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JANUARY / FEBRUARY 2020

Global Warning The Safety and Financial Risks of Illegal Charter

Over and Above Hourly Cost Maintenance Programs Offer Unexpected Benefits AIN’T NOBODY’S BUSINESS GETTING CARDED STRUCTURING A DEAL WHEN YOU OPT TO NOT OWN THE RIGHT STUFF AUCTION MY AIRCRAFT? ASSERTING FAA’S AUTHORITY A Business Aviation Media, Inc. Publication

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


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Januar y / Februar y 2020 • Volume 7 / I s sue 1

6

8

F E AT U R E S

Global Warning 06 The Safety and Financial

Risks of Illegal Charter

by DAVI D NOR TON &

RYAN WAGU E S PAC K

Over and Above 08 Hourly Cost Maintenance Programs

Offer Unexpected Benefits

by ANTHONY K IOUS S IS

Getting Carded 09 When to Bet On a Jet Card

by BA A S TAFF

Ain’t Nobody’s Business 10 Five Steps for More Secure Flying

12

D E PA R T M E N T S

Structuring a Deal 12 Aircraft Value is Fundamental

Publisher’s Message 05 You Vet Your Life

by G IL WOLIN

by DAVI D COLLOG AN

by G ARY C R I C HLOW

When You Opt to Not Own 14 Finding Safe Aircraft Charter

by K E VIN THO M A S

15

Washington Report 18 Asserting FAA’s Authority

The Right Stuff 15 Making the Best Aviation Hire

by S TE V E FUS H E LB E RG E R

Auction My Aircraft? 17 Consider a New Way to Sell

by W. HUL S E Y S M ITH

18

by E DWAR D K A M M E R E R

Above and Beyond 2020:

Business Aviation Advisor’s Podcast Series Want to Learn More About Your Investment in Business Aviation? Tune in to Business Aviation Advisor’s informative podcast series, on the business of owning and flying business aircraft – from entry portals, to acquisition and operations, to management, insurance, finance, and more.

The Information You Need, From Experts You Can Trust

www.bizavadvisor.com/podcast

w w w. B i z AvA d v i s o r. c o m

Ja n u a r y/ Fe b r u a r y 2 0 2 0 B U S I N E S S AV I AT I O N A DV I S O R 3


EA RL Y Re BIR se rve D R by AT Ja E nu ary

IGNITING IDEAS.

31

SA V 02 E $ 0 20 0

,2

PROVOKING CHANGE.

10TH ANNIVERSARY JETNET iQ GLOBAL BUSINESS AVIATION SUMMIT NEW SEASON. NEW PREDICTIONS. June 8-9, 2020 | The Ritz-Carlton New York, Westchester Three Renaissance Square, White Plains, NY Registration: jetnet.com/summit

Our industry’s best and brightest are meeting, sharing, and networking for the 10th year in a row, and you’re invited. Map out your business moves for the year ahead with the same insights as the industry’s leaders, a virtual “Who’s Who” of business aviation, with unique perspectives on the industry’s present and future: analysts, bankers, brokers, wealth consultants, attorneys, sales and marketing leaders, and C-level executives. Save the dates, and save your seat! Questions, please contact: Paul Cardarelli | paul@jetnet.com | 1.800.553.8638 ext. 254 Rollie Vincent | rollie@jetnet.com | 972.439.2069 SPECIAL THANKS TO OUR PLATINUM SPONSORS

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ANNIVERSARY

The World Leader in Aviation Market Intelligence 800.553.8638 +1.315.797.4420 +41 (0) 43.243.7056 jetnet.com


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 Gary Crichlow Arc & Co. gary@arcandco.com Steve Fushelberger MarComm Resources fushelberger@gmail.com Anthony Kioussis Asset Insight, LLC akioussis@assetinsight.com Edward Kammerer Greenberg Traurig kammerere@gtlaw.com David Norton Shackelford Bowen McKinley & Norton, LLP dnorton@shackelford.law W. Hulsey Smith Assent Aeronautics hulsey@assentaero.com Kevin Thomas XOJET kevinthomas@xojetaviation.com Ryan Waguespack NATA ryanw@nata.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. Publisher assumes no responsibility for safety of artwork, photographs, or manuscripts. Permissions: Material in this publication may not be reproduced, stored in a retrieval system, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording, or otherwise) without the prior written permission of the publisher. The views and opinions expressed in Business Aviation Advisor are those of the authors and advertisers, and do not necessarily reflect the policy or position of Business Aviation Media, Inc. Articles presented in this publication are for general information and educational purposes and do not constitute legal or financial advice. Postmaster: Please send address changes to: Business Aviation Media, Inc. PO Box 5512 • Wayland, MA 01778, USA ©Copyright 2020 by Business Aviation Media, Inc. All rights reserved Printed in the USA

