aviation

  • NAFA Administrator posted an article
    Everything You Need to Know About Aircraft Pre-Purchase Inspections see more

    NAFA member, Thomas W. Mitchell, Executive Vice President of Essex Aviation, discusses aircraft pre-purchase inspections and what you need to know.

    An aircraft pre-buy inspection refers to the process by which a qualified entity or inspector examines an aircraft during a potential sale or transaction. During this process, the inspector aims to identify any preexisting damage, potential maintenance issues, Airworthiness Directives, and so on in order to protect the buyer’s interests.

    The Importance of an Aircraft Pre-Buy Inspection

    Purchasing private aircraft is an expensive investment, even when the asset in question is in perfect working order. Minor issues with an aircraft can incur major expenses, so it’s in a buyer’s best interest to conduct a pre-purchase inspection as part of your acquisition process.

    The fact of the matter is that it’s not unusual for the current owner to believe that their aircraft is in pristine condition, especially if they’ve recently invested in upgrades to the aircraft or have files of expensive maintenance receipts to show for it. Even with all the effort and support provided by the current owner, certain items or areas of the aircraft can only be sufficiently reviewed during an aircraft pre-buy inspection.

    Therefore, it’s wise for a buyer to request an aircraft pre-purchase inspection, rather than find out after the fact that there’s an issue with the aircraft. Depending on the severity of the issue (or issues) identified during the inspection, the buyer may elect to negotiate with the current owner to lower the purchase price or to cover the cost of repairs and or the implications to the aircraft value. Depending upon the structure of the transaction, the buyer could also have the option to reject the aircraft and terminate the transaction.

    Even if money is of no object, an aircraft pre-purchase inspection is a pragmatic move because it often saves the buyer valuable time — time that the aircraft could spend flying rather than sitting in a repair facility. Identifying and addressing potential issues prior to purchase is an excellent way for a buyer to help ensure that they’re able to fly the aircraft worry-free for some time after the purchase is complete.

    A Note on COVID-19

    In light of the COVID-19 pandemic, there has been an increase in sellers pushing for quick sales, often at an attractive discount, on the condition that the buyer limit or bypass entirely the aircraft pre-purchase inspection process. Although, in this scenario, a discounted sale price can be appealing, it often comes with risk of unexpected costs after closing — costs that would have otherwise been identified during an aircraft pre-buy inspection. To that end, COVID-19 should have no influence on buyers when weighing the benefits of and protection afforded by a pre-purchase inspection, even if it increases the overall timeline of the transaction.

    Potential Issues an Aircraft Pre-Purchase Inspection Can Reveal

    To illustrate the importance of an aircraft pre-purchase inspection, let’s look at some of the possible issues that could come to light during the inspection process:

    • Although inoperative cabin systems — such as cabin entertainment, window shade controls, and galley equipment — might appear to be minor, they are actually certified as systems that need to function properly in order to meet delivery conditions. Costs can increase exponentially if replacement parts or components for that system are obsolete or difficult to source. If discovered during the aircraft pre-buy inspection, this issue would fall upon the seller to correct.
    • Aircraft are designed under strict certification. During the aircraft pre-buy inspection process, it’s not unusual to discover that certain refurbishments or upgrades made to the aircraft were not properly certified or approved — an issue that can take a long and costly process to rectify. If identified, this issue would fall under the seller’s purview.
    • Any aircraft that has been repaired or modified has an extensive list of required documents, including instructions for continued airworthiness. During the inspection process, it is not uncommon for an inspector to find that these key regulatory documents have either been ignored or are missing completely.
    • An aircraft that was subject to damage and subsequently repaired might now require ongoing inspections that are out-of-phase with its normal scheduled inspections. This issue could cause a new owner to experience unexpected downtime and costs.
    • The type of inspection program for aircraft can vary based on its current operator and utilization. In cases of very high or very low utilization, there is a necessary process to transition the aircraft back to the normal manufacturer’s inspection program — a process that is costly, and that should come at the seller’s expense.

    Why You Really Need a Pre-Purchase Inspection

    Some buyers make the mistake of assuming that, since the aircraft recently underwent a major inspection, there’s no need for an aircraft pre-buy inspection. Although it’s true that a major inspection might turn up some useful information about the aircraft, that inspection is only a snapshot of the aircraft’s current condition based on a predetermined checklist. Aircraft pre-purchase inspections are uniquely designed to specifically examine and target the areas of greatest concern and have been proven to reveal trouble spots within an aircraft model that are most at risk for a buyer.

    Another common misconception is that an aircraft pre-buy inspection report is unnecessary for an aircraft that’s only a few years old. Newer aircraft models naturally command a higher selling price than older models, which means any issues discovered with a newer model could have a greater monetary impact on the presumed and assigned value of the aircraft than with an older one. The fact is that even after just a few years of operation, an aircraft’s environment and operating history can be detrimental to its presumed condition and market value. Furthermore, if the aircraft is still under warranty, any issues discovered during the aircraft pre-purchase inspection may still be covered under warranty programs.

    Finally, buyers often assume that an aircraft pre-buy inspection is unnecessary when the aircraft in question has a strong maintenance pedigree — for example, if the aircraft were previously owned and operated by a Fortune 100 company. Although a corporation’s assumed reputation for high standards would suggest that the aircraft was kept in mint condition, this isn’t always the case. Some corporations may have limited their aviation department budgets, which could result in the deferral of planned upgrades, refurbishments, and, in some cases, even improvements by way of recommended service bulletins.

    For all of the reasons outlined here and in the previous section, the importance of aircraft pre-purchase inspection services really can’t be overstated.

    Aircraft Pre-Purchase Inspection Tips

    • Set realistic expectations. When purchasing a pre-owned aircraft, there are bound to be some slight imperfections, many of which the buyer can easily fix on their own. For example, cosmetic issues could be the result of normal wear and tear and have no bearing on safety or airworthiness, therefore, the seller might not be required to repair these issues in order to meet the defined delivery conditions. In this instance, it would make more sense for the buyer to make those minor improvements on their own.

    In any case, it’s important that buyers not go into the process fixated on the idea of the “perfect plane,” and that they decide well in advance which imperfections they’re willing to accept and handle on their own. That said, it would be wise for a buyer to look for an advisor who can provide guidance on whether a minor issue is truly minor, whether it affects how the aircraft is certified, and whether that inoperative item might actually affect the value or safety of the aircraft.

    • Work with a qualified source. Buyers should always insist on using their own, third-party resource inspector rather than allow the maintenance provider who currently services the aircraft to perform the aircraft pre-purchase inspection. This is because, having history with the aircraft, the current maintenance provider might be biased, and therefore possibly less apt or inclined to catch things during their evaluation. Buyers should look for an inspector who specializes in the particular aircraft model that they intend to buy — for example, small or especially vintage aircraft would require a different skillset and experience than a newer corporate jet or helicopter.

