business aviation

  • Tracey Cheek posted an article
    Is business aviation ready for Blockchain? see more

    NAFA member, Corporate Jet Investor, discusses Blockchain and business aviation.

    BLOCKCHAIN IS one of those words nearly everyone has heard of or read about over the past decade, but very few people can define exactly what it is. Those who take a shot at explaining it usually end up saying something along the lines of: “Blockchain is a distributed, decentralized, public ledger.” Instead, the best way to think about blockchain is that it allows data to be held securely in a provable format. The blocks of the chain are digital pieces of information or data.

    This deep granularity means small items can be tracked, with the data stored on a network of computers. Fundamentally, the goal of blockchain is to allow digital information to be recorded and distributed, but not edited. Accessing indivudal blocks requires a key, created by complex algorithms. This ensures the data items cannot be tampered with, essentially helping the data points be verifiable.

    For business aviation the potential application of this technology could be vast, from storing individual financing documents to spare-parts tracking of the smallest aircraft components. Fuel companies are also working on using it.

    First movers

    Adoption across business aviation of blockchain is still very much in its early stages but this will change soon. Clay Healey, owner of AIC Title Service, is among the first movers. The firm has been using blockchain since last year, mainly placing closing information into it, for roughly 2,000 assets with a $2bn value in closing. Healey says that AIC uses blockchain primarily for security but adds that a lot of the language around blockchain is slowing its adoption.

    “For us at AIC, blockchain really is an added layer of security. I think a lot of the words used around blockchain make it incredibly hard for most people to grasp it. Nodes. Decentralisation. What do they mean?” he asks rhetorically.

    “Breaking it down logically, it’s a way to put information across a vast array of servers, and that makes it extremely secure and virtually un-hackable. I say virtually as for verification of the documents, 51% of the computers, or servers, need to agree that the data is correct. To hack 51% at the same time is a huge task.”

    Aiham Bader, founder and CEO of Click Aviation Network, is another pioneer. The trip support company is already using Blockchain technology for its Instant Permit Programme and is looking at leveraging it to help with parts traceability.

    “If you are going to implement blockchain, start from within,” said Bader. “Have a group from your company who understand your business, vision, the target and the plan. Then you have the engine within who understand blockchain and if it fits within your business. Then from all the problems you have to pick out only one problem and start with it first.”

    Todd Siena, founder and chief of Block Aero, a start-offering a blockchain platform, also highlights that for aviation blockchain offers security of data and a method to verify the truth of that data, which can be crucial for an aircraft’s resale value.

    “Where we see the value of blockchain at Block Aero is that it organises asset data and secures the verification of it. Given that aircraft value is linked to this asset trace data integrity, which grows over the life-cycle, being able to prove up that asset data is vital. If you lose the data, or it is incomplete, then you are losing resale value,” says Siena.

    Being able to store and verify crucial data cross many components is of obvious benefit to aviation, especially on the maintenaBlock Aero recently announced a flagship pilot project with Turbine Services & Solutions and Etihad Airways nce side where there are numerous parts to track.

    The blockchain pilot project, sponsored by Mubadala Aerospace R&D, aims to improve engine-overhaul times by enhancing cooperation between parties that need to collaborate on aircraft asset data.

    Healey agrees that blockchain’s ability to prove-up documents makes blockchain a good opation for aviation.

    “One great thing about packaging our closing documents into one PDF is that all the information is there and if it is housed on the blockchain it’s incredibly easy to obtain that information if and when there’s a need to prove upwards.”

    Siena thinks that aircraft will ultimately either be on the chain or not, with implications for the pricing of financing and asset sale value.

    “I think the world will diverge into a place where we have aircraft and assets on-chain and off-chain. Maybe those at the start will be newer aircraft and premium ones like business jets,” he says.

    On-chain aircraft may also be able to get tailored insurance policies as well, Sienna adds.

    “These on-chain assets will enjoy several advantages over those not on the blockchain. For example, insurance may be cheaper as you can prove to the insurer the condition of the asset with risk monitoring over the life-cycle,” says Siena.

    “Right now, most insurers offer very generalised policies, but providing more granular data means these can be more tailored. The same can be applied to asset financing.”

    Back on the chain gang

    One obstacle to blockchain’s wider adoption is that making a complete repository of all aviation assets is something of a herculean task.

    “But away from putting new stuff into the blockchain, reverse engineering blockchain into the aircraft title world may be near on impossible as there are just so many aircraft. You’d have to go so far back to get all the information. If someone was to draw a line in the sand and say ‘let’s just do it from say 2018’, then it might be feasible,” says Healey.

    Registry support would play a critical role in making the adoption of blockchain more feasible. But according to Healey no registry has embraced blockchain as of yet, though AIC is in talks with a European registry around use of blockchain.

    OEM support would also help fasttrack blockchain’s use across aviation, according to Paul Jebely, partner at law firm Pillsbury in Hong Kong. “The inevitable march towards modernity must invariably begin with the OEMs as first movers,” Jebely says.

    However, costs and a lack of immediate efficiency gain may dissuade OEMs from adopting blockchain swiftly, Healey argues.

    “I wouldn’t say blockchain really adds efficiency and it does cost a lot, even for relatively small users like us. If you’re an OEM, the cost will be many times more and imagine having to log every piece of metal, every change to that piece of metal – that’s not efficiency, that’s slowing you down! But then again when it comes to certification, you can just take all that data stored in one place, assert that it’s true and present to the FAA or whomever– that is where the streamlining blockchain offers starts to come in for OEMs.”

    Other technologies are available 

    Use of blockchain may not accelerate rapidly in business aviation, but there is little doubt that harnessing technology can bring business efficiencies. For example, Healey is using computing power to cut down the amount of time it takes to trace ownership.

    “We are working on a computer system that will essentially be able to read registry documents, and hope to have that online by June. That will bring efficiencies as, before, tracking all the owners, different parts etc could take four to five days,” Healey says. “There’s a 9ft tall office we have here, and some of the paper trails you’d produce from those registry searches would be as tall as the ceiling. And you have to double check all of that! Now the computer will read that document in eight minutes and all we will have to do is to check it, which might take an hour or two. That’s a tremendous time saving.”

    Smart business-aviation firms need to embrace technology that assists them. Whether blockchain is one that will become widespread looks unlikely in the near term. But as AIC’s planned new system shows, there are always new avenues to explore.

    This article was originally written and published by Jamie Bullen, Reporter, with Corporate Jet Investor in CJIQuarterly Q3 19, July 2019.  

     

     

  • Tracey Cheek posted an article
    Cassels Brock & Blackwell LLP Joins National Aircraft Finance Association see more

    FOR IMMEDIATE RELEASE

     

    FORT LAUDERDALE, Fla.– Aug. 28, 2019 - National Aircraft Finance Association (NAFA) is pleased to announce that Cassels Brock & Blackwell LLP (Cassels Brock) has recently joined its professional network of aviation lenders. 

    “NAFA members form a network of aviation finance services who diligently and competently operate with integrity and objectivity throughout the world. We’re excited to welcome Cassels Brock to our growing organization as we head to our 50th anniversary,” said Jim Blessing, President of NAFA.

    Cassels Brock is a Canadian law firm focused on serving the transaction, advocacy and advisory needs of the country’s most dynamic business sectors. As one of the largest business law practices in Canada, they serve multinational, national and mid-market entities.

    The firm’s multidisciplinary aviation practice has the expertise and experience to help clients achieve their goals in complex national and multi-national aviation law and aircraft finance transactions, including personal and business aviation needs. Cassels Brock designs, implements and manages the transaction scenarios that best match clients' goals and the available legal framework (working within the international law, common law and civil law systems). 

