GAO Report: FAA Needs to Better Prevent, Detect, and Respond to Fraud and Abuse Risks in Aircraft RegistrationGAO Report: FAA Needs to Better Prevent, Detect, and Respond to Fraud and Abuse Risks in Aircraft Re see more
NAFA member, Scott McCreary, Vice President at McAfee & Taft, shares the GAO Report.
Today the U.S Government Accountability Office issued its long awaited report regarding the audit of the FAA Aircraft Registry. The report, titled "Aviation: FAA Needs to Better Prevent, Detect, and Respond to Fraud and Abuse Risks in Aircraft Registration" and can be found at www.gao.gov/products/GAO-20-164. The audit was extensive and ultimately provides the following recommendations:
- The Administrator of FAA should conduct and document a risk assessment that considers inherent and residual fraud and abuse risks that may enable criminal, national security, or safety risks. (Recommendation 1)
- The Administrator of FAA should determine impact, likelihood, and risk tolerance as part of a risk assessment. (Recommendation 2)
- The Administrator of FAA should develop a strategy that outlines specific actions to address analyzed risks, including periodic assessments to evaluate continuing effectiveness of the risk response. (Recommendation 3)
- The Administrator of FAA should collect and record information on individual registrants, initially including name, address, date of birth, and driver's license or pilot's license, or both, with subsequent PII elements informed by the risk assessment, once completed. (Recommendation 4)
- The Administrator of FAA should collect and record information on legal entities not traded publicly—on each individual and entity that owns more than 25 percent of the aircraft; for individuals: name, date of birth, physical address, and driver's license or pilot's license, or both; and for entities: name, physical address, state of residence, and taxpayer identification number. (Recommendation 5)
- The Administrator of FAA should verify aircraft registration applicants' and dealers' eligibility and information. (Recommendation 6)
- The Administrator of FAA should increase aircraft registration and dealer fees to ensure the fees are sufficient to cover the costs of FAA efforts to collect and verify applicant information while keeping pace with inflation. (Recommendation 7)
- The Administrator of FAA should ensure, as part of aircraft registry IT modernization, that information currently collected in ancillary files or in PDF format on (1) owners and related individuals and entities with potentially significant responsibilities for aircraft ownership (e.g., beneficial owners, trustors, trustees, beneficiaries, stockholders, directors, and managers) and (2) declarations of international operations is recorded in an electronic format that facilitates data analytics by FAA and its stakeholders. (Recommendation 8)
- The Administrator of FAA should link information on owners and related individuals and entities with significant responsibilities for aircraft ownership through a common identifier. (Recommendation 9)
- The Administrator of FAA should, as part of IT modernization, develop an approach to check OFAC sanctions data on owners and related individuals and entities with potentially significant responsibilities for aircraft ownership for coordination with OFAC and to flag sanctioned individuals and entities across aircraft registration and dealer systems. (Recommendation 10)
- The Administrator of FAA should use data collected as part of IT modernization as well as current data sources to identify and analyze patterns of activity indicative of fraud or abuse, based on information from declarations of international operations, postal addresses, sanctions listings, and other sources, and information on dealers, noncitizen corporations, and individuals and entities with significant responsibilities for aircraft ownership. (Recommendation 11)
- The Administrator of FAA should develop and implement risk-based mitigation actions to address potential fraud and abuse identified through data analyses. (Recommendation 12)
- The Administrator of FAA should develop mechanisms, including regulations if necessary, for dealer suspension and revocation. (Recommendation 13)
- The Administrator of FAA, in coordination with relevant law-enforcement agencies, should enhance coordination within the Aircraft Registry Task Force through collaborative mechanisms such as written agreements and use of liaison positions. (Recommendation 14)
- The Administrator of FAA, in coordination with relevant law-enforcement agencies, should develop a mechanism to provide declarations of international operations for law-enforcement purposes. (Recommendation 15)
If implemented, these changes will clearly affect many individuals and companies that own and operate aircraft. The lawyers in the McAfee & Taft Aviation Group will continue to provide updates as the industry digests this information.
This article was originally published by McAfee & Taft on March 25, 2020.
Used Aircraft Maintenance Analysis – October 2020 see more
NAFA member, Tony Kioussis, President of Asset Insight, shares the October 2020 Used Aircraft Maintenance Analysis.
Asset Insight’s October 31, 2020 market analysis of 134 fixed-wing models, and 2,174 aircraft listed for sale, revealed strong sales figures during October, leading to a 3.2% decrease of the tracked inventory (the fourth consecutive monthly reduction). Here are the aircraft that were most impacted...
Curiously, buyer preference for lower-quality assets improved the tracked fleet’s Quality Rating and Maintenance Exposure. October’s fleet ‘for sale’ Quality Rating (5.353) reflected a 12-month best, continuing to maintain the tracked fleet’s ‘Excellent’ standing for all of 2020 on Asset Insight’s scale of -2.5 to 10.
October’s Aircraft Value Trends
Average Ask Price increased 3.3% in October to set a 12-month high, while concurrently changing 2020’s downward trend to a Year-to-Date (YTD) increase of 1.7%. By aircraft group:
- Large Jets’ average Ask Price was up 4.5%, reducing the YTD loss to 9.6%;
- Mid-Size Jets’ pricing decreased a nominal 0.6% and is now up 3.8% in 2020;
- Light Jets posted a loss of 0.9% in October, lowering the YTD gain to 7.8%; and
- Turboprops gained 2.8% during the month, moving the YTD figure 0.6% into positive territory.
October’s Fleet for Sale Trends
Asset Insight’s tracked fleet posted its fourth consecutive monthly inventory decrease, down 3.2% (73 units), which led to a 0.4% YTD inventory decrease (-8 units).
- Large Jet Inventory: Decreased 3.1% (-16 units), and is currently up 14.4% since December 2019 (+62 units).
- Mid-Size Jet Inventory: Posted the largest decrease among the four groups (-23 units), and also the group’s fourth consecutive monthly reduction. Mid-Size Jet inventory is now down 7.7% YTD (-51 units).
- Light Jet Inventory: Decreased for the fourth consecutive month, and October’s decrease of 3.2% (-20 units) reduced inventory by 4.7% YTD (-30 units).
- Turboprop Inventory: Through its third consecutive monthly inventory decrease, this time 2.9% (-14 units), availability is currently up 2.4% (+11 units) YTD.
October’s Maintenance Exposure Trends
Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) improved/decreased 2.1% to $1.433m, signifying that upcoming maintenance events for available assets will be less expensive. The Maintenance Exposure figure by group was as follows:
• Large Jets: Improved 3.1% for October to a figure bettering the 12-month average.
• Mid-Size Jets: Worsened a nominal 0.2%, but Exposure was better/lower than the 12-month average.
• Light Jets: Improved 2.0% for the second consecutive month to a figure only marginally better than the group’s 12-month worst value.
• Turboprops: Improved 2.4% to a 12-month low/best figure.
October’s ETP Ratio Trend
The tracked inventory’s ETP Ratio improved/decreased to about the 12-month average figure at 69.8%, compared to September’s 73.7%. [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 Q3 2020, aircraft whose ETP Ratio was 40% or greater were listed for sale 50% longer than assets with an ETP Ratio below 40% (269 days versus 404 days). How did each group fare during October?
- Turboprops: For the eleventh consecutive month, Turboprops registered the best/lowest ETP Ratio (40.7%), achieving the group’s second consecutive best 12-month value.
- Large Jets: Recaptured second position with an ETP Ratio of 61.8%, better than the 12-month average and a substantial improvement over September’s 12-month worst value (74.1%).
- Mid-Size Jets: Dropped to third place, but improved to 68.9% from September’s 70.9%, equating to a 12-month best.
