NAFA in NAPA
The National Aircraft Finance Association (NAFA) held its 50th Annual Conference last week. It had record attendance. Despite being held in Napa, California.
NAFA members – particularly the lenders – tend to look for risks. So there was a strong focus on economics, aircraft exports, due diligence, closings and a fascinating presentation on cybercrime from an FBI agent.
Dr LaVaughn Henry, of the Federal Deposit Insurance Corporation (FDIC) and former adviser to the US president, outlined how uncertain the next few years could be. He highlighted falling consumer confidence, rising inflation and interest rates.
One of the key takeaways from many speakers and attendees is that the industry will not see the same downturn as in 2008. This was a key theme of the OEM panel – comprising Michael Amalfitano, president, Embraer Executive Jets; Thierry Betbeze, CEO of Dassault Falcon Jet; Ron Draper, president, Textron Aviation; and Todd Simmons, president Customer Experience, Cirrus. All of them are enjoying record backlogs but all are also aware that things will not always stay like this.
A thought-provoking panel featuring Ed Bolen, president, NBAA; Pete Bunce, president, GAMA; and Tim Obitts, president, NATA; also highlighted many of the challenges that the industry faces. They singled out regulatory delays, sustainable aviation fuel, labour shortages and FAA reauthorisation.
Another headwind facing the industry is insurance. Commercial aircraft leasing companies have filed claims for aircraft stuck in Russia following the invasion of Ukraine. AerCap, the world’s largest aircraft lessor, has asked for more than $3.5bn for its 100 aircraft alone.
“When 9/11 happened, insurers reserved $5bn in a few days, raised prices and cancelled war risk insurance within a week. The effects were felt on aviation rates for five years,” said Bill Behan, CEO, Assured Partners Aerospace. “We have seen rates rise for the last few years because of the 737 Max claims of $2bn. With Russia we could see between $12bn and $14bn in claims. This is truly unprecedented and not something we have faced before.”
This is going to hit business aviation renewals. “This is the biggest claim the aviation industry has ever faced,” says Steve Johns, president of LL Johns. “At the start of the year, after three years of a hard market, we felt like maybe we had seen the worst of increases and maybe would we see rates start to level. Underwriters are very concerned about this potential claim and we continue to see rate increases, but mostly at levels below the last few years.”
But this is not to say the conference was downbeat. It was not. Everyone was excited to be back after a two-year delay and grateful to the team that organised the conference – including Karen Griggs, executive director (who was awarded a wonderfully-deserved lifetime achievement award for her years of service, without her knowing beforehand); Jim Blessing, president of NAFA and CEO of AirFleet Capital; Tracy Cheek, NAFA marketing director, and owner and founder of Uptimize Marketing; and Brad Harris, CEO of Dallas Jet who ran the programme; and Tracy Cheek, marketing director and owner and founder of Uptimize Marketing.
Attendees are enjoying the strong market. But they are not getting carried away. And that is a good thing for the industry.
“Until 2018 brokers who said that business couldn’t be better, were probably selling you more than they were selling planes. Now, brokers have been closing transactions at a record pace for the past 18 months. The 3% figures for available aircraft for sale is really 5%-6% when you include off-market aircraft,” said Don Spieth, VP of sales and analytics, General Aviation Services. “We could get 1000 more aircraft listed and the industry would be well below the normal levels of 10%- 15% of the fleet being available.”
Spieth’s data shows that owners are now holding aircraft for 6.5 years compared to an average of 5.25 years over the last 20 years.
“Just because things are good, you should not panic about a challenged economy. High fuel prices are a bigger headwind for commercial travel, and the delayed return of commercial is a tailwind for business jets. It is good to be concerned that there could be a downturn but there are no signs yet,” he says. “As a community we are also all listening to data and analytics much more than during the 2008 Global Financial Crisis but you should also not overact suddenly to data. The industry is not going back to the depths or 2012 or 2013.”
Above: A 2020 Citation CJ3+ offered for sale by Brad Harris’s Dallas Jet.