business 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
    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
    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
    Business Aviation Flight Hours at an All-Time Low see more

    NAFA member, JSSI, shares their April 2020 JSSI Business Aviation Index showing business aviation flight hours at an all-time low.

    Latest month-on-month activity drops 69.3% due to COVID-19

    CHICAGO,  May 19, 2020 – Business aviation utilization has reached a record low, according to Jet Support Services, Inc. (JSSI), as highlighted by a single-digit monthly flight hour average of 5.9 per aircraft across JSSI’s entire portfolio in April, marking a first for the company. Following its quarterly Business Aviation Index publication, JSSI has released April 2020 data revealing changes in global flight activity and utilization of business aircraft, including jets, turboprops and helicopters between March and April 2020.

    The key findings are:

    • Overall flight hours have reached all-time lows, with activity dropping 69.3% between March and April 2020.
    • Flight hours dropped 77.5% year-over-year.
    • Average flight hours per aircraft across the entire JSSI portfolio averaged 5.9 hours per asset in April 2020.
    • By age, the hardest hit segments were newer aircraft aged under five years, followed by aircraft aged 6-10 years. Both segments saw the two largest month-on-month decreases between March and April 2020.
    • Large cabin aircraft activity slowed the most. Since March 2020, activity has dropped by 84.7%.
    • Helicopters have felt the least impact on flight hours from COVID-19, with flight activity reduced by 27.5% since March 2020.
    • All regions have been hit hard in April 2020, with month-on-month decreases ranging from 48.5% (Asia Pacific) to 74.2% (Europe). Flight activity in every region worldwide is down an average of 27.2% compared to the same four-month period in 2019.  

    Discussing the April figures, Neil Book, president and CEO of JSSI, said:

    “March flight hours saw the largest decline since the global financial crisis of 2008. April’s flight hours are the lowest we have on record, down more than 75% compared to April 2019 and demonstrating the true impact of global lockdown restrictions and border closures since their implementation.”

    “Asia Pacific was the first region struck by COVID-19 and shut down the earliest. As the region has begun to reopen, flight hours in April have had a modest rebound. As a number of countries begin to ease restrictions and borders begin to reopen, we expect to see a slow but steady increase in flight hours worldwide for the month of May. However, we simply do not know how long it will take to get back to 2018 and 2019 levels. The time to market with an effective treatment or vaccine will clearly be the driver of this timeline.”

    “In April, the healthcare industry had the strongest flight hours. This could allude to the utilization of these aircraft for air ambulance and medical supply transportation, a trend continued from our Q1 2020 analysis.”

    “The largest demographic of business jet owners are males over the age of 60, who fall into a “high-risk” category for COVID-19. I’ve had extensive conversations with clients who’ve said they are going to significantly reduce their flying, because they simply will not be attending conferences or staying at hotels at least for now.

    “With that said, we are already seeing a significant number of new users migrating to a wide range of business aviation options, such as jet card, charter, fractional and even outright ownership. For many businesses and individuals with the resources, the health risks associated with walking through a commercial airport with thousands of people and getting onto a commercial flight is simply too great.”  

    Download the April 2020 JSSI Business Aviation Index.

    This article/release was originally published by JSSI on May 19, 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.

  • NAFA Administrator posted an article
    How To Shield Bizjet Owners from Virus Claims see more

    NAFA member, David G. Mayer, Partner with Shackelford, Bowen, McKinley & Norton, LLP, discusses ways for bizjet owners to mitigate risk of COVID-19-related claims.

    The sudden onslaught of the contagious and deadly Covid-19 pandemic delivered a severe blow to business aviation’s global flight activity and paused (but did not derail) preowned business jet retail sale and lease transactions. The pandemic has already changed so much in our lives that, for now, no one can envision what a “new normal” will look like for business aviation.

    Regardless of what happens, today, as governments ease shelter at home restrictions, business aircraft owners and lessees, along with their managers and Part 135 operators (together, owners), face an imperative to protect anyone from Covid-19 who might come in physical contact with, or travel on, the operator’s business aircraft.

    These people include owners and their families, other passengers, crew, independent contractors, employees, and ground support personnel (together, affected individuals). The imperative applies both to Part 91 and 135 operations. If owners do not meet this obligation head-on, it seems inevitable that affected individuals will make negligence claims against owners for exposure to, and illness or death from, Covid-19.

