NBAA Convention News

NBAA president Olcott leads during best, and worst, of times

 - June 11, 2008, 6:31 AM

“Both the postponement of the 54th Annual Meeting and Convention and its re-scheduling for December were in response to the needs of our members,” Jack Olcott, NBAA president, told AIN. “It became apparent the day after the terrorist attacks on New York and Washington that the full magnitude of these tragic events on September 11 were yet to sink in, but as our nation’s transportation system reacted with heightened security, it made sense that making the resources of our members available to emergency agencies would be a top priority. In addition, everyone we consulted with was concerned that movement of personnel to New Orleans would be extremely difficult, if not impossible. So the board made the decision to postpone the annual meeting and convention, announcing this decision at 4 p.m. on September 12.”

Eight days later, on September 20, the board held another conference call concerning the question of rescheduling the convention. “Again, the board made its decision in response to the needs of our members,” Olcott said. “The need has never been greater than it is today for our community to come together and share its ideas and concerns; to talk about our emotions regarding September 11. The focus of the convention will be on information relevant to today’s needs.” Many dates and cities were considered, but New Orleans on December 12, 13 and 14 was selected.

NBAA is trying to get all 78 informational sessions scheduled for the September event on the docket for December and new ones are planned. These include the condition and future of the nation’s air traffic control system, new federal security actions, revisions to the internal security practices of NBAA member companies and the economy and the role of business aviation. The association’s safety awards banquet will not be held, however, and NBAA will host no other social events. The safety awards will be issued at the President’s Luncheon on December 12.

Separately, the association will hold its annual meeting of members, a business meeting required by District of Columbia law under which NBAA is incorporated, on October 31 at the NBAA offices in Washington. This meeting is normally held on the second day of the convention.

The December convention will include exhibits and a static display of aircraft. “We know our exhibitors have already incurred costs and some have told us they can’t afford to attend,” Olcott said. “We’re simply giving them an opportunity to display again. What the exhibitors do is up to them.” He explained that Ernest N. Morial Convention Center officials have agreed to open a bay at a time for NBAA as the need for booth space increases.

The flexibility displayed by the convention center and the hotels in New Orleans was an important factor in the board’s decision to re-schedule there. “We have a very good relationship with them and they have demonstrated a commitment to respond to our needs,” said the NBAA president. He added that there had been no talk of discounts.

Without a doubt, the city of New Orleans, the exhibitors and the association itself have taken a financial hit with the postponement of the convention. “NBAA lost $12 million in revenue from the loss of the convention in September. We’re still working on estimates for what we’ll recover in December,” Olcott said. “However, it’s clear than no one is going to come out of this smelling like a rose. Right now we have the equivalent of about one year’s worth of operating expenses in uncommitted funds, so the association does have the financial resources to absorb the loss. But it will hurt. Even with our best efforts, we’re going to feel this financially.”

If there is any silver lining to the dark clouds of September 11, it is in NBAA’s relationship with the federal government. Explained Olcott, “We have good coinage with the FAA, Department of Transportation and leaders in Congress and this was evident during the crisis. But we found out that we had not developed a rapport with the FBI, CIA and National Security Council and this caused some difficulties getting our members back in the air. It was a whole new ballgame. Security of the national airspace system was suddenly being handled by the National Security Council. We’ve learned we need to have better contact with these agencies and we’re working on it.

“Safety is the cornerstone of what we do. Before, we always considered security as a part of safety. But now it has become a much more important part. We’ve also seen that a security system must include a random component–you have to vary procedures. So NBAA is taking a much closer look at how our members can do this.”

As much as September 11 and its aftermath have consumed the attention of the association, the issues NBAA was dealing with before the terrorist attacks have obviously not gone away. They may not loom quite as large on the radar screen now, but they cannot be ignored.

Bizav Has Matured

“The ultimate validation of our community is UAL Corporation’s decision to invest in business aviation, demonstrating without a doubt that business aviation is a travel market worth investing in,”

Olcott said. “Of course, now one wonders how these plans will be affected by the losses the airlines are now incurring and what will be the impact of the government’s bailout package.” But, the fundamentals have not changed.

Olcott continued, “Ninety percent of airline revenue comes from ten percent of the city pairs that airlines serve. What UAL found out after doing extensive research was not that they were losing first-class passengers to business aviation, but rather that they were simply not serving the airports where business passengers want to go. Business aviation is the most effective form of transportation away from the airlines’ hubs and spokes.”

Business aviation has grown and matured over the last 50 years, but a fundamental change occurred during the previous economic recession in the U.S., 10 years ago, Olcott believes. “Remember Clinton’s campaign slogan in the fall of 1992? It was, ‘It’s the economy, stupid!’ That’s what got him elected. The year before, in the middle of a recession, a strange thing happened: the number of flight departments began to increase.”

Recapping a theory he first elucidated publicly earlier this year, Olcott explained how business aviation growth in the 1970s was driven, to a large extent, by investment opportunities. “Inflation was high and an aircraft you ordered today would be worth more when you took delivery of it. The investment tax credit made it profitable for a company to buy an airplane. For many people the incentives for getting into business aviation were based on investment opportunities and taxes rather than transportation.”

In the earlier 1980s, the investment tax credit was eliminated, reducing that incentive, and ego drivers took over to keep the market growing. “But by the mid-1980s,” said Olcott, “the excesses of companies like RJR Nabisco, as chronicled in ‘Barbarians at the Gates,’ turned shareholders and the general media against business aviation. This depressed the market. When the recession hit in the late 1980s, the corporate flight department was one of the first things to be downsized. In 1987, the number of flight departments dropped and continued to drop until 1991.”

