Up to 20 people in the room: how governments buy business jets

Ultra-high net worth individuals can be finicky. Jet brokers often find themselves losing millions of dollars in commission only because the jet they showed the prospective buyer did not have the carpet in the colour they wanted. Or one of the knobs in the cabin was slightly faded. On the opposite end, if an UHNW buyer wants a jet, they often tend to buy it even if it has obvious defects. Rich buyers often tend to be enthusiastic and whimsical.

Robin Dunlop

But there is another type of potential jet buyer that comes with its own sets of challenges: Governments. Jets bought by government are always used to fly politicians or bureaucrats around the world for bilateral and multilateral moots.

ALTEA, a niche technical advisory firm, spends much of its time managing that second type of buyer. The firm’s co-founders Robin Dunlop and Jean Sémiramoth, tell CJI that governments rarely know what aircraft they want when they are called in for help. Governments make jet purchase decisions through committees with timelines and budgets bearing little resemblance to private buyers.

Dunlop and Sémiramoth tell us that ALTEA started “in earnest” in 2013. The two set up the firm after one of Dunlop’s customers pulled together a government project and roped them in to execute it. At ALTEA, government aircraft procurement is a small yet most-interesting part of their wider business. They conduct most of their valuations for banks and financial institutions. Alongside, the firm helps clients with interior design and completion support, technical advisory work and manages a small brokerage arm.

The firm operates simultaneously from Toulouse (where Sémiramoth is based) and London (where Dunlop is based) and does not operate or manage aircraft. At the time of interview, ALTEA was working with “one corporate, currently one government, one high-net-worth individual and a handful of banks,” the founders tell us.

Defining the requirement

Sémiramoth says ALTEA is usually brought in at the start of the process, even before the government has settled on an aircraft. “It’s very rare that we are involved at a stage where the customer already knows precisely which platform they want,” he says. “They might have an idea of their needs and expectations, but they might not know what is out there that can fulfil them.”

The first job, for ALTEA, with their government clients is to pin down the mission profile. “First and foremost, there is very often a need to properly articulate, define and refine the requirements,” Sémiramoth explains. The outcome of this exercise can often surprise the client. “It is not unusual that at the end of the process we realise their requirements, expectations and needs are slightly wider than they initially thought.”

Defining the mission profile usually covers more than just the airframe. “Very often, when it’s an aircraft procurement project for a government, it’s not only about the aircraft, but also about everything else,” Sémiramoth says. “It’s about the support, the maintenance and the warranties.” Almost all of the government clients want to see the full cost picture, he says. “They look for visibility on how much it will cost them not only to buy the aircraft but to operate it, to maintain it and even to customise it before it is delivered.”

Jean Sémiramoth

Sémiramoth says governments, especially in Europe, tend to have a 20-year plus outlook when buying an aircraft. This in turn shapes the specification of the jets. “The real challenge is to keep in mind, throughout the whole process, that the requirements will change over time, because you don’t know what the world will be like in 20 years,” he says. Governments don’t want to find out the aircraft is no longer fit for purpose. “The last thing a government wants is to find out that the aircraft it acquired five years ago is no longer suitable for the missions it needs to do, and that it needs to replace it,” Sémiramoth says.

Specification by committee

Once the mission profile is finalised, the next step is to explain the process of acquiring an aircraft to the teams involved. “Quite often Jean and I will go into a meeting and face between 10 and 20 people. There is the Ministry of Finance, there’s the Prime Minister’s office, in some cases there is the Ministry of Defence, and they are all sitting there. They all have their own individual set of requirements,” says Dunlop.

Managing expectations across these teams can be tricky. “It’s like building a big Venn diagram: what is the central core requirement, and can we all agree on it? Sometimes they cannot,” he says. ALTEA, being the outside specialist, can push back. “We are in a fairly unique position where we can say it to their face a bit. We say, ‘Sorry, but you and you need to go away and figure out what it is you really want this aircraft to do.’”

The process is often completely different from when they must deal with a private buyer, Dunlop says. “There are one or two principals and that is it. It is their aircraft, they know what they want.” Often, private buyers are flanked by their own advisers. “They have probably got a chief pilot alongside them. They’ve got an operator they’re quite happy with. All these people have an influence, and they say, ‘Oh no, we can do that,’ so you’re never quite sure what your overall scope is,” explains Dunlop. The situation is much different with government clients who often need help and guidance on all aspects of owning a jet.

The tender route

Governments usually rely on defence contractors or partners or their own air force to buy and support aircraft, says Dunlop. But some are too small to do so or often lack the expertise.

In Europe, the outsourcing usually goes to tender. “By and large, particularly for a European government, you have to put it out to tender,” he says. “So predominantly we’re very adept at looking at and answering tenders, and that’s where we have had our success.”

Dunlop says one EU government client wanted to hand the project to ALTEA directly. “[But] they needed to put it into a tender to meet EU regulations and requirements. So, we said, okay, fine. It goes a bit silent, and then we’re notified when the tender comes out,” Dunlop says adding that ALTEA usually wins the tenders. “By and large, because of our experience, I think we win the tender. Obviously, government is a balance between pricing, experience and relevant expertise.”