    THREE WAYS TO MITIGATE RISK OF COVID-19-RELATED CLAIMS

    Owners should use this period of slower flight and market activity to take the following three actions that might limit the chances for affected individuals to contract Covid-19 and blunt any incentive to make damage claims against owners for their alleged negligence:

    First, develop comprehensive business aircraft protocols for each business aircraft to create a healthy and safe environment inside of, and close to, the aircraft.

    Second, request Covid-19 waivers and indemnities from affected individuals to mitigate the risk of Covid-19-related liability claims based on negligence or other legal theories.

    Finally, confirm whether the owner carries, or the owner can buy, liability insurance coverage that will respond to such liability claims.

    Covid-19 Negligence Explained

    As a general legal principle, business aircraft owners may be negligent and liable for money damages if the owner breaches its duty of reasonable care to maintain a safe and healthy environment for affected individuals inside of, or close to, their aircraft.

    Broadly speaking, the duty occurs because an owner can reasonably foresee that Covid-19 might live in and on business aircraft, be transmitted inside or close to the aircraft by one person to another, or from personal items such as luggage to an affected individual. If negligence is proven, a judge or jury can then award significant money damages in favor of the affected individual or his/her estate.

    Importantly, the affected individual who contracts Covid-19 must prove that the breach of the owner’s duty of reasonable care is the “proximate cause” of the Covid-19 illness or death. That is, the affected individual must provide evidence of an almost indisputable connection between his or her Covid-19 condition and the exposure to Covid-19 inside of, or close to, the business aircraft.

    As such, causation is likely to be the most difficult element to prove, especially given the challenges in tracing from the affected individual to the aircraft environment as the only possible source of the affected individual’s infection. However, no owner should rely on the difficulty of proving causation as an excuse to ignore safeguards and fail to develop a high-quality aircraft protocol.

    DEVELOPING A COVID-19 AIRCRAFT PROTOCOL 

    As noted above, owners can, and immediately should, develop and enforce a comprehensive protocol designed to protect any affected individual who is inside of, or might come in physical contact with, a business aircraft, its cargo, and any other affected individual. A protocol, in this context, refers to written standards, practices, and behaviors established by owners to ensure that the environment inside of, and close to, their business aircraft is free of the Covid-19 infection.

    Although important, cleaning and disinfecting an aircraft by itself does not constitute an aircraft protocol. Owners should include many other elements in a protocol such as screening each affected individual, safely bag or wrap potentially infected luggage, test passengers for Covid-19 before the flight, and provide each passenger with personal hygiene supplies and masks that must be used inside the aircraft.

    To help them meticulously design and write, as well as implement and update, a Covid-19 health and safety protocol, owners should hire appropriate medical, cleaning, and safety experts to contribute relevant parts of, and comment on, the entire protocol. Some managers and Part 135 operators have already taken steps to create all or part of a protocol or a rough equivalent, which is positive.

    Further, owners should conduct periodic audits to confirm strict compliance with the protocols. They should also retain records on, and immediately rectify any shortfalls from, the protocol implementation such as recording dates and times of disinfecting in and around an aircraft. These steps might entail some additional effort, but they should help mount a good defense to negligence claims.

    In all situations, owners and affected individuals should limit travel with operators that have not developed and comply with a protocol on every flight. After all, only one mistake or negligent act or omission can lead to tragic consequences involving Covid-19.

    COVID-19 RESOURCES TO CREATE A PROTOCOL

    In writing and updating the protocols, owners, experts, and their lawyers should study pertinent information from, among others, the World Health Organization, Centers for Disease Control, FAA, EBAA, and NATA. Notably, NBAA recently published a comprehensive resource that owners can use as the foundation of a quality aircraft protocol.

    Aircraft manufacturers should be able and willing to provide consulting services and aircraft products, including fresh air intake and filtering systems, to mitigate safety risks and negligence claims.

    LIABILITY INSURANCE COVERAGE TO MINIMIZE PAYOUTS FROMCOVID-19 CLAIMS

    Liability insurance might cover Covid-19 negligence claims relating to business aircraft. Owners and their aviation insurance experts or lawyers should examine the wording in their liability insurance policies to determine whether any coverage exists against these claims. Some, but not all policies, contain explicit exclusions for viruses, which means Covid-19 claims might not be covered.

    Prospects to buy such insurance now are dismal, but large accounts might have a shot. If there is potential coverage, the insurer might have a “duty to defend” the insured, at the insurer’s expense, and therefore engage counsel to defend the insured against the Covid-19 claims.

