Private jet investor report

With uncertainty abound, this year’s Business and General Aviation market has been battered by the Brexit vote; high levels of depreciation on many models and implementation of wide reaching new legislative changes, so perhaps it is not surprising that many private jet owners are finding it challenging times! Within the Business and General Aviation community professionals predict that the UK leaving the EU will be a major blow for business aviation in the UK and across the rest of Europe too.

So what does the future hold for private jet ownership and are there opportunities to seize upon with acquisitions? 

 

New Aircraft Deliveries 

Year on year, in the first six months of 2016 there was a 4.3% fall in business jet deliveries.
Long range aircraft suffered the  biggest fall  with 22.1% fewer aircraft being delivered to new owners.
Very Light Jets saw the biggest increase, with 22 deliveries compared to 12 aircraft delivered in the first half of 2015.
The increase in Very Light Jet deliveries is all thanks to HondaJet.  Without Honda there would have been a 7.54% drop.

Traditionally there are more business jet deliveries in the second half of the year than there are in the first half. This year we will see the first Falcon 8X deliveries, but with Dassault revising its delivery guidance down from 60 aircraft to 50  aircraft, it is hard to see how the first half decline can be made up.

Pre-Owned Prices

In 2016, what we are seeing year over year is that prices continue to decline and the number of aircraft on the market has been increasing. Comparing the same vintage aircraft in 2014 to 2015, all things being equal, pre-owned selling prices in the medium and long-range categories dropped on average 16 percent with a low of 10 percent to a high of 30 percent. In this same time frame, year on year markets showed a 10 percent increase in aircraft for sale.

Year-to-date 2016 we’re seeing a slightly different picture emerge over prior years. When compared to 2015, there are 23 percent fewer aircraft available for sale. In terms of number of pre-owned transactions, we are on track to see a similar number of aircraft sold by year-end as we did in 2014/2015. The big  question is will selling prices continue to drop in the double digit category?

Brexit & Open Skies

Of course it is too soon to fully appreciate all of the effects of the UK’s decision to leave the EU and we don’t all have the perfect crystal ball.  We know if the UK leaves the EU without any suitable arrangements having been agreed upon, there will be significant adverse practical consequences for UK-based operators, passengers and others involved in the aviation industry.

Hence, it seems very unlikely that this state of affairs will be allowed to arise. There will be a significant amount of preparatory and negotiating work to be done by UK officials in the coming months. Simple solutions exist to most of the issues, such as membership of the European Common Aviation Area (ECAA), continuation of existing EU aviation law, and continued inclusion of the UK in “open skies” agreements with the US and Canada.

New EU Legislation  

Whilst the effects of Brexit are unwinding, the long awaited European Aviation Safety Agency (EASA), Air Operations Regulations (965-2012) or Part NCC (Non Commercial Complex aircraft) came into force 25th August 2016 and this affected hundreds of private owner/operators of jets and rotary aircraft in Europe.

Many aircraft ownership structures, even those held in non EU structures created by Corporate Service Providers, were also affected as they no longer met the new requirements and had to be re-organised.

Part-NCC requires each operator to adhere to the same essential requirements as commercial air transport operators, but the rules are to some degree proportionate to size. To meet Part-NCC, at av8jet we developed a set of tools to keep privately managed aircraft flying legally and safely!  And these tools are provided in a software package called ‘av8sms’ to Owners and Operators allowing them to demonstrate that they meet the NCC requirements.

Specifically, all ownership/operating entities now need post-holders; must create Operations Manuals; and have in place Operating Procedures and a Safety Management System (SMS).

The SMS is the organisational system that enables management to track, manage and mitigate the risks and hazards associated with its operation.

Beyond the principle tools of Risk Management and Safety Assurance, the av8sms software includes a unique Operational Checklist System.
It defines a template of NCC processes & procedures which can be assigned to different roles within the operator and generates simple online checklists.

These checklists can be used as either a ‘formal crew dispatch system’ or a less formal ‘aide memoire’.
The package of tools, when used correctly, enhance the safety culture within the operator.

Personnel training is a significant part of NCC and the av8sms system includes around 21 specialist courses, allowing the operator to meet their NCC responsibilities to ensure that all flight crew and ground personnel are adequately trained for their role.

For those third country registered aircraft operating in and out of Europe, there is alleviation from the full NCC requirements, but in practice the International Civil Aviation Organisation (ICAO) has brought in similar standards recently and certain authorities (e.g. the Isle of Man Aviation Regulator) amended their own legislation (Air Navigation Order 2016) to include these ICAO Annex 6 Part II changes for Large and Turbo jet aircraft.
Other authorities such as the Cayman and Bermudan were already Annex 6 Part II compliant.

Missing from Part NCC, but already required under ICAO, is a Fatigue Risk Monitoring System (FRMS).
At this time the European legislators are still deciding how to implement this effectively in the private aviation arena. Our av8sms system is already designed to include a full FRMS system.

If this wasn’t enough change, also being implemented by EASA are the new Flight Crew Licencing requirements (EU Reg. 1178/2011) which affects all pilots including those owners that fly themselves.

Most professional flight crew in the EU typically hold full EASA licences, however some aircraft owner pilots and crews have typically trained under the faster U.S. FAA system, and don’t hold the full licences.  Some countries within Europe already require that all EU based operators and aircraft are flown with EASA licenced pilots and the remaining countries (including the UK) can only now derogate until April 2017.
So time is running out for those owners and crews that don’t hold the full licences.

Post Brexit, it is a fundamental paradoxical decision for the UK whether it will accept the continuance of EU legislation in return for access to the European market in circumstances where EU governance has effectively been rejected by the majority of those who voted in the referendum, especially legislation relating to freedom of movement of people; and having to accept new EU aviation rules in the future when the UK may have no say in their development.

The UK has been a significant player in the development of the EASA rules, so it would certainly be a shame if it were now to find it difficult to continue to adopt these rules; but possible objections based on political and/or protectionist considerations from some Member States may have to be dealt with.

In any event, aside the current legislative introductions, there will be no further changes in the legal framework, likely during the transitional period to full Brexit.

Market Predictions 

Concerns over Brexit, the problems in the Russian and Chinese domestic aviation markets, and legislative changes have all played their part weighing in to  contribute towards the recent fall in prices. Continued concerns will remain in the build up to the US Election.

However, it is also clear that part of the current price problem has been the oversupply (by certain manufacturer’s) relative to demand. With new aircraft deliveries now falling, our prediction, is that the gap between supply and demand will gradually equalise. Post U.S. election we should hopefully see a period of stability going into next year with pre-owned jet prices, so all other things (e.g. macro-economic factors) being equal, we don’t forecast double digit jet depreciation next year, a rate that is unsustainable for any long life asset. Given the above, we feel this year may well be seen retrospectively as the bottom of the private jet price cycle, and may prove the most opportunist year to acquire! Pre-owned Private Jets are now relatively incredibly well priced by any standard and any previous comparative year.  Given it can take several months to acquire a jet, time is running out for the wise buyer!

About the author:

 

John is a Professional Pilot and Managing Director at av8jet where he supports his clients in managing, sourcing and selling their aircrafts. He has more than 25 years of experience in aviation and manages a diverse fleet including the Gulfstream, Falcon and Citation.

Contact John:

john.norris@av8jet.com

Av8jet profile:

av8jet

Share Post :

More Insight