- Light Jets: Improved from September’s 12-month worst figure (100.3%) to a still-troubling 98.8%.
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 October 2020.
Read full report here.
This report was originally published by AvBuyer on November 19, 2020.
Bonus Depreciation in a COVID World see more
NAFA member, Air Law Office, P.A. writes about aircraft depreciation bonus under the 2017 Tax Act.
The IRS is pretty strict when it comes to 100 Percent Bonus Depreciation under the 2017 Tax Act, especially on the fundamentals.
- Was your aircraft acquired and placed into service after September 27, 2017 and before January 1, 2027 – this one is fairly straightforward
- Is your aircraft ‘qualified property’
- Is your depreciable property of a specific type, including tangible property with a recovery period of 20 years or less, such as commercial and non-commercial aircraft – this one is probably affirmative
- Was your original use of the aircraft the taxpayer’s use or the aircraft was not used by the taxpayer at any time prior to purchase – this one can be a bit tricky
- Is your aircraft predominantly used for a qualified business use – this is going to be tough in the time of COVID and if you don’t meet 51% ore more qualified business use then you will need to explore an alternative depreciation system (ex., Five Year MACRS)
- Is your aircraft used predominantly in the United States – this one can be a bit tricky
There are, of course other nuances like “under contract” and “alternative deprecation models” and if you use your aircraft significantly for nondeductible entertainment travel (ex., vacation) you may be able to take your depreciation and use disallowance percentages to deprecation on a straight-line basis.
The Bottom Line: With face-to-face interaction at an all time low, many owners are in danger of loosing their bonus depreciation benefits. Check in with your financial and legal teams ASAP, before it is too late to address potential pitfalls! Remember, this article is intended to inform you about issues that you should discuss with your financial and/or legal team and is not intended as legal advice or opinion, you should not act on any information contained in this (or any other) article without directly consulting legal counsel.
This article was originally published by Air Law Office, P.A. on August 5, 2020.
Why Does A Cash-Paying Partner Need To Be On An Aircraft Loan? see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, answers your questions about cash-paying partners on aircraft loans.
Many lenders require that all partners are on the lien, even if one of those partners is paying cash. In particular it’s fairly common with lower-dollar loan amounts. And frankly, it’s a tradition that should be changed.
Lenders need a formal agreement with all parties involved in the ownership of the asset—the aircraft—stating that the lender has a first-priority interest in the aircraft in the event the loan goes into default.
Generally speaking, there are two methods to achieve that aim. The most efficient way is to have all parties to the transaction attach themselves to the loan, the lien. The second way is by drawing up an addendum document, commonly known as a subordination agreement. The subordination agreement doesn’t tie the cash-paying participant to any of the debts or other obligations assigned in the loan. It’s a stipulation of first position rights by the lender and an acknowledgment by the cash party of that stipulation.
One of these options is more customer friendly than the other. One is more traditional than the other. Our belief is in an age when loans have become as commoditized as they have become, lenders should emphasize customer service over tradition.
Lenders might argue that the extra fees generated from creating a subordination agreement is not customer friendly. For instance, for loans between $20K and $50K, that extra cost could approach 4 %. In many a lender’s mind, that additional financial burden on the borrower is more nuisance than convenience.
In more upmarket transactions, a PC-12, a TBM or a Cirrus, for example, where the loan amount is well north of half a million, lenders tend to be more willing to accommodate. That’s because the added cost as a percentage of the total loan is much smaller and therefore only minimally impacts them.
We live in a world where people are more willing to pay for convenience. It would behoove banks to offer the option of drawing up subordination agreements for lower value loans if the borrowers believe that to be in their best interest. Doing so relieves the cash partner of loan default liability and credit exposure. And the bank can rightly charge for the convenience.
This article was originally published by AOPA Finance on July 30, 2020.
Choosing Your Aircraft Management Company: Five Keys to Successful Due Diligence see more
NAFA member, Joe Barber, VP Fleet Development, CAM with Clay Lacy Aviation shares five keys to successful due diligence when choosing your aircraft management company.
In a perfect world, the due diligence process to select the right aircraft management company would be straightforward and objective. Competing proformas would be formatted identically with the same terms for every line item. There would be no hedging or ambiguity. No hollow promises or questionable guarantees. No missing budget variables that appear as unpleasant surprises on the first invoice. Clients could easily compare and contrast, and make better informed decisions.
Instead, welcome to the real world, where proposals to manage business jet aircraft vary widely in organization and terminology, where the emphasis is often on salesmanship and showmanship, looking good rather than being thorough and transparent, and where the lowest estimate might end up costing you tens of thousands more in unexpected fees.
This should not be a beauty contest—but it often is.
Charles Porteus, president and founder of Seefeld Group, a leading business aviation marketing and research firm, notes that client surveys often show aircraft management is viewed as a “commodity.” For clients, there is little—or at least difficult to discern—differentiation among competing companies. The result is more like a beauty contest than the meticulous presentation and review of high-end business services to manage, operate and maintain a multi-million-dollar capital asset.
There’s a reason they call it due diligence.
The dictionary defines diligence as “persistent work and effort.” That sums up the challenge for business jet owners and their advisors as they seek to find not only the answers to questions, but to ensure that the right questions are being asked in the first place. Here are five guidelines that together are the key to finding the ideal aircraft management company for your specific needs.
1. Focus on objective metrics—yours as well as theirs.
You begin with the basics, of course. How many years has the company been in operation? How many aircraft do they manage? Part 91 vs. Part 135? Locations? Pilots? Management fees? Insurance? And so forth. Then dig deeper. Create constants for your comparison so you are comparing apples to apples. Fundamentally, you are conducting a gap analysis so you can more thoroughly understand what is being offered, what is different and what is missing.
Each company should be able to demonstrate objectively why they are a better choice than their competitors—although beware if they seem to be “tearing down” other companies in order to build themselves up. Turn the tables and ask what competitors might say about them.
2. Listen to what they are asking you.
At the same time, play close attention to the questions they are asking you. They should be probing to fully understand your unique requirements, mission profile, where you travel, how often and who goes with you. Your expectations of a management company, needs and preferences for meals and amenities, international issues, and other key details and concerns. If they are not asking these questions, you have to wonder if they are truly focused on your best interests.
3. Seek expert insights.
There are numerous professionals within the business aviation industry: the list includes aviation attorneys, CPAs and other financial advisors, aircraft brokers, insurance providers. Their knowledge of the industry and the major players, as well as their specific expertise, can be a valuable resource for you as you narrow your choices. Poll their opinions, while keeping an eye out for any possible conflicts of interest.
4. Challenge any “guarantees.”
The only thing that can be guaranteed is that nothing can be guaranteed. Not only is aircraft ownership inherently complex, our world is filled with variables. Who, for example, could have anticipated COVID-19? So it is wise to challenge any guarantees from a prospective management company.
Guaranteed charter revenue. How can they promise that? Instead, ask the company to demonstrate how they will work to generate charter revenue to meet your agreed-upon goals.
Guaranteed maintenance costs. Really? Ask them to show how will they work to minimize your maintenance costs without sacrificing quality or safety.
5. Watch out for what might be missing.
If a proposal is dramatically lower than others, it could be a sign that one or more variable budget items has been omitted or significantly underestimated. For example, international handing and other fees related to foreign travel. Or warranty and subscription costs. There are any number of candidates that can fluctuate wildly based on a number of variables specific to your use of the plane. This is the time to ask questions and demand answers. Otherwise you might find that the lowest bid was ultimately the most costly choice—a fact you might not discover until you see your first invoice.
Otherwise you might find that the lowest bid was ultimately the most costly choice—a fact you might not discover until you see your first invoice.
