, thereby cre-ating jobs. As scheduled Airlines increase their con-centration on established hubs, Business Aviationprovides access to emerging opportunities.Do you have any questions or opinions on the above topic?Get them answered/published in World Aircraft SalesMagazine. Email feedback to: [email protected] Aviation and the Boardroom continues on Page 42

Responding to high fuel prices and stockholder demands forgreater returns, scheduled Airlines in the USA are adoptingstrategies that increase passenger load factors by reducingcapacity and focusing on hub airports—trends that reflect theneed for Business Aviation, notes Jack Olcott.

R

Trends FavoringBusiness Aviation



” ...it is clear that our nation

requires theadded

dimension oftransportationthat Business

Aviationprovides.”

CHART A - SCHEDULED DOMESTIC DEPARTURESFROM ALL U.S. AIRPORTS

CHART B - SCHEDULED DOMESTIC DEPARTURESAT SMALLER U.S. AIRPORTS

2007 2008 2009 2010 2011 2012Not Lg Hub 4.33 3.9 3.75 3.7 3.6 3.43Large Hub 5.4 5.3 4.95 4.9 4.9

02468

1012

Millions of Departures

Not Lg HubLarge Hub

4.8

2007 2008 2009 2010 2011 2012Non Hub 0.75 0.75 0.75 0.75 0.75 0.75Sm Hub 1.475 1.25 1.1 1.15 1.1 1.05Med Hub 2.15 2 1.8 1.7 1.65 1.575

00.5

11.5

22.5

33.5

44.5

5

Millions of Departures

Non HubSm HubMed Hub

SOURCE: MIT SMALL COMMUNITY AIR SERVICE WHITE PAPER NO. 1, MAY 2013

BG 2June13_FinanceSept 20/05/2013 16:59 Page 1

hen I started my aviation consultingcareer, one of my first clients told me;“Once you’ve seen one company’suse of Business Aviation, you haveseen one company’s use of Business

Aviation.” His point was straightforward: The busi-ness, organizational and cultural challenge related

to “who can use the company airplane” is unique toeach user.

The “one-size-fits-all” approach to policies candegrade the benefits that business aircraft create.Before policies can be developed, it is critical toanswer three questions:

1. What is your business’ Strategic Intent?2. What is your corporate Organization and its

resulting Culture?3. How does Business Aviation support each?

STRATEGIC INTENT Is your business growing or maintaining? If you aremaintaining (i.e., focusing on holding cash) thencost management is a major part of your strategy,which may be mutually exclusive to the premiumcosts of Business Aviation. On the other hand, ifyour goal is growing, you are more focused on rev-enue development through offering new productsor services, reaching underserved markets, or seek-ing horizontal or vertical acquisitions.

The impact of time on the key people makinggrowth happen has a leveraging effect on your busi-ness’ success that far outshadows the marginal costof Business Aviation over the Airlines. The highestand best use of Business Aviation is, therefore, insupport of accelerating and assuring the achieve-ment of your enterprise’s Strategic Intent.

CORPORATE ORGANIZATION AND CULTURE The use of Business Aviation is an effective methodto support the enterprise’s structure and to commu-nicate its corporate culture. For example, if yourcompany is organized around a small team of keyexecutives, you will liberate them to make the most

Boards set policy, and Business Aviation must not be anexception to this ethos. But each policy should reflectthe unique needs of the corporation, assert Pete Agurand his associate Don Henderson.

W

BizAv Services Use Policies.How will you prioritise use of your Company’s airplane?

!



Peter Agur Jr. is managing direc-tor and founder of The VanAllenGroup, a business aviation con-sutancy with expertise in safety,aircraft acquisitions, and leaderselection and development. Amember of the Flight SafetyFoundation’s Corporate AdvisoryCommittee and the NBAA’sCorporate Aviation ManagersCommittee (emeritus), he is anNBAA Certified Aviation Manager.Contact him viawww.VanAllen.com.

continued on page 46



“Regardless ofculture,Business

Aviation usepolicies shouldbe thoughtful,clearly defined,and published.They should be

endorsed orreviewed by the

highestleadership

group withinthe corporation

(Board ofDirectors,

owner, etc.).”

of their time by saving them three hours for everyleg when you put them on business aircraft.

One Airline trip per week will cost over 300hours per year (which is the equivalent of five exec-utive work weeks or 10% of their work year, assum-ing the average hard-driving executive puts in 60hours per week) of wasted time per executive.Business Aviation puts that time, and much more,back in the plus column for your company for eachfrequent-traveling key executive.

On the other hand if your organizational struc-ture is flat, supported by a culture of collaboration,then egalitarian aircraft use policies that are basedon highest and best business purpose, cost vs. bene-fit, and first-come, first-served, may be appropriate.

