Five Vital Questions About Private Jets Answered see more
NAFA member, Jahid Fazal-Karim, owner of Jetcraft, answers your questions about private jets.
With more than 20 offices worldwide and 55 years of experience Jetcraft is one of the true leaders in private aviation. With new jet share companies disrupting the market - creating an Uber-like marketplace in the elite world of private travel, Jetcraft continues to offer its experience and expertise to that top percent looking to purchase a private plane. Having accrued unparalleled industry expertise and understanding of the varied global markets in which they operate, has made Jetcraft a leader in aircraft sales, acquisitions and trades. We spoke with the company's current owner Jahid Fazal-Karim to understand the nuances behind what he does and how he's built such a successful company.
1. What does Jetcraft offer in the market that wasn't already available?
Jetcraft is the largest international buyer, seller and trader of business aircraft. Through our 55-year history, we have amassed a global presence, with more than 20 offices worldwide. Our sales directors know the local market, speak the local language and have facilitated numerous aircraft transactions in each locale. This unique global structure means we are positioned to provide regional on-the-round expertise and up-to-the-minute insight within any region, and we’re never more than a few hours away from one of our customers.
2. What is unique to Jetcraft unlike its competitors?
Jetcraft holds a unique position in the industry, situated between a traditional broker and a manufacturer. We have one of the world’s largest inventories of new and pre-owned aircraft, and we’re one of few companies with the resources to invest in owned aircraft, allowing us the ability take in trades and offer our customers a seamless transaction.
3. What advice would you give to a prospective jet buyer?
Don’t overlook the value of pre-owned aircraft. For some buyers, only a new aircraft will meet their needs. But, a pre-owned jet, especially five-years or younger, can offer a very similar product at a good value.
4. How many clients to do typically meet in a day?
At the risk of sounding clichéd, there really is no typical schedule in our line of work. I could spend time with one client or 20 depending on the day, but I do prefer to conduct face-to-face meetings as much as possible. Our connections are one of the many things that make working with Jetcraft so valuable - meeting in person and building relationships, will always be an extremely important part of our business.
5. How did Jetcraft begin? And how is the company planning to grow and innovate?
Jetcraft was founded in 1962 by Charles ‘Bucky’ Oliver, making it one of the oldest and well-established specialists. In 1987, the company began operating under the name Jetcraft, and I became co-owner in 2008. As international markets presented new opportunities for business aviation and large business jets became the preference, we grew from a primarily US-based organisation to an expanding international corporation, introducing operations in Russia, Dubai, Switzerland, Asia, Turkey, Australia, Africa and the UK.
We have facilitated hundreds of aircraft transactions, including more than 550 deals worth more than $10 billion in the last decade alone. Over the past 12 months, we’ve opened a new London HQ office and doubled the size of our European team. Looking ahead, our plan is to continue to cater exactly to the market’s demands without losing the intimate family that Jetcraft has always been and will remain to be.
We thrive on our rich history, experienced team and financial strength. But it’s our global reach that allows us to connect buyers and sellers across the world, help them find the best value and structure a seamless transaction. It’s simple in principle, but only feasible to do quickly and effectively if you have a solid network of offices and expertise in place.
A Delicate Balance: Tom Foley, Owner and CEO of Stevens Aviation, talks with Anthony Harrington. see more
NAFA member, Tom Foley, Owner and CEO of Stevens Aviation, talks with Anthony Harrington, Editorial Director with Business Aviation Magazine.
Q: How has the past year been for Stevens Aviation?
TF: We have been working on a whole range of projects over the last couple of years and a lot of them have now come to fruition, which has helped things tremendously. While the MRO business remains a difficult one, it has to be said that business has firmed up nicely over the last year for the larger players. The fact that President Trump is himself a long-standing enthusiast of business aviation has been very beneficial. People are now buying noticeably more aircraft than they were three years ago, and all that is great for the sector.
Q: How is the refurbishment side of your business doing?