    It’s recommended that any prospective buyer partner with a private aviation consultant to exclusively represent them, as opposed to someone who represents both the buyer and the seller. The latter might be inclined to recommend a pre-buy geared to incur the least friction for completing the transaction. A private aviation consultant can help the buyer steer clear of such risks by leveraging their knowledge of industry options to identify which resources are most appropriate and why.

    • Look closely at the history of the aircraft. An aircraft’s maintenance logbook or other permanent records can reveal unseen issues. This is another instance in which it’s beneficial for a buyer to work with a private aviation consultant because an experienced consultant will know exactly which red flags to look for. At Essex Aviation, any time we work with a client to review an aircraft’s logbooks, some flags we look for are:
      1. Gaps in time that indicate that the aircraft sat unused for a period of time and was perhaps not properly preserved.
      2. Periods of time in which the aircraft recorded significant flight time, but with no corresponding maintenance records.
      3. Records that support the traceability of replacement parts or components; these certifications should be readily available and complete.
    • Review all applicable Airworthiness Directives. Airworthiness Directives (AD) are “legally enforceable regulations issued by the FAA in accordance with 14 CFR Part 39 to correct an unsafe condition in a product.” Similar to a recall notice for an automobile, an AD denotes a safety matter with the aircraft that, if the seller fails to comply with, would be cause within the Purchase Agreement for the buyer to reject the aircraft.
    • Perform a test flight. Certain issues will only come to light when the aircraft is in use, so it’s best to request test flights at the beginning of the aircraft pre-buy inspection, when the aircraft is returned to service, and prior to the final closing.
    • Ask the right questions. Buyers should be actively involved in the inspection process and should ask the following questions:

    – Where has the aircraft been maintained?

    – In what geographical environment has the aircraft been based?

    – Has the aircraft been hangared consistently?

    – Has the aircraft sustained any damage?

    – If the aircraft was out of use for a period of time, was it properly preserved?

    These questions not only enable buyers to stay informed throughout the process, but also to avoid any potential financial implications.

    • Don’t rush the process. Depending on the size of the aircraft, a pre-buy inspection can range from 1–2 days for a small piston aircraft to 2–3 weeks for a mid-size corporate jet. Note that these timeline estimates are only for the completion of the inspection and delivery of the final aircraft pre-buy inspection report; additional time will be required in order to rectify approved discrepancies. Therefore, it’s recommended that buyers budget enough time in their schedule prior to completing the transaction for a thorough pre-buy evaluation — after all, the more comprehensive the inspection, the better the outcome for the buyer.

    This article was originally published by Essex Aviation on May 28, 2020.

     

  • NAFA Administrator posted an article
    With Rates Still Falling, Am I Better Off With a Floating Rate? see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, discusses adjustable rates and your aircraft purchase. 

    The classic answer is, "It depends." The answer lies in what your time horizon is for holding onto the aircraft you are buying.

    Most lenders offering adjustable rates will have an interest rate floor. And for most of them, that floor is only slight lower than where rates are currently. Remember, lenders have floors because they incur real costs in lending money and also seen rates go negative. Interest rate floors allow them to cover their costs and remain solvent. Therefore, while anyone with an adjustable rate could benefit if rates drop slightly and/or stay flat, borrowers with longer-term hold time horizon risk paying more when interest rates start eventually going back up.

    That said, the latest economic projections indicate the current economic situation we find ourselves in is likely to last between 18 months and two years. Given that the average hold time is somewhere around four years, that means there are a number of people who are holding their aircraft for only a couple of years or less. So, if your time horizon to own an aircraft is less than a couple of years, then yes, absolutely, this is a great time to look at floating rates.

    If your hold time is greater than two to three years, you risk becoming exposed to interest rates floating higher when the economy starts picking up steam. It's not unlikely that the Fed may increase rates in order to stave off inflation. That'll increase the cost of your loan.

    This article was originally published by AOPA Finance on April 30, 2020.

  • NAFA Administrator posted an article
    Sounding Board: Five Minutes With Shawn Vick, Global Jet Capital Chairman, CEO see more

    NAFA member, Shawn Vick, Chairman and CEO of Global Jet Capital, discusses business aviation.

    Shawn Vick is the chairman and CEO of Global Jet Capital, which helps corporations and individuals with the leasing and financing of new and pre- owned business jets. Vick has held leadership positions at British Aerospace, Gulfstream Aerospace, Bombardier, Landmark Aviation and Hawker Beechcraft. He is also a partner and member of the investment committee for AE Industrial Partners, a private equity firm. And he is a private pilot.

    Q. At the National Business Aviation Association Convention & Exhibition in October, Global Jet Capital had been having a banner year with an increase in the leasing and financing of business aircraft. Things changed suddenly with the COVID-19 pandemic. What is happening in the pre-owned market today?

    A. Leading up to March the pre-owned market–frankly the entire transaction market, new or pre-owned–was performing well when compared to the same period last year. Activity began to slow late in the first quarter as the virus took hold and demanded everyone’s attention. I think the beginning of this story is now well understood. Global reaction to the virus resulted in a fundamental shutdown of the world’s economies and business aviation was no different. As we sit here today, in the middle of May, flight activity is beginning to pick up–which is a very good sign. Transaction activity remains slow but has not ceased, and we feel there are a lot of owners and operators sitting tight right now waiting to see how this situation evolves. Despite the uncertainty, one thing is very clear–business aviation in the context of a global pandemic will be the most desired form of transportation as the world begins to get back to work.

    Q. What is your focus now?

    A. Since the beginning of this crisis, we’ve been primarily focused on the health and well-being of our employees. This began in February with the shutdown of our Hong Kong office and a full review of our disaster recovery plan, which includes a chapter on managing the business remotely. Since that time our Zurich, Danbury, [Connecticut]; Boca Raton, [Florida]; and Mexico City offices closed, and we have all been working remotely. While it’s been far from ideal, with the support of our video conferencing platform it’s been surprisingly efficient. We’ve also been using this “pause” in industry activity to focus attention on internal operating efficiency projects, including the transition to a new operating platform and commercial excellence initiatives. With respect to our current portfolio, we’ve naturally been paying very close attention and I’m happy to report the portfolio is performing very well. From a new business perspective, we entered 2020 with a very healthy backlog fueled by a new predelivery payment financing product we launched last year. As the crisis took hold, we managed to close several deals that were in late stages, and we are currently working with a number of clients on lease renewals and extensions. Moving forward, we are now beginning to explore reopening offices and getting our employees back to work in the safest way possible and in line with local government guidelines.

    Q. What do you see for business aviation in the near term?

    A. I think the answer to that question lies in the duration and severity of the financial disruption, and I’m not sure anyone has a crystal ball right now. But if the disruption is limited and we are heading in the right direction in the July/August time frame, with the economy beginning to rebound and the unemployment rate falling, I think that bodes well for our industry. These aircraft are as precious as they’ve ever been, particularly when one’s safety and security are a priority and you factor in social distancing. I think the bottom line is quite simple: If you can afford these assets, you’re going to keep these assets–and if you don’t have one and you can afford one, you’re likely going to acquire one.