The bottom line is that this due diligence is worth it. With the right aircraft management company you will have an invaluable partner. Working closely with you, they can lower your ownership costs, add value, maximize efficiencies and ensure your asset is operated and maintained to the highest standards—so you can experience all the benefits and enjoyment of business jet ownership.
This article was originally published by Clay Lacy Aviation on July 9, 2020.
NAFA Webinar: Bringing Title and Registration Into the 21st Century see more
The FAA is updating and modernizing its title and registration system in accordance with the GAO report, but how much do you know about what changes are actually being made and how those changes might affect your business operations, costs, and registration systems.
What issues might arise from a newer, more modern electronic filing system and digital signatures? What is the difference between digital and electronic signatures, and what position is the FAA taking on this in the modernization process.
And what about GATS? What is it and how does it fit into the new modernization system?
Watch our webinar to learn more about everything that is happening to bring Title and Registration Procedures into the 21st Century.
Meet our Moderator and Panelists:
Ford von Weise, Director & Head - Global Aircraft Finance & Aircraft Advisory Services, Citi Private Bank (Moderator)
Scott McCreary, Shareholder, Director, McAfee & Taft
Debbie Mercer-Erwin, President of Wright Brothers Aircraft Title
Jeff Towers, VP & General Counsel for TVPX
Ed Kammerer, Shareholder for Greenberg Traurig, LLP
Webinar slides can be viewed here.This NAFA webinar originally aired on November 10, 2020.
Cloud Storage - The Data Revolution and Why It Matters see more
NAFA member, Ryan DeMoor, Aviation Tax & Finance Reporting Solution Manager with Satcom Direct, discusses the data revolution and why it matters.
Just like industries everywhere, business aviation is becoming increasingly digitized. Data generated from an aircraft can record and relay information, in real time, on just about every aspect of the flight. Intelligently collating and analyzing these data saves money on the cost of flight operations, improves your onboard and ownership experience, and helps preserve the value of your aircraft when it comes time to sell.
Until now, business aviation has traditionally used data to provide historical diagnostic reference points; but in the same way Enterprise Resource Planning software revolutionized corporate financial management twenty years ago, so the ability to automatically collect, centralize, and analyze data is revolutionizing business aviation.
Transparent, reliable, timely data can give owners much clearer insight into an aircraft’s history and can answer many of the questions that influence the asset value and operational costs in a clear and verifiable way. How many hours has the aircraft flown? When is the next scheduled maintenance check? Why is the fuel burn going up? What are the monthly operating costs and what are they going to be? Which are the most expensive routes to fly and are there alternatives? These questions and a myriad more can be answered in a keystroke.
New technologies that can instantly transcribe text, the evolution of Artificial Intelligence (AI), and the growth of machine learning, is making rich data analysis possible as it replaces the need for extensive amounts of inefficient human capital. After all, value can be extracted only if a distinction is made between deficient and qualified data. As the familiar phrase “garbage in, garbage out” states, inaccurate data or poor quality input will always yield flawed output.
Yet when the data collected from automated entities such as aircraft platforms, scheduling systems, and financial software are centralized and verified, aircraft owners and operators benefit from a much clearer vision of what aircraft ownership looks like.
Authenticated data, collected automatically as events occur and expenses are incurred, can define costs based on facts and intelligent analysis, rather than quotes and guesstimates. This creates standards enabling “apples to apples” comparisons and distinguishes between non-relevant comparisons. Through accurate benchmarking, purchasing behavior can be modified to identify budgetary savings or confirm peak performance on every action associated with a flight. Data synchronized and shared across global flight departments support even more efficient operations, improve customer satisfaction, and enhance asset management.
From an aircraft’s first digital heartbeat, technology can unify visibility into all aspects of aircraft operations now, and into the future. Data enable powerful, predictive analysis. A single data resource can provide insight for the finance department into existing and anticipated costs, and supports the ability to intelligently query supplier pricing. It can help global flight departments make decisions about aircraft or fleet optimization based on an improved understanding of upcoming needs. Pilots can use data to efficiently plan future routing to maximize fuel burn, minimize turbulence, and improve the passenger experience. IT departments can use the same data to anticipate, manage, and mitigate cybersecurity risks associated with connected devices.
For those that adopt a data-led asset management strategy, the gap between the value of an aircraft with data-rich heritage and one with manually recorded logs will be immense and will only widen into the future.
By increasing transparency, asset values not only are retained, they increase as capital and operating expenditure is reduced. Data are driving new standards and bring more accountability to the operations of business aviation. This stimulates demand as the asset values are better understood by all stakeholders. Considering the current state of the globe, this increase in demand could not be happening at a better time for our industry. The data revolution is here and for early adopters it is the only way to fly.
This article originally appeared in Business Aviation Advisor November/December 2020.
2021 Trends, Trials, Triumphs - BizAv Trade Associations Working for You see more
NAFA member and Marketing Director of The National Aircraft Finance Association (NAFA), Tracey Cheek, shares the latest trends in general and business aviation.
The National Aircraft Finance Association (NAFA) recently hosted a webinar with industry leaders: Ed Bolen, President and CEO of the National Business Aviation Association (NBAA); Pete Bunce, President and CEO of the General Aviation Manufacturers Association (GAMA); Tim Obitts, President and CEO of the National Air Transportation Association (NATA); and Mark Baker, President of Aircraft Owners and Pilots Association (AOPA); moderated by Business Aviation Advisor Publisher Gil Wolin to discuss the changing state of the aviation industry.
What are some trends – both positive and negative – that business aircraft owners and users can expect to see?
- General and business aviation use increased dramatically since April, as have first-time jet card buyers and charterers. Initially, 90% of these flights were personal, while only 10% were for business. However, as the year progressed, while the percentage of flight activity for business increased, travel remains challenged because there isn’t a lot of business to be done. According to NBAA, larger international jet traffic is slow. Fortunately, these flight departments have not shut down or sold off their fleet. They are still using their aircraft for intracompany flying between and among remote facilities, while preparing to gear up to resume travel to other cities when it’s safer to do so.
- Health and safety continue to be drivers for increased charter. Ed Bolen cited a recent McKinsey study indicating that travelers flying commercially encountered more than 780 “touchpoints” with others, while those flying business aircraft had fewer than two dozen. For that reason alone most of these new business aviation flyers already say they have no intention of returning to commercial travel. This bodes well for current owners. If your aircraft is available for charter, these new entrants will book more charter hours, helping to maintain or even increase your aircraft’s asset value. History indicates that many of those new charter users will eventually buy their own aircraft, thus bolstering the resale market.
- Baker indicated that flight schools are reporting a dramatic increase in students, from both new flyers and those inactive pilots seeking a refresher. AOPA’s Flying Club initiative, launched in 2016, has to date created 161 clubs, serving more than 2,400 pilots nationwide.
- As the pandemic continues, an interesting new phenomenon has emerged: people are leaving cities for remote suburbs. While they’ve learned to work remotely, they still need mobility. Bunce indicated that the network of GA airports makes that possible, as people are using small aircraft to commute from larger city airports to their new homes.
What are your trade associations doing to support you, and business aviation in general?
- Illegal charter continues to be an issue in the industry. Many owners still do not understand that as soon as money changes hands, that flight can be construed as a commercial flight. NATA has been on the forefront of this issue, along with the FAA, the Department of Homeland Security, and Customs and Border Patrol, educating those who use and operate business aircraft. According to Obitts, it mostly is an issue of dealing with the “clueless and careless.” AOPA is working to inform owners about how to properly share aircraft via safe and legal “dry” (aircraft only) leases.
- After many years of no increases, insurance rate hikes for both new and renewal policies are significant. Insurance underwriters also are discriminating against older pilots, charging higher rates and even denying them coverage. Neither AOPA nor the NTSB has found any correlation between age and fatalities or significant accidents. AOPA is leading industry efforts to fight this age bias by educating insurance providers on the facts, encouraging them to look at individual qualifications, and discussing options like training and level of experience.