    Cassels Brock is dedicated to serving the needs of both the Canadian and International aviation industries. They can advise, negotiate and draft all relevant documentation in English and French, and have a working knowledge of Spanish, enabling them to provide enhanced support to international clients.

    The firm prides itself on understanding the unique business and legal challenges clients face along with the intricate business and regulatory environment in which they operate. Their clients include high net worth individuals, aviation manufacturers and aviation financiers, including aircraft and engine manufacturers, aircraft and engine leasing companies and advisors, government export credit agencies, international banks, hedge funds and other investors.

    Much like NAFA, Cassels Brock provides timely, responsive, proactive and practical advice and joins NAFA in exceeding expectations in the aviation industry through teamwork and strong leadership. 

    For more information about Cassels Brock & Blackwell LLP, visit nafa.aero/companies/cassels-brock-blackwell-llp.

    About NAFA:  

    The National Aircraft Finance Association (NAFA)is a non-profit corporation dedicated to promoting the general welfare of individuals and organizations providing aircraft financing and loans secured by aircraft; to improving the industry's service to the public; and to providing our members with a forum for education and the sharing of information and knowledge to encourage the financing, leasing and insuring of general aviation aircraft. For more information about NAFA, visit NAFA.aero.

     

  • Tracey Cheek posted an article
    Positioning Oneself in a Seller's Market see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, shares his strategy for positioning yourself in a buyer's market.

    In a seller’s market, the best way for a buyer to position themselves is through a three-pronged strategy of pre-approval, extra liquidity and nimbleness. Buyers who finance may find themselves up against cash buyers. That’s why being nimble is so important. The buyer may have to make an offer on multiple planes before they finally get into first position on a transaction.

    If you think you’re able to pay cash for a plane with the intention of getting it financed after the fact, make sure the transaction goes through proper escrow channels all the way to closing. AOPA Aviation Finance knows from experience that being pressured by a seller into purchasing a plane quickly without all the proper due diligence leads to bad outcomes more often than not.

    Many buyers are aware that incomplete logs, damage history, or a title with a cloud over it are reasons for a finance company to nix the deal. However, in this era of heightened security measures, uncertainty where (and to whom) the money from an aircraft sale went might also prevent the ability to obtain financing. Not to mention, subject a buyer to unwanted scrutiny from one or more three-letter government agencies post-closing.

    Finance companies have a regulatory obligation to follow the money. They must vet not only the buyer, but also the seller as well. This is done in order to ascertain whether money from a cash deal is destined for a bad actor on a list of prohibited persons who might possibly funnel the money to an organization on one of a number of “bad guy” lists. The simplest way to protect yourself from such close scrutiny while still preserving your potential for financing is to have the transaction go through escrow.

    Buying a high-quality airplane in a seller's market has a lot to do with timing. In past seller's markets like this one, AOPA Aviation Finance has seen frustrated clients try two distinct tactics to improve their chances when their timing was off: offer a buyer well above asking price; and/or settle for a lower quality airplane.

    We like to advise our clients that a tight market is a particularly important time to maintain objectivity, despite understandable temptations to the contrary. AOPA Aviation Finance helps a buyer by keeping a dispassionate perspective. However, in those instances when a buyer simply cannot remain objective, we counsel them to be prepared for one of three scenarios: 

    1. A person dead set on paying more than where a plane ”book’s out” with the pricing digest guides needs to be prepared to pay for a valuation to justify why the plane is worth more, or
    2. They need to be able to shell out the difference between where it books and the asking price--in addition to the regular down payment, or
    3. A combination of the two

    Lenders will finance an aircraft only on value as determined by an independent third party so the difference between that value and the buyer's asking price will have to be made up by the borrower. If a buyer can't afford to make up that difference without changing their global financial picture, AOPA tends to advise against the deal.

    Some clients feel that settling for a lesser value aircraft at least gets them a plane. For instance, pursuing a well-appointed TBM 700 because they lost out on one too many highly sought-after TBM 850s. The thing is, it's very likely other frustrated buyers have drawn the same conclusion. They too flood the market, which boosts the popularity of TBM 700s, which artificially boosts their prices. Short term win, but long-term loss. That's because the market will inevitably reverse. When it does, the 700 will likely depreciate faster and farther, thus commanding less in resale as a result. 

    Is it worth it to bet that you'll use and sell that lesser plane before the market turns? Is it worth it to take that risk in a market whose output is only a few thousand aircraft annually, and whose market is heavily dependent on a robust economy? A conversation with an AOPA Aviation Finance expert can help guide your decision-making and help hone your acquisition strategy.

    This article was originally published by AOPA Aviation Finance Company on July 8, 2019.

  • Tracey Cheek posted an article
    The Dos and Don’ts of Hiring Aircraft Appraisers see more

    NAFA member, Jason Zilberbrand, President of VREF Aircraft Value Reference & Appraisal Services shares what you need to know when hiring an aircraft appraiser.

    The joy of taking flight is one like no other. The business of getting to that take off though can be another matter.

    The purchase or sale of an airplane isn’t exactly an everyday sale. For many buying or selling an aircraft, it’ll be their first time at the rodeo. That’s all the more reason to be prepared when getting into an aircraft transaction.

    Hiring an aircraft appraiser is an important part of the aircraft transaction process. If you’ve never worked with an aircraft appraiser before, it’s essential that you prepare yourself for the experience.

    Read on, and we’ll walk you through all the dos and don’ts of working with aircraft appraisers.

    Understanding Aircraft Appraisal

    If you’re going to get an aircraft appraised, hopefully, you understand why you’re taking such a step. But many potential aircraft owners simply call an appraiser up because they’re told to do so. They don’t take the time to understand the reasons behind the recommendation.

    A proper understanding of the aircraft market is hard to get. A big aircraft company is likely to have a team of appraisers on hand at all times who keep incredibly detailed track of aviation industry trends and costs. Those unlucky enough to not own a multi-million dollar company have to outsource to receive such expertise.

    An aircraft appraiser uses their unique knowledge of the aircraft and market trends to properly estimate the value of a given aircraft. Appraisers are held to a high standard and must be able to back up their estimates with a huge amount of data.

    Their estimates must hold up to scrutiny even in a court of law.

    You might need an appraisal for a variety of reasons. You can use an appraisal to properly find the right selling price for an aircraft or to see if the buying price for another is reasonable.

    There are many other reasons to have aircraft appraised. You might be refinancing a loan, looking at an insurance policy, or just curious about the current value of your aircraft.

    It’s important to understand the purpose of your appraisal. This way, the appraiser you hire can take special care to analyze discuss areas most closely related to those goals.

    Do Find Someone Qualified

    The aircraft appraisal industry is unregulated. That means that anyone out there can technically give a value amount for an aircraft since there are no required standards for training or experience.

    That doesn’t mean you should throw a dart at the wall and hope you hit someone who knows what they’re talking about.

    The Appraisal Standards Board develops and publishes a set of standards on behalf of appraisers. Ensuring that your appraiser lives up the standards of that publication can be important.

    There are two organizations in the aircraft appraisal world that are known for their great reputation. They are the N American Society of Appraisers (ASA) and the International Society of Transport Aircraft Trading (ISTAT) and they both have long histories. VREF has a substantial staff of Senior Accredited Appraisers through both the ASA and ISTAT. It is important to note that hiring an appraiser is hiring his knowledge and experience. If the appraiser is not qualified to appraise the asset then he/she should bring in an appraiser that is qualified, or the report would not be considered USPAP compliant.