TF: We won a very important contract outside the business aviation space, to do a maintenance and refurbishment programme for the Department of Defense. This involves a good portion of the C12 fleet, probably around 200 or more aircraft. The whole fleet probably numbers around the high 300s. That contract is excellent for us. On top of this, we are having a great deal of success with our Garmin 1000 upgrades for King Airs. We are also doing a lot of ADS-B upgrades. In fact, the Garmin G1000 business is being partially driven by the need for aircraft to be ADS-B ready by 2020. A lot of the old King Airs are not compliant but with the Garmin 1000 upgrade that gives them what the regulations require.
Q: How expensive is the ADS-B upgrade?
TF: The basic upgrade does not take many hours to do, but it is expensive. The cheapest mods work out to $60,000 to $70,000 for labour and equipment.
Q: Are owners and operators generally taking advantage of the necessity to upgrade to ADS-B, to do a full avionics upgrade?
TF: It would be great if they were, but no, not in general. Some are, but the majority are definitely looking for the least expensive route to getting ADS-B compliant. We initially expected people with aircraft like Falcons and Hawkers to want to do a full upgrade, getting an ADS-B mod that fitted in with their existing avionics suite at the very least. But many, as I said, are choosing the least expensive option, being content with basic compliance. Probably the main thing that is driving owners’ thinking on this is the fact that residual values on pre-owned aircraft have fallen dramatically since the global crash of 2008. They don’t see that there is going to be any opportunity for them to recover any major spend when they come to sell. This line of thinking is exacerbated by the fact that most of the aircraft we work on are over 10 years of age. There is very little chance that they would be able to recover the cost of an integrated solution, but they could expect to get back the value of a simple bolt-on addition. You have to keep in mind that this is nothing new. The aviation industry is very expensive, so it is only in the very best of times in private aviation that owners are not watching those nickels and dimes.
Q: What is your view of the current state of the market?
TF: Over the last year and a half we have definitely become larger, but no one in the industry is yet seeing the levels of business we all enjoyed in 2006 and 2007. Owners and operators are still being very careful about what they spend. However, my take on the US economy is that it is quite solid at present and people are definitely less cautious than they were. The private aviation sector is stronger than it was, but the drawback is that aircraft values have not recovered much, and people still have concerns about whether now is the right time to buy a new aircraft or even a pre-owned aircraft.
Q: How is the general refurbishment market doing?
TF: We are seeing a lot of modification and refurbishment work. The used aircraft fleet just keeps getting older, so people have to paint them and put a new interior and new avionics into them, and this is playing well for us.
Q: With sales of new aircraft being slow, the OEMs have refocused on a er sales revenues, looking to capture as much of the opportunities there as they can. How is that impacting you?
TF: That has hurt all the independent MRO providers. We were a Beech service centre at all our locations and Textron pulled all that in-house. Bombardier did the same with Lear servicing. Citation have had their in-house service centres for quite a while now and they make it almost impossible to compete for aircraft that are still under warranty. But that still leaves a large pre-owned eet out there that is more than 10 years of age. The market has adjusted to the new conditions and some of the smaller, less well-capitalised MRO players have dropped out. Larger players like ourselves have stabilized our businesses and the work ow has strengthened along with the economy.
Q: What is the key to competing with the OEMs?
TF: Our strategy is not to be cheaper than the OEMs but rather, to offer a higher level of customer service. We can turn things around more quickly than them, we offer a comparable or better quality and a more pleasant personal experience, because we are less bureaucratic and more customer focused.
Q: What are your thoughts about the future for MRO?
TF: There is no doubt that this is a tough and very technically demanding business. It is hard to execute, but when you execute well, you can make money. So, I am cautious, but I am pleased that the business and the industry as a whole seems to be in a healthier place. One of the challenges is that this business is very volume sensitive, so when the economy turns down, your pro stability deteriorates very quickly. So long as the economy stays strong, things will be healthy, but as and when the economy turns down, all bets are off. We have been around for 60 years and I have owned and run Stevens for the last 29 of those years. We have seen a lot of cycles and we know how to operate through both up and down cycles. We’re glad the down cycle looks to have ended and we are hoping that the up cycle lasts for a good while yet.