You Vet Your Life

You’ll be entertaining a few select clients at the Super Bowl at Miami’s Hard Rock Stadium on February 2. And if your own aircraft is reserved by another executive, you’ll be flying charter. What will be your first priority in selecting and vetting an operator? Price? Aircraft make and model? Schedule convenience? Or safety? Almost 900 turbine aircraft charter operators in the U.S., flying almost 6,300 aircraft, plus thousands of non-operating brokers, all claim to offer “the right aircraft at the best price.” So your flight department will use industry vetting tools like Argus, Wyvern, and the Air Charter Safety Foundation to narrow the field of charter brokers and operators based first on safety ratings, and then on aircraft availability. Then, and only then, will they compare prices. While a faceless app can compare prices, no online algorithm can evaluate and compare a company’s culture and commitment to safety with that of other operators. It’s “buyer beware” when an app’s first message is “price and simplicity” rather than “safety and service.” Reputable charter operators and broker companies are headed by individuals with a long history of commitment to aviation safety and service. You’ll find the credentials of the senior management listed on their websites. But it seems every week another faceless app joins the fray, seeking to make a profit off of the unknowing charter user. Newcomer Blackbird, a Silicon Valley startup, delegated shopping to the charter user, who chose an aircraft make/model from one online list, and the flight crew from a separate list. This “one from Column A and one from Column B” approach appeared to be intended to skirt the FAR Part 135 governing commercial charter operations – as well as the IRS requirement that excise tax be paid on commercial air travel. But the FAA wasn’t buying it, according to the December 17 letter from Naomi Tsuda, the FAA’s Assistant Chief Counsel. The FAA opined that the pilots so listed “are holding out and thus are engaged in common carriage” according to previously FAA issued determinations. Consequently, Blackbird had to suspend that part of their air travel offerings, restricting itself to simple online charter brokering. Sure, using a charter app is fast and easy. You just key in where you want to go and when, and the tracking software does the rest. But why would you risk using an invisible broker, especially when your safety – and your wallet – depend on reliable charter? In our cover story, “Global Warning,” David Norton and Ryan Waguespack tell you why you may be vulnerable, including the very real safety and financial risks to you of illegal charter. Can your specific travel requirements and your safety be reduced to an algorithm on an app? Aren’t you worth more than that?

Gil Wolin — Publisher gwolin@bizavadvisor.com Ja n u a r y/ Fe b r u a r y 2 0 2 0 B U S I N E S S AV I AT I O N A DV I S O R 5


■ ALTERNATIVE LIFT

Global Warning

BY DAVID NORTON & RYAN WAGUESPACK dnorton@shackelford.law / ryanw@nata.aero

“Harry, any chance your airplane is available Thursday? I’ve got to make a quick runout for a supplier meeting and I don’t have time for the commercial plane changes. I’ll be glad to pay all the expenses for the trip just like last time.” “Sure, Barry, I’m not using it until Friday night. Sounds like about six hours of flying round-trip. Just cover my costs for fuel and any crew and airport fees, and it’s yours for the day.” What’s wrong with this scenario? Surely Harry, who flies 300 hours a year, runs a safe operation. Maybe so. But Harry’s airplane and crew are operating under Federal Aviation Regulation Part 91 as a non-commercial, “owner only” flight operation. The moment money changes hands – even if it’s only partial cost sharing – that flight becomes a commercial flight. And the operator of the aircraft conducting a commercial flight without a FAR Part 135 Air Taxi certificate, or under an appropriate exemption from that requirement, has violated Federal regulations and is subject to significant penalties. For example, in 2018, the FAA proposed a $3.3 million civil penalty against the Michigan-based Hinman Company for allegedly “conducting hundreds of commercial aircraft operations in violation of the Federal Aviation Regulations, including failing to hold the required operator certificate for the flights being performed.” Operating under Part 91 means that Harry cannot legally accept money for the use of his aircraft and crew – unless he cedes 6 B U S I N E S S AV I AT I O N A DV I S O R Ja n u a r y/ Fe b r u a r y 2 0 2 0

complete operational control of the aircraft to Barry under a socalled “dry lease” (a “day lease” in Europe). If Harry retains operational control and accepts money, then it is considered a commercial “wet lease.” Moreover, the IRS generally considers any flight where money changes hands under such a wet lease – even just to cover expenses – to be a commercial flight. That means the same Federal Excise Tax that applies to a commercial airplane flight applies to those charges. If it’s not paid, both the aircraft owner and the passenger can be fined – big time. Illegal charter is not a parochial issue found only the U.S. For more than 70 years, the UK-based Air Charter Association (formerly the Baltic Air Charter Association) has worked to educate European aircraft owners and charter users about the potential dangers posed by illegal charter. https://www.theaircharterassociation.aero/compliance/illegal-charter/ Fortunately, the FAA and its international aviation authority counterparts are becoming more aggressive in working to eradicate illegal charter. The FAA has been working with the National Air Transportation Association (NATA) to educate owners and charter operators about illegal charter’s inherent safety risks and financial penalties. One of the biggest challenges they face is that many business aircraft owners worldwide simply don’t care. Like Harry, they’re willing to violate both safety and IRS regulations to accommodate a friend. And their associates – like Barry – who use their aircraft, don’t believe that their owning friends would ever operate unsafely or that they themselves might be liable for fines. w w w. B i z AvA d v i s o r. c o m

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The Safety and Financial Risks of Illegal Charter