    Q. What about aircraft values?

    A. I really think it’s too soon to say, but there is data we can look at for guidance, likely the most important of which comes from the OEM production environment. Most industry analysts are predicting a drop in new deliveries in the 30% range, meaning roughly 450 deliveries this year versus the original projections that were well above 700. And, it’s important to note, these are supply side forecasts at this stage–not demand side. As difficult as this is for the entire ecosystem, it may well act as a guardrail against significant devaluation. Also, we are not seeing a rash of distressed sales or a spike in new aircraft being listed for sale. In fact, these numbers have been coming down in recent weeks. Our sense is that owners and operators understand the value of these assets in this new context and are sitting tight as the situation unfolds.

    Q. How does this downturn compare to the recession of 2008 and 2009?

    A. It’s interesting that so much of the speculation is based on comparisons with 2008, when there is not much correlation. In 2008 the cause of the economic disruption was widespread failures in the banking systems that put the capital markets in a state of seizure. Right now, we’re dealing with the impact of a global pandemic. In comparison to 2008, government reaction and intervention has been swift and expansive. From an industry perspective, OEM production has been curtailed in a disciplined fashion to protect people–but the by-product is protection of backlogs and ultimately aircraft values. This is clearly a different environment.

    Q. What about the health of the business aircraft manufacturers?

    A. If you look at the impact of the Great Recession, several of the manufacturers got caught between a rock and a hard place with an almost instantaneous shutdown of market demand coupled with long supply chain agreements that were difficult to contractually modify. They really had no choice but to drive new product into a down market. Today, as a result of those lessons learned, the OEMs and the entire supply chain is far more agile. At this stage, this is a supply side problem resulting from shutdowns and furloughs across the entire ecosystem designed to stall the spread of the pandemic. From my perspective, everybody went into this situation together and everybody’s going to come out of it together.

    Q. What do you foresee as the split in demand from the North American and international markets?

    A. During the buildup leading to the Great Recession, the market shifted from being heavily dominated by the U.S. to a 60-40% international versus domestic split. Everyone thought that was going to be the new normal as the BRIC countries [Brazil, Russia, India and China] flourished. But as we now know, due to a variety of internal and external factors, with exception to China, the BRICs have not dominated the global economy as once predicted. The result, in term of business aircraft, is that over the past decade we’ve seen a dramatic shift back to U.S. dominance of this market. This dominance will likely ebb and flow to some extent over time, but there’s not a lot of data to support a major shift back to international dominance.

    Q. Are there any concerns on the international front?

    A. The sooner we can get through our current trade dispute with our largest trading partner and sit down at the table and have productive, meaningful and material discussions rather than throwing sticks and stones at each other and turning this pandemic into a political discussion, I think the better off we’ll all be. I also believe that will ease tensions, creating a more positive environment for the global cooperation that will be required to get the world’s economy working gain. I’m off my soapbox.

    Q. How has aircraft financing changed or not changed so far?

    A. Unlike the Great Recession, where the global banking system suffered from a near-complete lack of liquidity and the capital markets seized up, the banking system right now is in good shape. Liquidity is sound and capital is available. Despite this, lenders are being very cautious for the time being. This is completely in line with the overall industry “pause” that we are all experiencing. The aircraft financing industry will continue to monitor the overall economic environment and the health of the business jet market in order to better understand the impact this disruption is having on demand and, more importantly, aircraft values. Let’s face it: Finance and uncertainty do not coexist very well, and you could argue that we are currently at a point of maximum uncertainty. As the impact of the pandemic becomes clearer and key market indicators related to supply and demand settle into a new normal, the aircraft financing industry will follow suit.

    This article was originally published by Molly McMillin of Aviation Week on May 18, 2020.

  • NAFA Administrator posted an article
    Used Aircraft Maintenance Analysis – May 2020 see more

    NAFA member, Tony Kioussis, President of Asset Insight, shares the latest Used Aircraft Maintenance Analysis for May 2020.  

    The number of aircraft transactions continued to be fewer than normal in May, primarily owing to uncertainty over the COVID-19 pandemic. Assets listed for sale continued to increase at a slower pace, but which models were impacted most? 

    During May 2020, Asset Insight’s tracked fleet of 134 fixed-wing models and 2,324 aircraft listed for sale equated to a 0.7% inventory fleet increase over April, and a year-to-date (YTD) increase of 6.5%.

    While the fleet remained within the ‘Excellent’ range, posting a figure of 5.301 in May, the Quality Rating was lower than in April (5.311) on Asset Insight’s scale of -2.5 to 10.

    A more detailed examination of May’s inventory fleet mix revealed fewer near-term maintenance events, but individual event costs are anticipated to run slightly above the 12-month average.

    May’s Aircraft Value Trends

    Average Ask Price for the tracked fleet decreased another 4.4%, following April’s 1.6% reduction, with May’s pricing approximately half-way between the 12-month average and high figures. All four groups contributed to the decrease:

    • Large Jets: Ask Prices fell 6.4%, leaving them at their 12-month average.
    • Medium Jets: Ask Prices decreased 3.9%, virtually equidistant between the group’s 12-month high and average figures.
    • Small Jets: Ask Prices decreased 1.3% to only slightly lower than their 12-month high posted in April.
    • Turboprops: Lost 2.3%, but prices remained above the group’s 12-month average.

    May’s Fleet for Sale Trends

    The tracked fleet’s total number of aircraft listed for sale increased 0.7% in May (5.8% YTD). That’s a month-over-month increase of 16 units in May, and 142 units YTD.

    • Large Jet Inventory: Increased 1.0% (five units), and 13.5% YTD (+58 units).
    • Medium Jet Inventory: Rose another 0.3% (two units) for May, and 1.1% YTD (seven units).
    • Small Jet Inventory: Decreased 0.3% (two units) in May, but the total YTD increase is 9.0% (+58 units).
    • Turboprop Inventory: Increased another 2.4% (+11 units) during May, and is now up 4.2% (+19 units), YTD.

    May’s Maintenance Exposure Trends

    Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) increased (worsened) 0.9% to $1.39m, meaning upcoming maintenance for the current fleet mix would be a bit more expensive to complete.

    The figure was slightly worse than the $1.385m 12-month average, and individual results were as follows:

    • Large Jets: Worsened (increased) 1.7% for the month, but remained better than their 12-month average.
    • Medium Jets: Worsened (increased) by 0.6%, but also managed to maintain a better (lower) figure than their 12-month average.
    • Small Jets: Worsened (increased) 1.1% to post the group’s second consecutive 12-month worst (highest) figure.
    • Turboprops: Improved (decreased) 1.8% to a Maintenance Exposure only slightly worse than the group’s lowest (best) 12-month figure.

    May’s ETP Ratio Trend

    The fleet’s ETP Ratio was unchanged during May 2020 at 69.8%, a figure half-way between the 12-month high and the 12-month average Ratio.

    The ETP Ratio calculates an aircraft's Maintenance Exposure as it relates to the Ask Price. This is achieved by dividing an aircraft's Maintenance Exposure (the financial liability accrued with respect to future scheduled maintenance events) by the aircraft's Ask Price.

