Business Aviation Advisor January-February 2019

JANUARY / FEBRUARY 2019

Sim City

Risk Management Begins With Proper Pilot Training

Handling With Care

IS-BAH Means Safe and Sound on the Ground

DOT MATRIX TRAFFIC STOP NACELLE COVERAGE ALT LEASING WASHINGTON REPORT A Business Aviation Media, Inc. Publication

W W W . B I Z AVA D V I S O R . C O M

It’s time.

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J a n u a r y / F e b r u a r y 2 019

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6

F E AT U R E S

Sim City 06

Risk management begins with proper pilot training

• Volume 6 / I s sue 1

by H . LE E ROH D E

Handling With Care 08

IS-BAH means safe and sound on the ground

14

14

Nacelle Coverage

by ANTHONY K IOUS S IS

17

Alt Leasing

by ALE S SAN D R A C HR IS TIANI

17

New protection for your engine

Is structured lease financing in your future?

by BOB S C H I C K

10

DOT Matrix

Regulating air charter brokers

Publisher’s Message 05

“I” Contact

by E D WAN DALL

by G IL WOLIN

12

Traffic Stop

VTOL offers an alternative for regional travel

18

Washington Report

by AN D R E W S C H M E R T Z

by DAVI D COLLOG AN

D E PA R T M E N T S

DOT’S Air Charter Brokers Rule

18

Above and Beyond 2019:

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You could agonize over your business aircraft deal closing on time due to the financing –

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PUBLISHER’S MESSAGE ■ PUBLISHER Gil Wolin gwolin@bizavadvisor.com CRE ATIVE DIRECTOR Raymond F. Ringston rringston@bizavadvisor.com MANAGING EDITOR G.R. Shapiro gshapiro@bizavadvisor.com ASSISTANT EDITOR Michael B. Murphy mmurphy@bizavadvisor.com WASHINGTON EDITOR David Collogan dlcollogan@gmail.com CONTRIBUTORS Alessandra Christiani Capital Aviation Group achristiani@cag.aero Anthony Kioussis Asset Insight, Inc. akioussis@assetinsight.com H. Lee Rohde Essex Aviation lrohde@essexaviation.com Bob Schick TAC Air bschick@tacair.com Andrew Schmertz Hopscotch Air andrew@flyhopscotch.com Ed Wandall ARGUS International ed.wandall@argus.aero BUSINESS MANAGER JoAnn O’Keefe jokeefe@bizavadvisor.com BOARD OF ADVISORS Paul Cardarelli • Larry Flynn Anthony Kioussis • Dick Koenig Joe Moeggenberg • Louis C. Seno Nel Stubbs • Rolland Vincent John (Jack) M. Young BUSINESS AVIATION MEDIA , INC .

PO Box 5512 • Wayland, MA 01778 Tel: (800) 655-8496 • Fax: (508) 499-2172 info@bizavadvisor.com • www.bizavadvisor.com Editorial contributions should be addressed to: Business Aviation Advisor, PO Box 5512, Wayland, MA 01778, and must be accompanied by return postage.

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Postmaster: Please send address changes to: Business Aviation Media, Inc., PO Box 5512 • Wayland, MA 01778, USA ©Copyright 2019 by Business Aviation Media, Inc. All rights reserved

“I” Contact

1964 was a landmark year on many fronts. While the Beatles launched their first world tour and topped American music charts with “I Want to Hold Your Hand,” the General Aviation Manufacturers Association (www.gama.aero) reported the first turboprop and jet aircraft deliveries to end users.

And Bell Telephone – at the time the only telephone company in the U.S. – introduced its iconic tag line for direct, long distance calling, “It’s the next best thing to being there.”

The juxtaposition of those two latter events carries some significance in 2019. While direct long distance calling enabled “I” contact with family, friends, and business associates, the business jet enabled “eye” contact with those folks in ways never before possible. Owners and charterers now could travel according to their own schedules, saving time, and enabling face-to-face meetings to close deals and build connections and trust – in complete privacy.

Privacy has followed a curious arc in recent years. In her new book, The Known Citizen, Sarah Igo traces its path from the Victorian Era’s “no one knows what goes on behind locked doors,” to today’s social media posting and boasting. Business has leveraged the modern individual’s desire to share product and service experiences, both written and visual, with friends and associates, by creating a virtual “town center” reality online.