This is especially true when that false belief saves them money. It’s much like the cost-saving attitude that fuels discounted “ridesharing” ground transportation services: the safety risks are negligible, so why pay more? Neither the FAA nor the IRS will ever know. So who or what is harmed? Your Wallet – if discovered, you will be liable for hefty fines for regulatory violations and failure to pay excise tax. Your Passenger – your colleague or friend. With a Part 91 flight, there are no regulatory limits on how long the pilots are on duty each day, nor is there any required crew rest. Under Part 91, Harry could have had his pilots on duty for twenty hours and flying for twelve on Wednesday, leaving them with as little as four hours’ rest before flying Barry the next day. Your Aircraft – if an accident or incident occurs during an illegal charter trip, your insurance coverage is unlikely to provide for property damage. Other Aircraft Owners – for your colleagues and other owners whose aircraft is on a charter certificate and available for hire, illegal charter reduces (or inhibits) their ability to generate cost-offsetting revenue. Aircraft Charter Companies – according to aviation services company Argus (www.argus.aero), the vast majority of the more than 6,200 turbine aircraft available for charter are operated by almost 1,000 professional aircraft management companies under a Part 135 certificate. If they are continually being undercut by illegal charter, they cannot make a profit. Just as bad money drives good money out of circulation, bad illegal charter operations drive good legal certificated operators toward unprofitability. Hence, the next time you need to hire an extra aircraft when yours is down for maintenance, your go-to charter company may no longer be in business. Your Own Aircraft Charter Operation – according to both Argus and the General Aviation Manufacturers Association (www.gama.aero), more first-time owners are opting to have their aircraft operated by charter management companies rather than establishing their own independent flight departments. More owners like you are choosing to make their aircraft available for charter in order to generate revenue. Illegal operations are YOUR competition.

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What You Should Know Before You Charter

What makes Part 135 certificated charter operators worth the incremental cost per hour? They invest in a flight dispatch/flight following department staffed 24/7/365. Their crews attend recurrent flight training every six months, as compared with the once annually required of Part 91 operators. They observe the flight time and duty day limitations of ten and fourteen hours in any 24-hour period for all pilots – providing a second crew when required if the initial crew becomes unavailable. All costs required to dispatch your flight in a timely and safe manner, including a reasonable profit for the operator, aircraft owner, and – in some cases – the charter broker who sells the trip, are included in that per-hour rate. w w w. B i z AvA d v i s o r. c o m

Without these required regulatory oversights, charterers and owners are increasing their risk of an unsafe flight and exposure to seven-figure fines. If you make your aircraft available for charter, what can you do to stay safe and legal? ■ Work with qualified aviation attorneys, who understand operational control, to ensure that your Part 135 documentation is proper and in place. ■ Avoid improper “dry leases” intended to skirt FAA and IRS regulations, in which the aircraft owner retains operational control during a flight for a “charterer” (See “Taxing Leases,” BAA Sept/Oct 2018). ■ If you do engage in a legitimate “dry lease,” make sure that your insurance provides proper coverage. Does the lessee require additional coverage? ■ Be aware that if the intent of a Part 91 operation (you or a subsidiary) that controls/manages the aircraft is to generate revenue via third party charter, then you can be fined by the FAA and subject to an IRS audit and fine. ■ NATA manages an illegal charter hotline on behalf of the FAA. To report possible illegal charters in the U.S., call 888-759-3581 or 888-SKY-FLT1. Your life may depend upon it. BAA DAVID NORTON , MBA , JD, ATP, is a graduate of the

USAF Academy, heads the aviation law practice at Shackelford Bowen McKinley & Norton, LLP, and is an internationally recognized aviation lawyer and an active pilot.

RYAN WAGUE SPACK , NATA’s Senior Vice President, leads

industry efforts to combat illegal charter operations, serves as liaison to NATA’s Workforce Development and Air Charter Broker Committees, and heads the Association’s membership and safety programs.

Ja n u a r y/ Fe b r u a r y 2 0 2 0 B U S I N E S S AV I AT I O N A DV I S O R 7


■ AIRCRAFT MAINTENANCE

Over and Above Hourly Cost Maintenance Programs Offer Unexpected Benefits BY ANTHONY KIOUSSIS s OEMs sought to expand aircraft deliveries to Business and General Aviation (B&GA) during the early ’80s, they encountered two hurdles. One was the perceived, if not real, inability of certain engines to achieve their published maintenance intervals, thereby increasing operating costs. The other was operator perception that certain airframes and engines were more expensive to maintain than advertised. To address both concerns, numerous OEMs modified offerings already available to the airlines, and Hourly Cost Maintenance Programs (HCMP) were born. Initially viewed as expensive, the idea of “guaranteed operating costs” soon was embraced by B&GA operators. And once lenders and lessors began relying on their value to securitize their assets, HCMP coverage became an industry staple. Today, aircraft owners routinely experience enhanced value when their Program-enrolled aircraft is sold. In fact, not enrolling some models on HCMP may result in a valuation reduction to the aircraft, since the majority of certain models are so enrolled. However, some new and used aircraft buyers may not consider that HCMP offers benefits over and above the value increase to the aircraft. These are quantifiable and can provide value directly to the owner. For example: ■ Additional Coverage While Under Warranty – Certain “related expenses” are not covered by warranty, such as the cost for shipping the affected component to the maintenance facility, shipping a rental component to the aircraft, installing the component, the cost of the rental component during the repair period, removing the rental part once the original component has been repaired, return shipping for the rental, shipping cost to the maintenance facility for the original component, and logistical support associated with these tasks – including the cost to transport and house personnel at an unscheduled maintenance event site. That is not to say the warranty is not valuable, but its coverage often is limited to the cost of repairing the affected component. ■ Exposure at Resale – Depending on market conditions, an owner may choose to pay to enroll an uncovered aircraft on HCMP rather than having to discount its sale price in excess of that enrollment fee. While incurring the expense at the time of sale, they have enjoyed none of the HCMP coverage benefits. ■ Days on Market – Detailed analytics from resale organizations show that an in-service aircraft will take longer to sell absent HCMP coverage. This could mean a substantial loss in value as aircraft are depreciating assets. 8 B U S I N E S S AV I AT I O N A DV I S O R Ja n u a r y/ Fe b r u a r y 2 0 2 0