    As the ETP Ratio decreases, the asset's value increases (in relation to the aircraft's price). ‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s Days on the Market (DoM) increases, in many cases by more than 30%.

    During Q1 2020, aircraft whose ETP Ratio was 40% or greater were listed for sale nearly 68% longer than assets with an ETP Ratio below 40% (245 days versus 413 days). How did each group fare during May?

    • Turboprops: At 43.5%, the group maintained the top (best) spot by posting the lowest ETP Ratio – a figure only slightly worse than April’s 43.2%.
    • Large Jets: Worsened from April’s 64.4% to 66.0% in May, but remained in second place.
    • Medium Jets: Remained in third position by posting a second consecutive 12-month low (best) figure of 71.2%, following April’s 72.3%.
    • Small Jets: Deteriorated from April’s 87.8% to 88.5%, slightly increasing the selling challenge for most assets.

    Excluding models whose ETP Ratio was over 200% during one of the previous two months (considered outliers), following is a breakdown of the business jet and turboprop models that fared the best and worst during May 2020.

    Read the full report here.

    This article was originally published by AvBuyer on June 19, 2020.

     

  • NAFA Administrator posted an article
    Webinar: Ready to Buy & Fly? see more

    Educational Webinar Covers Best Practices & Acquisition Strategies Teaming Strategies

    Are you thinking about purchasing an aircraft? It can be an overwhelming experience, especially if you’re a first-time buyer, but there are experienced industry professionals who are ready to help.

    In a free educational webinar on May 28 2020, Essex Aviation President and CEO Lee Rohde joined GKG Law Principal Chris Younger to talk about everything you need to know when it comes to purchasing an aircraft.

    The webinar, Ready to Buy & Fly? Best Practices & Teaming Strategies for a Successful Aircraft Acquisition, includes resources, tips, and information on the following topics:

    • Steps to a successful aircraft transaction (including a week-by-week timeline!)
    • The necessary parties you should include when it comes to purchasing a plane, including:
      • CFO, CEO, and the COO
      • Corporate general counsel
      • An aircraft technical consultant
      • Commercial lender
      • And many more
    • Key closing checklist items
    • Potential post-closing issues
    • Net operating loss (NOL) carrybacks and The Coronavirus Aid, Relief, and Economic Security (CARES) Act

    Essex Aviation handles everything from new and pre-owned aircraft acquisitions to private jet charter counseling and membership. GKG Law works with purchase and sale transactions, aircraft ownership, federal and state tax planning, aircraft ownership trusts, and more.

    To find out more about purchasing an aircraft or to ask our industry experts any questions, contact Essex Aviation today.

    View Webinar Here

    This webinar hosted by Essex Aviation and GKG Law originally aired on May 28, 2020.

     

  • NAFA Administrator posted an article
    GAMA Publishes First Quarter 2020 Aircraft Shipments and Billings Report see more

    WASHINGTON, D.C. – The General Aviation Manufacturers Association (GAMA) released its report of general aviation aircraft shipments and billings for the first quarter of 2020. Piston, turboprop, business jet and rotorcraft deliveries declined across all segments during the first quarter of 2020 as compared to the first quarter of 2019.

    “While the year started off strong, the health and safety restrictions put in place to respond to the COVID-19 pandemic began to significantly impact global operations, supply chains and deliveries towards the end of the first quarter. Companies rapidly implemented a wide range of health protocols in accordance with local, regional and national level guidance to keep production, maintenance and training activity churning. Many companies then supplemented ongoing activities with the production and transport of health care materials needed by front line health care workers and communities across the globe. These actions serve as a testament to the adaptability and resilience of our industry’s incredible workforce who will play such a pivotal role in our recovery process,” said GAMA President and CEO Pete Bunce.

    The first quarter of 2020, when compared to the first quarter of 2019, saw piston airplane deliveries decline 11.7%, with 219 units; turboprop airplane deliveries decline 41.8%, with 71 units; and business jet deliveries decline 19.1%, with 114 units. The value of airplane deliveries through the first quarter of 2020 was $3.4 billion, a decline of approximately 21.3%.

    Turbine helicopter deliveries for the first quarter of 2020, when compared to the first quarter of 2019, saw a decline of 18.3%, with 85 units; and piston helicopter deliveries saw a decline of 43.9%, with 37 units.

    GAMA’s complete 2020 first quarter report can be found at gama.aero.

    This release was originally published by GAMA on May 27, 2020.

     

  • NAFA Administrator posted an article
    NAFA's 49th Annual Business Meeting Webinar see more

    In the absence of NAFA's 49th Annual Conference, the Board of Directors invited the membership to attend our annual business meeting online on May 29, 2020.  Our Board Members discussed the following topics:

     

    State of the Association – An overview of NAFA past, present and planned initiatives.  How can a member association with a reputation for networking opportunities survive in a virtual world?  What value does NAFA bring to the membership during the COVID-19 crisis?  

     James Blessing, President 

    Financial Report – What is the state of NAFA's finances?  Is the Association healthy?  Will NAFA suffer a loss in 2020?  What can be expected going forward?  

    Tobias Kleitman, Treasurer

     

    Election of Directors – Wait, what?  Is the Association's Board active in the midst of a global pandemic?  Yes, NAFA has held elections as usual!  New Members have joined the Board, replacing members whose terms have expired.  Join us in welcoming our new Board of Directors and thanking outgoing Members that dedicated much time and energy to the Association.    

    David Warner, General Counsel

     

     

  • NAFA Administrator posted an article
    AMSTAT releases interim business aircraft resale market data showing the short‐term impact of COVID‐ see more

    Tinton Falls, NJ – June 17, 2020: According to AMSTAT and partner VANGAS Aviation Services, the leader in business aviation analytics the average and median values of pre‐owned business aircraft have fallen between 10% and 15% so far during the COVID‐19 crisis, with some individual make model markets seeing decreases in excess of 20%. The update shows these declines in value in all segments since early April with some evidence of a recent slowing of this decline in some market segments.

    The report also shows that inventories have increased since mid‐March, but the increase is a continuation of a pre‐existing trend. The inventory of Business Jets was up 1.6% between January and March and then up 4.2% since mid‐March. The inventory of Business Turboprops was largely unchanged between January and March and up 2.8% from March to May. Inventory levels remain below 2016 levels and significantly below 2009 levels.

    Further, the report shows that resale retail transactions for Business Jets were ahead of 2019 levels in January and February but were down 23% in March YoY and down 40% in April YoY. Resale retail transactions for Turboprops were at or ahead of 2019 levels in January and February but were down 27% in March YoY and down 40% in April YoY.

    Andrew Young, AMSTAT General Manager said: “It remains to be seen whether the trends of the last few months will continue long‐term. However, whether the result of a COVID‐19 driven reduction in travel or the logistical issues surrounding getting deals done under quarantine, or both, there was a year‐over‐year reduction in resale transactions in March and April this year. Further, the analytics clearly show a reduction in estimated aircraft values”. He added, “what is also interesting is that inventories, while up, are not indicating a panic to sell and levels remain below recent highs seen in 2017. If inventory levels remain relatively low and interest in business aviation materializes as an alternative to commercial travel in parallel with an economic recovery, then we might expect to see a significant uptick in transaction activity leading to a recovery in aircraft values in the coming months”.

