CJI Asia 2021: Optimism, frustration and snakes on a plane
Optimism about the prospects for private jet aviation next year and beyond, tempered by frustrations caused by Covid-19 travel restrictions and dwindling inventory plus snakes on planes all featured in last week’s Corporate Jet Investor Asia 2021 virtual conference.
Demand for private jet ownership, charter and fractional schemes is likely to rise as wealth in the region grows and high-net worth individuals (HNWI) seek the sanctuary, comfort and convenience of private jet travel, speakers agreed. Prospects were particularly encouraging over the next two to five years, according to Alexander Tang, Global Jet Capital, sales director – south-east Asia, Australia and New Zealand. “We are seeing a lot of wealth shifting into this region; mainly because factories are coming to south-east Asia creating new wealth and opportunities,” he told delegates.
Newly wealthy fintech entrepreneurs will also help to grow the market, predicted Michel Buffat, Credit Suisse, head of Aviation & Yacht Finance. “We see younger clients in the fintech business who have created a lot of wealth in recent years. Sooner or later, they will have to have an aircraft because of the obvious advantages with Covid still around,” he said. But the pace of market growth would be gradual.
New entrants to the industry also underpinned the optimism of Stuart Miller, Clyde & Co, partner. “I don’t think we are going to lose too many of them [new entrants] when the commercial airlines rejuvenate,” he said. “Corporates are going to fly more and it’s likely the level of personnel who use jets will push down [the company structure] rather than tighten up.” Restrictions will continue to loosen throughout Asia and new business aviation products will continue to evolve. As evidence, Miller cited news revealed last week (November 17th) that NetJets is to transfer up to 20 aircraft to Amber Aviation over the next two years alongside other investment.
Boosting business in China – both on the mainland and in greater China – excited Liam Byrne, Bermuda Aircraft Registry, director of Business Development. “It’s heartening to know that the economics for that market are good, with the World Bank predicting 8.5% growth back to pre-pandemic levels,” said Bryne. The Bermuda Aircraft Registry has opened a Shanghai office, appointed a Mandarin-speaking operations manager and invested in a website for Chinese clients. “The mainland China market has kept us really busy over the past six months and we are delighted with what’s happening there,” he added.
David Dixon, Jetcraft Asia president was very optimistic for the prospects for business aviation worldwide but less so for Asia. While the OEM’s launch of innovative aircraft would be good for Asia, the region’s pre-Covid legacy of poor infrastructure was likely to constrain growth. “The downside is the infrastructure – there are not lots of airports for the NetJets type of operation,” he told delegates. “If the airlines come back with a vengeance, and we have to hope they do, we don’t have the infrastructure to absorb similar type of operations to those seen in North America.” Lack of airports and the mindset of the regulatory authorities would both constrain growth.
China’s new policy of ‘Common Prosperity’ – designed to narrow the widening wealth gap between the country’s rapidly rising population of HNWIs and the less affluent could “throw a curved ball” at private aviation. Predicting its impact would be challenging.
Also advising caution was Paul Jebely, Pillsbury Winthrop Shaw Pittman, managing partner Hong Kong office. That is despite almost 25% growth in ultra-high net worth individuals last year – the highest rise for nearly 20 years and the fact his company closed deals valued at $2bn over the past two years.
“Private aircraft trading, chartering and financing deal flows [at present] are very much the feast before the famine,” he warned. While demand would continue to grow in the near term, as businesses return to travel and lockdown restrictions ease, current rates of growth will prove unsustainable. “It will end. Private jets cannot run on fairy dust – despite what some might have you believe. And neither can the global economy.”
The 2022 Winter Olympics in Beijing (February 4th-20th) would stimulate the relaxation of flight restrictions, hoped speakers. Jenny Lau, Sino Jet Management, president said: “By next year, after the Winter Olympics here in Beijing in the second quarter [Q2], hopefully a lot of travel restrictions will be lifted, which will make it operationally easier for us.” (She also reported strong demand from charter clients flying within China’s mainland borders and high interest in purchasing larger cabin aircraft and ultra-long range aircraft).