    Both organizations provide a wealth of training for their members. A badge of certification from one or both of these organizations can mean a lot in terms of an appraiser’s credibility.

    Regardless of who you go with, you should ensure that the appraiser you hire qualified and experienced when it comes to the kind of aircraft under consideration. Ensure that a field visit is part of their process.

    An appraisal is a tricky business and there are many ways to come to a final number. The last thing you want is someone who doesn’t know what they’re talking about giving you a number that will lead you in the wrong direction.

    Don’t Get Too Subjective

    A proper appraisal of an aircraft will be an objective evaluation of the aircraft. You are filling out a balance sheet, not a sales pitch. As such, don’t be surprised when certain selling points don’t add up to the valuation you might wish for.

    Having the wrong floor plan or missing critical equipment for compliance might be a recipe for lower than anticipated values.

    Just because you have a certain taste for a design or feature, doesn’t mean that aspect will add value to your aircraft. There are certain aspects you might find cool about an aircraft that actually detract from the value.

    Enjoyment is subjective after all, and it’s important to keep this in mind when it comes to appraisal.

    Do Consider Databases Used

    An appraiser will need to pull and use a certain market database for their analysis. Publications are consulted frequently by aircraft appraisers, but not all these publications paint the same story about the state of the market or industry.

    VREF Aircraft Value Reference & Appraisal Services, delivers aircraft and engine data through online subscription services and published quarterly digests. VREF provides valuations, appraisals and advisory services to a world-wide client base of aviation professionals including, banks, financial institutions, lessors, manufacturers, aircraft operators and suppliers. VREF Aircraft Value Reference & Appraisal Services plays a key role in informing decisions and identifying opportunities within the aviation industry. VREF is also the official Valuation Guide and Appraisal company for the AOPA.

    The database used for reference can have a huge impact on the final estimated value of an aircraft. As such it’s important that you, as the hiring party, stay well informed.

    The Dos and Don'ts Of Aircraft Appraisers

    Aircraft appraisal can be a tricky business. If it’s your first time working through an aircraft transaction, it can take a minute to get used to working with aircraft appraisers. But with the above tips, you’ll be well on your way to a proper valuation.

    Need more info about aircraft ownership? Feel free to contact us with any questions.

    This article was originally published by VREF Aircraft Value Reference & Appraisal Service on April 18, 2019.

  • Tracey Cheek posted an article
    What Are The Benefits Of Title Insurance For An Airplane Purchase? see more

    NAFA member Adam Meredith, President of AOPA Aviation Finance Company, answers your questions about title insurance when purchasing an airplane.

    Question: I’m planning to purchase a used airplane in the next 6-months. I’ve heard some owners talk about not needing title insurance? Wouldn’t this be required by a lender? I’m familiar with title insurance for a home purchase, but what exactly are the benefits of title insurance for an airplane purchase?

    Answer: Surprisingly, no, many lenders do not currently require title insurance on every transaction. 

    Similar to a home, your aircraft also has a title history which should be reviewed before buying. While most AOPA members know the importance of this and perform a title search prior to buying an aircraft, many may not know there are numerous scenarios where a lien or claim can end up in the FAA registry and/or otherwise “clouding” your ownership interest. By obtaining title insurance, the title insurance company will defend you legally against any bogus claims.  

    Question: I would like to purchase my first airplane this year. My price range is about $50k.  I’ve been looking at your website and the list of financial documents you will require, especially for a business owner like myself, seems daunting. Are there any other options for someone like me? I have good credit and good cash flow.

    Answer: While providing the full list of financial documents gives you the most lending options, some of our lenders do offer low doc products. The underwriting guidelines tend to be more constrained, however, for well-qualified borrowers all that is needed is an application. Because this product does not require supporting financials rates will average .25-.75% higher than our most competitive options. If you are interested in more details about this low doc option, please give us a call and we can give you a more specific rate quote.

    This article was originally published by AOPA Aviation Finance Company on May 3, 2019.

  • Tracey Cheek posted an article
    JetNet Sees Mixed Signals for Bizjet Market see more

    NAFA member Paul Cardarelli, Vice President of Sales at JetNet, discusses the current state of the business jet market.

    Business aviation data provider JetNet is fairly optimistic about the state of the business jet market, but sees some warning signs on the horizon, the company said in a state of the business aviation market presentation on Tuesday at EBACE 2019. While GDP has long been associated with business jet usage, JetNet v-p of sales Paul Cardarelli said his company's analysts have noted a bit of decoupling in GDP growth between the U.S., which has been above 3 percent for the past two quarters, and the Euro Area, which has remained flat at 1.2 percent for that span. Cardarelli placed some of the blame on the protracted drama of Brexit, which is estimated to be impacting the UK economy by £19 billion a year, among other factors.

    He noted that the business jet fleet remains “geographically concentrated,” with approximately 61 percent of the world’s business jet fleet based in the U.S., and that the 22,138 business aircraft in service today had 4.5 million cycles in 2018. The last time the fleet was at that level of utilization was around 2005, when the in-service fleet numbered approximately 14,000.

    “So we’re about one-third more aircraft than we were in ’05, and yet we’re operating about the same number of cycles,” Cardarelli noted. “This is one of the things that gives us some concern. We have an oversupply situation and we have underutilization going on.”

    Another metric of the health of the market lies in the preowned segment. An inventory of less than 10 percent of in-service aircraft is considered by many as indicative of a seller's market and, as of the end of March, the numbers according to JetNet’s data were 9.3 percent for business jets and 6.7 percent for turboprops, the lowest levels since before the global economic downturn.

    Yet, the company noted there were 513 retail jet sale or lease transaactions in the first quarter, compared to 641 a year ago—marking a year-over-year decrease of nearly 20 percent. Cardarelli attributes the discrepancy to a variety of reasons, including the partial U.S. government shutdown in January and stock market turbulence. Another factor could be the limited choice in the marketplace as buyers finally jumped in at the bottom of the market and have removed most of the choice aircraft.

    On the new aircraft side, all five of the major business jet airframers have shown an increase in backlogs in the first quarter, an aggregate 5.5 percent rise, with book-to-bill ratios all above one while Embraer and Bombardier are approaching two. “We feel good about that—that’s a good metric for the industry,” said Cardarelli. “We’re always conservative at iQ, we do want to call them as we see them, but we’re actually bullish, particularly for the OEMs."

    Since 2011, JetNet iQ has conducted its quarterly surveys gathering 500 responses in each for approximately 17,000 results from 132 countries. JetNet iQ founder Rollie Vincent shared the latest data from the company’s second quarter survey, which is 85 percent complete. The survey asks respondents to describe the current market conditions for business aviation as either not yet at the low point, at the low point, or past the low point, and establishes a net optimism score by subtracting the first number from the last.

    In the second half of last year, that number hovered around 50 percent, but plummeted to 27 percent in the first quarter of this year, and with the majority of responses received for the second quarter, optimism seems to have eroded further to 24 percent. In North America, more than 50 percent of the respondents either somewhat or strongly believe there is increasing risk for a global economic slowdown in the next 12 months, while in Europe that rate exceeded 70 percent.

    “It’s all across the market, the mood has changed,” said Vincent. “We think this is a caution sign, and it’s going to affect preowned sales first, which we think are coming down.” Also in Europe, nearly 60 percent of the respondents believe to some degree that uncertainty over Brexit has affected their aviation activities.

