Put together a group of business aviation advisors and brokers, and it will be no more than five minutes before someone asks: “What are you seeing in the market?”
Yes, we read all the press releases and we monitor data provided by the various analysts. But for those in the trenches who experience the market first-hand, we continually conduct our own informal polls. Based on both quantitative and qualitative data, here’s what owners and operators need to know right now:
- Confidence Is High – Confidence comes in a number of forms and has a trickle-down effect to business aviation. Even through moderate economic turbulence, companies have greater confidence that the U.S. and world economies are more predictable than during the past eight years. This, in turn, gives companies confidence to execute corporate strategies that include expansion and acquisition. Nearly all clients with whom we work are expanding in some form this year. In the business aviation market, this translates into a greater investment in aircraft: often a valuable tool for these corporate strategies. The byproduct of more aircraft transactions is a more stable, more predictable market which will help values and, ultimately, market confidence. What does this mean for you? With cautious optimism, you can develop business aviation strategies that support today’s confidence and growth. Plan ahead for a finite ownership period, have an exit or upgrade strategy, and be prepared to modify along the way, should economic conditions change.
- The Market Is Complex – A client once told me: “I’ve completed numerous corporate sales and acquisition transactions worth billions of dollars, and none were as complex as buying an aircraft.” As an owner and/or operator, you are faced with an endless number of options. The choice of existing makes/models, new makes/models, emerging technologies, and amenities all have their pros and cons. Regulatory and tax pitfalls abound and must be examined and managed closely. The selection of a safe, efficient operation can be daunting. You are best served by putting your focus on the most critical elements – those which could introduce operational or financial risk. Don’t let yourself get mired down in minor technical or cosmetic details. (See “Don’t Be Emotionally Compromised,” BAA May/June 2014). In the final analysis, just about every aircraft could meet your mission, if you are willing to be flexible. Know what’s important to you, and what you can let go.
- Exit Strategies Remain Difficult – In the past eight years, many companies took the position of “hold” and continued to operate their aging aircraft. As we now examine upgrade opportunities, the hold strategy can create a burden for transition. Perhaps the aircraft is a pre-2000 vintage, and now is faced with costly upgrades to comply with the FAA’s NextGen navigation equipment requirements. Or its operating/maintenance costs are rising due to required engine overhauls or age-related major maintenance inspections, reducing the number of potential buyers and hindering the sale. Or quite simply, the aircraft’s fair market value is far lower than the book value, requiring your company to take a write-down; not a popular choice if yours is a publicly-held company (See “Mind The Gaps”).
Even if you’ve leased your aircraft, costly return conditions create a financial burden. Your role as Asset Manager is not only to preserve and maintain the value of the asset, but to adequately and proactively examine exit strategies that support your company’s goals. Just as with other parts of your business, your aviation strategic plan should look ahead one, three, and five years to anticipate changes with your business and the market.
With most world economies growing, and commercial airlines continuing to consolidate, the business aviation market is on the rise. With careful planning, you can take full advantage of the opportunities ahead. BAA
Jeff Agur, CEO of VanAllen, handles fleet planning and aircraft acquisition projects. This year, he supported the detailed planning and acquisition of more than half a billion dollars in jets, turboprops, helicopters, and fractional shares.