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Will Business Jets Fly High Again?

Phil Scott
From the Print Edition:
Jim Nantz, May/June 2011

(continued from page 1)

And Frazier agrees. “Businesses like ours are doing the local economy good, providing a needed service,” says Frazier. But he also claims that the banks have all gone totally scared of airplanes. “They repossessed airplanes that the owners were making the payments on because they said the planes weren’t worth as much,” he says. “Thousands of aircraft are parked by the banks. Right now, you can’t get a loan for a business that operates airplanes.”

But here’s the good news. “It’s quit getting worse,” says Bolen. Yes, it seems like the hardest hard times have come to an end. “It’s almost like the housing market,” Bolen continues. “2009 was really a rough year; 2010, in the end, I think you can see things are getting better if you squint.”

 Mary Grady adds, “Some of the data I’ve seen show it hasn’t reversed yet, but it has stopped tanking a little bit, and there are fewer jets for sale so you can dredge up signs of hope out there.”  Yes, the companies that have long built business aircraft—such as Cessna, Boeing, Learjet, Dassault Falcon, Bombardier, Hawker, Gulfstream, Embraer—have managed to remain above water and are not asking Congress for loans. But of the two newest companies, Sino Swearingen and Eclipse, the latter started drowning and filed Chapter 11. However, Eclipse was recently bought, and the present owners, while not manufacturing anything new, have committed themselves to supporting the existing fleet. Brazilian bizjet manufacturer Embraer has opened a final assembly plant for its new Phenom in Melbourne, Florida, saving jobs in an area hard-hit by NASA cutbacks. And FlightSafety is ramping up its staff, says Joseph Lamonica, Director of Flight Safety International’s Aviation Law Department.

It’s still a buyer’s market. Yeah, like a house in Detroit, you’ll never pick up a bizjet as cheaply as you will today (unless it was a year ago): A good used corporate jet goes for 30 to 40 percent below its value. The market that’s held up the best, Bolen says, is the ultra-long-range segment, the type that can fly all the way from the U.S. to Asia nonstop. That, after all, is where the business is. Plus, it’s not all doom in all corners of the globe. While the U.S. economy has ceased plunging for the moment, Bolen says he’s discerned some economic activity in Brazil, India and China. Large-cabin jets, like Gulfstream’s, have actually made a full comeback to prerecession levels.

Why fly business airplanes instead of the old reliable airlines? “Business aviation is the most efficient, cost-effective mode of transportation,” says Bolen. “In some cases it’s the only mode of transportation.” What he’s getting at is this: If a business needs to haul executives to more than one city, say from St. Louis, Missouri, to Tulsa, Oklahoma, to Mobile, Alabama, all in one day, there’s but one way to do it, and commercial airlines aren’t it.

“One person going on a flight between two cities with good commercial service, that may make sense,” he says. But then, he asks, what if they have to haul an item that’s too fragile to load in an airliner’s cargo hold and too bulky to shove into the overhead compartment? Or if the business has headquarters or a plant or some facility in any one of the 2,100 or so communities that lost commercial airline service last year?

Besides, what about sitting in economy for six to 22 hours straight? With a screaming baby behind you? The list of bizjet benefits goes on and on.

“One business aviation benefit is connectivity,” says Bolen, “the ability to stay in contact with the home office or a customer while en route.” Also, continuing to discuss secret matters without having to worry about eavesdropping. One Challenger 601 that Lamonica flies regularly (he’s also a 7,000-hour pilot) comes equipped with satellite phones. (Plus a television in every seat, a couch, and a full bathroom in back. But those are only amenities.)

There are more options than owning or leasing or chartering; namely fractional time shares, where you buy into an aircraft, book the time you need to use it, and use it when the time comes. The first fractional company, NetJets, has weathered the recessionary storm remarkably well. While the business lost money in 2009, last year it came back strong—so strong that in February 2011 NetJets ordered $6.7 billion worth of airplanes from manufacturer Bombardier—120 jets in all. Not only is Bombardier the third-largest passenger jet manufacturer in the world (behind Boeing and Airbus), but if NetJets were a commercial airline, it would have the second largest global fleet.

NetJets created the concept of fractional ownership. Started 25 years ago by Richard Santulli a former Goldman Sachs banker, NetJets is a private fleet that offers its clients shares, or fractions, of a particular model of aircraft. By 1998 it had grown large enough and successful enough that client Warren Buffet acquired NetJets for Berkshire Hathaway. Today it flies more than 285,000 flights annually, and its thousands of pilots have an average of 7,500 hours of flight experience. For security, passengers are guaranteed anonymity. Its fleet of 750-plus airplanes consists of 13 types of jets of varying sizes: light, midsize and large cabin jets that can carry between six and 18 passengers up to 7,700 miles. According to chief marketing officer Randy Brandoff, per aircraft type, they are nearly identical inside. “The only difference is the tail number,” he says. “Of course, the configuration may vary according to cabin size.”

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