Rental Component Expense – Many owners fail to account for the true cost of rental components, the potential difference in their travel experience when chartering aircraft, the total cost of charters during their asset’s downtime, and storage as well as other fees for their grounded aircraft. ■ Freight and Shipping Charges – The cost to ship “Aircraft on Ground” parts, and the freight charges and logistical challenges to transport a component from wherever the event occurred to the service facility, as well as the cost to ship a rental component to the site of the maintenance event, should not be underestimated. ■ Financing Benefits – Each aircraft financing entity has its own way of valuing Hourly Cost Maintenance Programs, so it’s difficult to determine the exact value that any one financier may place on HCMP coverage. However, the savings differential over the term of a loan or lease could be substantial. In addition to the OEMs, HCMP coverage is available from independent sources. Their advantage is the ability to cover components produced by more than one OEM, making them a one-stop-shop. However, some firms may not be acceptable to financing entities, may not offer coverage equivalent to the OEM, and their program may not be transferable – making its value questionable. Hourly Cost Maintenance Programs are by no means free, but the additional value they can provide to the aircraft’s owner, can make them a wise investment. 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, LLC / akioussis@assetinsight.com


ALTERNATIVE LIFT ■

Getting Carded When to Bet On a Jet Card

P

BY BAA STAFF

ositioned between the pay-as-you-go occasional use of charter flying, and the long term financial obligations of a fractional share or whole aircraft ownership, the prepaid jet card offers an excellent option for alternate lift. A jet card can satisfy your regular business jet or turboprop travel requirements at preferred rates, with guaranteed availability, and allows you to review your business aircraft flight activity annually and adjust your commitment for the ensuing year accordingly. It may be the best option for you when: ■ Your trips have various origin points, ■ Your intermediate stops require extended time on the ground, and/or ■ You need a guaranteed response time. ■ If you own an aircraft, a jet card also is useful when: ■ Your own aircraft is down for maintenance, and/or ■ A second aircraft is required while yours is already flying. Every major fractional ownership operator – plus many national and regional charter operators and charter brokers – offer some version of the prepaid jet card. Purchasing a jet card enables you to contract to fly and pre-pay for 10 to 50 occupied (“live”) hours annually, based on the size of the aircraft you anticipate using most, drawing down on that deposit as you fly. Most jet card companies will allow you either to extend your contract term, or to add (“roll over”) the unused hours to your renewal commitment for the next contract year, but do check before signing. The hourly cost can range from a flat rate of $4,000 for a light jet to $15,000 for a large cabin, long range aircraft, plus taxes, but with no membership fees, and as of this writing, no extra charge for fuel. Scheduling a trip is very similar to booking a charter flight, except that unless your card program is related to a fractional fleet, you will be booking a category of aircraft, rather than a specific make and model. For example, “mid-size” can mean any one of an extensive number of aircraft models, such as Hawker 800, Learjet 60 or 70, or Citation XLS. If your jet card program is one provided by a charter broker, that broker will shop each trip among charter operators proximate to your trip origin. You will need to make sure that the broker vets its potential charter operators and regularly audits them for operational safety and reliability, as well as for financial stability. The broker’s profitability depends in large measure on its ability to purchase “empty legs” (repositioning legs already paid for by another charter client) at a discount, and reselling them to its own jet card clients at contract rates. w w w. B i z AvA d v i s o r. c o m

If your jet card is provided by a fractional operator, you gain access to an entire fractional aircraft fleet with no capital commitment and no monthly management fee. In exchange, you may pay a higher occupied per-hour charge and are committed to fly aboard the specific make/model aircraft in the provider’s fractional fleet, with the option to trade up or down on specific flights, with an appropriate adjustment to the hourly cost.

The Upside:

No capital investment, ■ No long-term commitment, and ■ The opportunity to adjust annually the size of your flight commitment as well as contracted aircraft size in accordance with changes in your travel requirements. ■

The Downside:

No depreciable asset, ■ No related tax advantage, and ■ No potential for asset value appreciation. Since there are many points to consider with respect to each company’s jet card offering, as well as your own specific needs, a professional aviation consultant can help you analyze your travel requirements, answer your questions, and assist you in determining which program is best for you. Ultimately, the jet card offers you an excellent source of alternative lift, with many of the benefits of both charter and fractional ownership. BAA ■

Ja n u a r y/ Fe b r u a r y 2 0 2 0 B U S I N E S S AV I AT I O N A DV I S O R 9


■ AVIATION LAW

Ain’t Nobody’s Business

Five Steps for More Secure Flying BY EDWARD KAMMERER Greenberg Traurig / kammerere@gtlaw.com

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How Private and Secure is Your Aircraft?

Many aircraft are owned in LLCs formed just for this purpose. While the names of such LLCs may intentionally obfuscate the identify of the aircraft’s “true owner,” public information regarding the ownership and management of such LLCs often point to a company or individual owner. Additionally, services such as JetNet and Amstat are very effective at revealing an aircraft’s “true ownership.” Contrary to what many think, taking title to an aircraft in an “Owner Trust” does not protect the owner’s identity. The name of the beneficiary of an Owner Trust must be disclosed in the aircraft’s publicly available registration documents. The use of a socalled “Double Trust Structure” can be effective to shield an owner’s identity. A Double Trust uses an Owner Trust with a second trust as the beneficial owner of the Owner Trust. The name of the second trust is a matter of public record, but the name of true owner of the second trust is hidden. Even with a Double Trust, the identity of the true owner can be discovered if the owners are not vigilant.