    The survey typically asks respondents several topical perception questions, and among them this quarter was if they are experiencing difficulties recruiting and retaining aviation-related staff. In North America and Europe, 77 percent and 67 percent agreed from somewhat to strongly that they were, adding more evidence of an industry-wide talent shortage.

    Asked about their belief that all their aircraft would be ADS-B-compliant by the Dec. 31, 2019 deadline in the U.S., enough respondents indicated strongly that they would not, leading the company to speculate that thousands of aircraft could be affected. That could perhaps to a long overdue mass retirement of aging aircraft, Vincent said.

    For the first time in eight years of surveys, JetNet noted the percentage of intent to purchase light jets, which had been as low as 11 percent, has finally exceeded 30 percent, meaning a long-awaited improvement in the segment is under way, fueled by the Pilatus PC-24. That aircraft model earned the most responses to the question “what model were you most interested in for your next purchase?,” beating out the popular Gulfstream G500, G650/650ER and Bombardier Challenger 350 over the past three surveys.

    Vincent updated the company’s 10-year forecast to 7,100 jet deliveries worth $237 billion through 2028. For the first time, the company included the category of supersonic business jets (SSBJ), which he expects will make an appearance sometime around 2026. Based on the survey results, more than 75 percent of the respondents in North America, and nearly 50 percent of those in Europe, believe to some degree that SSBJs will be in service in the next decade.

    This article was originally published by Curt Epstein on AINonline on May 22, 2019.

  • Tracey Cheek posted an article
    Light Twin Sales Lift Pre-owned Helicopter Market see more

    NAFA member, Aero Asset, shares the latest on the pre-owned helicopter market.

    Retail trades of preowned helicopters were up 9 percent across all helicopter configurations and weight classes last year, with the light-twin market leading that increase, according to the inaugural Preowned Helicopter Market Trends report released by newly established Aero Asset.

    Co-founders Emmanuel Dupuy, William Strum, and Valerie Pereira announced the formation of Aero Asset, a new global helicopter brokerage, this week at Heli-Expo 2019. All are experienced helicopter sales specialists who formerly worked for Avpro. Dupuy and Strum are leading sales at Aero Asset, while Pereira, a specialist in aircraft market research, is the director of business development and research.

    “We believe the time is right for an independent, advisory-focused helicopter brokerage,” Dupuy explained. “The preowned market took an upturn in 2018, after several years of flatlining, and we look forward to the trend continuing on an upward curve.” 

    At the same time, the Aero Asset executives released the Preowned Helicopter Market Trends Report for 2018. Based on the firm’s proprietary intelligence and knowledge of the market, the report focuses exclusively on the twin-engine preowned helicopter markets, ranking the best and worst markets in 2018. It also provides analyses of 15 twin-engine helicopter models in the light, medium, and heavy categories, from the Airbus H135 to the Sikorsky S-92A.

    For instance, the report finds the sales for the Bell 429 fleet up 30 percent in 2018 and the supply was down 20 percent, with a retail trading range of $4 million to $5 million. The report called the 429 the sixth most liquid twin in the preowned helicopter market. And it noted that the Leonardo AW139 fleet experienced a 350 percent leap in sales volume, while the supply at 30 units, is up 20 percent year-over-year. Meanwhile, the report is calling the EC225/H225 volume "opaque" and "cloudy," finding a retail trading range of between $1.5 million and $8 million.

    Overall, the report detailed 90 sales of light twin helicopters last year, a 13 percent increase, while 44 medium helicopters traded hands, unchanged from 2017. In the heavy market, three helicopters were tracked as sold in 2018.

    Preowned twin-engine helicopter prices range from sub-$1 million at the very bottom—the Airbus H155/EC155B1 and Leonardo A109E Power—to more than $12 million for the top end marked by the Sikorsky S-76D. Absorption rate—the amount of time it would take to deplete inventory at current sales levels—varied from 1.6 years for light helicopters to 2.8 years for mediums to five years for heavy. This rate was lower year-over-year by double digits across all weight classes, with that for the medium helicopter category down 48 percent, from 4.1 years in 2017.

    “Brokers and dealers cultivate a short view of the markets, leveraged by intel from past deals and best buys available for sale,” said Dupuy. "This data is very refined. This report aggregates 2018 helicopter trading intel and compares it with the previous year and leverages key comparative indicators.” 

    Toronto-based Aero Asset plans to publish its market report quarterly going forward.

    Click here to download the Q1 2019 Preowned Heli Market Trends Report.

    This article was originally published by R. Randall Padfield on AINonline on March 6, 2019.

     

  • Tracey Cheek posted an article
    What Is the Best Personal Aircraft to Buy in 2019? see more

    NAFA member Jason Zilberbrand, President of VREF Aircraft Value Reference & Appraisal Services, shares advice on finding the best personal aircraft in 2019.

    When buying an aircraft for personal use, there is a litany of factors that will go into your decision-making. Whether your intentions are to take day trips for the weekend or intercontinental excursions, finding the best personal aircraft to meet these needs will come at wildly different price points.

    In addition, the number of passengers and on-going costs for the aircraft can affect your decision.

    Keep reading for a VREF  breakdown of various examples for the best personal aircraft you can buy in 2019.

    Single Engine

    The most utilitarian and hassle-free aircraft are single engines planes. With price points in the low or sub-six figures, a single-engine plane can get you flying for a low cost of ownership.

    Here are some of the best buys for 2019:

    Pre-Owned Beechcraft Bonanza

    • Price $100k – $375k
    • 765nm range
    • Seating for 6

    Pre-Owned Cessna 206 Stationair

    • Price $100k – $225k
    • 730 nm range
    • Seating for 6
    • Features a large rear “clamshell” door easy load-ins

    Other notable players in this category are the Piper Cherokee Six, Piper Malibu Mirage, and, of course, the trusty Cessna 172.

    Twin Engine

    Pilots enjoy the redundancy or dual engines of a twin. Twins handle larger payloads and faster speeds, as well as faster takeoff and climbing speeds.

    These tend to cost less than high-performance single engines but garner higher ownership costs due to the second engine.

    Examples of deals in 2019:

    Beechcraft Baron 58

    • Price $200k – $1.4 million (new)
    • 1700nm
    • Seating for 6

    Pre-Owned Beechcraft Baron 55

    • Known as the “Baby Baron”
    • Price $75k – $175k
    • Though smaller, it comfortably seats 6 passengers

    Other Notables: Piper Turbo Seneca II, Cessna 310R

    Turbo Props

    Typically known as a “Step-up airplane,” turboprops have taken a huge share of the market from the multi-engine planes of the past. While pilots originally bought twin-engines as a way to make them and their families feel safer, turboprops have made great leaps in sophistication and reliability. Their short takeoff and landing capabilities make dealing with emergencies much easier.

    Turboprops do incur higher purchase prices and operating costs. They are extremely efficient at lower altitudes and slower speeds.

    They enjoy the ability to access smaller airports and runways and are ideal for day trips of 500nm or less (think, Miami to Nassau and back). Be sure to enlist the help of a professional aircraft appraiser because of the substantial jump in price.

    Here are some of the standouts:

    Piper Meridian (2002 – 2015)

    • Price $650k – $1.5 million
    • 1,000nm range
    • Seating for 6 in plush interiors with upgrades

    TBM 700 (1990 – 2005)

    • $750K – $1.5 million
    • 1,350nm range
    • Seating for 6

    Best Personal Aircraft – Jets

    Jets are at the top of the personal aircraft hierarchy. They fly further, faster and with more people than the other categories on this list.