    For a full copy of the report go to:

    https://www.amstatcorp.com/pages/PressReleases/AMSTAT_Resale_Market_Update_June2020.pdf.

    About the AMSTAT Aircraft Valuation Tool

    The AMSTAT Aircraft Valuation Tool (AVT) is fully integrated into the AMSTAT Premier service and calculates objective statistically generated serial number specific estimated values for business aircraft in seconds.

    About AMSTAT, Inc.

    AMSTAT is the leading provider of market research information and services to the corporate aviation industry. Founded in 1982, and based in Tinton Falls, NJ, AMSTAT introduced the concept of providing researched information to corporate aviation professionals. AMSTAT’s mission is to provide timely, accurate, and objective market information to its customers. AMSTAT products and services provide aviation market and statistical information that generates revenue and delivers competitive advantage to brokers/dealers, finance companies, fractional providers, and suppliers of aircraft parts and services.

    Information: Andrew Young, AMSTAT GM, 732‐530‐6400 x147, andrew@amstatcorp.com

  • NAFA Administrator posted an article
    The GAO Report Affects Dealers Too see more

    NAFA member, Debbie Mercer-Erwin, President of Wright Brothers Aircraft Title, discusses the latest report from the Government Accountability Office (GAO) regarding the FAA Registry practices.

    The much-awaited report from the Government Accountability Office (GAO) regarding Federal Aviation Administration (FAA) Registry practices was released in March, and the title is telling: “FAA Needs to Better Prevent, Detect, and Respond to Fraud and Abuse Risks in Aircraft Registration”.

    The FAA is responsible for issuing aircraft registration to individuals and entities meeting certain requirements: US citizenship, permanent/physical address, completed application, and bill of sale, among others. 

    They are also permitted to issue dealer certificates, or licenses, in support of aviation commerce – the same requirements apply, with the addition of substantial engagement in manufacturing or selling of aircraft.

    The main purpose is to allow manufacturers and dealers to conduct test flights for prospective buyers. To this effect, dealers can obtain more than one certificate, as well as use a certificate for any aircraft they own. The license is also generally valid for a dealer’s agent, employee, or prospective buyer.

    In 2018, approximately 71,000 registration applications and nearly 10,000 dealer certifications were processed at the FAA. Registering an aircraft for a 3-year period brings a $5 application fee, while a 1-year dealer license is $10 (plus $2 for additional certificates).

    At such a low amount – that in fact hasn’t changed since 1964 – FAA operating costs associated with processing applications aren’t even covered. This has left US taxpayers funding the Registry for decades. 

    Likewise, there has been nothing left over, or even earmarked, to enable the FAA to increase vetting of registrants, which is a top priority in the GAO’s report. Specifically, the report was based on analysis of FAA Registry function and ability to handle fraud and abuse risks in aircraft registrations, including dealer certificates.

    It’s well known that the FAA has generally relied on self-certification of registration applicants’ eligibility, requiring limited personally identifiable information (PII) that typically isn’t verified – the GAO’s report covers this factor in full, saying that the FAA’s focus on the completion of required documents limits their ability “to prevent fraud and abuse in aircraft registrations, which has enabled aircraft-related criminal, national security, or safety risks”.

    The GAO also discovered that the FAA does not routinely consider data from the Office of Foreign Assets Control (OFAC) in the application process – which discounts individuals or entities who are currently under sanctions.

    Similar happens with dealer certificates – the FAA does not verify identity, check for prior violations, or enforce requirements. In fact, FAA regulations do not contain any “enforcement mechanisms to ensure continued dealer eligibility once approved or at the time of renewal”.

    Because of these issues, as the GAO analysis discovered, fraud can occur. In one case, discovered years after the scheme had been enacted, a broker used falsified registration applications and bills of sale (with forged signatures for over 20 aircraft) to acquire $3 million from a bank.

    The broker wanted to save his failing aircraft sales company, and essentially pledged 22 aircraft he didn’t own as collateral to do so. This person was also a licensed dealer who even renewed his certificate while implementing the scheme. Unfortunately, the FAA’s application process didn’t catch the fraud, and resulted in some of the rightful aircraft owners being temporarily grounded.

    What does all of this mean for dealers though? In the end, the GAO made fifteen recommendations to the FAA. While they are all pertinent to the issues GAO discovered, a handful will affect dealers directly.

    To begin, collecting and recording information on individuals and legal entities not traded publicly (including each individual and entity that owns more than 25% of an aircraft), with subsequent PII elements possibly required (see Recommendations 4 & 5).

    Further, Recommendation 6 says the FAA “should verify aircraft registration applicants’ and dealers’ eligibility and information”.

    As stated above, PII elements are currently limited and not verified by the FAA, but with these recommendations, would be verified and possibly increased based on an initial risk assessment – requiring more documentation (and time) to obtain a license, but reducing the risks associated with limited review of ownership information.

    Recommendation 7 is also a huge factor in future dealer certifications, calling for increased registration and dealer fees to cover the cost of collection and verification efforts. 

    The FAA readily agreed to the GAO recommendations, having already begun massive modernization efforts under the Civil Aviation Registry Electronic Services (CARES) Initiative to increase efficiency and security.

    CARES is scheduled for completion by October of 2021 and is widely expected to streamline and automate the aircraft registration process, along with dealer certification, by making FAA records electronically, and publicly, available. 

    The goals: allow submission of electronic applications and forms, improve controls, automate registration processes, and improve online data availability – which will expand FAA’s ability to secure against fraud, and make it easier to perform cross-agency checks. 

    Stemming from the FAA Reauthorization Act of 2018 (check out our highlights), and followed by the Office of the Inspector General (OIG) report on implementing the update, the Registry is well on its way. 

    It is always important, however, to hire a company that knows the ins and outs of the FAA system to avoid errors in closing that could take time and money to correct – and it is especially so now. There are plenty of questions surrounding the accomplishment of all these efforts and recommendations, including: 

    How much ownership information is going to be made public, or government-access only? How much will registration and dealer certification fees increase to appropriately cover operation costs? Will FAA be tasked with more oversight and enforcement, and if so, how much time will that add to the registration process, and closing times? 

    Ultimately, the changes ahead will modernize the FAA’s Registry, helping to bring the aviation industry up to date in technology, efficiency, and security. There is still work to do, but we remain confident that every entity involved in this endeavor will fulfill expectations.  

    The FAA has not officially responded to the GAO’s report, but they have updated their website regarding the CARES Initiative.

    This article was originally published by Wright Brothers Aircraft Title on June 16, 2020.

  • NAFA Administrator posted an article
    Flight Staffing in the Time of Coronavirus see more

    NAFA member, PNC Aviation Finance, shares the latest on flight staffing during the coronavirus crisis.

    The coronavirus has changed the global aviation industry, and is resulting in an upheaval in employment that will re-shape the business.