Flight Tracking

Anyone with an internet connection can track an aircraft simply by typing a tail number into aircraft tracking websites such as Flightaware.com or various other “plane spotter” websites. The January 1 requirement that aircraft update their navigation tracking systems to ADS-B standards makes following aircraft movements an option for anyone with readily available and inexpensive equipment. Fortunately, the FAA and the National Business Aviation Association (NBAA) recently announced a program which will allow an owner to block public tracking of real-time positioning and identification information for ADS-B compliant aircraft. 10 B U S I N E S S AV I AT I O N A DV I S O R Ja n u a r y/ Fe b r u a r y 2 0 2 0

What Can You Do?

While there are no fail-safe methods of keeping your aircraft’s ownership and movements secure, there are several precautionary measures which you can take to help preserve privacy and security. ■ Avoid the use of vanity tail numbers and identifying marks on your aircraft which may provide telltale clues to ownership. ■ Carefully monitor the identity of signatories to public documents. The identity of the “true owner” of an aircraft can be disclosed by cross-referencing the names of LLC documents to the “true owner” through websites such as LinkedIn. Documents filed at the FAA, such as tail number reservations and re-assignment, can help a determined investigator connect the dots between the true owner and the actual registrant. ■ Double Trust structures, if properly formed and vigilantly monitored, can help protect your identity. ■ By making an Aircraft Situation Display to Industry (f/k/a as NBAA’s “BARR Program”) blocking request, owners and operators can opt out of having their aircraft information broadcast over the internet. ■ Sign up for the NBAA/FAA Program which allows your ADS-B tracking data to be broadcast in a format which is not readily accessible to the public. Modern technology makes keeping your aircraft’s identity and location private and secure more difficult than ever. However, by taking a few simple precautions, you can shield your identity and aircraft movements from your competition, the media, those with political motivations, and the curious general public. BAA EDWARD K AMMERER is a Shareholder at the law firm of

Greenberg Traurig. With more than 35 years of experience, he advises the business aviation community on all aspects of aircraft ownership, operation, and finance.

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hen asked why you use business aircraft, you likely would list “security” and privacy” among your top reasons. These legitimate and valid concerns include industrial security, personal security, a desire to keep trips and destinations confidential, and a good old fashioned sense of MYOB. Many owners go to great lengths to keep the identity of their aircraft and their flying patterns hidden from view. However, despite owners’ best efforts, prying eyes easily can detect and track aircraft and identify their owners. Information available at the FAA Registry and other publicly available government filings, as well as aircraft information websites and services, make aircraft ownership information and destinations easy to obtain.


■ AIRCRAFT FINANCE

Structuring a Deal Aircraft Value is Fundamental BY GARY CRICHLOW Arc & Co. / gary@arcandco.com

One basic axiom drives the due diligence that aircraft financiers undertake, and informs the requirements they impose: Aircraft depreciate in value over time. While there are many definitions of “value,” the one that matters to a financier is the price a buyer would agree to if the financier ever had to sell. Whether as a scheduled plan to take the aircraft back at the end of an operating lease, or as a contingency plan to sell due to a repossession, financiers need a strategy for actually turning a highly engineered piece of metal into enough cash to cover their outstanding exposure.  To do this, financiers typically employ three tactics: 

Aircraft values can be volatile, and most financiers hedge their bets by looking to the client’s creditworthiness for security, as well as recourse to a guarantee and/or additional collateral. Making This Work for You Generally, the more a lender can take security in your creditworthiness and guarantee rather than the asset value, the less expensive they’ll be. The keys are understanding what security you can offer in exchange for a financing package, and finding the financier that suits you accordingly. 

Conserve the Value Position

Financiers look to minimize the amount of cash they’d have to realize from a sale by capping the amount they’ll advance, amortizing the balance as aggressively as they can, and imposing a loan-to-value covenant — a mechanism giving the financier the right to call for additional pay-downs to keep the outstanding principal below a certain percentage of the aircraft’s value. While these tactics are relatively simple to understand, in practice, a financier’s ability to actually implement them depends greatly on the competitiveness of the market. Back in 2008, a frenzied market saw interest-only deals (zero amortization) and 100% advances; today, advances average in the 70-80% range, with 90%+  deals only in the most competitive  areas of the  market (e.g. the U.S. domestic market, and the global market for the uppermost-tier clients). Making This Work for You A financier’s flexibility on the terms they offer – and enforce – will depend on how much competition there is for your business. It’s always a good idea to seek alternative offers and compare terms. 12 B U S I N E S S AV I AT I O N A DV I S O R Ja n u a r y/ Fe b r u a r y 2 0 2 0