    WAIVERS AND INDEMNITIES TO LIMIT IMPACT OF COVID-19 CLAIMS

    Each owner should ask any affected individual, before a flight, for a written, signed waiver of claims for Covid-19 illness or death. Separately, managers and Part 135 operators might consider asking for waivers and indemnities from owners for damages to furniture and hard surfaces in the aircraft allegedly caused by disinfecting chemicals used in or on the aircraft to rid the areas of Covid-19. Courts generally enforce properly drafted waivers and indemnities, but applicable laws might alter this outcome.

    CONCLUSION

    Covid-19 affects all of us in different ways. In business aviation, it seems urgent that, as governments lift stay-at-home restrictions, owners develop and implement comprehensive Covid-19 health and safety protocols for their business aircraft, secure waivers, and indemnities and maintain appropriate liability insurance.

    Properly structured, a protocol can protect the lives of business aircraft owners and their families, crews, independent contractors, employees, and ground support personnel from illness and death caused by Covid-19. Protocols can boost confidence in traveling by business aircraft and mitigate the risk of complex, expensive, and lengthy liability lawsuits against the business aircraft owners, managers, and Part 135 operators.

    The right choice seems obvious, but the end of this healthcare crisis and recovery of business aviation remains far from certain.

    Author note: “This blog is not intended to create or constitute, nor does it create or constitute, an attorney-client or any other legal relationship. No statement in this communication constitutes legal advice nor should any communication herein be construed, relied upon, or interpreted as legal advice. This communication is for general information purposes only regarding recent legal developments of interest, and is not a substitute for legal counsel on any subject matter. No reader should act or refrain from acting on the basis of any information included herein without seeking appropriate legal advice on the particular facts and circumstances affecting that reader.”

    This article was originally published by AINonline on May 15, 2020.

  • NAFA Administrator posted an article
    Charter Operations Feel the Impact of COVID-19 see more

    NAFA member, NBAA, shares their latest episode of NBAA Flight Plan regarding the impact COVID-19 has had on charter operations. 

    With business aviation flight operations across our nation and around the globe idled by the COVID-19 pandemic, what options are available to help operators weather this storm and when might we finally see our industry recover? “International travel is absolutely critical, particularly for long-haul aircraft,” notes aviation attorney David Mayer, a partner in the law firm Shackelford, Bowen, McKinley & Norton, LLP. “When you see evidence that, as a whole population globally we have confidence in travel across borders and across oceans, I think you will see business aviation respond fairly promptly.”

    In this episode of NBAA Flight Plan, host Rob Finfrock speaks with:

    • David Mayer, aviation attorney and partner at the law firm of Shackelford, Bowen, McKinley & Norton, LLP
    • W. Ashley Smith, CAM, president of aircraft charter, maintenance and aeromedical provider Jet Logistics

    Listen to Podcast Now

    This article was originally published by NBAA on May 4, 2020.

  • NAFA Administrator posted an article
    A Capital Option see more

    NAFA members, Keith Hayes, PNC Aviation Finance, and Lou Seno, JSSI, discuss operating leases in the latest Business Aviation Advisor podcast.

    It’s time to think about rebuilding your business.

    And doing so as soon as it’s safe will require traveling via business aircraft, to reconnect personally, face-to-face, with your key customers, allies, and associates.

    It also may require redeploying your capital to fund those rebuilding efforts. Using an operating lease to finance your aircraft can help you do just that.

    Listen as Keith Hayes, PNC Aviation Finance Senior Vice President, and Lou Seno, JSSI Chairman Emeritus, detail how financing a new aircraft – or refinancing your current one – via an operating lease enables you to devote more capital to your core business.

    When there’s more to be said than space and copy deadlines allow, you can rely on the Business Aviation Advisor Above and Beyond podcasts to get you the information you need, to help you make the most of your aviation investments.

    Thanks for reading, listening – and flying safely!

    Listen to Podcast here

    This podcast was originally published by Business Aviation Advisor on May 18, 2020.

  • Tracey Cheek posted an article
    Used Aircraft Maintenance Analysis – March 2020 see more

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

    During March, Asset Insight’s tracked fleet of 134 fixed-wing models and 2,218 aircraft listed for sale identified a 1.2% inventory fleet increase over February’s figure, for a year-to-date (YTD) increase of 1.6%.

    Concurrently, the available inventory’s maintenance status posted a 12-month best (highest) Quality Rating, keeping the fleet within the ‘Excellent’ range, virtually unchanged (at 5.297) compared with February’s 5.295, on a scale of -2.500 to 10.000.