In some instances, owners are placing planes in aircraft management companies, while in others, operators are pooling insurance companies to share risk. In all instances, parties are working to understand the real discriminators and to find alternative ways to mitigate risk to the underwriters. Despite these efforts, NATA suggests premiums will likely continue to rise over the next couple of years.
- Safe and efficient business and general aircraft travel depend on access to all airports, especially those with FAA-tower control. NBAA and AOPA work tirelessly to ensure those government-funded towers remain open and functioning, reminding authorities that they fall under the same essential regulatory requirements as interstate highways.
- The one real positive outcome to the pandemic is an increased awareness of, and improvement in, sanitization. NATA created its Safety First Clean Initiative, creating standards for cleaning both aircraft and ground facilities, covering aircraft from landing to departure. FBOs are educating travelers with billboards outlining steps they’ve taken to keep the aircraft and their passenger lounges and maintenance hangars clean. The industry is discovering new uses for ultraviolet and ionizing sanitation procedures, and examining how HEPA filters work to filter cabin air. AOPA’s website, regularly accessed by thousands, is updated daily with a list of restrictions by state. Because of these efforts, all airports remain open today, and these new standards for cleanliness will last long after the pandemic is over.
- The industry continues to invest in the future, ensuring that owners will have the flight and support personnel needed to continue flying safely and securely. Science Technology Engineering & Math (STEM) continues to be an important part of these efforts. AOPA’s donor-supported program has created 400 classes and introduced more than 8,000 children to aviation as a career, 25% of whom are girls and 40% come from diverse backgrounds. GAMA has initiated a Washington, DC program to help introduce inner city students to aviation, as well. NBAA recently conducted a Safety Week, focused on training, technology, and personal fitness.
- To counter ongoing negative public perceptions of business aviation, your trade associations are assertively promoting the usefulness of the industry, advances in sustainable aviation fuel, use of composite technology, and the adoption of GPS. New efforts will celebrate advances in electric, hybrid, and even hydrogen propulsion, as well as aviation technology, such as drones, supersonic travel, Advanced Air Mobility, and particularly Urban Air Mobility – vertical takeoff and landing (VTOL) aircraft.
- Charitable use of aircraft is increasing. In support of pandemic and disaster relief efforts, many companies are donating their aircraft and crews, moving people and supplies to areas that need it most. Bunce stated that aviation manufacturers too are responding generously, diverting their plant capabilities to making much-needed medical and safety equipment to support health care requirements.
This past year has wrought unforeseen changes, for both new and existing users of business and general aviation. We are more aware of the way we travel and conduct business. We now have an increased awareness of the value of time: the cost of time lost or wasted, and how we can travel more safely and efficiently.
That bodes well for both segments in 2021, and beyond. BAA
This article originally appeared in Business Aviation Advisor November/December 2020.
Used Aircraft Maintenance Analysis – September 2020 see more
Asset Insight’s September 30, 2020 market analysis of 134 fixed-wing models, and 2,247 aircraft listed for sale, revealed the highest quarterly sales figure for the year while concurrently decreasing the tracked inventory fleet for a third consecutive month, this time by 1.5%.
Buyer preference for higher-quality assets decreased the tracked fleet’s Quality Rating while raising (worsening) Maintenance Exposure to a 12-month high (worst) figure. However, September’s fleet ‘for sale’ Quality Rating (5.293), though below August’s 5.329, equaled July’s figure, maintaining the tracked fleet’s ‘Excellent’ range YTD on a scale of -2.5 to 10.
September’s Aircraft Value Trends
The average Ask Price increased 1.5% in September to a figure approaching the 12-month high level, thereby lowering the year’s average pricing reduction to 1.6%. By aircraft group:
- Large Jets: The only group to post lower prices during September (1.5%) and Q3 (4.3%), Large Jets and are now down 13.5% for the year.
- Medium Jets: Ask Pricing increased 5.5% in September, 10.1% during Q3, and the group’s figure is up 4.4% in 2020.
- Small Jets: Pricing rose 2.2% in September, but recorded no change for Q3. Small Jet prices are up 8.8% YTD.
- Turboprops: Ask Prices rose 0.3% in September and 3.1% during Q3, but are still down 2.1% during 2020.
September’s Fleet for Sale Trends
Asset Insight’s tracked fleet’s total number of aircraft listed for sale decreased a further 1.5% in September (34 units), resulting in a YTD inventory increase of 3.0% (65 units).
- Large Jet Inventory: Increased yet again – this time by 2.2% (11 units) – and is now up 18.1% (78 units), YTD.
- Medium Jet Inventory: Availability decreased for the third consecutive month, down 1.4% (nine units) and inventory is now down YTD by 4.2% (28 units).
- Small Jet Inventory: Posted the largest decrease among the four groups for the second consecutive month. September’s decrease of 3.5% (23 units) contributes towards a 1.6% lower inventory for the year (10 units).
- Turboprop Inventory: Posting only its second monthly decrease since January, the group’s inventory fell 2.7% (13 units) thereby lowering its YTD increase to 5.6% (25 units).
September’s Maintenance Exposure Trends
Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) worsened/increased 3.3% in September (6.4% during Q3), to $1.464m, a clear signal to buyers that upcoming maintenance expense for the now-available inventory mix will be higher. Maintenance Exposure worsened (increased) for all four groups in September.
- Large Jets: Worsened by 3.0% for the month for a total Q3 increase of 3.3%. That brings Maintenance Exposure above the 12-month average.
- Medium Jets: Worsened 1.2% during September, and rose 1.3% across Q3. Nevertheless the figure was better than the 12-month average.
- Small Jets: Increased 2.0% for the month while skyrocketing 14.6% during Q3 to a figure only marginally better than the group’s 12-month worst.
- Turboprops: The only group to post a Q3 improvement (3.0%), Turboprops nevertheless degraded during September by 1.3% to a figure marginally worse than August’s 12-month low (best) figure.
September’s ETP Ratio Trend
The tracked inventory’s ETP Ratio rose/worsened to 73.7%, from August’s 70.9%, to post a new record high figure. [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 Q3 2020, aircraft whose ETP Ratio was 40% or greater were listed for sale 50% longer than assets with an ETP Ratio below 40% (269 days versus 404 days). How did each group fare during September?
- Turboprops: For the tenth consecutive month, Turboprops posted the lowest (best) ETP Ratio, 41.6%, to achieve a new 12-month best (low) figure.
- Medium Jets: Fell in step with a 12-month low figure of their own, at 70.9%. However, that is likely to create few additional opportunities for most sellers.
- Large Jets: Set a record high (worst) figure, posting a Ratio of 74.1%.
- Small Jets: Nearly eclipsed their record worst Ratio of 101.7%, registering a 12-month high 100.3%.
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 September 2020.
Most Improved Models
All six ‘Most Improved’ models in September posted a Maintenance Exposure decrease (improvement). The Beechcraft Premier 1, Beechcraft King Air C90, and Cessna Citation VII posted Ask Price decreases of $15,629, $2,536, and $42,500, respectively, while the Bombardier Learjet 36A registered no Ask Price change.
The remaining two models experienced the following price increases:
- Dassault Falcon 2000: +$417,784
- Bombardier Learjet 40XR: +$125,833
Beechcraft Premier 1
Top position for September was captured by the Premier 1, which posted a Maintenance Exposure decrease approaching $185k that more than cancelled out the model’s Ask Price loss approaching $16k.
The inventory fleet mix saw one unit sell during September, one addition to the fleet, and one withdrawal from the ‘for sale’ pool. That left 20 assets listed ‘for sale’, or 16.8% of the active fleet.