That virtual reality is increasingly being used in aviation – for “touring” aircraft interior options, and for pilot training. Today’s technology uses virtual reality (VR) to recreate the sense of “being there” with the flight simulator: an accurate, up-to-date recreation of the flight deck of specific makes/models of aircraft. As you’ll read in our cover story Sim City, it’s not the 1990s home computer game. This fully-instrumented, full-motion training tool enables instructors to immerse pilots completely in any flight regime, and help them learn to handle almost any weather or mechanical challenge. As one leading aviation manager says, the instructor can “dial a disaster” so pilots encounter a full range of in-flight problems without endangering the aircraft or themselves.

Privacy and VR in aviation also have a downside – one that can put your safety as well as your money at risk. The unscrupulous can create a virtual online identity, and hide behind a fancy website using purloined photos, false credentials, and unearned expertise to sell charter to the unsuspecting. Until now, no license or certification was required for these so-called “bedroom” or “barstool” charter brokers to set up shop online. That all changes on February 14, when the U.S. Department of Transportation’s new charter broker regulations take effect. No more hiding behind an internet mask or smartphone app, as you’ll read in this issue’s DOT Matrix and Washington Report. Travel privacy may be desirable, but broker secrecy can be dangerous. You need “I” contact.

Thanks for reading!

Gil Wolin — Publisher gwolin@bizavadvisor.com

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■ FLIGHT OPERATIONS

Sim City

I

BY H. LEE ROHDE Essex Aviation / lrohde@essexaviation.com

n today’s aviation environment, one major challenge is finding qualified pilots who meet your safety and service requirements.

With more aircraft now flying more hours annually, BizAv’s recent recovery has sparked the demand for a greater number of experienced pilots, with the appropriate ratings for today’s business jets and turboprops. As the Boomer Generation retires, you are competing with the commercial airlines for those highly qualified pilots (See “Sudden Dearth,” BAA July/August 2018).

Experience must be varied as well as cumulative to be useful, to enable anyone, whether manager, executive, or investor, to weather the unforeseen. When 20 years’ experience is simply one routine year repeated 20 times, one remains pretty much a novice, illequipped to operate effectively in challenging circumstances.

So it is for pilots. Fifteen hundred hours of flight time is the minimum required for pilots to qualify for an Air Transport Pilot (ATP) rating under Federal Aviation Regulations (FAR) Part 61. That enables them to serve as pilot-in-command for both owner (FAR Part 91) and revenue charter (FAR Part 135) flights.

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But when those 1,500 hours are flown only in “severe clear” weather, primarily over calm rural environments, a pilot will not encounter the diverse weather or terrain conditions required to enable him/her to operate safety in high-density airspace or amidst sudden weather changes.

And 1,500 hours is only the minimum, even though it includes a 500-hour, night-flying component. As a safety-conscious owner, having invested in a seven- or eight-million dollar asset, you do not want it flown by someone who meets only a minimum standard – whether flight hours or situational experience.

Consider a flight into Aspen at dusk just as an unexpected snowstorm howls through the mountains. Or a rush hour descent into the U.S. Northeast Corridor on a Friday afternoon. That’s why flight training, conducted in full-motion, full-flight simulators, repeatedly regularly, is critical to ensure your flight safety, particularly if your flight crews’ primary experience has been routine flying in low density airspace.

How and where should those crews train to ensure their proficiency and ability to handle the challenging situations they may encounter? w w w. B i z AvA d v i s o r. c o m

FLIGHTSAFE T Y INTERN ATION A L

Risk Management Begins With Proper Pilot Training

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FLIGHTSAFE T Y INTERN ATION A L

As an owner and/or operator of business aircraft, you have multiple options for training your pilots. While actual in-aircraft training can be effective, most owners are reluctant to allow their aircraft to be intentionally operated in challenging weather conditions or with an engine shut down to simulate a maintenance problem. This is particularly true when training a pilot with limited flight time in their aircraft’s make/model. That is why a formal training program that includes full-motion, “Level D-qualified” flight simulators (the highest level of full-flight simulator) is the better option.