This article was originally published in the Autumn 2018 issue of Business Aviation Magazine.
NAFA member, Johnny Foster, CEO of OGARAJETS, talks to Business Aviation Magazine. see more
Q: What do you think of the market at the moment? How are potential buyers and sellers reacting?
JF: I am generally optimistic. This is particularly true in the heavy segment and the last 30-60 days has seen strong buying activity in all modern segments. There are some pockets of
weakness; however, we are very bullish right now with respect to overall market health.
We have been in a buyer’s market ever since the global financial crash, but it seems to me that we are now firmly transitioning into more of a neutral market. In fact, the market today seems to be edging towards favoring sellers, as quality supply is becoming thinner and thinner.
No one believes that we are going to see a return to the mid-2000s any time soon, where we saw asset values actually appreciating instead of depreciating. But what we are seeing is a very distinct leveling out of what had been very steep annualized market depreciations. We will still see depreciation as the norm, clearly, but I expect it to settle somewhere between 5-10% as the annualized depreciation on new aircraft for the first five years or so after purchase. The curve will begin to flatten in subsequent years and, on average, settle around 3% annually post year-10.
Q: What kind of impact are the various new models and soon-to-be-released models having on the market? Are they stimulating demand?
JF: In my view much of the impact of new models, particularly the G500 and G600, has already been priced into the market. You can see it today in the way that pre-owned G450s in the 10 to 15-year range are now selling at amazing bargain prices. The depreciation suffered by those aircraft is a direct response to the market anticipating the arrival of new platforms and expectations that demand will shift towards those new models.
Moreover, it is not just Gulfstream. Bombardier is experiencing the same thing with depreciation in Globals thanks to the new models they have in the pipeline.
Dassault is rather di erent. ey have always been more stable, price-wise. You don’t see the heavy uctuation in asset values that are more common to Gulfstream, Bombardier, and Textron. Dassault’s business model has always been very di erent from the other OEMs, with its focus on low volumes and high quality. Logic says that you should go for volume if you want a sustainable business, but Dassault has proved itself able to go against that model time a er time. It will be interesting to see if the new leadership is as enthusiastic about bringing new models forward following the passing of Serge Dassault earlier this year. Is the passion still there? Will the new leadership be able to give the market enough con dence
that a lower scale of production can still create very stable pricing?
In today’s tight market what is very clear is that Falcons are holding up very well. The Falcon 2000EX is an excellent example. There is virtually no supply. We have been engaged to purchase one for a US client and we are competing with five other very experienced US corporate buyers, all with virtually the same acquisition requirements.
Q: What kind of pricing are you seeing on the Falcons?
JF: As an example, a 2008 model EX, which was delivered new at roughly $28 million is still making every bit of $12 million and perhaps more. So you are looking at just over a 50% depreciation rate for a 10 year old aircraft. That compares very well against ten-year-old Gulfstreams and Bombardier Globals. In my view, although Dassault argues this is because
their aircraft is inherently better, it really comes down to supply and demand. Tight supply causes prices to stay stable.
Q: So how healthy is the overall market right now?
JF: When we look at the health of the aviation sector in general and the pre-owned market in particular, we generally talk about the percentage of the overall eet that is available for sale at any point in time. Typically, the industry has always embraced 7-10% as the normalized, ‘healthy’ zone for the size of the pre-owned eet up for sale. However, we think that a better indication of the market’s overall health is the pace of turnover of that supply. We use a ten-month period as the yardstick for this measure. If the for-sale fleet turns over in 10 months, we take it that the market is very healthy. If it takes 20 months we begin to get concerned. If we are a buyer, we know that there are going to be some great opportunities when the market slows like that.
So, right now, as I began by saying, the market is transitioning over to a seller’s market. ere are still bargains to be had, but every bargain is relative to what is happening around it. Some 40% of our business involves serving as the buyer’s agent in transactions. With the market as tight as it is today, we have to make sure that the buyer is prepared to move rapidly when an opportunity comes up. We help them with our data and analysis, but we impress on them that the very best opportunities will only be on the market for a matter of days or weeks. Setting proper expectations from onset of the engagement remainsparamount to our success with clients.