BUSINESS AVIATION SUPPORTBusiness Aviation services offer several significantbenefits. They:

• Allow key individuals or teams to participate inmultiple meetings at disparate destinations in days instead of weeks;

• Provide access to communities and business sites that are not served by other forms of transportation;

• Leverage senior leaders’ and other key individuals’ time;

• Act as a powerful sales and branding tool;• Support a corporate culture committed to pro-

viding quality of life for employees; and• Recognize that respecting an executive’s wellbe-

ing is an effective and approprtiate incentative.

How you wish to address each of these questionsshapes your Business Aviation use policies. As thecompetitive arena shifts or the corporate culture

evolves, those use polices also may need to beadjusted.

WHAT USE POLICY SERVES YOURCORPORATION?Regardless of culture, Business Aviation use policiesshould be thoughtful, clearly defined, and pub-lished. They should be endorsed or reviewed by thehighest leadership group within the corporation(Board of Directors, owner, etc.). And they shouldaddress as a minimum the following:

• Access—who has the right to request the company aircraft?

• Authorization—who approves use of the company aircraft?

• Scheduling—who resolves conflicts for competing use of the company aircraft?

• Justification—what method evaluates the bene-fit/cost issues of company aircraft use?

• Purpose—a clear and concise statement of why Business Aviation serves shareholders.

There are a number of other important policiesthat should be addressed overtly, including:

• Operational Standards – What standards will be expected of Business Aviation services? How will those be determined and measured? Will they emulate Airline standards? Will they be just regulatory compliant or Best Practices? How do we align the Business Aviation opera-tional standards with our other corporate quality initiatives, strategic intent and Business Aviation Use Statements?

• Policy Exceptions – Policies cannot be written for every situation. It is important to declare if


HOW DOES YOUR BUSINESSAVIATION USE POLICY

DEFINE WHO HAS PRIORITY IN YOUR CORPORATION ?

!continued on page 50



“Your use ofBusiness

Aviation isunique becauseyour business is

unique. Thatrequires you todevelop yourown policies.”

exceptions are allowed, and if so, under what circumstances, with whose authority and with what mitigating controls?

• Passenger Pairing or Co-Rider Issues – Are there passengers who should not ride together in the interest of business continuity? Tactically, passenger-pairing policies may be perceived as unnecessarily restrictive and not cost effective. Strategically, business continuity is a factor in passenger pairing policies and brand protection.Furthermore, the highly remote possibility of a mishap may have an impact on market capital-ization for publically traded companies. Even anaircraft incident without injuries can disrupt investor confidence if too many leaders are on the same aircraft. Co-rider policy exceptions may be allowed in predetermined circumstanceswhere risks are deliberately mitigated. Routine exceptions, or variances, indicate the policy is either being ignored or needs to be reviewed.

There are additional supporting Business Aviationpolicies that deserve top leadership review andapproval to assure the effective support of theenterprise:

• Business Aviation service limitations and distribution can be accomplished by a number of methods –o Constrain the number of aircraft available:

Ideally this leads to a negotiation for highestand best use, especially challenging for companies with only one or two aircraft andlittle or no supplemental support from frac-tional/charter aircraft services. User negoti-ations for access requires open and adult dialogue and is least effective in organiza-tions with substantial internal politics or an informal power structure.

o Elevate the point of trip authorization: Thehigher the executive to whom trip requests go, the greater the political visibility (and liability) there is. This situation acts as an effective constraint on use in most organiza-tions, and it usually is in place because one or more top executive feels a high need to control Business Aviation services for all potential users.

o Use an internal transfer fee for the aircraft use (typically called a chargeback): Internalchargebacks can meter the use of the air-craft, depending upon their costs versus commercial alternatives as well as the lati-tude the requestors have within their budg-ets. This method may have a high adminis-trative costs, but it can reduce the need for senior executives being burdened with man-aging aircraft use. Tacticly, it may allow the company to subsidize the expense of the air-craft for lines of business that are under time and performance pressures. Internal charge rates range from artificially nominal to full cost recovery.

o Personal Use: Is personal use allowed? How is it documented? How will imputed income be calculated, and who is responsi-ble for reporting that income to the IRS? Is the impact of personal use on the compa-ny’s tax treatment of aircraft depreciation considered?

• Public Officials – What is the policy for the transportation of public officials?

• Charter Aircraft Use – Are all on-demand formsof transportation subject to the same proceduresand standards as the corporate aircraft? What are the the corporation’s quality assurance stan-dards, processes and practices for charter air-craft services?

• Charitable Use – Is charitable use allowed? Is the business expense risk (loss of depreciation expense) considered? How are requests handled?