When offered by a formal training organization, it provides structure, discipline, preparation, planning, and the ability to simulate challenges that are part of the professional experience your pilots may encounter while flying you, your family, or your employees and clients. When certified to instruct using simulators under FAR Part 142 (and by other nations’ aviation authorities), these training centers provide a structured aircrew training program with curriculum and instructor/evaluator requirements that meet the rigid standards of government authorities for initial and recurrent training, and often use curricula that have been developed jointly with the aircraft manufacturer.

A Level D simulator provides accurate reproductions of the cockpit of specific aircraft makes/models, with standard crew seating, all typical flight and engine controls, and all panel instruments. The simulator is mounted on a hydraulic platform that offers full-motion through all axes – yaw (left/right), pitch (up/down), and roll. The windshield is a screen providing a 150º horizontal, digital simulation of what the pilots see throughout all phases of flight, from engine start to shut down, with realistic sounds. This enables instructors to immerse the pilot in a wide variety of flight situations, to train pilots how to handle problems and emergencies with no risk to themselves, their passengers, or to your aircraft.

Typical Part 142 programs contain extensive ground and flight curricula covering aircraft systems and performance, followed by full-flight simulator sessions that allow the conduct of normal, abnormal, and emergency procedures in any location, environment, or weather condition. Qualified by the FAA National Simulator Program, EASA, and other authorities, these full-flight simulators are built and equipped to the same standards as those used by U.S. domestic and international air carriers. Whatever the nature of the mission, consider a program that includes training in a full-flight simulator as your preferred option. Why? ■■ A full-flight simulator provides a safe and effective environment. Procedures can be practiced repeatedly without delays from air traffic, weather conditions, or air traffic control.

■■ Your aircraft is not out of service while it’s being used for training.

■■ Emergency and abnormal procedures also can be practiced in the simulator without risk under a broad variety of weather and environmental conditions.

■■ Use of the simulator allows aircrew to experience and respond to situations that simply cannot be reproduced during in-aircraft training, whether that’s an engine failure during a takeoff, a missed approach, or a helicopter systems failure requiring

autorotation (disengaging the rotors from the engine, allowing them to turn freely and enable the craft to “coast” to the ground).

In addition, such training programs and services can include eLearning, pilot enrichment courses, and advanced courses such as Upset Prevention and Recovery Training conducted in a simulator using actual aircraft flight test data.

Recurrent training in a structured environment adds to the benefits of using a Part 142 flight-training organization. Annual training, as required under Parts 91 and 135 charter regulations, offers the crew the ability to brush up on maneuvers or procedures they may not see (and cannot otherwise simulate) in their aircraft. It also can keep the crew up-to-date with changes from the FAA’s Next Generation Air Transportation System and other regulatory guidance to Original Equipment Manufacturers’ (OEMs) or avionic upgrades to the aircraft.

Perhaps the most important reason to train at a learning center is the guidance of its highly experienced instructors. They must meet the stringent standards set by the training organization, and must hold regulatory certificates appropriate to the training they deliver.

As professional educators, they tend to be excellent communicators with the ability to present complex aircraft systems and procedures in a clear and compelling fashion.

The best safety device in any aircraft is a well-trained crew. When all costs are considered, full-motion flight simulator training is also the better value compared to in-aircraft training. Direct operating costs, additional maintenance requirements, unnecessary risk exposure, and time lost to air traffic or weather considerations all add to the true cost of in-aircraft training. It’s worth the time and investment in a simulator-based formal flight training program to ensure that your aircrew are ready to meet the challenges they may face with your company’s greatest assets onboard – you, your employees, and your customers. BAA H . LEE ROHDE , founder, President, and CEO of Essex Aviation,

a business and private aviation aircraft acquisition and consulting firm, has 30+ years experience in financial and operational analysis, manufacturing, distribution, and corporate business development.

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■ GROUND SERVICES

Handling With Care

IS-BAH Means Safe and Sound on the Ground

BY BOB SCHICK

s a BizAv owner/operator, you value your safety and that of your passengers, crew, and aircraft, in the air and on the ground. So when selecting an FBO in 2019, find those ground service providers who share your commitment to ground safety by looking for IS-BAH™ Registered Fixed Base Operators (FBOs).