Protect the Aircraft’s Value

Financiers insist on measures that protect the asset’s value, and – just as importantly – their access to it. Since aircraft are depreciating assets, once a financier takes control of it (whether as a repossession or a scheduled off-lease handback) it’s basically a race against time to realize as much value from it as they can.   This is why they tend to require enrollment in hourly maintenance support programs; restrict the choice of governing law, aircraft registration, and operator to jurisdictions and entities with whom they’re comfortable; expect regular usage reports; and require periodic audits of the aircraft and operator. They also will insist on a tripartite agreement: a contract between them, you, and the operator that binds the operator to deliver the aircraft and records to the financier if there’s a default. These measures are intended to keep the aircraft marketable, provide the financier advance warning of trouble and, if necessary, recover the aircraft quickly. Making This Work for You Consider that the same measures  which  protect  an  aircraft’s value also protect its safe and high-quality operation. It all comes down to looking after the aircraft: controlling the aircraft’s usage and upkeep by well-trained, well-resourced, diligent personnel. The financier wants to be assured of a well-looked-after aircraft. And a well-looked-after aircraft is what you want to be flying.   BAA GARY CRICHLOW is Director, Aviation Finance for London-

based debt advisory firm Arc & Co. He studied Aeronautics & Astronautics at MIT and worked in aviation finance for 13 years, with positions at GE Capital and Lombard.

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Avoid 100% Reliance On the Aircraft Value


ARGUS Ratings The Most Recognized and Requested Symbol of Quality

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■ ALTERNATIVE LIFT

When You Opt to Not Own Finding Safe Aircraft Charter BY KEVIN THOMAS n business, change is inevitable, and the ability to respond to that change is vital to the long-term sustainability of any company. Since 2008 there has been a constant undercurrent, an evolution in business and corporate aviation, away from direct aircraft ownership, as more business aviation users indicate that they want “out” of owning and operating aircraft. For Fortune 1000 companies and Ultra High Net Worth Individuals (UHNWIs), using their own aircraft proves invaluable for safety, privacy, and security. For many others, fluctuating flying requirements and the cost to operate a dedicated corporate flight department may make owning and maintaining a rapidly depreciating asset more of a liability than a benefit, and no longer sustainable. This change comes at a time when, due to global economic uncertainty, some companies opt to keep maximum investment flexibility focused on developing their core businesses, instead of spending to grow and operate a fleet to support their diverse travel missions. The last five years of growth of new options in the charter, jet card, and fractional industries is tangible proof of this shifting demand. You now have a choice of many providers and programs, which offer a wide variety of business aircraft access options at many different price points. Mere marketing promises of how the provider intends to address your specific travel requirements are insufficient. As a savvy business aviation user, you’ll want to seek out a company that both meets your requirements and also offers: ■ Strong operations knowledge that fosters security ■ Seamless technology that makes scheduling easy and transparent ■ Simple transactions with no hidden costs ■ Flexible options that can encompass shuttle services for large workforce movements, on-demand shared charter for lower and middle management, and guaranteed availability for senior executives. While those features are only the first level of vetting aircraft operators, bizav users like you need to look beyond such customer-focused features. High quality, safety, and innovation should be at the top of your list. Some pointers to help you navigate your options and select a high-quality charter operator are: ■ Look for an advanced Safety Management System (SMS): an organization-wide comprehensive and preventive approach to managing safety. Choose an operator whose SMS more closely resembles that of an FAA Part 121 commercial operation than that of a typical 14 B U S I N E S S AV I AT I O N A DV I S O R Ja n u a r y/ Fe b r u a r y 2 0 2 0

FAA Part 135 on-demand charter operation. Integral parts of a voluntary proactive Part 135 SMS program should include features like: • Aviation Safety Action Program to report safety issues and events • Flight Operational Quality Assurance to record flight data • Internal Evaluation Program to increase safety awareness, and • Line Operations Safety Assessments to ensure safe aircraft ground handling. ■ Search for providers moving towards an FAA commercial airline part 5 SMS program (as required for commercial airlines by title 14 of the FAA’s Code of Federal Regulations).While this is only voluntary for Part 135 operators, having one in place indicates a high investment in training to help ensure their team’s expertise – and your safety. ■ Ask about the latest technological advancements. First level operators offer the ability to track and review all flight data, so as to maintain continual service improvement. Business aviation prospers in a culture of safety, quality, and innovation. Only companies with a commitment to safety for both passengers and the industry will be able to sustain the growth of their business. But this is true only when coupled with continuing development of the companies’ service teams – from scheduling, to IT, to maintenance. A marketplace where every flight is tailored to passengers’ individual transportation needs, ensuring seamless travel with the maximum efficiency and minimal disruption to its customers, and in the safest possible way, might be just around the corner for those who can afford it. BAA KEVIN THOMAS is Chief Operating Officer, XOJET, the on-

demand aviation services platform of Vista Global Holdings. He previously served as SVP Business Development & Strategic Planning for Jet Support Services, Inc. (JSSI).

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XOJET / kevinthomas@xojetaviation.com


FLIGHT OPERATIONS ■

The Right Stuff Making the Best Aviation Hire stories of how poorly many, perhaps even most, organizations conduct the hiring process abound. Unless potential employees have a positive experience from the time they submit an application to their final interview (or “no thank you” letter), the efficacy of your recruiting efforts will be reduced markedly – resulting in a much longer search time, substantial wasted effort, and unnecessary expense. Be expeditious in all that you do. Not reviewing candidates’ qualifications in a timely manner, following up later versus sooner, or even not responding at all, just makes the job of finding that right person that much harder. Don’t be your own worst enemy.

