The Biggin question is can bizav run against the tide?

Aviation International News » October 2011
Rizon Jet reception at London Biggin Hill Airport
Rizon Jet hosted a reception after the first day of the Business Aviation Europe event at London Biggin Hill Airport, where delegates tried to convince themselves things can only get better.
October 1, 2011, 1:25 AM

The conclusion of delegates at the Business Aviation Europe event at Biggin Hill Airport near London last month (September 14-15) seemed to be that things can only get better. But there was little hard evidence that this sentiment will be enough to push back against strong economic tides that threaten to pull the industry under once more.

Speakers reflected on the recent turmoil in stock and currency markets, and continued uncertainty over debt levels in a number of European countries, most notably Greece. The very future of the euro currency could affect the recovery of business aviation, especially now that the larger economy of Italy has had its credit rating dragged down.

The event (previously known as VLJ Europe and held in various locations since 1996) saw “very light jets” confined to a discussion about what happened to the great air-taxi boom that the likes of Eclipse and DayJet had hoped for. The conclusion was that while some operators are making the Cessna Citation Mustangs and Embraer Phenoms work, it was not the air-taxi boom once envisioned.

Dagmar Grossmann, chief executive of Prague-based Grossmann Jet Service, said that she regrets ever getting a Citation CJ2 because an operator needs more than one to make money at all, and having to have two crewmembers “eats up almost all the profits.” She insisted that in the future the company will stick to larger aircraft.

Conference chairman Patrick Margetson-Rushmore, CEO of London Executive Aviation, said that while issues remain over Europe’s currency and debt crisis, “my view of the recession is that before it, we’d never had it so good and many of us were overindulgent and arrogant.” He added that operators were bidding for work on a marginal-cost basis, which was “unsustainable in the long term.”

Downward Pressure on Pricing

A show of hands in the conference session on the prospects for improved economic conditions was noted as, at best, three to one in favor of optimists over pessimists. However, in a session on the “future shape of the industry” Phil Jordan, managing director of Business Air International, noted that the number of millionaires worldwide has “rebounded” although “most of the growth is outside North America.” But while he also noted that the number of billionaires in the world has increased, he lamented that “they’re not buying more aircraft as they get richer.” He also showed Amstat data that illustrated “a steady downward trend in inventory levels…with Cessna, Bombardier, Gulfstream all recently announcing that production [slots are] now running to the end of 2013 to early 2014.”

Brendan Lodge of Jetbrokers Europe asked: “How can you sell aircraft in 2012?” He went through the sales of aircraft by region, which illustrate that the market for pre-owned aircraft continues to show no coherent pattern compared with new aircraft orders, which are now tilting strongly toward emerging markets. As an example of values still dipping, Lodge pointed to a 2008 Citation Sovereign priced at $14 million in the second quarter of 2009 (when the market was already in decline) now valued at less than $12 million.

“We sold one, and the most frustrating thing was that VREF and Blue Book marked down the price more every quarter,” said Lodge. “The seller insists on best price, and has an aspiration for half a million more, but every time we persuaded the buyer to take less, it was too late. But looking back now, we got a good price for it.” He concluded that “sellers need to wake up and price right.” 

Lodge’s central message, however, was that buyers need to “give a broker an exclusive mandate [to avoid] a fee frenzy and probably misrepresentations over points such as the condition of an aircraft.”

Graham Williamson of TAG Aviation Europe said that the company has survived by reducing its owned charter fleet of aircraft and concentrating on areas such as management. The number of aircraft directly owned by TAG has gone down from 22 to just two. “Eight out of ten of our largest customers now own their own aircraft,” he said, adding that the company wants to increase its managed aircraft fleet from 20 to 100.

Williamson also said that charter has slowed in the past two months. “Overall, it is about 15 percent up on last year, but a long way off 2006/07 levels,” he said. “We’ll never go back to those days.”

Glen Heavens, managing director of UK-based charter firm Synergy Aviation, warned of the dangers of reduced pricing in the face of rising costs. “Costs have mostly risen but business volumes are down, so there’s little profit margin left,” he said. “It’s important to get pricing right as there’s nothing left in hand for the unexpected.” Heavens also gave the example of a small airport on the south coast of England where landing a Beechcraft King Air now costs £487 ($770), compared with just £55 ($87) a few years ago.

In Heavens’s view, loss-leader charter pricing intended to lure business can be tempting but dangerous. He also complained that brokers–who account for about 70 percent of the charter market’s business–are “fickle, with little loyalty…they’re generally just after commission and do not necessarily have the longevity they think they will have.”

Despite all this, Heavens is optimistic that “things can only get better” but he also warned of the danger that “a bag full of people could come in [to the market] for a short time, but make life difficult for us.” And in a final cautionary tale over the folly of investing excessively in value-added features, he noted that in the past six months not a single customer has used the satellite phones on the company’s aircraft.

FILED UNDER: 
Share this...

Comments

No Avatar
Brevitext
on October 2, 2011 - 8:21pm

Very interesting article. Incidentally - some readers may not be familiar with the concept of "marginal cost" which is mentioned here (re: the price where operators are currently bidding).

If you want to learn this or any other economic concepts, take a look at www.brevitext.com

Please Register

In order to leave comments you will now need to be a registered user. This change in policy is to protect our site from an increased number of spam comments. Additionally, in the near future you will be able to better manage your AIN subscriptions via this registration system. If you already have an account, click here to log in. Otherwise, click here to register.

 
X