The International Standard for Business Aircraft Handlers (ISBAH) is a program first rolled out in 2014 by the National Air Transportation Association (NATA) and the International Business Aviation Council (IBAC). Based on the safety management system principles (SMS) adopted by the International Civil Aviation Organization and other stakeholders, IS-BAH is an industry-developed set of standards of best practices for business aviation ground handlers.

Incorporating many guidelines from NATA’s Ground Audit Standards, as well as each FBO’s own best practices and institutional knowledge, IS-BAH registration allows ground handlers and operators to meet the upcoming international standards requirements.

Registration provides operators like you with objective assurance that the FBO you patronize, whether in the U.S. or abroad, continually operates at the highest standards of safety.

In short, an IS-BAH registered FBO: ■■ Creates a written manual of documented procedures ■■ Trains all employees to follow these procedures ■■ Conducts internal auditing and ongoing evaluations to ensure the procedures are followed uniformly and correctly.

IS-BAH registration covers procedures such as: ■■ Specified, periodic training for ground handler service providers ■■ Implementing a Safety Management System (See “Are You ‘Safe’?” BAA March/April 2017) ■■ Establishing/implementing emergency and contingency plans ■■ Security in and around the facility at all times ■■ Appropriate record keeping and company documentation ■■ Organization and personnel requirements ■■ Occupational health and safety and environmental management ■■ Proper handling of passengers, baggage, dangerous goods, and non-hazardous cargo ■■ Airside operations, including safe parking of aircraft, and ■■ Ground Support Equipment maintenance requirements.

Certificates of registration are issued by IBAC to FBOs that have successfully demonstrated conformity to the industry’s best practice standards through completion of a three-stage external audit by an IBAC accredited auditor.

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■■ Stage 1 confirms that the FBO’s SMS infrastructure is estab-

lished and that safety management activities are appropriately targeted. FBOs with an SMS program to identify hazards and reduce the level of risk associated with ground service operations are more likely to have robust quality control processes to maintain fuel supply quality as well as documented procedures and training programs for towing, deicing, and so on (see “Getting To Zero,” BAA November/December 2014).

■■ Stage 2 ensures that safety management activities are incorporated into every facet of daily base activities, and that safety risks are being tracked and managed effectively with processes like Safety Performance Indicators (SPIs) and Safety Performance Targets (SPTs) scorecards.

■■ Stage 3 verifies that safety management activities are fully integrated into the operator’s business and that a positive safety culture is being sustained. IS-BAH registered FBOs are required to have their own internal operating standards, and to update such standards on a regular basis. This ensures that they meet evolving industry safety standards, and that they meet and exceed your own flight operation’s safety requirements. It is important to have a corporate safety culture that all employees, from the tug operator to the customer service representative at the front counter to the CEO, embrace and practice daily.

When planning your next trip, check the IBAC website for a list to help you identify IS-BAH registered FBOs throughout the world (https://goo.gl/prKAnV). In 2019, it is easier than ever to identify a safe, reputable place to have your aircraft serviced. BAA BOB SCHICK is the Director of Safety and Risk Management

for TAC Air. He successfully led TAC Air through the IS-BAH™ Stage 2 registration process. He also is the current NATA Safety Committee Chairman.

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TAC AIR

A

TAC Air / bschick@tacair.com

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■ ALTERNATIVE LIFT

DOT Matrix Regulating Air Charter Brokers

BY ED WANDALL n February 14th, as relationships are celebrated in many parts of the world, the U.S. Department of Transportation (DOT) will place its new Air Charter Broker regulations into effect, thus formally establishing new relationships among the DOT, brokers, operators, and charterers. What do these new regulations codify?

Now air charter brokers must disclose whether they work for the charterer (as agent of the customer) finding and arranging flights, and/or for the operator (as agent of the operator) looking for customers for his or her client.

While brokers had been acting as principals without any federal regulatory authorization or legal standing to do so, the new rule provides them with protection to earn commissions for services performed. In effect, the DOT wrote this rule around existing industry business realities.

