CJI Miami 2021: Day one – the highs and lows of up markets
“This is the uppest of up markets we have ever seen.” Just 11 words from Andrew Collins, Sentient Jet, president and CEO capture the promise and the challenges business aviation faces as it surges ahead powered by new clients across all sectors. “I feel every day like that was the biggest day in private aviation yesterday. And then, wait until tomorrow,” Collins told delegates in the opening session of Corporate Jet Investor Miami 2021 yesterday (November 2nd).
The influx of new clients to card and fractional plans together with new aircraft purchases is a tribute to the industry’s success in promoting the benefits of private aviation. “Last year we all became evangelists for why private aviation matters – how you can avoid crowds and [Covid] exposure,” he said. “We created this surge and built pent up demand.”
A measure of Sentient’s success is that for every new card sale, the company noted 2.5 referrals. Neither is the surge in private jet travel confined to leisure travel by High-Net Worth Individuals (HNWIs). While the Fortune 500 companies are not talking about travel policies, Sentient is detecting a resurgence in business flights from merger and acquisition specialists, deal flow experts and consulting teams. Plus, many clients opted to buy rather than the more traditional routes into the industry. “A lot of people lunged – skipping charter and fractions – going right into buying an aircraft,” said Collins.
Further evidence for the influx of new private aviation users and buyers came from Michael Amalfitano, Embraer Executive Jets, president and CEO. First-time users were up by more than 50% compared with historical data, he told delegates. First-time buyers were up 35%, based on this year’s data. Fuelling this growth was a significant rise US private wealth – up 12% over the past year, exceeding the growth in Asia Pacific for the first time in five years.
Newcomers were younger, likely to be under 55 years of age, compared with the more traditional buyers aged over 55. “We are seeing Millennials, Generations X, [born 1981 to 1996] Y [born: 1977-1994] and Z [born: 1995-2012] who have a completely different expectation of private aviation travel.”
He continued: “People are moving up from commercial through charter, up through the access points of democratisation, such as card and fractional, to ownership – all happening based on new priorities.”
Connectivity remained important but new trends were also emerging. New clients are looking for fewer touch points and travel from point-to-point destinations that fit their lifestyle. They want a safer, healthier, and more efficient, seamless travel experience. Amalfitano described the trend as “human-centred experiences”. The result was: “Our priorities have shifted to health and safety, as well as sustainable actions that support business aviation’s commitments to fly net-zero by 2050.” Embraer Executive Jets is focusing on digital solutions to meet these changing needs.
Kenny Dichter, Wheels Up, founder and CEO, characteristically brimmed with enthusiasm about the prospects for business aviation. “The heyday of this business – and we have a lot to figure out as an industry – is in the next five, 10, 15 and 20 years. I see all green lights.”
A key reason for optimism was the opportunity to develop “open table” technology, which is absent in business aviation today. “If someone develops technology that can support the industry and make it more efficient, there’s an unbelievable opportunity, not just for Wheels Up, but the whole space,” said Dichter.
It was an encouraging forecast too from Gus Faucher, PNC Financial Services Group, senior vice president and chief economist. He predicted strong economic growth through 2022 to 2023 – “well above the [US] economy’s long run average”. Interest rates were expected to remain at about 2% over the long run.
Next year will continue busy for business aviation, agreed David Hernandez, Vedder Price, shareholder. Unless, he added, there is some significant event, such as a large increase in taxes or interest rates “that muffle and make people scared”.
Hernandez said: “I see a lot of new people moving in, a lot of new buyers, a lot of jet cards. The question is how long can the jet cards operate without going bust, because they’re selling way more than there’s capabilities [for].”
Changing customer demands also prompted Brian Proctor, Mente Group, president and CEO to reveal the launch of a new service. Freedom by Four Corners Aviation aims to offer clients the benefits of their own scalable aviation department. It claims to offer a customised and fully integrated lift solution, including aircraft, crew, operations, and supplemental lift, but “without the hassles of ownership such as administration, accounting, and uncertainties”.