Significant market improvement is unlikely until well into Q2, said Simon Bambridge, TAG Aviation, commercial director Asia. Although restrictions remained in place in north Asia, restriction were beginning to ease in south-east Asia, with Singapore starting to develop vaccinated travel lanes and Thailand and Bali welcoming visitors. “South-east Asia will probably lead us out of the doldrums in terms of activity picking up again.”
Looking even further ahead to the promise of urban air mobility (UAM), Yesh Premkumar explained why Hyundai’s Urban Air Mobility division had rebranded as Supernal. Premkumar, the new brand’s senior lead, Partnerships said: “It was to give us our own identity – a name that resonated with the work. The work that reflected our intentions and vision for mobility of the future.”
Hyundai’s ambition is to become a mobility solutions provider rather than a vehicle OEM. To achieve that, the company must partner with other organisations to forge a new air mobility ecosystem, said Premkumar. The goal is to deliver Supernal’s aircraft to market along “a reasonable timeline” – by 2028 – not simply as soon as possible.
Meanwhile, short term travel restrictions were not the only frustrations taxing business aviation professionals in Asia. Sourcing quality pre-owned aircraft was becoming particularly challenging, as prices continue to outpace asset values in an increasingly assertive sellers’ market. Owners who had no intention of selling their aircraft were now tempted by unsolicited offers far above the price they expected their aircraft to command, according to one speaker. Those who succumbed to temptation would add to the burgeoning demand for charter, as OEM delivery extended times to 2023 or 2024.
Aircraft owners who would normally now sell their aircraft were extending operational life, said Mark Winzar, JSSI senior vice president, Business Development, Europe, the Middle East and Africa. Or they were looking to sell their aircraft – possibly to a first-time buyer.
Cash buyers may want to save time (but perhaps not money) by avoiding a pre-purchase inspection. But brokers, maintenance specialists and financers all highlighted the key importance of knowing the quality of the aircraft under consideration. This was particularly true as travel restrictions had kept aircraft on the ground or in storage for much longer than normal. Rohit Kapur, JetHQ Asia, president said: “We have seen aircraft standing on ramps for years and people still want to see if they can do a deal.”
The perils of long-term aircraft storage and ground damage were highlighted during a session chaired by Peter Coles, Clyde & Co, partner & head of Aviation Asia Pacific. Estimating the cost of damage was difficult, he said. “There’s insufficient data to estimate the extent of corporate jet damage on the ground and by ground incidents. It could be $100m or more and I have seen estimates in the billions – which I don’t believe.” Direct financial damage was not the only risk. “There are injuries and fatalities arising every year from ground incidents – and this can lead to loss of licences for pilots, engineers or other people.” Accidents can also mean the suppression of business operations and liability exposure.
Turning to the perils of storage, the dangers of corrosion – particularly in the humid climates common in parts of Asia – were highlighted by Graham Oddie, Tokio Marine Kiln, aviation underwriter. A particular worry was aircraft consigned to third parties to store “out of the hands of operators or owners” if corrosion was allowed to develop. Some operators located their aircraft to dry locations, such as parts of Australia, to minimise the risk.
In a separate session, Steve McManus, GE Aviation sales director, outlined the benefits of engine programmes for owners and operators. “Having a programme hits the easy button,” he told delegates. “If you do the maintenance – and we provide preventative maintenance as part of our programme – you will pretty much always have uptime on your aircraft. If you don’t have these systems and something goes bang in the night, you are going to be weeks and months trying to figure out how to get it fixed.”
Corrosion was not the only hazard associated with long term storage. Insects and rodents could make their way into unprotected aircraft, warned Andy Pickford, McLarens Aviation, regional director Asia. This, combined with periods of dormancy for aircraft systems, could cause problems such as electrical failure.
Incursions by non-furry wildlife could also prove problematic. “There is a bit of a problem in Malaysia where a number of aircraft have had snakes go into their landing gear bays at remote airports.”
Above: Jenny Lau, Sino Jet Management president, hoped travel restrictions in China
would ease after the 2022 Winter Olympics in Beijing, to run from February 4th-20th.
Top: Hong Kong. Bermuda Aircraft Registry highlighted business prospects in China.