In addition to correcting and redefining this new status, in each transaction, three facts must be disclosed to the charter customer: the name of the operator conducting the flight, the role of the broker (is he or she an agent of the customer or of the operator?), and the amount of any liability insurance that the broker provides over and above the charter operators’ own insurance. Since a big part of the DOT’s job is to protect and provide information to the public, requiring these disclosures is not a surprise.

The air charter broker also must disclose three more pieces of information at the request of the charterer: the total price of the flight, any business relationship with the operator, and any additional fees, if known (such as for landing, deicing, or catering).

Of those six items, the requirement to disclose the name of the operator (and, according to the rule, “any other names in which the direct air carrier holds itself out to the public,” i.e. DBAs) is going to change the business environment dramatically.

Historically, most air charter brokers have preferred to not provide the name of the operator to their clients. While a good broker will not obfuscate it, many would rather not offer their potential client the ability to go directly to the operator, bypassing his or her services.

New brokers soon learn that they’re less likely to lose the client when they’re adding value to the transaction. Yes, the client will know who is flying them (and frankly, he or she should), but since the broker did all the legwork, sourced the lift, perhaps arranged catering and ground transportation, and/or booked multiple legs using 10 B U S I N E S S AV I AT I O N A DV I S O R

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multiple carriers, as well as, it is hoped, conducted due diligence on all elements of the trip, he or she well deserves the commission. Such thorough work provides high-quality service to the charterer, and a good client will want to stay with a good broker.

But what about those brokers who operate with just a cell phone and a website? Those who are just grabbing their percentage and then playing hard to get on the phone when something goes wrong?

The new DOT rules will encourage them to make better business decisions, or perhaps to seek gainful employment elsewhere.

So, who will have a happy Valentine’s Day this year? Reputable brokers who conduct business on behalf of their clients safely, cost effectively, and with full transparency. The “barstool brokers” will have a much rougher time of it, since they now must compete on a level playing field, or face enforcement actions from the DOT, which can include fines and the option to require full refunds for mishandled charter trips. These shady brokers will be under very close observation, not only from their competitors, but by operators and charterers as well.

These new regulations will allow reputable brokers to continue to thrive, while eliminating the others. And that will make this a sweeter – and safer – Valentine’s Day indeed. BAA ED WANDALL , Director, Charter Evaluation and Qualification at

ARGUS International, has nearly 25 years’ experience in operations, safety management, auditing, and brokering. A graduate of EmbryRiddle Aeronautical University, he is a commercial/multi-engine pilot.

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ISTO CKPHOTO

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ARGUS International / ed.wandall@argus.aero

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■ ALTERNATIVE LIFT

Traffic Stop VTOL Offers an Alternative for Regional Travel

BY ANDREW SCHMERTZ or all the ease offered by business aircraft travel, one frustrating and pedestrian problem remains. You still have to get to the airport. Depending on your location, that could mean a trip longer than your flight. According to a recent study by the analytics firm INRIX, Los Angeles and New York are the two U.S. cities with the worst traffic in the nation. Moscow, São Paulo, London, and Paris are in the world’s top ten.

In fact, according to a United Nations study, by mid-century there will be 9.7 billion people in the world, 70 percent of whom will live in cities. During the same period, the global economy is expected to triple in size, likely doubling road and rail travel, according to the Organization for Economic Co-operation and Development.

This study reports that, on average, Americans spend 91 hours a year looking at other cars in front of us. With infrastructure problems, roads clogged with more cars and ride-sharing companies, we seem to be destined to slog it on the ground for a long time to come.

Travel to and from the airport to board your business jet will only get tougher.

While helicopter service long has been available from major urban centers, helicopters are expensive, slow, and have a questionable environmental footprint.

True Alternative Lift

Fortunately a number of aviation companies, ranging from established OEMs to innovative start-ups, are working to make the longheld fantasy of “flying over the traffic” an affordable reality – with the emphasis on “affordable.” Enter the “VTOL”: Vertical Takeoff and Landing Aircraft that are fast, efficient, and almost ready for market.

Military jet VTOLs, capable of ascending straight up from aircraft carriers and limited ground landing areas before converting to horizontal flight, have been in service for decades. The civilian VTOLs currently under development will offer the same vertical takeoff capability, with horizontal cruise speeds and passenger cabin configuration, size, and comfort, comparable to light business jets.