    Highlights:

    • Effect on Pilot Training is Mixed
    • Business Aviation Positioned Well for Recovery
    • Retirements May Rise
    • Pandemic Increases Business Aviation

    At the beginning of this year, all of aviation was facing a severe pilot shortage, with business aviation competing against commercial aviation to recruit a limited pool of qualified candidates. Now, established pilots face furloughs, or even job losses, as airlines adjust their operations for a long recovery period.

    Impact on Pilot Training

    Before the coronavirus crisis, the industry had invested heavily in promoting aviation careers and education. In February, United Airlines had bought a flight school in Phoenix to support its Aviat pilot recruiting program.[1] The airline had plans to train up to 10,000 new pilots over the next decade. The current instability might discourage some student pilots from completing their careers, and persuade others that aviation is too unstable a field of study.

    Regional pilot Mike Czarnecki told FightGlobal,[1] “I worry more about the next generation, because we will come out of this smaller than before.” His own son is currently training as a pilot.

    But the reality both for Czarnecki and his son is that, in time, aviation will recover. Those specialized skills will still be in demand. The question is how long the recovery will take and which jobs will attract the greatest share of existing pilots and new recruits.

    Recovery May Favor Business Aviation

    It is expected that the recovery for airlines returning to 2019 levels of traffic may take anywhere from 3 to 5 years. During that time, job security and growth prospects in commercial aviation will be in doubt.

    While business aviation has suffered through many of the same disruptions of service as airlines, it may be better poised to recover more quickly as more high net worth individuals opt to acquire aircraft or to fly private charter in future.

    For those pilots who welcome more flexible work schedules, a career working as a pilot in business aviation could be attractive.

    Alerion Aviation, an aviation services company that offers aircraft management, charter, maintenance and FBO services to owners and operators of private jet aircraft, saw an initial retraction in business resulting from the coronavirus pandemic, but has kept its flight staff on the payroll in expectation of a rapid return to service once people can start traveling again.

    “If we furlough our pilots and they went off to do other things, then they might not be available,” says Bob Seidel, CEO of Alerion, and a pilot himself. “Recruiting, hiring and training would take months that would add to the injury that we already suffered from the loss of business.”

    Seidel, who has been active in raising awareness of the pilot shortage, and supporting recruiting of new pilots for the industry through his work with the State University of New York (SUNY), believes that there are still good prospects for future pilots in the long term.

    Effects of Retirement

    For one thing, this latest downturn may persuade more senior pilots to retire. Those who are at the senior level are not going to go through another furlough cycle, he tells us. There may be wave of retirements and early retirements taken because of this latest shock. If pilots aren't flying airplanes by June, then United is going to be accepting retirements. That makes room for people to come up, and we've seen a tremendous interest in aviation careers. SUNY's flight school was struggling to find students and is now full to capacity.

    Aviation journalist Victoria Bryan decided to take her passion for the skies further by pursuing a career as a pilot. Nearly two years ago, she left Germany for New Zealand to study at a local flight school there.

    The crisis has put her dream on hold, but she remains hopeful of completing her training. One positive result from the current crisis, as she points out in an article she wrote about her current flight school experience,[2] is that there may finally be enough retired and furloughed pilots available to adequately staff flight schools.

    “Our school lost instructors to airlines hungry for flight crew and we endured delays to our training. The 18-month timeframe to get qualified was out the window,” Bryan writes.[2] “Ironically, flight schools are now in a better position than in the past few years.

    “With no airlines seeking crew, there are now enough qualified pilots to work as flight instructors to train their cadets. So once lockdown restrictions are lifted in New Zealand, my training should progress faster than previously anticipated.”

    It will be important to keep those students committed to their career as pilots to avoid coming out of the coronavirus recovery with a greater pilot shortage than before the pandemic.

    And that won't be easy, considering the costs of study for cadets, and the slow jobs recovery which will see experienced pilots more likely to get hired before recent graduates.

    Some of those experienced pilots will want to shift from airlines to business aviation, and graduates may welcome opportunities in business aviation too. While airlines offer more regular work-schedules than charter operations, the financial vulnerabilities of the airline industry have been on full display. Airlines may no longer be in a position to offer the same tempting work packages that saw them lure pilots away from business aviation before the pandemic.

    “We lost five people to the airlines last year and three of them have contacted us wanting to come back,” Alerion's Seidel tell us. “And there is a possibility that recovery may be faster for business aviation, as those who have the resources to fly private now choose to do so.”

    Private Flight Considered Essential

    Seidel has seen some signs of a change in the wind that favors private aviation, with some people who might previously have thought private flight a luxury now considering it essential. There may be a greater willingness to abandon commercial air travel in order to avoid crowds at airports and crowded cabins, and to have greater control over travel companions.

    “Last year, at this time, we were working on one acquisition deal. This year, we are working on six. I don't think the industry is up 600%, but our little corner of the business is so active that it tells me something,” Seidel says.

    “Whatever the shape of recovery, pilots will be needed. The key, at least for now, is to be flexible to get through the crisis. People are going to have to remain agile,” he tells us. “They're going to have to be pragmatic, but the opportunity is still there.”

    Let's Talk

    PNC has been a steady source of flexible financing for more than 160 years. Our solutions are uniquely designed to meet the needs of sophisticated corporate aircraft owners - from high net-worth individuals to Fortune 500 companies. Contact Us »

    This article was originally published by PNC Equipment Finance on May 27, 2020.

     

  • NAFA Administrator posted an article
    Adam Meredith, of AOPA Finance, addresses commonly asked questions on aircraft ownership. see more

    NAFA member, Adam Meredith, President of AOPA Finance, addresses commonly asked questions on aircraft ownership during this difficult time.  Purchasing an aircraft can be a challenging process under normal circumstances, but can be even more difficult to navigate during market volatility.

    Question: With the current market volatility, do you find that lenders are tightening or loosening their credit requirements?

    Answer: We have definitely seen some that are tightening credit. Specifically, some lenders are requesting copies of bank/investment statements that are within the last couple of days (vs. 30 days, under regular times). Given stock market volatility this isn’t too surprising. Also, we’ve seen some lenders that are being more cautious lending to individuals with direct financial exposure to COVID-19 (i.e. service industry companies not deemed essential).

    Question: What advice are you giving to members who were currently looking to purchase before all of the shelter in place orders? Should we continue our search or place our search on hold until all of this blows over?

    If you’re personally at high risk (financially or otherwise) to COVID-19, you’d be well advised to pause the purchase process. However, for everyone else, I’d encourage you to keep looking and work with sellers to create a plan for how to push through the closing process. For advice on guidance with shelter in place requirements, reach out to our trusted legal staff if you’re a legal services plan participant. If not, reach out to our Pilot Information Center to get the latest guidance.

    This article was originally published by AOPA Finance on April 23, 2020.

  • NAFA Administrator posted an article
    Aircraft Insurance Considerations in a Tightening Insurance Market see more

    NAFA member, Amanda Applegate, Partner with Aerlex Law Group, discusses aircraft insurance claims in a tightening insurance market.