With a very high percentage of these aircraft enrolled on an engine Hourly Cost Maintenance Program (HCMP), that tool is not a useful differentiator for sellers. With an ETP Ratio exceeding 83% little other than price is likely to capture a buyer’s attention.
Dassault Falcon 2000
One of only two aircraft on the Most Improved list to post an Ask Price increase in September, the Falcon 2000 took second place, having also achieved a Maintenance Exposure decrease $136k.
Two aircraft transacted in September, and when all of the jostling ended (including five additions to the inventory fleet), 27 aircraft were available to buyers. That equates to 12.1% of the active fleet and, keeping in mind the model’s 72.7% ETP Ratio, HCMP coverage may be the only value lever that some operators have to distinguish their asset.
Seller Advice: Those whose aircraft are not enrolled on an engine HCMP are advised to carefully consider all offers as this model sports engines with significant overhaul costs.
Bombardier Learjet 36A
A model that posted no transactions in September, along with no change in Ask Price, the Learjet 36A is next on the ‘Most Improved’ list, thanks to a Maintenance Exposure decrease approaching $81k.
However, with an ETP Ratio exceeding 175%, sellers of the four assets listed for sale must be open to all offers, even though the inventory level amounts to only 10.8% of the active fleet.
Beechcraft King Air C90
Four King Air C90s transacted during September, while another was withdrawn from the listed fleet. The 43-aircraft inventory that remained equated to 11.1% of the active fleet. The problem for sellers is tri-fold:
- First, the model’s ETP Ratio stands at 114.5% (well above the problematic 40% point).
- Second, few of these aircraft have engine HCMP coverage, limiting leverage as a discriminator.
- Third, while Maintenance Exposure decreased over $49k, Ask Prices also decreased.
Although this aircraft moved from August’s ‘Most Deteriorated’ list to September’s ‘Most Improved’, the facts do not really favor sellers. Buyers, on the other hand, have ample choice.
Cessna Citation VII
The single transaction in September, along with one withdrawal from inventory, allowed the remaining 19 aircraft listed for sale (16.7% of the active fleet) to join the ‘Most Improved’ list. Maintenance Exposure decreased nearly $156k, a figure that eclipsed an Ask Price decrease of $42.5k.
However, the model’s ETP Ratio of nearly 73% poses a significant challenge for sellers, except, perhaps, for some whose aircraft are enrolled on engine HCMP.
Bombardier Learjet 40XR
The final aircraft on the ‘Most Improved’ list occupied the ‘Most Deteriorated’ list in August. A Maintenance Exposure decrease approaching $94k, and an Ask Price increase approaching $126k were what made this possible.
No Learjet 40XRs transacted in September, and the 13 inventory assets represent 14.1% of the active fleet. While availability exceeding 10% generally favors buyers, the model’s ETP Ratio, at 58.4%, can be favorably and sufficiently adjusted by engine HCMP coverage to help many sellers.
Read the full report here.
This report was originally published by AvBuyer on October 14, 2020.
FAA Aircraft Registry Reaffirms its Position on Digital v. Electronic Signatures. see more
NAFA member, Scott McCreary, Vice President at McAfee & Taft, discusses the FAA's Aircraft Registry's position on digital versus electronic signatures.
The United States Federal Aviation Administration (FAA) issued a Memorandum to the FAA Public Documents Room on September 9, 2019, reiterating the position that it would accept documents with digital signatures, but not accept documents executed with only the electronic signature methodology. The Memorandum provides that “An electronic signature is a method of signing a document whereas a digital signature is the encryption/decryption technology of which an electronic signature is built. The digital signature secures the data associated with an electronically signed document.”
The Memorandum confirms that in the past the FAA Aircraft Registry (Registry) may have unknowingly accepted documents with merely electronic signatures. The most common electronic signatures filed with the Registry were produced with DocuSign or Adobe, but the Memorandum confirms both programs have a digital signature option that could be utilized.
By way of background, in May of 2016 the FAA issued a Notice of Policy Clarification for Acceptance of Documents With Digital Signatures (81 FR 23384). The Policy Clarification confirms that the Registry will accept printed duplicates of electronic documents that display legible, digital signatures that are filed in compliance with Parts 47 and 49 of the FAA Regulations (14 CFR parts 47 & 49). The Policy Clarification is clear that only digital signatures, as compared to the broader classification of electronic signatures, are acceptable. The Registry expands on the distinction between digital signatures and electronic signatures in its AFS-750 Change Bulletin 16-03, which further references FAA Order 1370.104, Digital Signature Policy.
The Policy Clarification goes on to provide that "A legible and acceptable digital signature will have, at minimum, the following components: (1) Shows the name of the signer and is applied in a manner to execute or validate the document; (2) Includes the typed or printed name of the signer below or adjacent to the signature when the signature uses a digitized or scanned version of the signer’s hand scribed signature or the name is in a cursive font; (3) Shows the signer’s corporate, managerial, or partnership title as part of or adjacent to the digital signature when the signer is signing on behalf of an organization or legal entity; (4) Shows evidence of authentication of the signer’s identity such as the text ‘‘digitally signed by’’ along with the software provider’s seal/watermark, date and time of execution; or, have an authentication code or key identifying the software provider; and (5) Has a font, size and color density that is clearly legible and reproducible when reviewed, copied and scanned into a black on white format."
Prior to the Policy Clarification, the Registry would only accept originally, ink signed documents. The use of digital signatures has certainly been a great benefit to the industry and very helpful for closing aircraft transactions which require filings with the Registry.
It is often difficult to determine if a document has been digitally executed, and different programs (such as DocuSign and Adobe) identify digitally executed signatures differently. Parties should be careful to make certain any documents filed with the Registry are ink signed originals or digitally executed in compliance with the Registry requirements.
This article was originally published by McAfee & Taft on September 9, 2019.
AINsight: 5 Incentives To Finance Business Aircraft see more
NAFA member, David G. Mayer, Partner at Shackelford, Bowen, McKinley & Norton, shares five important incentives when financing your next business jet.
The business aviation industry has encountered intense downdrafts this year connected to the Covid-19 pandemic. Ironically, the same forces have increased certain charter flights, spurred newcomer acquisitions of whole and fractional shares in aircraft, and highlighted the value of business aviation.
Concurrently, the August 27 issue of JetNet iQ Pulse revealed significant untapped interest in borrowing or leasing (financing) to make aircraft acquisitions, stating: “Since the onset of the Covid-19 pandemic and amongst respondents with an opinion, about two-thirds indicate that they plan to use some sort of financing to acquire their next new aircraft.”
Understanding Today’s Aircraft Finance Markets
A few brief insights into the two dominant types of aircraft financing, “true leases” and secured loans, will help understand the interest in financing jet aircraft in a market typically dominated by cash purchases.
A true aircraft lease is a transfer by an owner/lessor of the right to possession and use of the aircraft to a lessee for a lease term in return for rent and other consideration/value. In a true lease, the lessor provides 100 percent financing by purchasing the aircraft and leasing it to the lessee.
Lessors expect the lessee to return the aircraft to the lessor at lease expiration, buy it during or at the end of the lease term, or renew the lease. Lessees enjoy the corresponding rights to drop off the aircraft to the lessor and walk away (after meeting the aircraft return conditions), purchasing the aircraft, and renewing the lease.
A typical aircraft secured loan requires a borrower to grant a “security interest”– a lien –on an aircraft to the lender/secured party to secure the borrower’s payment or performance obligations under the loan documents. A lender does not own the aircraft; it just has an interest in the aircraft as collateral.
Customers typically borrow between 50 percent and 80 percent of the price of the aircraft and make up the difference with the customers’ cash or, for refinancing, the value of the equity in the aircraft. These percentages fluctuate up or down for different lenders and loan structures, with a relatively few lenders advancing up to 100 percent loan to the value of the aircraft agreeing to a term of up to 20-years.