    March’s Aircraft Value Trends

    While the average Ask Price for aircraft in the tracked fleet decreased a bit, the posted figure was only $20k below the 12-month high figure achieved in February, and only one group experienced a decrease.

    • Large Jets: Ask Prices remained virtually unchanged, increasing a nominal 0.1%.
    • Medium Jets: The only group to post a value loss, Medium Jets decreased 6.7%.
    • Small Jets: Increased 3.0%.
    • Turboprops: Rose 1.7%.

    March’s Fleet for Sale Trends

    The total number of used aircraft listed for sale increased 1.2% in March, and 1.6% for Q1 2020. That translated into a tracked inventory increase of 26 units in March and 36 units for all of Q1. Individual group figures broke down as follows.

    • Large Jet Inventory: Increased 1.3% in March (+6 units) and 7.9% during Q1 (+34 units)
    • Medium Jet Inventory: Rose 1.8% (+11 units) for the month, but down 4.9% for Q1 (-32 units)
    • Small Jet Inventory: Increased 0.4% (+3 units) in March and 7.5% (+48 units) YTD
    • Turboprop Inventory: Increased 1.4% (+6 units) for the month, but down 3.1% for Q1 (-14 units).

    March’s Maintenance Exposure Trends

    Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) increased (worsened) 5.5% for the month and 4.0% during Q1. Individual results were as follows:

    • Large Jets: Worsened (increased) by 5.9% for the month and 6.3% during Q1.
    • Medium Jets: Improved (decreased) 0.6% in March and 4.1% for Q1.
    • Small Jets: Worsened (increased) 14.5% to post the group’s worst (highest) 12-month figure, while also increasing 22.3% during Q1.
    • Turboprops: Worsened (increased) by 1.3% in March, but improved by 11.7% YTD.

    March’s ETP Ratio Trend

    The fleet’s ETP Ratio worsened (increased) in pretty dramatic fashion in March, virtually erasing any previous improvement to post a figure of 71.1% (versus February’s 65.4% and the 64.8% it registered at Year-End 2019).

    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) increase, 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 March?

    • Turboprops: Continued to hold the top (best) spot by a wide margin posting the lowest ETP Ratio of 42.1% (the group’s third consecutive 12-month low/best figure).
    • Large Jets: Held on to second place at 64.7%.
    • Medium Jets: Kept their third position at 74.6%.
    • Small Jets: Posted the group’s 12-month worst (highest) figure of 90.2%.

    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 March 2020.

    Asset Insight - March 2020 Most Improved Business Aircraft

    Most Improved Models

    All of the ‘Most Improved’ models posted a Maintenance Exposure decrease (improvement). While the Hawker 800A experienced an Ask Price decrease of $29,622 and the Dassault Falcon 900 saw no change in Ask Price, the remaining four models experienced price increases, as follows:

    • King Air B200 – Pre-2001 +$74,913
    • Gulfstream GV +$228,194
    • Hawker 800XP +$77,760
    • Hawker Beechjet 400A +$27,969

    Hawker 800A

    Since appearing at the bottom of January’s ‘Most Deteriorated’ list, the Hawker 800A claimed third place on February’s ‘Most Improved’ list, and leads the ‘Most Improved’ list for March.

    Two aircraft traded last month, and the 31 currently listed for sale equate to 13.7% of the active fleet. The latest fleet mix helped the model achieve its standing through a Maintenance Exposure decrease exceeding $243k (which overcame an Ask Price drop approaching $30k).

    The model’s 152.5% ETP Ratio is not going to magically spark additional buyer interest, but its improvement is notable, as is its ongoing market following.

    Dassault Falcon 900

    Second place goes to a model whose appearance was created through a 50% increase in available units for sale in March. That difference resulted in a decreased Maintenance Exposure of nearly $369k. With no change in the average Ask Price, the Falcon 900 earned its position on this list.

    Translation: Three aircraft are now listed for sale (as opposed to the two listed last month) and the recently-listed unit did not show an Ask Price. This should serve as proof that statistics can be misleading!

    The Falcon 900 has a strong following, though, and with an ETP Ratio below 45%, sellers should be able to locate interested buyers, even though the listed units represent 13% of the active fleet.

    King Air B200 (Pre-2001 Models)

    Third place goes to a model that recorded three transactions, one withdrawal, and four additions to the fleet for sale in March, lowering the Maintenance Exposure by nearly $48k and increasing the Ask Price by nearly $75k.