The Three Cs of Hiring

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othing and no one is forever. Employees retire, become disabled, die, or are lured away. At some point, you’ll be required to fill an aviation role in your organization. When this occurs, the smart aircraft owner or aviation manager doesn’t jump right into hiring mode. Instead, he or she analyzes the entire department, reevaluates current needs, and projects what might be required in the future. Human resources personnel and external recruiters (aka headhunters) will direct you to focus on: 1) why these positions are required, 2) delineate the goals and objectives the new hire will be expected to accomplish, 3) identify which skills, experience, and attributes you want a candidate to possess, and 4) review working conditions, if the former employee left to go elsewhere. After this relatively straightforward and fairly simple process is done, and any organizational restructuring completed, your next step is to prepare new or updated job descriptions for all roles that now need to be filled. Once this groundwork is in place, where do you start your search? Begin in the place most familiar to you – your own company! Conventional HR wisdom states that, on average, employee referrals require ten recommendations to accomplish a hire, while obtaining applicants from traditional sources increases that number by a factor of seven. Additionally, you should solicit other aircraft owners, suppliers, OEMs, service providers, and industry associations for recommendations. Next, create a good impression for prospective applicants. It is incumbent upon you as the hiring manager to assure that high quality candidates continue in the process. Sadly, recruiting horror w w w. B i z AvA d v i s o r. c o m

STEVE FUSHELBERGER is a marketing, advertising, and

communications consultant to the business, general, commercial, and defense aviation industries. Possessing a Commercial Pilot license, he’s held senior leadership positions at Rolls-Royce, United Air Lines, Textron Aviation, and Leonardo.

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BY STEVE FUSHELBERGER MarComm Resources / fushelberger@gmail.com

Many hiring managers are not aware of, or do not fully understand, that there are three basic tenets involved with making a truly great hire: Culture. Capability. Chemistry. These three principles go right to the heart of what’s required to find the candidate who offers the highest value while simultaneously presenting the lowest risk. Use them to avoid making a bad hire – an outcome which is bad for all involved. Is your organization’s culture one into which the prospective employee not only will fit but which that individual can fully embrace and embody? Does your company provide the capability for the candidate to be a top performer in terms of providing the necessary resources as well as managerial support? Most importantly, does the interpersonal chemistry exist to support clear communication, complete understanding of the department’s mission, specifically, and comprehension of the company’s overall direction and business focus? You’ll want to be aware of a common trap – not being totally honest and objective when assessing if you and your company align with the three Cs. Licenses, ratings, and experience are only part of the total equation. When the final selection comes down to two or three candidates who appear to be similarly qualified, don’t flip a coin to decide your final choice. Make passion the tiebreaker. As an accomplished business aviation industry veteran once noted, “All things being equal, I’m going to hire the person who looks up when an aircraft flies overhead.” BAA


Business Aviation’s Most Advanced Aircraft Valuation Tool Simply enter an aircraft’s serial number online: ■ Obtain Current Market Value and Residual Value figures. ■ Compare an aircraft with all units listed for sale. ■ Predict future maintenance events and expense. ■ Value the impact of any Hourly Cost Maintenance Program enrollment. ■ Forecast anticipated marketability – and much more. ■ All information is updated daily. The same methods, techniques, and processes an aircraft appraiser would use. eValues is the only valuation tool that runs on a true Artificial Intelligence platform.

To learn more call us at (540) 905-4555 or visit our website: www.assetinsight.com Atlanta • Chicago • Las Vegas • Orlando • Portsmouth • Washington


AIRCRAFT SALES & ACQUISITION ■

Auction My Aircraft? Consider a New Way to Sell BY W. HULSEY SMITH

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Assent Aeronautics / hulsey@assentaero.com

f you’ve ever sold an aircraft, you know that it can be a timeconsuming endeavor. According to both AMSTAT and JETNET, the majority of the approximately 3,400 fixed-wing turbine aircraft currently for sale worldwide have been on the market for more than six months, and a third for more than a year. Historically, when the business aviation industry hears the term “auction,” the associated connotation typically is not well regarded. In fact, “fire sale” may be what comes to mind. It may be time for aircraft owners and brokers to expect more of the process of buying and selling business aircraft. And no, that doesn’t mean “auction” in the distressed property kind of way, or how you might think of the real estate or automotive markets. Much like the high-end classic auto auctions, sellers can set the reserve and be assured that the buyers are not just “tire-kickers” but proven, vetted buyers with the financial resources necessary to buy. Moreover, a consignment auction actually can empower sellers, by providing them with a means to create urgency in the sale process. Many sellers will generate increased interest leading up to the event, and quite possibly receive an increased number of offers, because putting the aircraft up for auction signals the seller is serious about selling. The increased interest is a result of the finality of the auction date. Buyers seek to buy before the auction to avoid competing at auction. Multiple offers may be used to increase the competition (and value) among potential buyers for your aircraft.  When buying or selling an aircraft via auction, there are many benefits to consider: ■ Pre-Purchase and Post-Purchase inspections and the due diligence process all are predetermined as part of the consignment process, and do not require weeks or months of negotiation simply to agree to a scope. ■ All aircraft also are subject to pre-auction offers and may sell prior to the auction event, and are eligible to sell after the event.   ■ Closing documents are form agreements drafted by industry legal aviation counsel, which can be reviewed by your own legal team, and agreed to by both the buyer and the seller prior to the auction. In addition, the bulk of the marketing and vetting of potential buyers is handled for you by the auction house. The auction itself is promoted and advertised by the auction house across aviation publications, traditional business publications, and a database of 7,500 current targeted aircraft owners. Details available on individual aircraft inventory will include year of manufacture as well as total w w w. B i z AvA d v i s o r. c o m