    Jets have massive price tags and ballooning maintenance and hangar fees. But for the business or personal traveler who demands speed and global access, this is the personal aircraft of choice.

    Very Light Jets

    Cessna Citation Mustang

    • “Most bang for your buck” smallest member of the Citation Family
    • Price $1- $2 million
    • 1170 nm range
    • Seating for 5 plus 1 crew

    Eclipse 550

    • The only brand new twin-engine jet for $3 million
    • 1125nm range
    • Seating for 5 plus 1 crew

    Light Jet

    Cessna Citation CJ3 or CJ3+

    • Price $3.75 – $6 million
    • 2,000nm range
    • Seating for 6 passengers plus crew

    Embraer Phenom 100

    • $1.75 – $2.25 million
    • 1,178nm range
    • Seating for 5 plus crew

    The Best Fit

    As mentioned above, finding the best personal aircraft for you is a combination of factors that fit your lifestyle and intentions. Yet, both a hobbyist and a global businessperson can enjoy the freedom that private aviation provides.

    With any aircraft purchase, be sure to reference our reference guide to make sure you have the most accurate data and valuations.

    This article was originally published by VREF on May 2, 2019.

  • Tracey Cheek posted an article
    An Overview of Aircraft Loan Structures see more

    NAFA member Adam Meredith, President of AOPA Aviation Finance Company, discusses how to determine which aircraft loan package is right for you.

    The best way for an AOPA Finance expert to determine the right loan package for its members is to ask them the right questions, starting with, “What’s important to you?”

    Most have the same answer: “The lowest interest rate possible.” From experience, we know they really mean “lowest rate possible for their specific situation”. Three questions help us frame their specific situation:

    1. What have you budgeted for a monthly payment?
    2. How long do you want to own this plane (and keep financing in place)?
    3. How much are you looking to put down?

    How the member answers determines whether a fixed, floating or a hybrid financing structure fits best. Their financial complexity might require us to recommend an asset-based approach.

    A fully amortized, fixed rate loan with the longest possible term might be ideal for somebody intending to own the plane for a decade or more. The risk is the interest rate locked in at the beginning of the term might be higher than the going interest rate at the end. But the trade-off in peace of mind knowing the guaranteed monthly note is compatible with one’s long-term spending plan makes the extra cost worthwhile. For example, for non-commercial use, there are lenders who will execute fully amortizing, fixed-rate loans with 15 or 20-year terms for turboprops still in production.

    When it comes to length of ownership, many of our clients answer, "about ten years.” Data AOPA Finance has collected shows the typical length of ownership is actually no more than five. That's why floating, balloon or adjustable rate (ARM) loan structuring might make more sense.

    A floating rate loan has no fixed interest rate, while an adjustable rate (ARM) loan starts out fixed but then changes (to either a new fixed rate or a floating rate). Following the initial period, an ARM floats, based on a benchmark reference rate like the Federal Home Loan Bank (FHLB). The initial period is typically three to five years. Another term for an ARM is hybrid. In the current interest rate environment and forecasting into the foreseeable future, these financing packages can offer better savings compared to fixed rates with similar amortizations.

    Balloons are another option; however, the amortization period is longer than the actual loan term. An example might be financing a turboprop on a five-year term with a "balloon" and a 15 to 20-year amortization. That package might work best for members who a.) are looking purely for the lowest rate possible, and b.) know they’re going to own the aircraft (and/or keep the loan) less time than the normal average.

    Balloons allow the borrower to delay paying the principal until the very end, thus keeping the monthly outlay low. At the end of the term, the entire unpaid balance comes due. That small monthly note balloons into one large final payment.

    Sometimes members come to us comfortable with the complex structures of floating or ARM financing, but the complexity of their own finances prohibits them from using those options. Take for example, a real estate entrepreneur who owns 30 different properties. Each property is a separate ownership entity. They have partners on some of these properties and are a majority owner, or half owner or some variation of percentage, across the entire real estate portfolio. Despite the positive cash flow, there are lenders who will not do a deal without them putting a guarantee on all the entities they have equity in, as well as a personal guarantee from themselves. Even if they aren’t restricted by covenants from doing so, the cost in money and time is frequently not worth it. The financial complexity surrounding their business might mandate a simpler, asset-based loan configuration.

    In fact, asset-based deals can be further simplified if the client can increase their down payment. The more you put down up front, the more options lenders have available. A loan on an older airplane or one with higher-time engines becomes doable if the borrower can afford a higher down payment. Whereas a newer plane might be approved with a 15% down, 20-year amortization, the same situation for an older turboprop might go from “no deal” to “deal” with 30% or 40% down. Likewise, a relatively mainstream turboprop that has been produced in significant numbers might normally see a 15-year amortization. Without a larger down payment, older or rarer turboprops might cause lenders to shorten the amortization period, or even refuse to make the loan.

    Jet financing has its own unique requirements which might also necessitate a higher down payment. That’s because the frequency of engine advancements and avionics upgrades as well as new products tend to render those aircraft obsolete faster than others. That’s why asking the right questions of our members allows AOPA Finance to give them the best picture when it comes to securing the best financing package for their unique situation.

    This article was originally published by AOPA Aviation Finance Company on April 12, 2019.

  • Tracey Cheek posted an article
    Supplemental Lift for Your Business Jet: What's Best for You? (Pt 1) see more

    NAFA member David Wyndham, Vice President with Conklin & de Decker, discusses whether Charter, Jet Card or Fractional Ownership is better option for your supplemental lift. 

    Are there some business travel needs your aircraft can’t fulfill? David Wyndham explores the option of supplemental lift. What is supplemental lift, and how can you use it as an appropriate add-on in your current aircraft operations?

    Supplemental lift may be a logical alternative to your current aircraft. As the term implies, supplemental lift is an add-on to your current operation – it is not a replacement for your current aircraft. What it does is to achieve a means of expanding your operation without adding another aircraft, extra crew, and support.

    It may be that you have a specific need for short-term lift if an aircraft in your operation is undergoing a major maintenance event. Or you may need extra flight hours beyond what your current aircraft can support.

    Alternatively, there may be several unique missions on the horizon for which your current aircraft is unsuitable. Perhaps you simply wish to bridge the gap before acquiring another aircraft as your flight operation grows.

    Thankfully, there is a range of supplemental lift options available that offer a modest number of additional flight hours without the costs associated with actually owning an extra aircraft.

    Within this article, we will consider the following questions:

    • What are aircraft charter, jet cards and fractional ownership?
    • When does supplemental lift make sense?

    What are Aircraft Charter, Jet Cards & Fractional Ownership?

    Aircraft charter enables you to rent an aircraft for a trip. With charter, you pay the entire time the aircraft is flying (including any unoccupied i.e. ‘deadhead’ legs without you aboard). Therefore, charter costs are minimized with round-trip travel. Aircraft charter tends to work particularly well if one or more well-qualified providers operate the aircraft type you need close to your location.

    Jet cards are a form of pre-purchased charter. Some jet card programs are aligned with a major fractional ownership company (such as NetJets). Other providers offer a broker arrangement where they sell you the time and find the qualified operator for you. Most jet card providers offer both one-way and round-trip pricing.

    Fractional ownership enables you to purchase or lease a share of an aircraft in proportion to the additional flying that you plan to do. This may be a good way to bridge the gap between insufficient current aircraft availability and developing sufficient need to justify buying an additional aircraft outright. Operators who purchase a fractional share can choose to sell it back to the provider at the end of the contract.

    When Does Supplemental Lift Make Sense?