• Empty Seats – Are the unused seats available to other traveling employees? Does the user of the aircraft have the authority to not allow others onthe aircraft? Is the expense shared, or do the “add-ons” ride for free?

Your use of Business Aviation is unique becauseyour business is unique. That requires you to devel-op your own policies. Even so, a dialog with otherowners and operators as well as with outsideexperts can ensure the development of a robust, yetefficient policy structure. The graphics overleafpresent a framework for aligning corporatecharacteristics with Business Aviation benefits.


WHO HAS THE AUTHORITY TO APPROVE/ DENY ACCESS TO YOUR COMPANY AIRPLANE ?

!continued on page 54



ACCESS POLICYWho has the right to request the use of the air-craft? Is there a specific role (i.e, the CEO) orgroup (the Senior Leadership Team) who shouldalways have access? Are specific individuals orlines of businesses excluded from BusinessAircraft use? Are specific types of trips or individ-uals provided preferred or denied access?

APPROVAL POLICYWill aircraft access be controlled by a specificindividual or will multiple layers of approval berequired to use the aircraft? Will any individualor position have the authority to use the aircraftwithout any additional approval (self-approval)?

SCHEDULING CONFLICTIf there are competing requests to use the aircraft,who will get priority? Will individuals or teamshave the authority to “bump” others off the air-craft? If someone is bumped from the aircraft, willtheir needs be satisfied by another form of on-demand air travel (e.g., charter aircraft service,fractional aircraft service), and who will beresponsible for the incremental expense?

JUSTIFICATIONJustification and documentation should be part ofany policy, regardless of the traveler’s position ona cultural spectrum. It is imperative to be able tosubstantiate to the IRS the business purpose ofeach passenger on each leg. Otherwise the compa-ny’s ability to deduct the aircraft as a businessexpense could be jeopordized. Why the aircraftwas used in comparison to another form of trans-portation is not an issue to the IRS, but it is rele-vant to the company’s internal culture. Value oftime for key individuals or accelerating the busi-ness cycle can easily outweigh a clinical analysisof business aircraft vs. other transportationexpense.

PURPOSE POLICYA Business Use Statement that declares the align-ment of the Business Aviation services with thecorporate strategic intent reduces uncertaintyabout the purpose and value of the use of busi-ness aircraft. In the absence of specificity in poli-cy, a broad statement may provide sufficientguidance.

Examples of a Business Use Statement mightbe as simple as: ‘The use of Business Aviationservices will be a primary tool to maximize theSenior Leadership Team’s time and impact for theenterpise’, or ‘Business Aviation is our primarymethod of reaching our customers. It helps us selltrust and demonstrate our uncompromisedcommitment to excellence’.




ACCESS POLICY

EEgalitarian, Flat, Team Oriented CCulture

IIndividualistic, Hierarchical, CCompetitive Culture

• Access is defined by very large groups or may not be restricted.

• The use of the aircraft is promoted.

• Existence of the aircraft is known across most of the organization.

• Access is limited to a select few individuals.

• Titles or specific individuals are named in the policy identifying access to the aircraft.

• Existence or use of the aircraft may be confidential.

AUTHORISATION POLICY



• May have multiple layers of approval.

• May have predefined “approved” uses.

• Multiple individuals (line of business leaders) may have

• Simplified, possibly only one or two approvals required.

• Approved only at senior leadership level.

• May have a few individuals with “self-approval”

final approval on aircraft use. authority.

SCHEDULING CONFLICT EEgalitarian, Flat, Team Oriented CCulture


• First-come, first-served. • No “bumping”.

• Simplified, possibly only one or two approvals required.

• Approved only at senior leadership level.

• May have a few individuals with “self-approval” authority.

JUSTIFICATION POLICY



• May be based on a comparison against the expense of other forms of transportation.

• May have an additive factor for the value of time.

• May be used to help multiple approvers weigh appropriate use.

• May be based on corporate quality of life issues.

• May be based on information security.

• May be very simple and based on senior leadership request only.

• May be based on the value of business related to the specific trip.

• May be based on Line of Business (requestor).

• May be different based on requestor.


raditionally, you charter a business aircrafton an “as-needed” basis with no commit-ment beyond the current scheduled flight.If you consistently make use of charter,

however, you may be able to purchase hours inblocks of time for a set price. Block Charter and JetCards are both pre-paid arrangements to receive aspecific number of charter hours.

The Jet Card commonly refers to a formalizedprogram whereby you purchase a “card” that enti-tles the holder to a prescribed number of charterhours. The idea probably came from the gift cardsthat are available from credit card companies andmerchants. Essentially Block Charter achieves thesame purpose, sans the card image and branding.With both, you agree to purchase a set amount of

charter from a single provider. From here on,therefore, I will use the term Jet Card

to apply to all methods ofpre-purchasing a block ofcharter.