engine/airframe hours and Hourly Cost Maintenance Program status. Potential bidders apply to participate with a bank letter of guarantee or capital deposit, an important vetting that eliminates any uncertainty regarding the buyer’s ability to close. “What if,” you may say, “my aircraft doesn’t sell at auction? Have I wasted more time than I saved?”  Just by taking your aircraft to auction works as a motivator to potential buyers in the market prior to the auction date – so much so that you may well have your aircraft sold before it even comes to the auction block.  But what happens if you don’t sell prior to the event OR at the event? You may find that discussions that begin at the auction often may lead to a completed deal down the road. The process might never have been consummated without the “jump start” of the auction process bringing motivated sellers and qualified buyers together in a transparent process where both have certainty as to how they can proceed to closing the transaction.  Aircraft are meant to save time, not waste it. And auctions represent a faster, more effective means of buying and selling aircraft, streamlining a once-opaque process into a truly enjoyable experience. BAA W. HUL SEY SMITH is the Founder and Chief Executive of

Assent Aeronautics, formed in 2004. Formerly a senior advisor to the founder of Cerberus Capital Management, he has 15 years’ aerospace and defense experience.

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■ WASHINGTON REPORT

Asserting FAA’s Authority The new Administrator is providing strong leadership and addressing the agency’s most prominent problem. dlcollogan@gmail.com

AA Administrator Stephen Dickson appeared before the full House Transportation & Infrastructure Committee Dec. 11 to respond to wide-ranging questions about the certification of the Boeing 737 MAX and its calamitous entry into airline service. Observing Dickson, on the job at FAA for only four months by midDecember, had to be reassuring for everyone in the aviation industry — and the traveling public as well. Dickson displayed a remarkable grasp of technical details and articulated plans for a robust and wide-ranging testing program before airlines can resume 737 MAX flights. He answered the committee’s questions politely and confidently, demonstrating he has immersed himself in determining what went wrong and how FAA’s credibility can be restored. Going forward, Dickson told the committee, FAA officials “are not delegating anything” to Boeing and promised, “I’m not going to sign off [on returning the 737 MAX to the skies] until I fly it myself.” Having logged thousands of hours piloting both military and commercial aircraft, and holding type ratings in four Boeing airliners including the 737, Dickson’s practical experience demands respect. His many years in senior operations and safety positions at Delta are another asset. Dickson also told committee members he had “expressed my disappointment to Boeing management” and told company officials, “they need to be more transparent.” According to a subsequent report in The Wall Street Journal, Dickson and other senior FAA officials met with Boeing’s then-CEO Dennis Muilenburg and the new head of Boeing’s Commercial Aircraft Division on Dec. 12, the day after the congressional hearing. The purpose of that meeting was to bluntly inform Boeing’s top management that FAA would not be pressured into meeting the manufacturer’s overly optimistic public projections about when the 737 MAX might return to service. The message was clear – the agency will sign off on the 737 MAX only when officials are completely satisfied all problems have been identified and fixed, not before. During the hearing, Dickson said agency certification officials have a number of milestones yet to complete. Before commercial flights resume, he also wants both U.S.-trained pilots and others from different nations around the world to conduct familiarization and training flights. The new FAA Administrator’s strong stance is necessary and welcome. The agency’s reputation took a huge hit in the aftermath of the two fatal 737 MAX crashes in Indonesia and Ethiopia. Dickson needs to reassert FAA’s authority, and put type certificate 18 B U S I N E S S AV I AT I O N A DV I S O R Ja n u a r y/ Fe b r u a r y 2 0 2 0

FAA Administrator Stephen M. Dickson, Earl Lawrence, and Matt Kiefer at an Oversight Hearing on Dec. 11, 2019 in Washington DC.

applicants on notice to be fully forthcoming instead of attempting to hide or gloss over potential problems. So what does all this mean for business aviation manufacturers, buyers, and operators? It could result in a slightly more deliberate pace by FAA officials in issuing new certificates, but probably not significant delays. It appears the problems revealed in the 737 MAX certification primarily involved actions by Boeing officials and their interaction with employees of FAA’s Seattle Aircraft Certification Office (ACO), not a systemic FAA problem. Most business jet type and production certificates are overseen and administered by ACOs in Atlanta, Boston, Chicago, Denver, Los Angeles and Wichita, depending on where the manufacturer is headquartered. While there is always type certification activity underway, Bombardier, Cessna, Dassault, Embraer, and Gulfstream brought a number of new models to market in the past few years so there is currently not a big backlog of pending applications. The T&I Committee has spent a lot of time seeking information on the 737 MAX and will no doubt issue a lengthy report. But we can only hope it does not pursue some overly prescriptive legislative “remedies” to address the problems uncovered. Congress has taken that approach following past aviation tragedies; history shows legislative mandates dealing with complex technical issues usually lead to regrettable, unintended consequences. The new FAA Administrator appears to know what he’s doing. Congress should make sure he has sufficient resources and resist encumbering him. 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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BY DAVID COLLOGAN


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Profile for Business Aviation Advisor Magazine

Business Aviation Advisor January-February 2020  

Neither a Borrower Nor a Lender Be. That’s good advice if one of the things “borrowed” is your aircraft, particularly if the “borrower” offe...

Business Aviation Advisor January-February 2020  

Neither a Borrower Nor a Lender Be. That’s good advice if one of the things “borrowed” is your aircraft, particularly if the “borrower” offe...