    The recent uptick in insurance claims in the commercial airline world and in general aviation have caused a tightening of the aviation insurance market. As a result, many of my clients are seeing an increase in insurance premiums, limitations on conditions previously granted, and in some cases are unable to obtain the amount of liability coverage they would like to procure.

    As a result of the price increases, some of my clients have been seeking alternative insurance for their aircraft. However, as with all insurance, not all insurance providers and policies are the same. It is important for owners to identify an aviation insurance broker who can explain the different types of coverage available and the exclusions that may limit that coverage. Recently my client was comparing two policies and focusing on the annual premium instead of what amounts and types of coverage were provided for the annual premium. It turned out that certain amounts of coverage under the liability policies were very different, thus reinforcing the need to focus not just on the annual premium when comparing policies.

    It is important to find one qualified broker and allow that broker to canvass the market. It is bad practice to have multiple brokers shopping the market for coverage for the same aircraft. In fact, it may make it impossible for any broker to obtain quotations or binding coverage.

    There is a rating system for insurers and it is important for owners to know and understand that rating system. The A.M. Best rating reflects an insurance company’s financial strength and its ability to meet contractual obligations. The rating categories range from A++ to F (in liquidation). Providers with less than an “A-” Best rating generally should not be considered, and many established brokers will not offer insurance with a lower rating. Owners should also know and understand what exclusions apply to the insurance contract.

    As is the case with all insurance policies, it is important to have the coverage you need when you need it. Coverage in aviation policies may vary if the aircraft is modified, flight crew qualifications change, normal routes of travel are changed, or travel outside the United States takes place. Before changing flight crews, modifying training programs or traveling outside the country, be sure to check the policy and check with your broker. There have been too many cases where a policy was not in effect due to a change in business practices or travel areas.

    The basic types of aviation insurance coverage are physical damage to the aircraft (hull insurance) and aircraft liability insurance. Hull insurance provides for payment to the owner of the aircraft for physical loss of or damage to the aircraft, including engines, propellers, instruments and equipment usually and ordinarily attached to the aircraft. Liability insurance covers the liability to others for bodily injury and property damage resulting from the ownership or use of the aircraft. Most liability policies offer coverage for the defense of lawsuits brought against the insured resulting from a covered peril, even if the suit is groundless. The amount of liability coverage, including any deductible, will depend on the owner’s risk tolerance and factors such as the number of passenger seats in the aircraft, average passenger load, passenger profile, number of pilots, pilot qualifications and any umbrella policy.

    When owning or operating an aircraft, the aircraft owner/operator often enters into agreements related to the aircraft, including, but not limited to, lender documents, time share agreements, dry leases, pilot services agreements, management services agreements and hangar agreements. It is important to understand the insurance requirements under all of these agreements and prior to execution, the agreements should be reviewed and approved by the insurance provider to make sure that there will not be an issue with any claim as a result of the agreement executed for the ancillary services.

    In a tightening insurance market, it is understandable that an aircraft owner/operator would focus primarily on premium costs when selecting aviation insurance. However, in the long run, an aircraft owner/operator would be better served obtaining the best available policy with appropriate liability limits, and fully understanding the terms and exclusions of the policy, rather than waiting until after an occurrence to focus on such details- by then it may be too late.

    This article was originally published in BusinessAir Magazine, March 2020, Volume 30, No. 3 on May 12, 2020.

  • NAFA Administrator posted an article
    Filing Aircraft Registration Documents With The FAA Registry During The COVID-19 Pandemic: What You see more

    NAFA member, Greg Reigel, Partner with Shackelford, Bowen, McKinley & Norton, LLP, discusses filing documents with the FAA Registry during the COVID-19 Pandemic.

    In another instance of a “new-normal” resulting from COVID-19, the window at the FAA Registry, where real-time filing of aircraft registration documents used to occur, has closed.  Although the FAA Registry is still open (for now), it has implemented new procedures for filing of aircraft registration documents.  Three options are now available for recording documents:

    Document Drop Bins.

    The FAA has placed two bins outside the Public Documents room.   One bin will be marked “Priority” and one bin will be for “Normal” processing (i.e. not priority).  The FAA will retrieve documents from the Priority Bin every hour. It will retrieve documents submitted for normal processing twice a day.

    Documents are filed when they are placed in one of the bins. However, will not be possible to obtain an immediate filing time for the documents as was the case in the past.  Actual filing times will only be available after the documents are indexed in, scanned and available for viewing online.  It is presently unclear how long that process will take.

    E-Mail Filing To An Electronic Portal.

    The FAA has a new e-mail filing process available subject to a number of limitations. Submitted documents must be digitally signed (i.e. Docusign, Adobe Sign, etc.) and each document must be 20 pages or less. Only one aircraft may be submitted in each e-mail and filing fees must be pre-paid at Pay.gov.

    After submission, FAA will send an e-mail acknowledging receipt.  However, documents will be processed during normal business hours with filing times available the same as when documents are filed via the bins.

    Filing Via Mail.

    As has always been the case, documents can still be filed via U.S. Mail, FedEx and UPS. And similar to the bin and e-mail filing, actual filing times will only be available once the documents are processed and in the FAA Registry’s system.

    These new processes will also impact timing for receiving a “fly-wire” and for receiving Form 135 needed to accomplish International Registry filings.  But it is unclear how much longer it will take to receive these back from the FAA.

    Conclusion.

    The good news:  The FAA Registry is still open and processing aircraft registration documents (for now). The bad news:  These updated procedures will result in some delays in closing transactions, and a little less certainty regarding when documents were actually “filed” by the FAA. For example, in a transaction transferring risk of loss at the time of filing, that could present a problem.

    Parties to aircraft transactions should review their documents to determine whether they are consistent with the new procedures. If they aren’t, parties should amend as needed.

    This article was originally published by Shackelford, Bowen, McKinley & Norton, LLP. on March 23, 2020.

  • NAFA Administrator posted an article
    Global Jet Capital Q1 2020 Market Briefing see more

    NAFA member, Global Jet Capital, shares their Q1 2020 Market Briefing.

    Overview

    Q1 2020 can be looked at as two separate stories. Leading up to the World Health Organization’s (WHO) announcement on March 11 that COVID-19 was an official pandemic, most key business aviation metrics were in good shape when measured against Q1 2019. Following the WHO announcement and ensuing social distancing measures, the industry entered into a forced hiatus, negatively impacting flight operations, aircraft production, and deal flow. We are now in a period of uncertainty that looks to continue through the second quarter.

    Overall, key business jet market indicators were mixed in Q1 2020.

    • Business jet operations declined 9.7 percent compared to the same period last year, a trend that had started internationally in late Q4 2019 and accelerated globally late in Q1 2020.
    • While OEM backlogs remain healthy, a mix of shutdowns and furloughs across the production ecosystem led industry forecasters to reduce supply side forecasts between 25-50%. While difficult for everyone in the industry, this unusual dynamic may act as a guardrail on aircraft values as the full impact of the pandemic plays out.