The provider of Jet Cardsmay be a single company(such as Marquis NetJets), ora broker (such as AirPartner) that deals withseveral charter providers.

So, what are the advan-tages and disad-vantages of thisform of charter?First, let us lookat what Jet Cardsoffer.

While pro-gram specificsvary fromprovider toprovider, a typi-cal Jet Card planhas the followingfeatures:

Continuing his series on methods for accessing BusinessAviation, David Wyndham addresses Block Charter and Jet Cards...

T

Block Charter & Jet Cards: What are they,and when are they right for you.

!



David Wyndham is an owner ofConklin & de Decker where thefocus of his activities is on air-craft cost and performanceanalyses, fleet planning, and lifecycle costing for clients. Mr.Wyndham can be contacted [email protected]



• A block of 25-hours is purchased for a set price (e.g., 25-hours for $150,000).

• The type of aircraft is specified (e.g. light jet), along with a specific service provider or categoryof provider.

• There is a single point of contact for scheduling.• The price guarantee and length of contract has a

time limit of a year; most programs will allow the use of unused amounts after contract end, but at a different price.

• Availability may be guaranteed if booked in advance. You may get an aircraft with as little as 24-hours advanced notice for example.

• The provider guarantees the level of service.• Some programs also offer concierge services by

booking ground transportation, hotels and even obtaining tickets to special events or restaurant reservations.

ADVANTAGESCost Savings: Purchasing charter in advancesecures a guaranteed price that does not increaseduring the length of the contract. Many programsdo stipulate a variable fuel cost surcharge toaccount for the volatility of fuel prices.

Availability: With traditional charter, you do nothave a guaranteed aircraft when you call. If the air-craft you require is not available, you may have tobook a larger, more costly aircraft, or look else-where. With a Jet Card, if your aircraft category isnot available, the provider will supply the equiva-lent or superior aircraft. So if the Hawker 900XP isnot available, for example, you may get a larger,Gulfstream G200 at the same price.

Service Consistency: Using a single providershould enable you to enjoy the same level of serviceeach time you fly. Service levels may even improveas the provider learns your needs and preferences(Diet Coke, no ice. Cashews, not peanuts).

DISADVANTAGES (i.e., CAVEAT EMPTOR)You need to be confident that you will use the allot-ted hours during the contract time. If you purchasea Jet Card and find the service is no longer needed,you may not be able to get a refund for the unusedhours. If you do not use the allotted hours duringthe contract length, you may not be able to extendthe contract without paying additional fees. Readcarefully the terms of the contract:• Does the company provide for a refund of

unused funds? Can you apply the unused fundsto a new card?

• Does the service provider have different sizes/capability aircraft? A client of ours flies a mix of short trips with few passengers and longer trips with many passengers. For them, a light jet and a mid-size jet are needed.

• Be sure your special needs are specified in advance and are met by the terms of your Jet Card agreement.

• Does the card have a pre-defined service area? Ifyou travel internationally, does the provider offer the opportunity for charter in those regions? One client of ours is evaluating charter travel from the US to China. If the card provideralso has the ability to offer charter within China,that would make the logistics of the trip planning much simpler.

• What if the company providing the card goes out of business? This may be more of a risk witha smaller charter company, but even large companies are not immune to market forces.

If traditional charter works for you, but you need25 to 50 hours per year, the Jet Card can be a costeffective means of accessing Business Aviation.Do you have any questions or opinions on the above topic?Get them answered/published in World Aircraft SalesMagazine. Email feedback to: [email protected] Aviation and the Boardroom continues on Page 60

“ If traditionalcharter worksfor you, but

you need 25 to 50 hours per

year, the JetCard can be

a cost effective means ofaccessingBusinessAviation.”



‘To buy or not to buy?’, that is the question. Notinginstability in today’s market for business aircraft, JayMesinger reflects on the benefits of acquiring the rightproduct now to serve today’s business opportunities andto move boldly into the future.

Buying Wisely In AnUnstable Market.

!


Jay Mesinger is the CEO andFounder of J. Mesinger CorporateJet Sales, Inc. Jay is on the NBAABoard of Directors and isChairman of AMAC. He nowserves on the Jet AviationCustomer and Airbus CorporateJets Business Aviation AdvisoryBoards and is a member of EBAAand the Colorado AirportBusiness Association. Contact himvia [email protected].