Since VTOLs do not have to operate from airports, no new concrete needs to be poured. They can operate from already available heliports or from new landing spots that take up only a few hundred square feet, like an office parking lot or open field. The VTOL offers business jet owners and users accessibility to fast and efficient air transportation between and among urban and suburban population centers, with the comfort and convenience of a limousine.

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You’ve likely heard claims that all-electric, autonomous robot VTOLs will provide lift across major cities. But batteries today are not powerful and light enough, so the likelihood of public and government acceptance of pilot-less electric flying machines is a long way off. VTOLs with jet engines or hybrid-electric powerplants, with human pilots at the controls, will rule in the near- and mid-terms.

Improving Your Commute

VTOL fleet operators plan to establish midtown to midtown commuter airline-type service between city pairs like Boston/New York and San Francisco/Los Angeles by early 2024, for a projected cost of approximately $300. You’ll be able to charter a VTOL to avoid ground traffic snarls and add productive hours to your workdays. For added privacy and security, you’ll be able to purchase a VTOL for your own use.

VTOLs also will take some cars off congested roads, reducing pollution around airports. Ultimately, the value proposition for VTOLs will be how they navigate the changing forces of aviation mobility.

Acceptance of the new forms of transportation will need to come from, and be encouraged by, all stakeholders, from aircraft manufacturers to regulatory agencies to seasoned BizAv users. The future of short hop, inter-city business travel once again is looking up – to the skies. BAA ANDREW SCHMERTZ is the CEO of Hopscotch Air and is a

former business journalist, including anchor of the Business Week television show. He advises Transcend Air on its city-to-city VTOL aircraft program.

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TR A NS CEND AIR

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Hopscotch Air / andrew@flyhopscotch.com

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■ AIRCRAFT MAINTENANCE

Nacelle Coverage New Protection for Your Engine

BY ANTHONY KIOUSSIS s a business aircraft owner or operator, you may not know exactly which components your engine Hourly Cost Maintenance Program (HCMP) covers. Is it just the aircraft fuselage and actual engine? The nacelle (the aerodynamic engine cowl and its support system)? The nose cowls, cowl doors, and thrust reverser units? Are all line-replaceable units covered? And if so, are there any exclusions for damage such as corrosion?

When an uncovered event occurs, a villain is born – whether it’s the director of maintenance who didn’t budget a $200,000 repair to a thrust reverser unit (TRU), the principal who invited friends for a weekend in Nice but now is faced with a grounded aircraft, or the Original Equipment Manufacturer (OEM) who is happy to address the problem, but will send a costly bill to do so. All parties involved share the pain.

To avoid the financial expense, and decrease the response time required, to alleviate the problem, inform yourself so that you understand the actual coverage of your engine if it is enrolled on an HCMP (a.k.a. “Long Term Service Agreement”). Until recently, engine manufacturers excluded such hardware coverage in their HMCPs, despite having installed the subcontracted assembly built to their own specifications, with the nacelle and thrust reverser manufacturers. Recent changes should have a positive impact on aircraft reliability, asset value, annual budgeting, and your peace of mind.

Rolls-Royce has led the way by introducing its CorporateCare® Enhanced program late last year. Including nacelles for the first time, the program covers all maintenance and troubleshooting on the engine cowls, TRUs, and engine build-up on engines powering numerous aircraft, including the Bombardier Global 5000/6000, Global 5500/6500, and Gulfstream 550, 650, and 650ER. By covering repair and replacement costs, as well as key nacelle-specific service bulletins and spares, reliability of enrolled aircraft is likely to improve.

Rolls-Royce is not alone. GE recently announced that it would now also provide complete engine and nacelle coverage for the new Passport engine on the Bombardier Global 7500.

Why not simply rely on the warranty? Warranties are designed to cover severe defects, or items that break long before their designed useful life ends, causing their financial value to decrease over time. Additionally, warranties generally do not cover engine transportation costs, engine-specific logistics (e.g. an exact prespecified truck type with a specifically designed suspension) or loaner spare parts while the component is being repaired.