    • While inventories, as measured by the percentage of the active fleet for sale, have been inching up since Q1 2019, they ended Q1 2020 below 10%. This is a historically sound position. Furthermore, to date, there has not been a major increase in new aircraft being listed for sale.

    • The overall fleet continues to show signs of aging, with 55% of the fleet now greater than 13 years in age. While there is evidence that operators are flying aircraft longer, these data suggest a growing need for fleet renewal.

    • There is evidence that the business jet market was undergoing a fleet renewal before the outbreak of COVID-19. Operators were retiring older aircraft in response to mandated upgrade requirements, while new deliveries led to a modest increase in younger aircraft in the fleet.
    • Overall, new and pre-owned transactions for the quarter were down 6.7 percent by unit volume and 16.4 percent by dollar volume versus the same period last year. Most of the drop-off was felt in March as the industry hit the “pause” button.
    • Residual values experienced modest declines in Q1 2020 as model-by-model volatility continued.

    Looking ahead, the full effect of the coronavirus on the market remains unknown, although speculative comparisons to 2008 and the impact of the Great Recession are rampant.

    The current environment demonstrates some important differences to 2008, however. The cause of the economic disruption is a virus, not widespread failures in financial regulation. Banking systems and capital markets are not in a state of seizure. Government reaction and intervention has been swift and expansive. OEM production has been curtailed in a disciplined fashion to protect backlogs and ultimately aircraft values. This is clearly a different environment.

     

    Special Feature on the Global Economy

    The following commentary comes from Jason Thomas, Managing Director and Head of Global Research for The Carlyle Group, one of Global Jet Capital’s investors.

      1. When people don’t work, shop or travel, it shows in the economic data. March’s economic collapse continued in April with implied growth rates deeply negative across virtually every Indicator we track. Yet, when measured relative to March 31, a slow and uneven recovery in China and the first signs of life in Europe caused our (i.e., the Carlyle Group’s) forward-looking index to rise despite further deterioration in U.S. data.

      2. Officially, the U.S. economy contracted at a -4.8% annualized rate in Q1-2020, a remarkable result considering that official data were consistent with 2% annualized growth through the first 10 of the quarter’s 13 weeks. Our data suggest real consumption fell - 32% annually in April, as spending on experiences (travel, tourism, events, etc.) and big-ticket goods fell to a fraction of pre-crisis levels. The drop in industrial and logistics volumes appears less steep, but energy development is in free fall.

      3. Despite worse U.S. data, U.S. stocks rebounded sharply over the month, with the S&P 500 up by 33% from its March lows and forward price-to-earnings ratios 13% above their February peak. While much of this may be explained by the scale of announced fiscal and monetary policy support, improving public health data also play a role. The level of the S&P 500 has risen in lockstep with the decline in new COVID-19 cases (new infections net of recoveries) and projected U.S. COVID-19 mortalities.

      4. Ironically, the improvement in public health data may have come at the expense of the private health sector. The sharp decline in non- essential medical, surgical, and dental procedures subtracted 2.25 percentage points from U.S. GDP in Q1-2020, a result that implies that revenues at private health care providers and clinics are suffering every bit as much as those in the retail, energy, or airline sectors. Our data suggest U.S. health care hiring is down -15% over the course of the pandemic.

      5. While investors may be looking past the “lockdown” and focused instead on the reopening, business managers are taking a more cautious tac. Our proprietary data point to another leg down in the labor market, with hiring intentions off significantly across virtually every sector of the economy. The initial boom in grocery, delivery and logistics hiring has subsided as those businesses have scaled up to meet demand. Overall, job postings have declined by -40% over the past six weeks and capex budgets have been cut by -18%. Cancellation of jobs, projects, and equipment purchases signals that management teams are preparing for a future that looks far less sanguine than the one pictured by stock market investors.

      6. The only economy where hiring intentions increased over the past month was Italy’s.There were other signs of life in Europe: more workplaces were open and more work trips occurred, contributing to more electricity consumption and better manufacturing numbers. In many European economies, more retail establishments were open at the end of April than the end of March. Online sales continue to grow rapidly.

      7. Despite these hopeful signs, the euro zone economy continues to contract at even more dramatic rates than those observed in the U.S., with a -14% annualized fall in Q1-2020 GDP and an implied annualized decline in April retail sales of nearly -40%. Unfortunately, the economies hardest hit by the virus, Italy and Spain, will also be among the most impacted by any travel restrictions that extend into summer given tourism’s ~15% contribution to GDP.

      8. China continues to recover at a pace that looks either remarkably fast or frustratingly slow depending on your point of view. Over a span of six weeks, China went from fully locked down to operating at 95% of capacity – an impressive achievement. Rather than experience setbacks in April, the economy consolidated these gains with over 98% of retail locations in operation, an impressive 34% rebound in logistics volumes, and ongoing improvement in real estate markets. To detractors, the Chinese economy looks soft. Declines in retail foot traffic, air travel, and subway ridership all point to skittish consumers worried about a “second wave” of infections.

      9. Interestingly, the same concerns that depress transit ridership also bolster auto sales. After declining by -80% in February and - 40% last month, auto sales in China dropped by just -7% in April relative to the same month last year. An 11% annual increase in Beijing auto traffic relative to April 2019 also suggests auto demand has risen measurably. Overall retail sales continue to contract on an annual basis but at a much slower rate than observed a month ago.

      10. The effect of India’s lockdown was evident in the April data. Equipment sales fell at a -34% annual rate, suggesting that the economy is in the midst of its worst performance since the 1991 reforms.

    Read more here

    This report was originally published by Global Jet Capital on May 12, 2020.

  • NAFA Administrator posted an article
    How is the Coronavirus Affecting Used Aircraft Prices? see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, discusses how the coronavirus pandemic has affected pricing of used aircraft. 

    As of this writing, the coronavirus pandemic has not resulted in any measurable decline in used aircraft prices. That's not to say it won't over time, but in the near term, prices are holding steady.

    Why aren’t we seeing values lower? Despite being blindsided by the consequences surrounding the coronavirus pandemic, the aviation market was already in a unique situation because inventory was pretty thin. Traditionally, when supply is constrained, market pricing will stay roughly the same. That holds true now, despite any drop-in demand that we may be witnessing.

    Another reason prices have remained steady is because fewer owners are listing planes right now. There is so much uncertainty surrounding the ability to close deals (financing, the logistics of inspections and aircraft delivery) that folks are more comfortable sitting on the sidelines than taking the risk of losing out on a deal.

    While the coronavirus pandemic might spur some people to sell, as of yet, there’s been no noticeable uptick in these situations. AOPA Aviation Finance, (“AAF”) is working on a deal right now with a pilot-owner who’s trying to close on a TBM turboprop single. He's buying from an 80-year-old gentleman, but such transactions are rarer than they are regular.

    The bottom line is if you're thinking this might be a good time to pick up something cheap, our answer is, it’s always worth looking, but the markets are efficient and the professionals in the industry help to keep it way, so you’ll have to look hard for those gems.

    This article was originally published by AOPA Finance on April 30, 2020.