Five Incentives To Finance Business Jets
Most customers in the U.S. have at least five incentives to finance their next (or first) aircraft:
• Cheap money. The Federal Reserve (FR) recently announced a policy shift that the FR will average inflation rates to allow about a 2 percent inflation rate before increasing interest rates to tame the inflation. The FRprojects that interest rates will remain near zero for years to come. Financiers should, for the foreseeable future, offer customers very low rates consistent with the FR action.
• No to low cash outlay. Many potential customers should readily appreciate that, rather than stroking a check for a new or used jet, they can more prudently or profitably use their cash elsewhere in their businesses for capital expenditures, investments, or, particularly during the pandemic, working capital.
• Tax write-offs. If the lessor adheres to applicable federal tax law, including the lessor’s maintenance of residual value under the federal true lease guidelines, the lessor may be entitled to claim bonus depreciation on the new or used leased aircraft per the Tax Cuts and Jobs Act of 2017.
In a loan transaction, the borrower, as the owner, may be entitled to bonus depreciation of the aircraft and other tax write-offs allowed under the Coronavirus Aid, Relief, and Economic Security Act plus bonus depreciation despite some personal use of the aircraft.
• Lessor/lender competition. Most aircraft lenders and lessors compete aggressively on interest rates or lease economics to win business to the extent consistent with their respective business models, regulatory constraints, and internal credit policies. However, financiers will, except for the most creditworthy customers, expect customers to sign documentation that contains strong covenants, defaults, and other restrictive terms on aircraft and business operations.
• Customized lease and loan structures. Structuring lease and loans constitute an integral part of competition among financiers. To facilitate planning and cost management of aircraft operations, a lessor can, within tax and other limits, create flexible structures that contain fixed and variable rents, options to purchase the aircraft during the lease term or at lease expiration, terminate the lease during the lease term or renew the lease term at lease expiration.
Lenders can offer various loan structures that drive down periodic loan payments and achieve other customer goals. These loans might include a payment term of five to 12 years, asset-based financing (that primarily relies on aircraft value for re-payment), one large “balloon” or total principal payment at the end of the loan term, 10- to 20-year amortization periods, interest-only structures, and limited personal guarantees. Borrowers should negotiate early payoff rights so they can, at will, exit the relationship, refinance the aircraft loan, or use available cash to pay off the loan.
Though cash is king for many aircraft buyers, up to 70 percent of potential business aircraft owners or operators intend to finance the acquisition of their next new aircraft. The same should roughly be true for anyone interested in acquiring a used aircraft.
Such financing can afford these potential customers cheap interest/rent rates, no or low cash use, and an immediate opportunity to buy or lease aircraft. For the business aviation industry, any boost in transaction volume this year, prompted by an expansion of financing, would be most welcome and perhaps generate a little optimism for a better 2021.
This article was originally published in AINonline on September 11, 2020.
Difficulties Financing an Aircraft for Leaseback see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, discusses the challenges of financing aircraft leased back to a flight school or flying club due to higher-than-normal aircraft usage.
The usage equates to two things: number of hours flown annually and the type of hours flown. Aircraft leased back to flying clubs will typically accrue fewer hours than those leased to a flight school. Additionally, flight training hours will be harder on an aircraft’s engine and airframe because students and inexperienced pilots are harder on equipment than experienced pilots.
The flying club may go so far as to stipulate that members can’t join without a certain level of experience. A privately-owned airplane is flying a lot at 100 hours per year. An airplane on leaseback to a flying club could fly 200-300 hours per year. A popular flight school might see double that. More hours on the engine mean more hours on the airframe, lowering the airplane’s value. When it comes to the engine, that accelerated use could force an overhaul before typically anticipated in an amortization schedule, significantly eroding an airplane’s market value. This is what makes lenders nervous.
For example, let’s take a 1980 Cessna 182 worth $100K with a mid-time engine and decent avionics and interior. The prospective buyer wants to lease back to a flying club. Let’s say the lender values the same aircraft at TBO at $85K but also expects you to reach TBO in a certain number of years under normal usage. For a leaseback to a flying club, the lender might typically expect to see 150-250 hours a year. A lender can tolerate 300 hours or maybe even 350 hours, but higher than that and depreciation accelerates. Additionally, instead of an overhaul in five to seven years, you’ll need one in two or three.
For these reasons, lenders have a minimum loan of $100K and require a 30% down payment to finance a plane destined for flight school or flying club leaseback. So $30K down and then a $30K overhaul in two-three years means an owner essentially has put $60K cash into a plane that’s worth $105K with the overhauled engine.
Some aircraft are more likely leaseback candidates than others. A $400K or $500K SR22 is a good example. This could be ideal for a flying club or for a flight school that also rents aircraft. It’s also worth noting there are some options for leaseback to flying clubs with only 25% down and a $25K minimum loan amount, but the aircraft must be owned personally, not in an LLC. Give AOPA Aviation Finance a call if this is a situation you’d like to explore. Depending upon the current residual value in your aircraft, there might be room for a deal.
This article was originally published by AOPA Finance on July 9, 2020.
Acquire an Aircraft Before the End of 2020 see more
NAFA member, Peter Antonenko, Chief Operating Officer at Jetcraft, discusses aircraft demand in recent months and why now is a good time to make your aircraft purchase.
An upsurge in demand for aircraft as we approach the year’s end isn’t unusual. But the dual influences of Covid-19 and the imminent US election have combined to make this year’s fourth quarter unlike any we’ve experienced before. The pace of business is set to skyrocket between now and year end – and with that comes the potential for closing delays beyond December 31.
Prepare now, purchase later
If you want to close in 2020, you need to start your purchase now as pre-purchase inspection slots are already filling up fast.
Many maintenance providers were forced to make changes during lockdown, resulting in modified or reduced staffing levels. Meanwhile, owners are taking advantage of the downtime to complete due or upcoming maintenance. These factors are creating capacity challenges, leaving fewer pre-buy slots and less time to close on an acquisition.
Don’t wait for the election
While the uncertainty of an election always impacts transactions, this year will be especially significant due to the possibility of tax changes. Many buyers have so far benefited from bonus depreciation on their aircraft, and some can also make use of the CARES Act net operating loss carryback scheme. It’s worth speaking with a qualified tax specialist to find out whether you qualify for either. If you need a referral, we’ll leverage our extensive industry relationships to find someone to help. It’s smart to lock in an acquisition under 2020 tax laws, as a new administration or the ongoing pressures of the current health crisis may cause some of these regulations to change.
If you’re considering waiting until after the result in November, don’t: for a 2020 closing, we recommend being under contract by October 31st at the latest. Despite the restrictions in place over the past few months, Jetcraft was able to execute several transactions in record time: one, an Embraer Legacy 450, was completed in seven days. Another, a Dassault Falcon 900 LX, took just 14 days. While our sales creativity and ability to turn around transactions remains undiminished, these feats become trickier as the pressure on pre-buy inspection slots rises, and the days remaining in 2020 fewer.
Good inventory available
There is a solution to the pre-purchase challenge: Jetcraft has already completed or scheduled pre-buys on our current and inbound owned inventory. This means all of the aircraft currently on, or scheduled to be on, our books are ready for an expedient closing.
Should you purchase from Jetcraft’s inventory, you’ll further benefit from two newly introduced programs: six months’ unscheduled maintenance coverage from JSSI; and an interior treated with MicroShield 360, an antimicrobial coating system which protects against Covid-19 and other pathogens for up to 12 months.
Lock it in for 2020
Young, attractive pre-owned aircraft are in good supply and interest rates remain low. Our lenders remain committed to us and lines of credit are still available for cash deployment. Furthermore, with Jetcraft’s ability to take in trades, buyers can upgrade quickly and avoid a risky crossover period. Just don’t wait too long to do it – or you’ll have to postpone your aircraft purchase until the new year and your competition may get there first. Literally.