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Expanded component coverage, which includes nacelles and TRUs, also adds to the asset’s value. The HCMP service coverage ensures that when it’s time to trade or sell the aircraft, its value remains comparable to other aircraft with such coverage. That also enables faster pre-owned transactions due to a decided market preference for aircraft covered by HCMP. From an operational standpoint, make sure that you have such contingency plans in place when reviewing your aircraft’s annual budget. A new complete nacelle on a large cabin aircraft easily can cost more than $5 million per side, an unwelcome surprise in any fiscal year. A new TRU alone can cost more than $2 million, and unfortunately, an issue discovered on one side of the aircraft often is also found on the other side: a painful doubling of cost. Even if a component can be repaired, a repair scheme on the TRU could be in the $100,000-$200,000 range, per side.

Business aviation commands operational reliability, financial predictability, and asset value optimization, both for your own peace of mind and for a swift aircraft sale in a competitive second-hand market. Expanded HCMP coverage that includes nacelles and thrust reversers can increase your aircraft’s value while concurrently improving its re-marketability. BAA ANTHONY KIOUSSIS is president of Asset Insight, LLC,

which offers eValues™, an online service providing Current and Residual aircraft valuations. With 40+ years in aviation, he serves on the National Aircraft Finance Association Board of Directors.

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Asset Insight, Inc. / akioussis@assetinsight.com

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AIRCRAFT FINANCE ■

Alt Leasing Is Structured Lease Financing in Your Future?

BY ALESSANDRA CHRISTIANI s oil billionaire John Paul Getty said, “If it appreciates, buy it. If it depreciates, lease it.”

If you are considering building a hangar, FBO terminal, or other airport structure, there’s no good reason to invest permanent equity in a fully depreciating asset that ultimately will revert to the airport. Historically, on-airport businesses have been required to commit their own capital to build such assets through a mortgage or outright cash investment. An alternative found in other industries for decades, Structured Lease Financing presents significant advantages and opportunities for airport business owners.

What Is Structured Lease Financing?

In the case of single-tenant retail operations and car dealerships, where the owner/tenant holds clear (“fee-simple”) title to the land occupied by the business, the owner initiates structured leasing first by selling the building and land to a third-party investor. (If the project is a new development, the construction also can be funded by an outside investor). Then the business owner leases back the building and land from the investor under a “triple-net lease,” wherein the tenant makes monthly rent payments to the landlord for use of the building, as well as: (1) all property taxes, (2) insurance, and (3) maintenance related to the property.

This model has been used by many large companies throughout the world to provide for smarter allocation of capital. United Technologies, owner of Pratt & Whitney aircraft engines, has more than $2 billion of operating leases, including the sale-leaseback of various office facilities.

Many non-aviation properties have used ground lease structures including the Empire State Building, and the San Francisco 49ers stadium. State Farm used structured lease financing to implement its rapid expansion in Atlanta, Dallas, and Phoenix.

Kimco Realty, a large owner of shopping mail retail properties, owns several properties that are leased on a triple-net basis to TJ Maxx and other big box retailers, where the tenant pays property taxes, insurance, and maintenance costs as well ground lease payments.

How Does Structured Lease Financing Work?

Most on-airport General Aviation facilities, like FBOs, are built as leasehold improvements on land owned by the airport authority: the aviation entity’s capital is tied up in building ownership with a long term ground lease for the underlying land. w w w. B i z AvA d v i s o r. c o m

For properties with such ground leases, in Structured Lease Financing, a third-party investor – an independent finance company or bank – either funds construction of or purchases the existing leasehold improvements (e.g. terminals and hangars) from the aviation business operator for 100% of cost or fair market value, as determined by an independent real estate appraiser. That investor then executes a triple-net lease with the business operator, typically with a term that runs concurrent with the underlying ground lease. At the expiration of the ground lease, the leasehold improvements revert to the airport authority absent any lease extensions.

How Does Structured Lease Financing Differ?

Other financing alternatives presently available to aviation business owners place them under significant financial burdens. Bond issuances typically incur high legal fees and mandate substantial interest reserves, requiring aviation businesses to raise more funds than necessary. That reduces the funds available to invest in building the business. Mortgage financing usually requires the owner to make a 20-30% down payment, eliminating the opportunity to invest this capital in other areas of the business. With structured leases, the aviation operation preserves cash by leasing the building(s) from a third-party owner so the capital instead can fund acquisitions, new locations, or partner buyouts.