Q: Finding the best transaction opportunities doubtless needs deep market knowledge?
JF: Absolutely. A good part of our analysis goes into understanding the nature of the supply available on the market. Many aircra will not be priced reasonably, or they may have some adverse history of damage or corrosion. Many of the aircra listed on the market today have been on the market for two or three years, which is almost an immediate no-no. ere is no reason why an aircra in good condition takes that long to sell, unless the owner simply has unreasonable price expectations. However, even aircra with an adverse story or that need some modernization are sellable, if the seller has been properly guided about the pricing expectations of the market with respect to their aircra .
This article was originally published in the August 2018 issue of Business Aviation Magazine.
Upwards at Last? Brian Proctor looks forward to firmer markets. see more
NAFA member, Brian Proctor, President and CEO of Mente Group, looks forward to firmer markets.
AH: How was 2017 for Mente Group and what are your expectations for the year ahead?
BP: That’s a big question! In 2017, last year in February at CJI, we did not know it yet, but the market had already started turning. I think we are now well past the bottom. For example, in terms of units, we see that in the G550 pre-owned market, twelve months ago there were 29 aircraft for sale. As we sit here today at the end of January, there are just 16 pre-owned G550s available for sale. In the Challenger 300 market there were 39 aircraft available, today there are 22. So, we have seen a massive amount of tightening in the pre-owned category. We still haven’t seen a corresponding price increase across the board, though some models are now increasing.
AH: So the falling price of pre-owned aircraft is slowing?
BP: It has flattened, and I believe that the next iteration of aircraft coming onto the pre-owned market will be at a slight premium to today’s asking price. Our estimate is that some time during the third quarter of 2018 we are going to see price increases, assuming that nothing happens to upset the market – no “game changers”!
AH: So, we could be looking at a very fortunate conjunction, with new models coming onto the market from the OEMs at the same time as the pre-owned market is shrinking. That should be good for new purchases since there will be fewer, really attractive, pre-owned alternatives.
BP: The OEMs are probably in a very fortunate position, because the timing of what is happening in the pre-owned market will help them with their new models. However, with most of the new model entrants, the OEMs’ order books have not been as successful so far, as they would have hoped. That said, we are already seeing some people start to shift to new aircraft and that will be great for the OEMs. This is anecdotal, but it is illustrative. We have a client right now who contacted us about buying a pre-owned G280 and that market has just two aircraft available in the world and neither suits his criteria. So, we have shifted to a new search looking at new Challenger 300s and G280s. This is a clear instance of where the OEMs are benefiting from the lack of inventory in the pre-owned market. We are helping him through the comparatives between new and pre-owned. He was looking around the $16 - $17 million ballpark and now that we are a new buyer, we will be somewhere in the $19 - $20 million mark. With that, his out of pocket will be greater, but, with new tax laws in the US, he
should be net-neutral.
AH: What do you think is driving this shift in the market?
BP: I believe there are two components to this. The tax changes in the US are creating a significant amount of free cash flow, and this has happened at a stroke of the pen – plus a lot of lobbying! The President is definitely unlocking things. We are already seeing the implications in the market of more cash being available. And in Europe, we can’t ignore what is going on with the dollar relative to the euro. A $20 million dollar airplane today is 15% cheaper for a European buyer than it was a year ago. Which is nice, obviously. Now there is typically a lag between a price drop and sales. We have done a lot of statistical studies which graph the dollar’s value against a basket of world currencies, versus sales, and the correlation between sales volumes increasing and significant falls in the dollar value are about 80%, which is very strong. As the dollar weakens relative to this basket of currencies, over a period of time we see an influx of new buyers coming in. We are looking to trade that relationship right now. My guess is that around the third quarter of this year, as I said earlier, you will see sales picking up.
AH: You must be loving this, because now, for the first time in a long while, you can say to a prospective buyer, don’t dawdle, the price will go up while you’re dithering.