Do you know what 2021 holds for us all? Neither do I. But, if you do, please call me – I have a few other questions I hope you can answer. And maybe we can help you acquire an aircraft in the meantime.
This article was originally published by Jetcraft on October 2, 2020.
Keeping the Title Clear on Your Aircraft see more
NAFA member, Amanda Applegate, Partner with Aerlex Law Group, discusses keeping your aircraft title clear.
As an aircraft owner, it is important to make sure the title to your aircraft remains clear. Unlike some other countries, in the United States we have an owner based registry where liens can be filed on the aircraft by anyone. Since a notice of a lien can be sent to the FAA Civil Aviation Registry (the “Registry”) without the knowledge of the aircraft owner, sometimes these filings create valid liens on the aircraft and other times a cloud on the title is created by these filings. It is a good idea to have a title search of the Registry and, if applicable, the International Registry, done annually to make sure there are not any issues with the title of your aircraft. If this annual review is not done, then at the very least title searches for your Aircraft should be done when the decision is made to market the aircraft for sale. By conducting the searches prior to finding a buyer for the aircraft, if it is discovered that there are encumbrances/liens which have attached to the aircraft or clouded the title, that have not been properly released, then such encumbrances/liens can be addressed early in the sales process.
I recently worked on a transaction where at the time of the purchase the aircraft the owner had financed the aircraft. Subsequently the loan was paid off but the lien release was never filed with the Registry. Ten years later during the process to sell the aircraft, the lien was discovered. To further complicate matters, the lender was no longer in business. A simple title search run annually or even every other year could have caught this issue much sooner and made the time to research and resolve the lien easier and less costly. In another recent transaction the aircraft owner discovered that there were five liens on the aircraft because the management company for the aircraft failed to pay for maintenance that was performed on the aircraft prior to the management company going out of business. The owner of that aircraft did not know of the liens until the aircraft was under contract to be sold and the escrow company, as part of the sale process, performed the title searches on the Registry. Having to track down five lienholders in a short timeframe in order to avoid the sale from being delayed added unnecessary stress to the closing.
There are many great escrow companies, in Oklahoma City, where the Registry is located. The escrow companies will perform the searches on the Registry for a few hundred dollars. In order to perform the searches, the escrow agent simply needs to know the make, model and serial numbers of the airframe, engine(s) and propellers (if applicable).
In addition to liens filed on the Registry, an international interest can also be registered on the airframe or engines of an aircraft of a certain size on the International Registry that exists as a result of the Cape Town Treaty, which the United States is a signatory. However, the International Registry is a two- party system and requires consent from the aircraft owner before the international interest is registered against the aircraft. As a result, it is less likely that an international interest will attach to the aircraft without the knowledge of the aircraft owner. However, when an aircraft loan is paid off, the aircraft owner should request post-closing International Registry searches evidencing the discharge of the international interest.
In short, for a bit of annual work at a nominal cost, an aircraft owner should conduct annual searches at the Registry to ensure that the aircraft title remains clear of any unknown or unwarranted liens or encumbrances that have attached to the title or are clouding title of the aircraft. For various reasons, this will save the aircraft owner headaches in the future when the aircraft is sold.
This article was originally published by Aerlex Law Group in Articles, BusinessAir Magazine, The Latest, on August 4, 2020.
How to Rent a Private Jet: Everything You Need to Know About Private Jet Charter Services see more
NAFA member, H. Lee Rohde, III, President and CEO of Essex Aviation, discusses private jet charter services.
Wouldn’t it be great to be able to just rent a jet? Well, with private jet charter services, you can.
Private aircraft charter is an on-demand service that enables passengers to select the aircraft model that most closely meets their travel needs and book a flight in much the same way they’d book a seat on a commercial flight.
Read on to explore private aircraft charter options, expenses, safety considerations and more.
Table of Contents
- Different Types of Private Jet Charter
- Private Aircraft Charter Amenities
- When Does It Make Sense to Rent a Jet?
- How Much Does It Cost to Charter an Airplane?
- Charter Operators vs. Charter Brokers
- How to Identify a Private Jet to Charter
- Private Aircraft Charter Safety Considerations
- Private Jet Charter Alternatives
Different Types of Private Jet Charter Services
Private jet charter services typically fall into one of two broad categories: private jets for business and private jets for leisure.
Private aircraft charter is an attractive option to businesses because it enables them to:
- Arrange flights to multiple cities within a single day according to your schedule, rather than a commercial airline’s
- Bypass long check-in and security lines by boarding through private terminals
- Arrive on-time to important meetings by flying to an airport closer to their final destination
- Access airports often having less ground and air traffic, thereby reducing the potential for delays
- Transport larger groups at a potentially lower overall cost than commercial airfare
- Avoid costly downtime associated with commercial flight delays, layovers and connecting flights
- Support in-flight productivity by eliminating unnecessary distractions and increasing overall travel efficiency
- Conduct onboard business meetings without having to worry about other passengers listening in on sensitive conversations
- Enable team members to travel in a comfortable, inviting atmosphere so that they arrive to their final destination refreshed and prepared
Private air charter is similarly appealing to those who fly primarily for leisure purposes. Private aviation enables such individuals to effectively extend their holiday experience by flying aboard aircraft appointed with the finest luxury amenities, including full-service kitchens, state-of-the-art in-flight entertainment systems and dedicated bedrooms. Private terminals at commercial airports offer a secure, comfortable and relaxed environment, far from the hustle and bustle of the main commercial airport concourse. Local, non-commercially serviced airports enable travelers to arrive closer to their final destination, so they can start their holiday that much sooner. Ultimately, private jet charter can make even the longest haul flightfeel like an escape.
Private Aircraft Charter Amenities
We’ve already touched upon some of the amenities that travelers can expect when they charter a private jet aircraft, but let’s take a closer look at some of the comforts and conveniences passengers enjoy while onboard:
- Open spaces designed with legroom, storage space and aesthetics in mind
- Private lounges featuring plush seating arrangements upholstered with high-end materials
- Personal flight attendant crew members ready to tend to each individual passenger’s needs
- Full-service galleys stocked with a variety of fine foods and beverages
- In-flight food and drink services, including meal catering or onboard personal chef services
- State-of-the-art in-flight entertainment systems featuring cutting-edge audio and visual equipment
- Full-size lavatories, including mirrors, storage and, depending on the aircraft, shower facilities
- Depending on the aircraft, dedicated bedrooms replete with full master suite
- Private conference rooms fitted with built-in video systems, surround sound and Wi-Fi access
- Special accommodations for passengers who wish to fly with pets
Every aspect of the private jet charter experience is designed to accommodate the passenger’s unique needs.
When Does It Makes Sense to Rent a Jet?
Private jet charter services have long been popular amongst travelers who want the experience of private aviation without the long-term commitment associated with dedicated or fractional aircraft ownership. It’s an especially practical option for those who are dealing with a smaller number of trips, or who require flexibility in terms of aircraft size and destination. Interest in private aircraft charter has also increased significantly in light of COVID-19, as travelers seek to find safer alternatives to commercial flights. Travelers who are curious about the prospect of chartering a private aircraft but unsure whether it makes the most sense based on their needs are encouraged to discuss their operations with a private aviation consultant.
How Much Does It Cost to Charter an Airplane?
Unfortunately, there is no one simple answer to this question — the expense of chartering a private aircraft varies substantially based on a number of factors:
- Number of Passengers: This dictates the size of the aircraft (light jet, midsize jet, long range or ultra-long range) and, therefore, available aircraft models from which to choose.