Out of this downsizing, however, companies found that business aviation could be used to multiply the effectiveness of their leaner staffs. Market productivity became the buzzword and the driver of business aviation. Olcott continued, “Companies sought ways to increase productivity, doing more tasks with fewer people. They gave their employees new tools: new computers, cellphones and aircraft. Flight departments grew in size and the number of flight departments increased.” So now that the real value of business aviation is driving the industry, as opposed to investment opportunity or big egos–although there are still some of each–changes in the economic climate, like the recession we appear to be entering now, do not have as much effect on the industry as before.

Bend in the Road

But UAL Corp.’s entry into business aviation, revealed in April and described in more detail at the Paris Air Show in June, represents a bend in the long road that has brought bizav to the where it is today, according to the NBAA president. “The challenge before our community is, will we be able to make the turn without skidding off the road? If we say we want it like it used to be, we may not make the turn. But if we treat UAL, fractional ownership, branded charter, linkage service and other uses of general aviation airplanes for business use as simply different forms of business aviation, as new delivery systems, if we treat these challenges to the traditional flight department as opportunities to expand the acceptance of business aviation, then we can stay on the road.”

Just as we have no control over the condition of the economy, we have no control over what UAL, Virgin or even the fractional companies do, said Olcott. “The traditional flight department provides the most effective use of time and safest travel to a company. But not every company wants or can afford its own flight department. The question is, how can we take the safety culture for the traditional flight department and package it so that we all come out winners? Business aviation has come of age, but there’s still room for tremendous growth; we’re just scratching the surface. According to our surveys, more than seventy percent of companies with annual revenues over fifty million dollars have never done a formal evaluation of business aviation. So there are tremendous opportunities out there for all of business aviation. In a market that has growth potential, everyone comes out a winner as the market expands.”

So in a sense, business aviation, by virtue of its success, has reached a stage where it is not only attracting the notice of the airlines, but has enticed them into the market. Imitation is, after all, the sincerest form of flattery.

On the other hand, having the airlines on bizav’s side when the community contends with airport noise bans, RVSM implementation dates, “regulatory obsolescence,” new regulations and other issues couldn’t hurt. NBAA has faced all these issues this year–and continues to face them.

Naples Noise, DRVSM and Fractional Rules

On August 8, a federal judge ruled against NBAA and GAMA in their case against the Stage 2 ban at Naples Airport in Florida. Olcott explained, “The reason we took Naples to court was because after the airport authorities did the Part 61 noise study and found that there really weren’t any problems above the sixty-five-decibel contour, which is the FAA’s standard, they arbitrarily decided to examine the sixty-decibel contour. They found some noise interference in this contour and used that to justify their Stage 2 ban. We said, ‘Tilt! That’s not what the FAA standards are.’ So we took the city of Naples to court. We had a hearing for summary judgment before a federal court judge in Florida and he ruled against us. So our stay on the Stage 2 ban was denied and the ban is now in effect.” NBAA subsequently appealed the judge’s opinion.

“This is an example of the environmental concerns we have. The judge in essence said that a local community has the right to set standards for Stage 2 airplanes. That challenges directly the whole concept of the FAA setting federal standards for aviation. It’s a big issue.”

In June, NBAA and GAMA sent a letter to FAA Administrator Jane Garvey expressing their concerns about the implementation of domestic reduced vertical separation minima (DRVSM) in December 2004 between Flight Levels 350 and 390, with further expansion below FL 350 and above FL 390 expected after 2004, although the FAA is still studying the situation.

There are, Olcott, explained about 13,000 turbine airplanes in the U.S. inventory, about half jets and half turboprops, which would also be affected by DRVSM if brought down to FL 290. “About 2,500 of these airplanes, including airliners, are now equipped and approved for RVSM operations, and it took four years for FAA to accomplish this,” he said. “The FAA is proposing that some 10,500 airframes–5,075 commercial airplanes and 5,890 general aviation airplanes–be approved in the next three years. We don’t think that’s possible and it would cause a significant economic burden on those operators who couldn’t get their airplanes approved in time.”

As explained in the letter to Garvey: “It is a much more daunting task for a multitude of dissimilar general aviation aircraft to have RVSM equipment designed, built, installed and operationally certified by the FAA than it is for the air carriers.”

“This is an example of a new phenomenon you could call regulatory obsolescence,” Olcott said. “It causes perfectly airworthy aircraft to become unflyable because they can’t fit into the airspace system. The cost of modifying older airplanes to comply with the regulations just becomes too high.”

UAL’s announced intention to enter the bizav fractional-ownership market preceded by less than three months the FAA’s release of the proposed rule on fractional aircraft ownership programs and on-demand operations on July 18. As anyone who has been following business aviation for the last decade knows, current regulations do not now adequately address fractional aircraft operations and associated issues. New regulation is needed. With the announced intention of UAL Corp. and other airlines to enter business aviation, the NPRM was released none too soon.

The NPRM is based closely on the recommendations submitted to the FAA by the Fractional Ownership Aviation Rulemaking Committee (FOARC) on February 23 last year. NBAA participated on the FOARC along with representatives from other industry groups, including corporate flight departments. The proposed rule creates new regulations for fractional ownership aircraft operations (FAR Part 91, Subpart K), updates regulations for Part 135 certificate holders and amends other related regulations.

“We are pleased with the NPRM,” Olcott said. “The FAA did an excellent job.”

Yet the release of the NPRM re-ignited concerns among some corporate flight departments about the regulation of fractional operations. NBAA took a proactive approach and decided to print and mail a copy of the NPRM to all its members, encouraging them to read it carefully and make serious comments about it to the FAA. “We believe the time to question the NPRM and offer suggestions is now,” said Olcott. The deadline for comments is October 16.