The launch marked a new segment for business aviation, termed Corporate Jet as a Service (CJaaS), said Proctor, who is CEO of the Aquila Aviation Ventures, which includes Four Corners Aviation and the Mente Group. Designed to enable corporate flight departments to redeploy capital by avoiding aircraft ownership, the service includes a monthly access fee to pay for fixed cost and an hourly usage fee plus incident or parts recalls, said Proctor. “The bill would be three-line items, which makes it easier for the owner to understand and predict what’s going on.”
The impact of new entrants was also highlighted by Megha Bhatia, Rolls-Royce, vice president Sales & Marketing said: “We are seeing a increase in first-time buyers. Traditionally they have veered towards the entry level sector rather than the sector we are powering – large cabin aircraft. We are having to educate them a lot more about engine programmes.”
Braking business aviation growth were a range of supply factors that needed attention, according to speakers. These included a growing shortage of pilots and aircraft engineers and technicians and lack of inventory for buyers in a strong sellers’ market. Scott Cutshall, Clay Lacy Aviation, senior vice president, Development and Sustainability warned: “5,000 pilots left the airlines last year and we had a problem before the pandemic.” And when the airlines experience a shortage, they “reach down” to business aviation to find the remedy. “Costs are going up, salaries are going up, hourly rates are going up, so I would argue that even if prices increase, costs are increasing faster. And we’re just trying to play catch up,” said Cutshall. One key solution was to offer student pilots a clear and rewarding career path.
Lack of inventory focused minds throughout the day. While OEMS won praise for their production restraint (possibly influenced by supply chains challengers), brokers complained about the lack of quality pre-owned aircraft for sale and operators about the lack of lift. Amanda Applegate, Airlex Law Group, partner highlighted the power of vendors: “If you’re a seller, it is very much your market and you can dictate your terms,” said Applegate.
New buyers required considerable guidance before making their first purchase, said Lisa Senters, Jet Senters Aviation, CEO. “First-time buyers don’t know what to do. These people are easy to sell things to and they need guidance.” Janine Iannarelli, Par Avion founder and CEO, joined other speakers in highlighting the importance to honesty and integrity. “This is a real opportunity to bring the industry into the 21st century,” said Iannarelli. Using high standards of Environmental, Social and Corporate Governance (ESG) was critically important “when we speak to transparency, ethics, compliance, the weeding out of bad apples and nefarious actors”.
Alongside the impact of new entrants, sustainability concerns emerged as a key theme of the day. Sustainable aviation fuel (SAF), book-and-claim options and carbon offsets offered the best short-term solution to reduce business aviation’s carbon footprint while new technology such as electric and hybrid electric and hydrogen propulsion offered longer term solutions. Leo Knaapen, Bombardier, chief, Industry Affairs put the challenge of SAF supply into perspective: “Next year we will have about 3bn gallons of SAF, but we need about 35bn. That is the commitment or challenge [president] Biden has given.”
Jean-Noel Robert, Airbus Corporate Jets, head of business development, underlined all the major OEM’s commitment to SAF. Airbus was committed to ensuring its entire fleet was certified to fly using SAF, he added. (Last week, the Airbus A319neo became the first single-aisle aircraft to operate on 100% SAF in a trial near Toulouse).
At present SAF was only available at about two dozen locations in the US, acknowledged Kennedy Ricci, 4AIR president. “That’s not necessarily a bad thing. It makes sense to sell SAF close to where it’s made. But five years from now, new SAF pathways will evolve in different locations to generate different [more efficient] types of SAF.”
Ending the day on an optimistic note, Andrew Farrant, Global Jet Capital chief marketing officer shared his company’s forecast for growth in business aviation transactions. Over the past five years the total market has averaged 3,000 transactions valued at $28bn. Over the next five years it will average 3,500 total transactions (including both pre-owned and new aircraft) valued at $32bn.
Meanwhile, the last words go to David Best, Jet Aviation, senior vice president and general manager US operations. “Here we are complaining about too much business and not enough staff. But it’s a great way to be unhappy.”
Networking by pool: CJI Miami delegates at the Poolside Reception sponsored by San Marino Aircraft Registry.