    As highlighted through the different options, supplemental lift can be a short- or long-term solution. The hours can vary with your needs. To illustrate, and also highlight how and when supplemental lift makes sense, following are some real-life examples.

    Extended Downtime: One operator I work with has an aircraft that’s almost 12 years old. They fly regularly and the aircraft is fast approaching a major maintenance check and engine overhauls. The avionics suite is outdated and the principal wants to add in-flight cabin connectivity. Additionally, the paint and interior are in need of a refresh.

    Having conducted a financial analysis, the operator concluded that the aircraft value prior to the work being done is lower than they would sell it for. Moreover, the cost of a newer replacement aircraft is more than they wish to spend. The plan, therefore, is for them to complete the overhauls and upgrades at the same time, with an expected downtime of at least four months.

    This means a temporary solution is required that effectively replaces their aircraft for the time it will take to complete the maintenance and upgrades.

    An estimated 120 flight hours will be needed over those four months, and the operator has chosen aircraft charter as the right option to fulfil this demand.

    Fortunately, they’re located in a city with several large charter operators nearby and were able to negotiate a block of hours with a local provider with a top safety rating.

    Expanding Mission Need: A different corporate client recently expanded operations to a distant city and their current aircraft cannot make that trip non-stop. The client estimates flying one trip per month for approximately eight flight hours, representing a 20% increase in their flying activity. To upsize to a larger aircraft would increase the operating budget by almost 90%.

    The cost to buy the larger business jet is nearly three times what their current jet is worth. Over the course of a year, the client would need less than 100 hours flying a longer-range jet and their demand analysis indicates this utilization is likely to remain steady and long-term.

    In addition, avoiding a fuel stop on 20% of the trips wouldn’t be worth the added investment in a new, larger jet. But what if the client were to supplement their operations with added lift?

    The client was able to find a fractional ownership solution to meet their needs at a fraction of the cost of replacing their current aircraft. When they near the end of their current contract, they will reassess their need and budget, revisiting the question of acquiring a larger business jet.

    Growing Operation: One last example is of a flight operation growing at 15% per year. Corporate projections indicate that this rate of growth will continue and there are new departments asking for use of the aircraft.

    In their analysis, the client’s aviation department estimates that they can meet the additional demand for the next 18–24 months by hiring a new pilot and combining a few trips each month. Acquiring another aircraft may take between six and nine months.

    The company hired a consultant who performed an aircraft needs analysis. The report confirmed the aviation department’s internal findings and recommended that a second aircraft be purchased within the year. The report also recommended adding supplemental lift within the next six months to maintain the department’s ability to meet trip requests without any disruption.

    Accordingly, they purchased a jet card offering them the additional projected flight hours. The card program includes price guarantees for 12 months with the initial purchase.

    Simultaneous Travel Needs: One more consideration might be the scenario where you occasionally need simultaneous aircraft. If you anticipate multiple overlapping requests for the aircraft, a supplemental option, such as a charter, jet card or fractional ownership might make sense.

    Next month we will continue our discussion with consideration of how to choose the right aircraft, and then manage the supplemental lift as you grow into another aircraft.

    This article was originally published on AvBuyer on June 21, 2019.

  • Tracey Cheek posted an article
    Understanding Popular Private Jet Share Options see more

    NAFA member, H. Lee Rohde, III, President and CEO of Essex Aviation, discusses Private Jet Share options.

    Private jet shares are a popular alternative for frequent fliers who want to enjoy the benefits of private aircraft ownership without the longer-term commitment or larger financial investment typical of purchasing a whole aircraft. In this blog, we’ll take a look at some popular private jet share options, as well as pros and cons for each.

    What is a Private Jet Share?

    As implied by its name, a private jet share refers to any private aviation program in which you own or lease a share of an aircraft rather than own it outright. There are multiple private jet share options to choose from, including fractional aircraft ownership, private jet membership or card programs and private jet chartering.

    How Are Private Jet Shares Structured?

    The private jet share structure depends entirely on which program, aircraft model and hours of utilization you require.

    Fractional Ownership
    Those interested in fractional ownership purchase a private jet share of a specific aircraft type and agree to an annual amount of allotted flight hours. Most fractional ownership programs require a minimum share size of 50 hours of flight time per year; the maximum share size is 800 hours of flight time per year, which is equivalent to ownership of the entire aircraft.

    Fractional ownership shares are acquired from the company that operates the aircraft and has a designed shared ownership program and services agreement that all share owners participate in. This company is also responsible for employing pilots and flight attendants, administering maintenance, airport and hangar fees and insurance, which can be attractive to individuals who want to avoid managing the details of full aircraft ownership. Some fractional ownership programs also provide the option to upgrade or downgrade the aircraft size depending on your trip requirements.

    Compared to other private jet share models, fractional ownership doesn’t require you to pay for the hours flown to position the aircraft to your departure point — also known as a deadhead cost. However, though you’ll save on certain costs and repositioning fees, the private jet share model comes with significant upfront acquisition and monthly operational costs. Fractional ownership can be the most expensive private jet share model because it closely replicates outright ownership and involves acquiring a portion of an aircraft. Additionally, although it’s possible to sell fractional shares back to the program provider, these shares tend to depreciate more due to their high level of annual utilization, resulting in lower residual values.

    Membership and Jet Card Programs
    Membership and jet card programs, though often lumped in the same category, are structurally unique. With a membership program, you agree to a fixed cost per hour at the start of the contract and are billed after each flight. You’re also often subjected to either monthly management or annual membership fees. There are two types of jet card programs: a dedicated service with a predetermined number of hours on a specific aircraft type or size category, and a debit card service that enables you to fund an established travel account and select the aircraft category on a trip-by-trip basis with agreed-to hourly rates. For the debit card program, the cost of the trip is calculated after the completion of your trip and deducted from your card program balance.

    Unlike fractional ownership, which operates under FAA Part 91K regulations, membership and jet card programs are purchased through a variety of companies that may or may not have a direct ownership and operate under Part 135 regulations. When evaluating various programs, make sure you understand the relationship between the program provider and the aircraft you intend to utilize. Membership and jet card programs are often better suited for individuals interested in a short-term commitment and require a much lower investment than fractional ownership. Membership and jet card programs can be appealing because they come at a fixed rate, so there’s no need to negotiate the price for each flight.

    One of the drawbacks to membership and jet card programs is that there’s often a longer advance notice requirement to schedule an aircraft. This is less of an issue if you’re the kind of traveler who books their trips well in advance but can be challenging if you often make last-minute travel arrangements, especially during peak periods such as holidays. Membership and jet card programs can also come with additional fees, such as repositioning fees, and the total cost of your trip might include taxi time as well as flight time.

    Private Jet Chartering
    Private jet chartering is an on-demand service that enables you to compare pricing and amenities for various aircraft types and book the one that best meets your travel needs in much the same way as you’d book a seat on a commercial flight. Those interested in chartering a private jet have the option of working with a charter operator or a charter broker, though it’s best practice to work with a private aviation consultant before considering either option. Like membership and jet card programs, this option can be well-suited for those looking for a short-term commitment.

    Chartering is the most popular private aviation option due to the fact that it doesn’t require a significant capital cost upfront or fixed costs that contribute to maintenance and staff salaries — all you have to pay for is the utilization of the aircraft on a trip-by-trip basis. What you save on cost with chartering, however, you may need to trade for non-guaranteed availability and some due-diligence of the provider. It can sometimes be challenging to find an aircraft that meets both your specific needs and your schedule, so you might be forced to choose between one or the other.

    Private Jet Share Models: A Breakdown

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    This article was originally published by Essex Aviation Group on their blog.  