“The challengefor the buyer,therefore, is

deciding whatparametersapply when

evaluating thepurchase of a businessaircraft...”

ome sales professionals say we are in themidst of a buyer’s market for businessaircraft. Others look at prices trendingdown and ask if there might be a better

deal tomorrow. With prices lower than ever in therecorded history of our industry, there is littledoubt that the market favors buyers. We cannotsay with confidence, however, that prices havebottomed or that clear signs of a rebound arepresent. Rather, I believe that our present market

for business aircraft is best described as unstable.The challenge for the buyer, therefore, is decid-

ing what parameters apply when evaluating thepurchase of a business aircraft in today’s unstableand unpredictable market.

UNIQUE OPPORTUNITIESResale prices of business aircraft are not the onlyfactors that are attractive. The price of borrowinghas never been lower, and many buyers can

S

WHICH DIRECTION IS RIGHT IN THIS UNSTABLE MARKET ?

BG5 June13_FinanceSept 21/05/2013 09:10 Page 1



self-fund an acquisition. Many corporations haveeither the borrowing ability or the ready cash topurchase. Buyers, however, are sensitive to theimpact of price instability on the acquired air-craft’s residual value; they want to retain as muchresale potential in the asset as possible. Suchthinking may be the result of times gone by andthus be misleading in today’s dynamic businessenvironment.

In past markets it was possible to buy a busi-ness aircraft, fly it for a few years and then sell itat - or near - its purchase price. (In fact, there wereunique situations in the mid-2000s when an air-craft garnered a higher resale price from buyersthat wanted the advantages of Business Aviationwithout delay.) At the very least you might sufferwhat had been in the past a traditional deprecia-tion factor of one to three percentage points ayear. Any of those three scenarios (retention ofpurchase price, windfall, or nominal depreciation)would be acceptable to the buyer. Today, though,no one can say with certainty what will happen toresidual values.

SIGNS OF INSTABILITYThe financial crisis that erupted in 2008 had a pro-found effect on the market for business aircraft.One would have thought that an aircraft pur-chased in 2010 might increase in resale value overits depressed purchase price, or at the very leastmight be an even ride. In fact prices continued aslide in every category of aircraft, and in manycases lost as much as 28-35% of value since thefalse 2010 bottom.

Furthermore, following 2008 the lending com-munity changed drastically. Borrowed moneyeither was not available or was rather cumber-some to obtain, especially for some older aircraft.

In the recent past, if you wanted a pre-ownedaircraft that would retain its value based on his-torical markers you needed to buy a model cur-rently in production but not over 10 years old. Insome situations, the better option was purchasingan aircraft that was manufactured within the lastfive to seven years, and considering resale beforeit was 10 years old. No longer could you considerthe older mainstays of the Business Aviation fleetas safe bets for retaining high resale valuations.

In the words of songwriter Bob Dylan, “Timesthey are a-changing.” Today stock indices are atrecord highs. Business seems to be recovering.Airlines are curtailing service to smaller marketswhere growth appears to be emerging—routeswhere business aircraft really shine. Globalizationcontinues to encourage increased travel interna-tionally—another good arena for BusinessAviation. Yet the US economy still has unresolved

issues, such as how business will be affected bysequestration. Considering the countering forcesbuffeting business, it is understandable that themarket for business aircraft is best described asunstable.

Within such instability, however, there liesunique opportunity. You may choose to buy anattractively priced aircraft knowing that the resid-ual value component is somewhat uncertain butyou have committed less capital. More significant-ly, you will have access to excellent transportationthat enhances the ability of your company to groweven in a challenging economy.

PURCHASING FOR THE RIGHT REASONSBusiness aircraft are good investments becausethey enable the best use of employee talent andtime. Companies that embrace Business Aviationin one or more of its delivery forms—charter, frac-tional use, timesharing, or outright ownership—grow faster, reward shareholders with higherreturns in dividends and stock appreciation, andgarner more accolades for being well-managedthan do their counterparts that do not use busi-ness aircraft.

A timely purchase of an attractively-pricedbusiness aircraft is a corporation’s best strategyfor dealing with market instability.



Compare aircraft performance using ourAircraft Performance Guide at www.AvBuyer.comAnd select from the World’s finest Business Jets, Turboprops and Turbine Helicopters for sale

“ Airlines arecurtailingservice tosmaller

markets wheregrowth

appears to be emerging—routes where

businessaircraft

really shine.”

BG5 June13_FinanceSept 21/05/2013 09:11 Page 2

W

Many companies that own an aircraft also use what aviationcognoscenti call ‘supplemental lift’ (i.e., utilize a non-owned aircraftto transport company personnel when their own is not available). ABoard must have a true understanding of the risk exposure they takeon when they select such an option, cautions Stuart Hope.

Non-Owned Aircraft:Insurance options for companiesthat use them.