    The 43 units listed for sale offer a good selection for buyers while still representing only 5.5% of the active fleet, creating ample opportunities for sellers. Moreover, the model’s near 46% ETP Ratio is a testament to the following this >20 year-old aircraft continues to enjoy.

    Gulfstream GV

    Next on the ‘Most Improved’ list is an aircraft whose 19 sellers should have little problem locating interested buyers, considering listings represent 10% of the active fleet, and the Gulfstream GV’s ETP Ratio is below 30%. (Admittedly, the current pandemic may delay deal-making a bit.)

    One aircraft transaction was registered as we closed March, leading to a Maintenance Exposure decrease exceeding $556k that, along with an Ask Price increase of more than $228k, earned the model its ‘Most Improved’ ranking.

    Hawker 800XP

    Following the behavior of the Hawker 800A, the Hawker 800XP made the ‘Most Improved’ list thanks to a Maintenance Exposure decrease approaching $24k and an Ask Price increase nearing $78k. Four aircraft transactions were posted in March that, following some additions, a withdrawal and some other changes, meant 13.3% of the active fleet is currently listed for sale.

    The 800XP is sporting an ETP Ratio nearly half that of the 800A. Assuming an asset’s engines are enrolled on an Hourly Cost Maintenance Program, the model has sufficient following in the market for sellers to structure sensibly-priced transactions.

    Hawker Beechjet 400A

    Rounding out March’s ‘Most Improved’ list is the Beechjet 400A, an aircraft that occupied a place in the ‘Most Deteriorated’ rankings last month, and whose sellers may have a hard time convincing a limited pool of buyers that their aircraft is worthy of the price they seek.

    With 61 units, 22.6% of the active fleet, listed for sale, and aircraft age ranging from 17 to 30 years, differentiation is likely to focus heavily on price. The model’s 78.6% ETP Ratio was created through three sales last month, as well as one withdrawal from, plus six additions to the ‘for sale’ fleet.

    The revised inventory mix lowered Maintenance Exposure by over $20k while boosting Ask Price nearly $28k. Regrettably, with the current ETP Ratio most sellers are likely to find pricing discussions challenging.

    Asset Insight - March 2020 Most Deteriorated Business Aircraft

    Most Deteriorated Models

    All six models on March’s ‘Most Deteriorated’ list registered a Maintenance Exposure increase. The Bombardier Learjet 31A posted an Ask Price increase of $17,731, the Learjet 35A experienced no Ask Price change, and the remaining models underwent the following decreases:

    • Cessna Citation II -$4,444
    • Cessna Citation ISP -$20,015
    • Hawker Premier 1 -$13,183
    • Gulfstream GIV -$25,556

    Cessna Citation II

    March’s ‘Most Deteriorated’ model registered five transactions, but the 89 units currently listed for sale account for 17.5% of the active fleet, creating serious pricing challenges for sellers.

    The aircraft’s $241k Maintenance Exposure increase and Ask Price decrease are both symptomatic of the model’s 147.4% ETP Ratio. With aircraft age ranging from 25 to 42 years, sellers must rely on buyers seeking low pricing that addresses the very real probability they would become the aircraft’s final owner.

    Cessna Citation ISP

    The second ‘Most Deteriorated’ model this month is another member of the Citation family, except this one is older, since Citation ISPs range from 35 to 43 years of age. No transactions were noted in March, but three withdrawals from inventory left 17% of the active fleet (47 units) available for buyers focused on still-operable ‘antiques’.

    Surprisingly, the Citation ISP sports a lower ETP Ratio than the younger Citation II fleet. Nevertheless, the 126.1% Ratio (courtesy of a Maintenance Exposure increase approaching $176k and an Ask Price decrease exceeding $20k) offers buyers the opportunity to earn ‘final owner’ status with this model.

    Bombardier Learjet 31A

    The first of two Learjets on the ‘Most Deteriorated’ list this month posted no transactions in March, although one aircraft was withdrawn from inventory. At the last count, 38 Learjet 31As were listed for sale, representing 19.5% of the active fleet.

    These aircraft are now between 17 and 29 years of age, and while they are still quite productive assets, their 128.1% ETP Ratio is a testament to their challenging marketability.

    The Learjet 31A essentially earned its spot on this list through a Maintenance Exposure increase exceeding $246k, even though the aircraft actually posted an Ask Price increase. Whether or not the higher Ask Pricing can be achieved, especially at this challenging time, remains to be seen…

    Bombardier Learjet 36A

    The second Learjet on this list is a 27-44-year old model that also recorded no transactions during March, and no Ask Price change. (While statistically correct, this fact is also somewhat misleading as only one of the four listed units displays an Ask Price.)

