CJI Miami 2021: Day two – Lack of inventory sparks ‘feeding frenzy’
The lack of pre-owned US aircraft for sale sometimes sparks “a feeding frenzy”, when quality aircraft become available, according to Wayne Starling, International Aircraft Dealers Association (IADA) executive director and industry consultant. Other keynote themes on the second day of Corporate Jet Investor’s Miami 2021 conference yesterday (November 3rd) were: the future of charter, aircraft finance, climate risks for business aviation and pilot recruitment.
Summarising comments from IADA’s 47 dealer members, Starling said: “If you’re looking in the US, it’s like a carcass after vultures have picked over it. What remains out there are aircraft that need so much maintenance or have so many problems they will probably never sell.”
Putting metrics to historically low levels of pre-owned US aircraft sales, Andrew Young, Amstat general manager said just 4.9% of the fleet of business jets and turbo props is available for sale. (This is the lowest percentage since Amstat started in business in 1984). A market in equilibrium usually has about 10% of the fleet for sale compared with as much as 18% in the depths of the Great Financial Depression, said Young. Also there had been a 44% contraction in aircraft available for purchase year-on-year. “With preferred aircraft selling very fast – some before they are listed on the market – the days on the market for the remaining aircraft has risen by 22%,” he added.
Pre-owned aircraft are available, but you have to look further afield, which brings challenges, said Hamish Harding, Action Aviation chairman. “We are looking all around the world for aircraft all of the time and generally finding them.” People could be “made to sell”, with the high level of prices available now, he added.
Two productive locations for sourcing pre-owned business jets were China and Russia. Sellers in China who were previously very flexible about contracts were now proving highly inflexible. “But if you want a high-end aircraft, China is one of the places to look, as is Russia and certain other countries.” But 21-day quarantine restrictions in China continued to frustrate some transactions.
Commenting on how transactions had changed during the Covid-19 pandemic, Harding said: “We never thought we could cut this many corners.” Pre-purchase inspections (PPIs) “in their full glory” were now a thing of the past. Also, contracts must be very simple to ensure a swift transaction. While conducting an engine borescope is still important, this is generally confined to the front-of-engine searches for foreign object damage (FOD). Also, it was becoming much harder to find slots for aircraft PPIs at MROs. Next week is the cut-off for arranging aircraft finance, after that, it’s all about cash purchases, he added.
Jeremy Stumpf, Freestream Aircraft vice president, also urged buyers to be prepared to act quickly and to compromise. “The perfect aircraft will likely not be available, so my advice to clients is to go with the one that ticks most of the boxes,” he said. “Make changes to the aircraft after you close the deal. The most important thing is to secure the aircraft.” Harding agreed on the need for compromise, with sellers having to pay full retail prices (with Bluebook listings well behind the market).
Explaining the shortage of pre-owned aircraft, IADA’s Starling said: “All the fractionals and charterers are trying to buy aircraft, so they are taking out of the market and not giving anything back – that’s part of the problem now.”
The boom in charter and jet card sales were hot topics in presentations and networking sessions during the two days of the conference. Anthony Tivnan, Magellan Jets, founder and president considered surging demand and sales reflected more than a short-term adjustment to the lack of commercial airline availability and Covid-19 concerns. “I don’t see it slowing down anytime in the near future,” he said during the panel ‘Managing charter and jet cards during a boom’.
There will be a reduction in business from a small segment of customers when the commercial airlines return to full scale operations, he predicted. But that could be offset by the return of business travel which has always been the backbone of Magellan Jets’ business. “It remains to be seen. However, what we lose from the new segment of customers – but I think a large portion of them are here to stay – may balance out as some of the corporations get back on the road.”
During the same session Vincent Kavanagh, Air Partner senior vice president of Sales said the obvious growth in jet card sales reflecting the company exploring and finding a new audience. “There are a lot of clients who could always afford it but never justify it. Now they are justifying it more than ever – whether they are corporates of individuals.” But it was also vital to retain existing clients and communicating effectively was vital, he said. Ideally, this should be face-to-face or by phone but not a spam-type email communication.
It’s not just new customers flocking to private aviation; the maturing sector is also attracting a new generation of investors. The reason was a fundamental shift in revenue growth, according to Vivek Kaushal, Global Jet Capital CEO. During the past 10 years the industry has grown mainly through new aircraft deliveries and aircraft utilisation rates have remained broadly flat, he said. But now utilisation rates are climbing significantly. “Instead of all revenue coming into the industry from new aircraft deliveries, now we are seeing new users come in and providing cash flow and revenue. So, it seems rational to attract all this investment.”
Nick Sandler, Stonebriar Commercial Finance’s new president noted that most aircraft operators were operating at 60%-70% of their full infrastructural capacity before the global pandemic. But, over the past 18 months, that has grown to 120% of capacity. “Some can absorb that because of economies of scale, purchase power and leverage on recruitment,” said Sandler. “To others that will represent a challenge. Everyone is under stress about best to bring in new business.” Plus, the growing pilot shortage is likely to prove a key brake on growth for some businesses.
Securing corporate finance in future will be dependent on producing a sustainability plan, warned Ford von Weise, Citi Private Bank, director, head Global Aircraft Finance Group & Advisory Services. “Within 10 years, if you don’t have a sustainability plan, you won’t be able to borrow money from a major bank,” von Weise told delegates. “This is happening regardless of what you think should happen.” While business aviation accounted for only 0.4% of carbon dioxide emissions, the sector remains a ripe target for climate activists to attack. “We are a huge, monstrous target because the carbon footprint of our clients is hugely outsized.” Sustainable aviation fuel (SAF) – “the success story of business aviation” – offered a long-term solution to mitigate climate change. And to help avoid punitive legislative sanctions and continued criticism from environmentalists and, increasingly, stakeholders including clients, shareholders and employees. Although carbon offsetting and book-and-claim systems offered short-term benefits, he considered them “window dressing”.
Tackling the pressing problem of pilot shortages, René Banglesdorf, co-founder of the new mentoring consultancy The Aviation Collective, said action was needed now to attract new pilots from diverse backgrounds into the industry. Acknowledging how commercial airlines often looked to business aviation to plug its pilot shortage, Banglesdorf’s presentation answered the topic: How business aviation can trounce airline hiring power. Part of the answer lay in broadening the industry’s gender diversity by showcasing female role models in aviation. Lack of role models and perceived (or actual) harassment or discrimination also proved barriers to some potential recruits.
Regardless of gender or background, young people wanted to enjoy a good quality of life (including family life) and a well-defined and rewarding career path. Swift action was needed now to secure the next generation of recruits before other potential employers out-competed business aviation for young talent. “Business aviation is very nimble. It can react quickly. It can make changes without the need for an act of Congress or lengthy union discussions,” said Banglesdorf, who recently qualified for her Private Pilot’s Licence.
Banking on sustainability: Ford von Weise, Citi Private Bank.