Stuart Hope is a co-owner ofHope Aviation Insurance. Hiscareer as an aviation insurancebroker began in 1979, and todayhe is a frequent speaker/authoron insurance & risk managementtopics. He also serves on theNBAA Tax, Insurance and RiskManagement Committee. Mr.Hope can be contacted at [email protected] on-owned aircraft can take the form of a

charter aircraft, an aircraft accessedthrough a dry lease or time-share agree-ment, or possibly a rental aircraft. You

might think there is coverage for such flights underyour Commercial General Liability policy or some-where in your Business Insurance program, but youwould be wrong. Such policies almost universally

exclude the aviation peril. Insurance coverage ISavailable under a Corporate Non-Owned

Aircraft Liability policy, however,which can cover non-

owned fixed-wing or

rotor-wing aircraft, piston or turbine powered.Such a policy may stipulate the total seating

capacity, what the approved use is, and who theapproved pilots are in order to be valid. If yourcompany owns an aircraft, you may already havethis coverage under your policy – you can certainlyadd it for an additional premium if you don’t.

Perhaps your company never charters aircraft soyou don’t feel you needed to purchase this cover-age. Imagine, however, that you have an employeewho happens to be a licensed pilot and who (withor without your knowledge) decides to rent an air-

craft (maybe he/she even owns an aircraft)and fly it on company business.

Alternatively, an emergencycould surface at anytime that requires

you or another execu-tive of your company

to suddenly charter anaircraft. Corporate Non-

N


Owned Aircraft Liability coverage would automati-cally extend to protect the company in the event oneof these employees is involved in an accident.

RISK MANAGEMENT TOOLSIn addition to carrying Non-Owned Aircraft liabilityinsurance, there are other offensive measures youcan take to mitigate this risk. You could practice riskavoidance by having a clearly-stated and communi-cated policy prohibiting the use of any mode of airtravel other than Airlines when the company air-craft was not available. Keep in mind, however, thatthis will not relieve you of liability. If you have arogue employee who either ignores the policy or“didn’t get the memo”, you still have the exposure.

In any case, in today’s super competitive busi-ness arena, companies are using private aircraft astools to gain an advantage over their competitors.Why handicap your company with policy or proce-dure that limits use of Business Aviation?

If your company decides it will allow employeesto operate employee-owned aircraft on companybusiness, you should have a two-pronged insuranceapproach:1) Have a written policy in force detailing exactly

what coverage the employee-owner must carry. The firm’s policy for employee-owned or provided aircraft should prescribe a minimum acceptable liability limit, mandate the employ-er’s company be named as an additional insured, and specify that the insurance contract of the employee be primary, without right of contribution from any insurance the employer may carry.

2) Coordinate this information with the insurance underwriter (and agent) that provides your company’s Non-Owned Aircraft Liability policy.

If your company owns an aircraft, you willalready have some form of coverage for use of non-owned aircraft. Whether you purchase a standalone

policy or already have coverage under your ownedaircraft insurance policy, the important point is thatthe structure of the non-owned coverage mustmatch the exposure.

Consult with your aviation insurance brokerthroughout this process. Be sure to purchase as higha liability limit as you can reasonably afford. Like allliability policies, you only find out if you bought anadequate limit after the loss has been settled. Theaverage aviation wrongful death claim per person isnow somewhere north of $5m USD.

CHARTER CONSIDERATIONSIf you charter aircraft, inquire about the charteroperator’s insurance limits to ensure the coverage isadequate. Many prospective jet charter clients lookfor a minimum of $50 million combined single limit,bodily injury to passengers and property damageliability. However, you might require more insur-ance coverage or, depending on your situation andthe operator’s needs, less insurance might beappropriate.

Have the charter operator list your company,and any other appropriate parties, as an additionalinsured with waiver of subrogation status on theiraviation insurance policy. In addition, have thecharter operator endorse their policy to state it isprimary without any right of contribution from anyinsurance your company may carry.

Last, request 30 days’ notice of cancellation ormaterial change and obtain a certificate of insur-ance/endorsement verifying compliance with theseinsurance requirements before riding in the aircraft.By doing all of the above, you should be well pro-tected to fly non-owned aircraft on companybusiness.

Do you have any questions or opinions on the above topic?Get them answered/published in World Aircraft SalesMagazine. Email feedback to: [email protected] Aviation and the Boardroom continues on Page 66

“...the importantpoint is that the structure

of the non-owned

coverage mustmatch theexposure.”

www.AvBuyer.com WORLD AIRCRAFT SALES MAGAZINE – June 2013 65Advertising Enquiries see Page 8



rom Entry Level Jets, through Light Jetsand on to the heady realm of the VIP-configured airliners, an airplane existsthat will accommodate your requirementfor speed, range and capacity. Of all the

business jet categories, however, none does more tobalance capability with utility than the Medium Jetsegment (loosely defined by aircraft with a maxi-mum take-off weight between 20,001-40,000 lbs);and no segment provides more options, either.