A won tender does not last indefinitely. Dunlop said they advise clients to keep the brief for a technical adviser broad. “However, these contracts have a definite time limit,” he says.

Budgets and taxpayers’ money

Sémiramoth says once they have secured the tender, the next task involves helping clients set a realistic ceiling. “Part of our job is to educate customers so that they define their budget, or the not-to-exceed price if you prefer, properly,” he says. This often means telling them unwelcome news.

But he concedes that surprises are inevitable in projects like these. “There will be unforeseen events. You don’t know what they will be, but you have to factor in that there will be some,” he says. But managing expectations early on helps with any changes while correctly setting a budget often leaves room for them to manoeuvre the arrangement slightly.

Sémiramoth says so far, they have been “pretty good” at avoiding material overall cost overruns with their government clients. This is much more important since public money adds an extra layer of scrutiny, Dunlop adds. “It’s taxpayers’ money, so you’re under scrutiny the whole time: what are you paying for, what are you getting, are you getting a good deal?” He says government advisors are “constantly challenged and rightly so.” ALTEA needs to factor these pushbacks when advising their clients. “There’s a political barometer that needs to be read consistently,” he says.

But like other government decisions, red tape can stretch the decision-making time to months if not years. These slow approvals required across multiple ministries can leave the market behind. Sharing an example, Dunlop says, an adviser can tell a government that it can get a good deal on a model for $50m. The number then goes through the bureaucracy and political system. Six months on, the governments come back saying it is ready to proceed. “Well, that aircraft’s gone, that deal’s gone, everything has moved on. You need a budget of $65m,” Dunlop says. This often means sitting down again and starting the purchase process from scratch.

But governments can also push the other way when it comes to timing the purchase. Dunlop says one client wanted to “wrap this all up in 12 months. We said there was no way they were going to do this in 12 months. They pushed us hard and [eventually] we did.” He admits to having doubts. “We were thinking this was not going to happen, and we were going to disappoint them. It is good to be challenged.”

New or pre-owned

On the question of going the route of brand new or pre-owned, Sémiramoth says governments often come to the table with assumptions. “The preconception everyone has is that a pre-owned aircraft will be less expensive to acquire than a brand-new aircraft,” he says. But often procurement rules get in the way. “The whole procurement process, particularly in Europe, is not necessarily suited to the acquisition of pre-owned aircraft. These days there are certain pre-owned business jets that are sold even before they come to the market, and that is not compatible with the lengthy process involved in a tender.”

Dunlop says a government’s approach to acquiring aircraft can be described as ‘risk aversion’ which can further compound the problem of owning a pre-owned jet.

“Governments are inherently risk-averse, and even more so in the Western democracies. So, you present them with a pre-owned aircraft, which could be a perfect specimen, but there’s an inherent nervousness around it, which inevitably further delays the already lengthy decision-making, and therefore they’ve missed the opportunity,” Sémiramoth adds. He says that as a result, the government’s initial preference for pre-owned “ends up with the acquisition of a brand-new aircraft, quite frankly.”

But there are exceptions. Sémiramoth quotes example of a government that outsourced everything including aircraft operation and picked an operator to deliver a turnkey solution that included a pre-owned aircraft. “I’m not sure it worked properly in the end, but that’s a different story,” he says. But the risk sat squarely with the operator. “By the way, the exact same government has now decided to acquire its own aircraft, after eight years of that experience,” he says.

Waiting for delivery

But acquiring new aircraft in a tight market means queues and a lot of waiting. “We know there’s a three-to-four-year waiting time at Airbus, for example,” Dunlop says. “Informing the customer that they have a four-year wait is tricky, there’s no doubt about that.” ALTEA’s relationship with OEMs can help but not a lot. “We might be able to jump the queue a little bit.”

Even with newer jet purchases, preparations can often run into months. “We can go a year to 18 months of preparation before we even go out and talk to the market, because they’ve got to get their requirements defined, get their budgets defined and understand where they are,” Dunlop says.

Sémiramoth puts the complete cycle from first meeting to delivering the aircraft at “anything between 12 months and 48 months”.

The client relationship

Asked which clients are more fun to work with between private buyers and government, Dunlop says government work suits ALTEA. “By and large I would say the governments are fun. We know who we’re dealing with, and its civil service people who don’t know anything about aircraft. We’re in our element,” he says.

Payment, on the other hand, is a different matter. “Governments are hard to deal with financially in so far as they’ve got to show value for money. So, we quite often find we’re really pushed, and we tend to over-deliver on what was a fixed budget. However, we do get paid, and there’s a regular heartbeat to how that works,” adds Dunlop.

Sémiramoth says visibility is the most enduring appeal of working with governments. “Having visibility over 48 months is worth quite a lot in our business, and that’s one thing we enjoy,” he says.

The long-term nature of a contract gives time to learn. “Every project with a government is an opportunity to learn something.”