    The aircraft earned its spot on this list thanks to a Maintenance Exposure figure approaching $210k. With its ETP Ratio exceeding 151%, this model is not readily marketable, although its operating capabilities are still quite impressive, by any standard.

    Beechcraft Premier 1

    No transactions were identified for the month of March, but the two inventory withdrawals and four additions created an availability of two dozen units, 20.2% of the active fleet. These assets are only aged between 15 and 19 years, but their ETP Ratio, which stood at nearly 90% during this latest analysis, negatively impacts their marketability.

    Maintenance Exposure approached $308k in March, while Ask Price dropped over $13k. Enrollment on an engine Hourly Cost Maintenance Program would lower the HCMP-Adjusted ETP Ratio, but that is not an effective differentiator for sellers, as most of these assets are enrolled on a program.

    Gulfstream GIV

    Rounding out our ‘Most Deteriorated’ list this month is a model whose ETP Ratio, quite frankly, surprised us. The GIV continues to have a respectable following. However, its ongoing Ask Price decreases (nearly $26k last month) and high Maintenance Exposure figure (over $563k in March) are clearly reflecting the aircraft’s 27-34 years of age.

    Two units transacted in March, one was withdrawn from inventory, and another was added to total 20 available units, equivalent to 11.6% of the active fleet.

    Here again, sellers whose aircraft engines are enrolled on an Hourly Cost Maintenance Program will see a lower HCMP-Adjusted ETP Ratio, but the figure will still be such that price is likely to be the transaction’s primary driver.

    The Seller’s Challenge

    It is important to understand that the ETP Ratio has more to do with buyer and seller dynamics than it does with either the asset’s accrued maintenance or its price. For any aircraft, maintenance can accrue only so far before work must be completed.

    But as an aircraft’s value decreases, there will come a point when the accrued maintenance figure equates to more than 40% of the aircraft’s ask price. When a prospective buyer adjusts their offer to address this accrued maintenance, the figure is all-too-often considered unacceptable to the seller and a deal is not reached.

    It is not until an aircraft undergoes some major maintenance that a seller is sufficiently motivated to accept a lower figure, or a buyer is willing to pay a higher price and the aircraft transacts, ultimately.

    A wise seller needs to consider the potential marketability impact early maintenance might have on their aircraft, as well as its enrollment on an Hourly Cost Maintenance Program where more than half of their model’s in-service fleet is enrolled on one.

    Sellers also need to carefully weigh any offer from a prospective buyer against the loss in value of their aircraft for sale as the asset spends more days on the market awaiting a better offer while simultaneously accruing a higher maintenance figure.

    More information from www.assetinsight.com.

    This Asset Insight report was originally published by AvBuyer on April 16, 2020.

  • Tracey Cheek posted an article
    Industry Leaders Praise Passage of More Relief Funding see more

    Industry groups welcomed U.S. congressional approval this week of additional funding for the Paycheck Protection Program (PPP), saying it provides the opportunity for much-needed relief for small aviation businesses. The nearly $500 billion measure—which included more than $300 billion to replenish the depleted PPP fund with $60 billion set aside for small lenders—passed the House yesterday, following Senate passage on Tuesday.

    “We are very pleased to see Congress respond to the continuing, highly challenging needs of many small businesses and their employees,” said NBAA president and CEO Ed Bolen.

    Noting the majority of Helicopter Association International’s membership comprises small businesses, HAI president and CEO James Viola added, “Like most small businesses around the world, they are suffering from the effects of the economic disruption caused by the Covid-19 pandemic.”

    The business and general aviation community have been working to ensure Congress understands the harm the Covid-19 pandemic is having on the industry and continues to seek further assistance as Congress considers future measures.

    This is particularly true as smaller carriers are still struggling to obtain resources for that and funding that was specifically set aside for aviation. “We are hearing stories of difficulties with the PPP and the Air Carrier Worker Support Program,” NATA president and CEO Timothy Obitts said, adding the organization is continuing to educate and push for access to all available relief programs.

    “As Congress considers additional legislation related to the Covid-19 pandemic, NATA has already begun discussions with key policymakers regarding the need for additional support for our industry,” said Jonathon Freye, NATA vice president of government and public affairs.

    Alluding to a possible fifth economic stimulus package, HAI pointed to “much-needed additional funding,” and said it would continue to impress upon Congress the importance of keeping the industry viable.

    This article was originally published by AINonline on April 24, 2020.