Medium Jets, as their label indicates, fall betweenthe Light Jet and Large-Cabin Jet segments innumerous ways, while leaning closer to the Large-Cabin segment in several specific areas. This catego-ry of jets will tend to be not too big, not too small,and not too expensive.

CABIN VALUEA smaller Medium Jet can only improve incremen-tally on the cabin space of the largest Light Jets,while the largest Medium Jet could dwarf the vol-ume of that same Light Jet model. Medium Jets,

however, tend to cruise at the upper-end of the pri-vate jet speed range – between Mach 0.78 and Mach0.85.

If there’s a contest to identify a specific give-backelement to the Medium Jet segment, most wouldopt for runway flexibility. Runway requirements forMedium Jets are generally longer than the averagelength needed by a Light Jet. But Medium Jets typi-cally can use a significant percentage of thesecondary airports serving most of the 150 largestmetropolitan areas in the U.S.

In general the average Medium Jet can reachmost of the U.S. non-stop from almost anywhere inthe U.S. as Medium Jets typically can fly from sever-al hundred miles to more than 1,000 miles fartherthan the Light Jet average. That range capability alsogives the crew the flexibility to string together asequence of stops that total the same distance. Usingthe latter approach makes it possible for a MediumJet to cover multiple stops and get home at the day’send, without buying fuel along the way.

This capability to avoid refueling on a multi-leg

Among the many advantageous aspects of BusinessAviation, the broad spectrum of solution options suggestsMedium Jets can be just the right fit for many operators.

F

The Medium Jet Value

!



“Using thelatter approach

makes itpossible for aMedium Jet tocover multiplestops and gethome at theday’s end,

without buyingfuel along the way.”

BG 7 Jun13_FinanceSept 21/05/2013 09:29 Page 1


trip is called “tankering”, and it makes the MediumJet a more-suitable solution than a Light Jet for theoperator who regularly needs to fly 2,000 nauticalmiles or more on a leg – or who may cover thatmuch in a day or two flying multiple legs.

CONSIDER A MEDIUM JET IF…While on average faster than the Light Jet, aMedium Jet’s superior speed generally providesonly a few minutes of gain on the typical BusinessAviation trip of 350 to 500 miles, but the differencewill be noticeable on legs as long as the averageLight Jet’s typical maximum range.

There’s no disputing the advantages of space inthe comfort equation, particularly when applied tolonger trips. That is ultimately where the MediumJet’s basic advantage comes into play. Medium Jetsdeliver plenty of added space and comfort over thetypical Light Jet, but at costs still significantly belowthose of the Large Cabin segment.

Indeed, Medium Jets generally can match theirLarge Cabin kin in terms of speed and, to a point,range while providing reasonable office amenitiesthat are competitive with most larger aircraft.

All things considered, it is little wonder that theMedium Jet segment is the biggest selling, deepestsegment across the business aircraft market.

MEDIUM JET PRICE GUIDEThe following Medium Jets Retail Price Guide repre-sents current values published in the AircraftBluebook – Price Digest. The study spans modelyears from 1994 through Spring 2013 (20 year peri-od). Values reported are in USD millions, with eachreporting point representing the current averageretail value as published in the Bluebook by its cor-responding calendar year. For example,Bombardier’s Learjet 45XR values reported in theSpring 2013 edition of Bluebook shows $4.7 millionfor a 2005 model, $5.0 million for a 2006 model andso forth. Aircraft are listed alphabetically.

Aircraft specifications for many of the followingmodels can be found in the Specifications andPerformance section in this issue (page 104).

Do you have any questions or opinions on the above topic?Get it answered/published in World Aircraft Sales Magazine.Email feedback to [email protected]


!

THE WORLD’S FINESTBusiness Jets,

Turboprops and Helicopters www.AvBuyer.com for sale at

and lots more...

“Medium Jetsdeliver plenty

of added spaceand comfort

over thetypical LightJet, but atcosts still

significantlybelow those of

the LargeCabin

segment.”

