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Will Business Jets Fly High Again?

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

(continued from page 2)

When the heads of GM, Ford and Chrysler appeared before Congress in November 2008 asking for $25 billion in loans to keep their companies from sinking into bankruptcy, Representative Brad Sherman asked the trio to raise their hands if they flew there by commercial airlines. “Let the record show, no hands went up,” pronounced Sherman. He then asked for a show of hands “[If] you are planning to sell your jet in place now and fly back commercial.” Again, no hands rose. Congress was outraged. Pundits were outraged. The average Joe Sixpack was outraged. Pretty much everyone was outraged, even the business jet industry. But not for the same reason. The industry was already suffering severe chest pain, and that moment would mark the beginning of the tailspin in the business of business jets. Only now are there signs that the bizjet biz has pulled out of that spin.

As Brian Foley of Brian Foley Associates, a business aviation advisory firm, recently explained, “The auto folks were chastised when the government has the largest fleet of [business jets] and needs it just as much as a corporation does.” In August 2009, less than a year after the scathing lecture heard around the world, Congress voted to buy eight new bizjets to add to the fleet of nearly two dozen it already owns.

Maybe by buying those eight jets, the Government was only attempting to apologize for dogging business jets, or trying to help one struggling industry while chastising the other. Just one month before the big purchase, in July 2009, the number of both new and used jets on the market hit an all-time high. It was rough on manufacturers, fuel companies, operators of fractional ownership programs and insurance companies that sell policies on bizjets. Operations dropped 35 percent, charters plunged 40 to 45 percent. FlightSafety International, the premier jet training school in the U.S., laid off instructors for the first time ever.

“For a while there were so many used jets on the market people were canceling orders for new jets,” says Mary Grady, an editor of avweb.com, an aviation news website. “As far as I can tell now it definitely tanked the past two years.” Buying business jets was the least the Government could do.

For a while there it seemed that Congress—which had quickly bailed out those too-big-to-fail banks to the tune of $700 billion—would allow auto manufacturers to collapse because they owned and flew business jets. The banks also had bizjets, though no one thought to question them over that. (In fact, J. P. Morgan Chase, which received $25 billion in TARP bailout money, bought a couple of business jets just months after cashing that huge check, plus the company refurbished their hangars.)

Yet, here’s the rub. Pundits lament the decline in U.S. manufacturing, of the auto industry moving offshore to places like Japan, Germany, South Korea, and even China. America used to make things, remember! But, like the auto industry, American companies actually build and outfit business jets, train the flight crews, educate the mechanics, work on the engines, fill the fuel tanks, stock the pantries—yes, essentially manufacture and service things.

But it’s unlikely that our elected officials made their jet purchases because they’d read up on the devastation felt by that particular segment of industry. More likely our legislative representatives simply wanted to fly around the world on fact-finding missions, without the hassle of airlines. Smooth move, Congress.

“It’s been tough across the board. You see some models of used airplanes sell by 30, 40 percent of their value,” says Ed Bolen, president and CEO of the National Business Aviation Association, aka the NBAA. Even somewhat closer to the trenches, Frank Frazier, president of Nashville Charter Jets, says, “Business aviation is tanking. It’s the first thing to go and the last thing to come back.” Yeah, it’s the economy, stupid, and Frazier knows firsthand: Two years ago Nashville Charter Jets employed 50; it’s down to 5.

“This industry is driven by wealthy individuals and wealthy corporations,” Frazier adds. “The corporations and the individuals are suffering, and there’s an image problem in general aviation as well.” You know: Only the super-rich fly, and for some reason general aviation is divorced from the economy.

“I think the thing that’s interesting,” explains Bolen, “is there are tens of thousands of companies in the U.S. that rely on airplanes for some portion of their transportation.” Bolen says that 85 percent of the companies that use business aircraft are small or midsize firms, and the majority of the times that these bizjets are in use the CEO or president isn’t on board; instead they are flying engineers, technical teams and salespeople. “So it’s often a little bit at odds with the public perception,” he says.

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.”

Only bizjet owners get to trick out their rides, though. If you’re dying for yellow carpet, leather seats, gold fittings and turquoise marble counters, you’re going to have to buy the jet and outfit it yourself.

When there’s downtime for a corporate business jet, executives can donate its services to organizations like Angel Flight, which flies people in need of medical treatment all across the nation. It’s also tax deductible. But, come on: Realistically, owning a jet is not all efficiency and philanthropy. It’s about having the bucks to buy one, fly in high style and skip the whole trauma and chaos of flying the airlines. “If I’m the CEO of a major corporation, I’m flying my own plane,” says Lamonica, the FlightSafety attorney. “That’s just part of doing business.”

Lamonica isn’t a CEO, but he does get to fly his client’s aircraft, and on the Friday afternoon when he was interviewed Lamonica was ready to head out to nearby Wilmington airport for a flight to Morristown, New Jersey. The trip would take a whole 18 minutes. He could have driven up the Jersey Turnpike, in rush hour traffic, which would have stretched to at least four hours. “If you got a choice, it can cost a lot of fuel or I can sit on the turnpike on a Friday for hours and hours and hours,” he explains. “If I don’t have to deal with it I’m not going to do it. I don’t care if I’m the only one on the plane.” He admits he could take the airlines, but since there’s no airline service to Wilmington, he’d have to drive to Philadelphia, and arrive at one of the three New York City airports four or five hours later, or spend as much time being held on the ground. Oh, and he’d have to submit to Transportation Security Agency’s probing. Yes, before boarding a bizjet executives can keep their shoes on, and they don’t have to remove their watch or the change in their pockets.

During this Age of Terrorism, no shoe- or underwear-bombers have ever brought down a bizjet. Ever. According to Lamonica, for aircraft weighing above12,500 pounds max on takeoff a security screening is required. There’s not much more guidance than that. In some places the pilot does the screening before passengers board, but “You think I’m going to ask the CEO of a major corporation if they have a gun in their bag?” he asks. “It’s humorous. Whatever he’s going to carry on, I don’t care.” In short, yes, they’re supposed to go through security; in reality, no, they don’t. Imagine all the makeshift weaponry on a bizjet anyway: glass bottles of fine wine, silverware, crystal wine glasses. “You got a $45-million plane, you’re not worrying about plastic knives,” he scoffs. “To the TSA it’s ridiculous stuff that they have to go through—even they know it. It’s the show they go through.”

Oh, and one more thing: Along with drinking from crystal glasses and dining on fine china with silverware, “In a business jet you can puff on that stogie,” Brian Foley says. “It’s your airplane. They’ve got the galley stocked with cool snacks and whatever cigars you smoke. You’re able to get what you want; the caterers don’t just load the galley with bologna and cheese sandwiches. And they don’t charge you for pillows and blankets.” v

Phil Scott is a frequent contributor to Cigar Aficionado.

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