Whether you are looking for financing to aid in the acquisition of a new location, construction of a new general aviation facility, or to buy out a business partner, a structured triple-net-lease 100% financing offers a flexible way to achieve your goals. BAA ALE SSANDR A CHRISTIANI is an investment manager at

Capital Aviation Group, the first provider of structured lease financing for aviation. Prior to CAG, she managed a $2 billion portfolio of debt and equity investments at Prudential.

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■ WASHINGTON REPORT

DOT’S Air Charter Brokers Rule It’s Better Than Nothing, But Should Mandate More Transparency

BY DAVID COLLOGAN ollowing more than a decade of contemplation and inertia, the U.S. Department of Transportation finally served up its long-awaited rule addressing the role of air charter brokers, and enacting some requirements on brokers and charter operators.

DOT’s product covers just 24 pages (https://goo.gl/QM4yXz). It is thin gruel and leaves much to be desired. But it’s required reading if you’re traveling on charter aircraft or booking charter trips for others. If nothing else, it will alert you to what brokers and operators DO NOT have to tell you – unless you specifically ask them. It details deceptive and prohibited practices of which you should be aware, and most can be found in the last six pages.

The catalyst for the new rule, effective Feb. 14, 2019, was an NTSB recommendation made in 2006. The board said customers and passengers on Part 135 flights should be informed of the name of the entity with operational control of the flight, including any “Doing Business As” names in the Operations Specifications, the name of the aircraft owner, and the names of any brokers involved in arranging the flight.

That recommendation came from NTSB’s investigation of the November 28, 2004 fatal crash of a Canadair CL-600 during takeoff from the Montrose, Colorado Regional Airport.

NTSB detailed numerous egregious mistakes, including a bad case of “get-going-itis” by the pilots. The CVR recording was clear: the pilots can be heard rationalizing that they could take off on a snow-contaminated runway at an airport situated 5,759 feet above sea level during a heavy snow storm in a snow-covered airplane that had not been de-iced. It was folly.

NTSB found the plane’s left wing stalled due to snow and ice contamination; it crashed just nine seconds after liftoff.

There was extensive news media coverage of the crash which occurred on Thanksgiving weekend, carrying Dick Ebersol, then chairman of NBC Sports, and his two sons, one of whom died from his injuries.

Member Deborah A.P. Hersman attached a concurring opinion to NTSB’s report, observing that some Part 135 air charter companies “operate jets on a shoestring budget with inadequately experienced or trained crews” and warned “the air charter consumer has few practical options for finding out the differences between safe and unsafe operators…”

General Electric owned NBC back then and Hersman noted General Electric Corporate Air Transport (GECAT) arranged the trip for Ebersol and his family. GECAT regularly booked trips with an 18 B U S I N E S S AV I AT I O N A DV I S O R

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operator named Key Air, but it had no suitable planes available that weekend. So Key Air brokered the trip to another operator, Air Castle, which leased the CL-600 from yet another operator.

Hersman said Air Castle was approved by the independent safety rating firm Wyvern, but, “the crew used by Air Castle on the accident aircraft was not.” GECAT “undoubtedly believed it was diligent in insisting on certain standards for the air charter operator,” Hersman said, “but it did not get what it probably thought it was getting; it did not get a Wyvern-approved crew and it is not clear from the information in the docket whether the aircraft was Wyvern-approved. If an experienced corporate travel organization like [GECAT] can be so fooled, how easy is it for others with perhaps far less savvy and market power to hire air charter services that are less safe than they expect?”

Thirteen years after NTSB’s final report, the concerns Hersman voiced then still resonate, even though most legitimate 135 operators now aspire to much higher safety standards.

But customers have to know who they are dealing with. Seeking the lowest quote for a trip from someone you’ve never met, and don’t know anything about, is asking for trouble. Shady operators who skimp on training and flout FAA regulations prey on the uninformed. BAA DAVID COLLOGAN has covered aviation in Washington, DC

for more than four decades. This award-wining journalist is known as one of the most knowledgeable, balanced, wary, and trusted journalists in the aviation community.

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dlcollogan@gmail.com

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