BG 7 Jun13_FinanceSept 22/05/2013 14:09 Page 2



MEDIUM JETS AVERAGE RETAIL PRICE GUIDE SPRING 2013

BOMBARDIER CHALLENGER 300 22.0 18.2 17.2 15.5 14.65 13.75 12.75 11.75 11.25

BOMBARDIER LEARJET 60XR 12.0 8.8 7.6 6.8 6.0 5.5

BOMBARDIER LEARJET 60SE 5.5 4.5 4.0 3.6

BOMBARDIER LEARJET 60

BOMBARDIER LEARJET 45XR 12.0 9.5 8.1 6.9 6.2 5.7 5.0 4.7 4.5

BOMBARDIER LEARJET 45 4.8 4.4 4.1 3.9

BOMBARDIER LEARJET 40XR 9.9 8.1 6.4 4.9 4.5 4.0 3.7 3.3

BOMBARDIER LEARJET 40 3.6 3.3 3.0 2.7

CITATION X 750 20.0 16.7 15.2 13.5 11.5 10.5 9.6 8.5 7.6

CESSNA CITATION V1 650

CESSNA CITATION V11 650

CESSNA CITATION SOVEREIGN 680 16.5 14.5 12.8 11.3 9.8 9.4 8.7 8.2 7.7

CESSNA CITATION XLS+ 560 11.8 10.0 9.2 8.5 7.8

CESSNA CITATION XLS 560 6.9 6.1 5.5 5.3 4.9

CESSNA CITATION EXCEL 560 4.1

DASSAULT FALCON 50EX 9.3 8.9 8.4 7.9

DASSAULT FALCON 50

GULFSTREAM G280 24.0

GULFSTREAM G200 14.0 13.0 10.3 9.5 9.0 8.5 8.0 7.5

GULFSTREAM G150 14.0 11.0 10.0 8.8 7.8 7.3 7.0

GULFSTREAM G100 4.6 4.3 4.0

GULFSTREAM/ ASTRA 1125 SPX

GULFSTREAM /ASTRA 1125 SP

HAWKER 4000 12.0 11.0 10.0 9.0 8.0

HAWKER 1000

HAWKER 900XP 15.0 10.5 8.5 8.0 7.0

HAWKER 850XP PRO LINE 6.9 6.5 5.6 4.9

HAWKER 800XP PRO LINE 4.2

HAWKER 800XP 4.0

HAWKER 800

HAWKER 750 9.0 7.5 6.5 5.9

AIRCRAFT BLUEBOOK DATA - CARL JANSSENS, EDITOR. EMAIL: [email protected]

MODEL

YEAR OF MANUFACTURE$

2013US$M

2012US$M

2011US$M

2010US$M

2009US$M

2008US$M

2007US$M

2006US$M

2005US$M

2004US$M

Retail Price Guide June13_PerfspecDecember06 21/05/2013 09:35 Page 1

WORLD AIRCRAFT SALES MAGAZINE – June 2013 71Advertising Enquiries see Page 8 www.AvBuyer.com


What your money buys today

11.0 BOMBARDIER CHALLENGER 300

BOMBARDIER LEARJET 60XR

BOMBARDIER LEARJET 60SE

3.4 3.2 3.0 2.9 2.7 2.5 2.4 2.3 2.2 2.0 BOMBARDIER LEARJET 60

4.0 BOMBARDIER LEARJET 45XR

3.5 3.2 3.0 2.9 2.8 2.7 BOMBARDIER LEARJET 45

BOMBARDIER LEARJET 40XR

BOMBARDIER LEARJET 40

7.0 6.6 6.1 5.6 5.1 4.7 4.5 4.3 CITATION X 750

1.8 1.7 CESSNA CITATION V1 650

3.1 2.8 2.7 2.6 2.4 2.2 2.1 CESSNA CITATION V11 650

CESSNA CITATION SOVEREIGN 680

CESSNA CITATION XLS+ 560

CESSNA CITATION XLS 560

3.9 3.7 3.4 3.1 2.8 2.5 CESSNA CITATION EXCEL 560

7.5 7.0 6.7 6.3 6.0 5.7 5.5 DASSAULT FALCON 50EX

3.8 3.7 3.6 DASSAULT FALCON 50

GULFSTREAM G280

7.0 6.5 6.0 5.6 5.2 GULFSTREAM G200

GULFSTREAM G150

3.9 3.6 3.4 GULFSTREAM G100

3.4 3.0 2.9 2.8 2.7 2.6 GULFSTREAM/ ASTRA 1125 SPX

2.0 1.9 GULFSTREAM /ASTRA 1125 SP

HAWKER 4000

3.2 3.1 3.0 HAWKER 1000

HAWKER 900XP

HAWKER 850XP PRO LINE

HAWKER 800XP PRO LINE

3.6 3.1 2.9 2.7 2.5 2.4 2.3 2.2 2.0 HAWKER 800XP

1.9 1.8 HAWKER 800

HAWKER 750

______________________________________________________________________________________________________________

2003US$M

2002US$M

2001US$M

2000US$M

1999US$M

1998US$M

1997US$M

1996US$M

1995US$M

1994US$M

AIRCRAFT BLUEBOOK DATA - CARL JANSSENS, EDITOR. EMAIL: [email protected]

MODEL

YEAR OF MANUFACTURE$

Retail Price Guide June13_PerfspecDecember06 21/05/2013 09:37 Page 2

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