- Dates of Travel and Scheduling: If you primarily charter on holidays and during peak travel times, this can affect your cost. General limited availability and the location of available aircraft can also affect your ability to travel on your desired dates, so it’s best practice to book charter flights as far in advance as possible.
- Flight Route and Destination: More distant destinations with longer flight routes require long range or ultra-long range aircraft models; longer journeys may also require stops to refuel and change crew if required per the Federal Aviation Administration’s (FAA) Pilot Fatigue Rules.
- Length of Time on the Ground: Most private jet charter service providers require an equivalent of two hours per day of flight time. That said, it does not matter how this time is spread out. For example, if a traveler were to depart on a four day trip, they would be required to fly a minimum of eight hours during that trip; however, they could divvy this up by flying two hours each day of the trip, or four hours each during the first and last days of the trip with the aircraft parked during days two and three.
- Round-trip vs. One-way: Round-trip flights are generally more cost effective than one-way trips. The reason for this is that a one-way trip typically requires the aircraft to complete additional flights in order to support a one-way trip request. As a result, most charter providers will actually quote the cost of a round-trip flight, even for a one-way trip. Charter providers that quote a one-way trip will effectively quote, in some form or another, the cost for the flight time of repositioning the aircraft back to its home base. For travelers interested in booking either a one-way or round-trip flight, a private aviation consultant is an invaluable resource because they can help you better understand pricing.
- One-way Options: Although it’s certainly possible to request a one-way trip, from a traditional charter perspective, the cost will likely compare to the cost of a round-trip flight. Therefore, travelers who frequently make one-way trips would probably be best served by looking into a jet card program as opposed to chartering because jet cards tend to cater more to one-way requirements.
That said, some charter providers offer one-way options in which the traveler can take advantage of a positioning flight (that has no passengers) required by another client’s scheduled trip. These opportunities utilize what are referred to as “deadhead flights,” while positioning the aircraft to its primary departure point or returning it to its home base at the end of a primary charter trip. Should your travel needs coincide with a deadhead flight — also known as an “empty leg flight” — this can be a good option, one that is often offered at a discounted rate. It’s important to note, though, that the cost savings associated with deadhead flights pose risks in terms of flexibility because these flights have a predetermined departure date, time and schedule, all based on the schedule — and sometimes changing needs — of the primary charter customer.
On the whole, private jet charter services are less expensive than most other private aviation options because they’re booked on a trip-by-trip basis with no ongoing ownership or program costs.
For private jet charter cost estimates, please refer to the chart below:
Charter Operators vs. Charter Brokers
There are a few different ways to charter a private jet aircraft, including working directly with a charter operator or going through a charter broker.
Charter operators are FAA Part 135 Certified Air Carriers who are directly responsible for the ongoing management and operation of the aircraft on their charter certificate, including staffing, and require FAA certification. Charter brokers are third-party agents that act as liaisons between a client and the FAA Part 135 charter operator chosen to be utilized for the trip. A charter broker will work with their client to secure representation for the booking of the trip and then work with different charter operators to determine which option they believe best meets the trip requirements.
It’s important to note that, unlike Part 135 charter operators, charter brokers are not required to be FAA certified and operate with limited regulatory oversight. That isn’t to say that there aren’t reputable brokers in the market, rather that it’s important to thoroughly vet brokers before choosing to partner with one; a private aviation consultant can prove to be a valuable asset in this review and selection process.
For a more detailed explanation of the difference between charter operators and charter brokers, please refer to our blog post on the subject.
How to Identify a Private Jet to Charter
When determining which type of private jet aircraft model to reserve for a trip, travelers are advised to consider the following:
- How many passengers will be on the flight?
- Do any of those passengers require special accommodations? (For example, a passenger with a wheelchair may need additional space.)
- How much total luggage needs to carried?
- Are there any larger luggage items (golf clubs, skis, bikes, etc.)?
- What is the desired departure airport or location?
- What is the desired arrival airport or destination?
- What is the length of the trip?
- Will the aircraft be repositioned on certain days during the trip? If so, where and for how long?
- Do the passengers require any special amenities (internet service, certain floorplan seating options, etc.)?
Each of these factors plays an important role in determining the necessary size, equipment capability and performance capabilities of the aircraft.
Private Aircraft Charter Safety Considerations
In addition to FAA regulations, there are numerous other industry standards and ratings designed to audit the safety of private aviation companies. The three most well-known are the International Standard for Business Aircraft Operations (IS-BAO), the Aviation Research Group/US (ARGUS) rating system and the Wyvern Wingman Certification program.
IS-BAO was founded by the International Business Aviation Council in an effort to “build a culture that continuously strives for a better, safer way of operating by identifying areas where better risk management will improve safety.” The IS-BAO auditing process consists of three stages designed to verify that safety management activities are appropriately targeted and integrated within an operator’s business. IS-BAO was developed by operators, for operators and is based on the standards outlined by the Standards and Recommended Practices outlined by the International Civil Aviation Organization.
Developed by ARGUS International, the ARGUS rating system is designed to confirm the legitimacy of a charter operator based on their safety record, whether they have liability insurance, pilot training, experience and certifications, pilot background checks and more.
ARGUS ratings break down into four categories, shown in the table below:
Some private jet charter providers will claim that they’re “ARGUS Rated,” but there’s a significant difference between being an ARGUS Gold Rated and ARGUS Platinum Rated operator, so it’s in the travelers’ best interest to partner with a private aviation consultant who can help them understand the difference.
As the first private aircraft safety auditing firm in the country, WYVERN Consulting has garnered a great deal of respect, and its WYVERN Wingman Certification is considered one of the most reputable in the industry. WYVERN audits are governed by six principles: integrity, fair presentation, due professional care, confidentiality, independence and an evidence-based approach. Wingman Certified operators gain an exclusive listing on The Wingman Report, WYVERN’s directory of premier operators, access to WYVERN’s safety data platform and round-the-clock support from the WYVERN team.
Any private aircraft charter company that boasts one or more of these ratings or certifications in addition to meeting FAA regulations would be a preferred option to consider, though it doesn’t hurt to consult a private aviation expert for peace of mind.
Private Jet Charter Alternatives
For those who aren’t sure whether renting a jet is right for them, there’s a world of other private aviation options in store, including:
- Membership Programs: With a membership program, members agree to a fixed cost per hour charter rate at the start of the contract and are billed after each flight. Members typically pay either a monthly management or annual membership fee in addition to the cost per flight.
- Jet Card Program: Jet card program members have their pick of a dedicated service with a predetermined number of hours on a specific aircraft type or size category or a debit card service in which they establish a travel fund account and pay on a trip-by-trip basis using that account.
- Fractional Aircraft Ownership: Fractional owners purchase a share of a specific aircraft type and agree to an annual number of allotted flight hours. Most fractional aircraft ownership programs require a minimum size share of 50 hours of flight time per year, though this can vary depending on the provider.
- Pre-Owned Aircraft Acquisition: Travelers who for a variety of reasons want their own private aircraft without the capital investment of a new aircraft acquisition are advised to consider purchasing pre-owned and investing in aircraft refurbishment services to breathe new life into an existing aircraft.
- New Aircraft Acquisition: The ultimate in luxury, travelers can purchase a new aircraft tailored to their exact requirements and specifications.
If you’re considering private jet charter services or evaluating alternatives, talk to the experts first — specifically, the experts at Essex Aviation Group. With a combined 95 years of aviation experience, we have longstanding private aviation industry connections that we can leverage to your advantage. We’re also intimately familiar with different private aircraft charter companies’ vetting processes, so we can help ensure that every flight you take is a safe flight.
Ready to get started? Contact us today to let us know your unique travel requirements and we’ll help you determine whether private air charter services are right for you.
This article was originally published by Essex Aviation on August 13, 2020.