BP: My first slide in my CJI presentation says: “There has never been a better time to buy”. It is going to get much more expensive, and part of that will be driven by what happens to the dollar. If it drifts to 1.30 euros to the dollar from the current 1.23 euros, that will make the aircraft 10% less expensive for a European buyer. So again, this makes now a great time to buy if you are in Europe. Shifting out of fractional or charter into pre-owned or new today makes a lot more financial sense than it has for a decade.
AH: Is there a rule of thumb for how much disposable net worth you should have in order to buy a jet at a certain price. For example, do you look for someone to have five or ten times the value of the aircraft available to them either as cash or credit?
BP: What makes our firm different is that we do a lot more advisory work than most brokers. So our consulting practice will be engaged to do a feasibility study or a fleet planning study, and during that process we lay out the cost of ownership versus fractional, versus jet cards, versus charter. Very seldom do we ask, what does your cash flow look like, or how much are you worth? The decision is theirs to make when they have all the facts. The thing is, these decisions are very personal. I have a client who is worth more than $10 billion and he refuses to buy an aircraft. I have another client whose net worth is probably under $50 million and he is looking for a Citation to buy. People make value judgments and it is impossible to call. I don’t tell people how to spend their money. We simply frame for them what it is going to cost and then let them make the decision. If I get a sense though that someone is overreaching, going for too big a stretch, I will recommend charter for a few years more. Don’t overspend yourself on an aircraft. Let your business grow a bit more. As my grandmother used to say, “don’t ever buy something that will change your life if you lose it!”
This article was originally published in Business Aviation Magazine, Spring 2018. p. 14.
Jetcraft Releases Fourth Annual 10-Year Business Aviation Market Forecast see more
NAFA member, Jetcraft, has released the findings from its fourth annual 10-year business aviation market forecast, building upon the 2017 prediction of a new business cycle of steady, healthy growth and expanding revenues.
Jetcraft, the global leader in business aircraft sales and acquisitions, is today releasing its fourth annual 10-year business aviation market forecast.
The annual market forecast reaffirms that steady growth in the private jet industry is set to continue, with predictions of 8,736 unit deliveries over the next 10 years, representing $271bn in revenues (based on 2018 pricing). North America will once again take the lead, accounting for 60% (5,241) of predicted new unit deliveries over the forecast period, with Europe expecting 18% (1,572), and Asia-Pacific 13% (1,136).
Jahid Fazal-Karim, Owner and Chairman of the Board at Jetcraft, says: “2018 has been a real turning point for business aviation, as we have now successfully navigated through our industry’s most difficult period. This year’s forecast predicts the continuation of our current business cycle of steady and healthy growth, driven by an increase in wealth creation and the demand for larger and more expensive aircraft.”
The increase in wealth creation over the past decade has spurred growth in family offices that are now offering a wide variety of specialized services, including business aviation. Together with the increase in block charter and fractional programs, this is exposing more UHNWIs to the industry than ever before.
However, despite continued economic growth, Fortune 500 companies have yet to return to historical aircraft transaction levels, due to maintaining a focus on other financial priorities, such as share buybacks and paying down debt. This customer segment is unlikely to restart aircraft purchasing programs until well into the cycle.
The forecast predicts that the large jet category, comprising super large, ultra long range and converted airline segments, will constitute 32% of total units (2,778) and 64% of total revenue over the next decade. All new aircraft model programs, both announced and projected, during the forecast period are exclusively widebodies.
Fazal-Karim adds: “Predicted unit deliveries in the large jet category account for a huge proportion of total revenues in the industry, demonstrating the trend towards larger, long range aircraft to support today’s global business needs.”
While the industry is set to embark on a period of substantial growth, its resilience during the challenges of the previous business cycle has prepared it well for expansion.
Fazal-Karim concludes: “We’re confident that the lessons we’ve learned over the past decade will ensure sustainable growth for business aviation in the years to come. Ours is an enduring industry, and one with a buoyant future ahead.”
Jetcraft’s full 2018 10-year Business Aviation Market Forecast is available to download here. Report graphs available for publication on request.
This market report was originally published by Jetcraft on October 10, 2018.