  • Tracey Cheek posted an article
    Greenberg Traurig Joins National Aircraft Finance Association see more

    FOR IMMEDIATE RELEASE


    FORT LAUDERDALE, Fla.– Aug. 1, 2019 –The National Aircraft Finance Association (NAFA) is pleased to announce that global law firm Greenberg Traurig, LLP has joined its professional network of aviation service providers. 

    “NAFA members form a network of aviation finance services who diligently and competently operate with integrity and objectivity throughout the world. We’re excited to welcome Greenberg Traurig to our growing organization as we head to our 50th anniversary,” said Jim Blessing, president of NAFA.

    Greenberg Traurig’s Business Aviation Practice represents owners and operators of business aircrafts, financial institutions, leasing companies, corporations, airlines, and other aviation-related businesses on a variety of finance, leasing, commercial, and related corporate matters. The team is skilled in advising both domestic and foreign airlines, lessors, and lenders on aircraft, engines, and parts financings; purchases and sales of aircraft and aircraft portfolios; equipment leasing matters; as well as airline investments and other aviation-related commercial and operational matters. Attorneys capitalize on the firm’s global resources by working closely with restructuring, tax, private wealth, antitrust, governmental affairs, intellectual property, environmental, and labor and employment colleagues to develop multifaceted strategies that meet clients’ aviation needs.

    Business aviation attorney Edward Kammerer, a longstanding contributor to and recent board member of NAFA, recently joined Greenberg Traurig as a shareholder. He advises the business aviation community on a wide range of transactions and issues, with a special focus on aircraft acquisitions and finance. With 40 years of experience, he represents major corporations, mid-sized companies, family offices, corporate executives, entrepreneurs, and business owners, helping them to acquire, operate, finance, and sell private aircrafts. Kammerer has previously served as in-house counsel for three leading equipment finance companies, including affiliates of two major banks and one leading insurance company. He had responsibility for the development of standard form financing documents and approved documentation of inbound and outbound syndicated secured financings. Kammerer is admitted in New York, Rhode Island, and Connecticut. 

    About Greenberg Traurig: Greenberg Traurig, LLP(GT) has more than 2,100 attorneys in 41 offices in the United States, Latin America, Europe, Asia, and the Middle East. GT has been recognized for its philanthropic giving, diversity, and innovation, and is consistently among the largest firms in the U.S. on the Law360400 and among the Top 20 on the Am Law Global 100.  Web: http://www.gtlaw.com Twitter: @GT_Law.

    About NAFAThe National Aircraft Finance Association (NAFA)is a non-profit corporation dedicated to promoting the general welfare of individuals and organizations providing aircraft financing and loans secured by aircraft; improving the industry's service to the public; and providing our members with a forum for education and the sharing of information and knowledge to encourage the financing, leasing and insuring of general aviation aircraft. For more information about NAFA, visit NAFA.aero.

  • Tracey Cheek posted an article
    OIG Reports on FAA Registry Update - What Does It Mean? see more

    NAFA member, Debbie Mercer-Erwin, President of Wright Brothers Aircraft Title, discusses the OIG, the FAA Registry Update, and what it means for the aviation industry. 

    The Situation

    There are changes ahead that will modernize the Federal Aviation Authority (FAA) – bringing it up to date with the latest technology and security measures. One of the key updates will be to the registry system, which is vital for ensuring aircraft are legally owned, maintained, and operated.   

    The deadline for the huge overhaul is now October of 2021, which doesn’t seem that far away. The Office of the Inspector General (OIG) recently issued a 29-page report – “FAA Plans to Modernize Its Outdated Civil Aviation Registry Systems, but Key Decisions and Challenges Remain” – regarding the progress the FAA is making in order to meet the modernization mandate. 

    The OIG delved into what they think the FAA needs in place to complete the required upgrade on time – their report put into question whether it could be accomplished, stating: “The Registry’s systems are outdated, and FAA has yet to develop a detailed plan for modernization.”

    The FAA’s plans are not the only consideration in the timeframe though, given the Congress factor. Because “the regulations that govern aircraft registration do not reflect current technology or business practices”, modernizing the FAA’s registration system will require rulemaking by Congress, which can take some time.

    A Modern System

    This is a significant update to the Registry – many provisions were implemented with the Reauthorization Act of 2018 (HR 302) – which Wright Brothers Aircraft Title covered in more depth in Highlights of the 5 Year FAA Reauthorization Act.

    The new registration system, Civil Aviation Registry Electronic Services (CARES), “is expected to streamline processes, allow for the submission of electronic applications and forms, improve controls, automate registration processes, and improve online data availability” according to the FAA. Its key aims are:

    • Web-based access to all public data. For the first time in history, the general public will be able to view FAA records online in real time. Currently, what isn’t already electronically maintained is held in the Public Documents Room (PDR) available for those who have access. Any electronic records are only in real time via the computers at the PDR – outside access is limited to information that is updated once daily.

    The modernization mandate includes digitizing all aircraft registration documents for real-time, public and web-based access, which means phasing out the PDR at the FAA. Furthermore, using the PDR will incur a fee if the business could have been conducted by electronic means as efficiently. 

    • Automation of application services (processes and procedures). For the first time in history, the general public will also be able to file any document electronically. Most aircraft registration functions still require paper documents that are manually scanned and reviewed by Registry examiners. Digitizing and automating the registration process means the role of FAA examiners will change, becoming more high-level. 

    In Order to Proceed

    Detailed estimates of technical and operational requirements for the new system are vital right now – anticipating the rulemaking, cost and schedule that will be necessary to successfully complete the expansive project. Some key questions need to be answered:

    What are the new components/upgrades needed in the new system? The FAA is considering: automated approvals for low-risk applications; automated verification of fraudulent or incorrect submissions; additional security controls such as crosschecking information with non-agency entities; the registry structure, including combining aircraft and airmen systems; and matters of data storage with a cloud- or server-based system.

    How will the FAA fund the new system?It hasn’t been decided yet – funding modernization projects usually comes from its facilities and equipment (F&E) account, but they may be able to use money from its operations and maintenance (O&M) account. This must be decided before it becomes a part of the agency’s budget.

    What rulemaking via Congress is necessary in order to proceed?The FAA will have to develop a rulemaking that revises current regulation and allows for the electronic registration of aircraft –to improve controls, strengthen requirements, and implement digital signatures and electronic payments – a complete outline of the new system is needed beforehand to know exactly what rules to change 

    Now What? – The Challenges

    The OIG report contained four main recommendations to the FAA. The FAA accepted and outlined a schedule for implementing them: 

    1. Develop and implement timeline for making key decisions regarding CARES by May 31, 2019. 
    2. Define desired capabilities of CARES by Dec 31, 2019
    3. Develop and implement a procedure to obtain industry feedback by Oct 31, 2019. 
    4. Develop and implement a plan for maintaining real-time access to data by June 30, 2019.

    There are challenges to face though, including: the transfer of a huge amount of data (with a lot of outdated/large files) to a new system; meeting the needs of registry users – aircraft title companies, financial institutions, aircraft manufacturers, airmen, other government agencies etc. – to ensure the operation of aircraft worldwide; and addressing workforce issues arising from role changes.

    The Transition & After

    The OIG has concerns, but if the FAA stays on track with this schedule, they can meet the October 2021 deadline, barring delays with Congressional rulemaking. 

    Updating and modernizing the new system will be a great improvement, but will not fully alleviate all of the pitfalls to closing yourself that we outline in our blog, Can’t I Handle My Own Aircraft Closing?. It will still be important to hire a company that knows the ins and outs of the FAA system to avoid costly errors that could take time and money to correct.

    Ultimately, the changes ahead will modernize the FAA’s registry system, helping to bring the aviation industry up to date in technology and security measures. There is significant work to do, but we’re confident that every entity involved in this important endeavor will fulfill expectations. 

    This article was originally published by Wright Brothers Aircraft Title on their blog on July 16, 2019.

  • Tracey Cheek posted an article
    Aircraft Insurance Rates Take Off: Upward Trend in 2018, First in 16 Years see more

    NAFA member Stephen P. Johns, CIC, President of LL Johns Aviation Insurance, discusses the upward trend in aircraft insurance rates.

    In early 2018, most buyers began hearing that their aircraft insurance rates would be increasing for the first time in years. Rate increases of 3-5% for operators with clean loss records were common, and 15% for those who’d had claims. By the end of 2018, claims-free operators were seeing 10-15% rate increases, and those with claims history even higher.

    What Precipitated the Rise?

    After some upward movement in 2000-2001, the events of 9/11 had a significant impact on rates, especially on war-risk pricing and availability. One business jet operator watched premiums rise from $59,000 in December 2000 to more than $113,000 in December 2002. 

    By early 2003, rates began to plateau and then trend downward.  For much of the aviation industry, the ensuing “soft market” – rate reductions and broadening of coverages – continued uninterrupted for almost 16 years.

    From 2005 through 2010, the number of insurers providing aviation insurance in the U.S. grew from 9 to more than 20. These new entrants were not new to the insurance business – most were sizeable companies electing to enter the aviation segment. As new and longer-standing aviation insurers scrambled to gain and maintain market-share, rates fell, limits increased, contract language broadened, and underwriting disciplines relaxed.  

    Why the excess capacity in the aviation insurance market during the last decade? Is it the faltering economy and stock market that caused investors seeking a safe haven to infuse capital in the market? Is it that better technology and improved safety systems have resulted in safer operations and reduced claims?    

    Whatever the reasons, rates were reduced to artificially low levels, unsustainable over time. In 2018, six reinsurance companies and a number of underwriting companies pulled out of the market. Those remaining are consistently seeking rate increases, limit reductions, and tightening of underwriting standards.

    And it’s not only the rates that are changing. Underwriters also are becoming more judicious with limits offered and other policy provisions. Since it’s now harder to hire and retain pilots, underwriters are giving more scrutiny to pilot experience and training.  There’s a move back toward the “12 month motion based simulator” training requirements that were non-negotiable in the 80s and 90s.

    What Can You Expect in 2019?

    The hard market will remain and rates will continue to increase for most operators, at the rate of 15% or more. The potential loss of market share will begin to test the resolve of the insurance companies and determine whether these increases will continue throughout the year.   

    Back to that operator whose premium nearly doubled from 2000 to 2002. While he’d benefited from the “soft market,” by December 2018, he was paying less than $44,000 in premium for the same coverage limits. If this aircraft operator’s rate increases by the expected 15%, he still will be at only $50,600, approximately 15% below the rate level he paid in 2000.

    What Can You Do? 

    Even top flight departments with no claims should expect some upward movement in rates, so budget accordingly. Particularly if your operation has a loss history, start the renewal process early – about 120 days before policy expiration – providing updated information on the aircraft, pilot hours and training, and evidence of the safety and professionalism of your operation. This gives your broker time to approach new markets on your behalf, or to suggest you stay long-term with one underwriter, as there are costs other than the premium to consider.  

    As Colin Powell once said, “Bad news isn’t wine. It doesn’t get better with age.” An experienced and trusted broker with good underwriter relationships will help you navigate the process. 

    Finally, keep the increases in perspective. While no buyer likes to see prices going up, it’s remarkable that aircraft insurance in 2019 may cost less than it did in 2000!

    This article was originally published by Business Aviation Advisor on March 1, 2019.

  • Tracey Cheek posted an article
    Why Does Usage Matter? see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, discusses how the use of your airplane affects your financing.

    How are you going to use your airplane? It's a question AOPA Finance asks its clients early and often. The airplane’s intended mission determines which finance companies will lend to you and the terms of the deal.

    It could be said that there are only two types of airplanes to a lender—a “nice-to-have asset” or a “working asset.” Personal use planes—shuttling company employees or the family for travel—are examples of “nice-to-have assets.” The expectation of the lender is the aircraft will fly a normal number of hours per year. An aircraft put on a Part 135 charter certificate or on leaseback with an FBO, however, will fly significantly more hours per year. They are considered “working assets” because of their high usage. The risk profiles of the two are very different.

    From the lender’s perspective, should the borrower go into default or the business into bankruptcy on the former, the airplane can be parked, turned over and sold without adversely impacting any creditors. The employees and the boss can return to flying commercial airlines. That’s why it’s called a “nice-to-have asset.” It’s not essential to the function of the business.

    The depreciation trajectory for these planes is less steep and more predictable. No lender can predict the absolute future value of an aircraft. But for this type of financing, lenders can predict a worst-case scenario of a reasonable return on the asset should they need to turn the airplane over. That’s an acceptable loan risk for many aircraft financers. An example of that acceptable risk is a 20-year amortization with 15% down on a relatively new plane. This is typical of what AOPA Finance helps its clients get.

    Unfortunately, AOPA Finance has worked with a number of clients who allowed a well-meaning accountant or friend suggest that additional use of the asset might have tax benefits and midway through the deal, they informed us that they’d changed their mind. We recently had a client who did just that.

    Well into the financing process, he decided he wanted to now leaseback the aircraft for rental. The financing had been structured around normal usage. Once the client decided on a high usage scenario, AOPA Finance was left presenting him with a worse loan package for the altered scenario than originally submitted. Had AOPA Finance known sooner about his leaseback intentions, a better option from a different lender could have been negotiated.

    The higher number of hours flown per year increases operational wear, which speeds up diminution of the airplane’s value, which accelerates the loss in equity. If the buyer gets a loan like the one above based on personal/business use but then puts the plane on a charter certificate, the likelihood of them being upside down on the equity of that plane within four years could be significant. When the time comes for them to sell and upgrade they can’t without bringing money to the table. Alternatively, should they go into default, the lender would be stuck, unable to recoup the loan amount.

    It's also harder for a lender to step in and turn over a high usage aircraft put on a charter certificate. That business exists to fly planes. In the case of a bankruptcy, a bankruptcy judge may acknowledge the revenue-generating potential of the airplane as a working asset. The judge could then rule that the airplane must remain in service. The plane would continue to fly, its value would continue to decline, and the lender would be forced to stand by while its asset continues to lose money from the additional use. That’s an unacceptable risk profile for many.

    Knowing which lenders will finance working asset aircraft is part of AOPA Finance’s expertise. Lenders that do these particular deals do so because they have an intimate knowledge of the makes and models of aircraft used for such operations. They know financing high usage aircraft is more akin to financing a business loan for a business. That’s an acceptable risk to them.

    That’s why it’s important to know early in the process how you intend to use your airplane and to stick with that decision. It's far better to know up front if the plane is a nice-to-have or a working asset rather than being inadvertently misled into thinking you can do something which will end up costing you dearly.

    Great rates. Great terms. Helpful and responsive reps. Three good reasons to turn to AOPA Aviation Finance when you are buying an airplane. If you need a dependable source of financing with people who are on your side, just call 800.62.PLANE (75263) or click here to request a quote.

    This article was originally published by AOPA Aviation Finance Company on March 28, 2019.