North American Perspectives
By Jack Olcott
Although Business Aviation is growing faster in areas such as the Middle East and Asia than in North America, activities in the USA and Canada still shape the expectations of the international community for the next decade. According to JETNET, LLC, North America is home to more than 22,000 business jet and turboprop airplanes owned by more than 15,500 companies and individuals. In addition to fixed-wing aircraft, over 9,000 helicopters are registered to North American companies. JETNET forecasts that between now and 2020, nearly 11,500 new business jets valued at $258B will be delivered, with about half of the aircraft purchased by North American operators.
It can be said with confidence that Business Aviation continues to be an integral part of the air transportation system with North America. Such acceptance foretells the positive growth of Business Aviation in other parts of the world such as within the MENA.
Difficulties in the Business Aviation marketplace since the global financial crisis of 2008-2009 are well documented. They need to be placed in perspective, however. While value of newly delivered business aircraft is down from the record total of $24.8B achieved in 2008, the calendar year just concluded (2010) produced the third highest dollar volume, at $19.7B, in the history of the Business Aviation community.
Furthermore, orders for new aircraft are beginning to grow, and the inventory of pre-owned business jets for sale has decreased from 1,954 aircraft (16.1% of the North American fleet) a year ago to 1,759 units (14.3 %) now. Attractive situations still exist within the new and pre-owned marketplace, particularly for smaller jets. While still a buyer’s market, at least in North America, special situations are becoming harder to find. Larger aircraft continue to sell well; Gulfstream, for example, is reporting a backlog for its largest models.
Argus TraqPak, the aircraft activity analysis and marketing intelligence reporting tool of highly respected Aviation Research Group/U.S, Inc., indicated that Business Aviation demand in the USA increased as spring melted into summer. While activity levels were hardly robust, month over month increases were positive, with private operators leading the way. Charter providers posted increases of approximately 2 percent, followed by fractional levels that were barely positive.
JETNET sees early signs of a recovery in the market for Business Aviation goods and services, with expectations that 2011 will be a recovery year. The banking giant JP Morgan Chase, however, characterized current conditions as “elusive.” Its cautious comments were based upon the mixed signals of increased first-quarter delivers of new aircraft and a declining inventory of pre-owned models, balanced by a general softening in the prices offered for used equipment.
Other Turn-around signs
While hardly a compelling harbinger of good times ahead, it is interesting to note renewed activity—at least renewed talk—in the area of Very Light Jets. Before the financial meltdown of a few years ago, VLJs were the rage. Over a dozen models were in various stages of development, mostly in the USA, and another dozen designs had been proposed but failed to become either flying or pre-production prototypes.
Best known of the VLJs is the Eclipse, Vern Raburn’s innovative but possibly overly ambitious design. Before filing for bankruptcy in November 2008, Eclipse Aviation manufactured and delivered 260 EA-500 VLJs. In 2009 the assets of the VLJ company were acquired by Eclipse Aerospace, which obtained the right to maintain the aircraft for the existing owners but was not the authorization to restart manufacturing. By 2009 Eclipse Aerospace offered owners upgrades for flight into known icing and installations of improved avionics known as AvioNG 1.5. In addition to those enhancements, by September 2010 refurbished aircraft (now known as the Total Eclipse) were approved for operations up to FL410, from FL370. Also in that year helicopter manufacturer Sikorsky Aircraft announced that it would invest in Eclipse Aerospace. By January of this year, Sikorsky purchased an undisclosed equity share (albeit a minority) of Eclipse, agreed to provide supply-chain support, and pledged to restart production of the VLJ. (It should be noted that Sikorsky Aircraft’s CEO, Jeff Pino, owns one of the EA500s delivered before production was halted.)
Under its new arrangement, Eclipse Aerospace is experiencing a positive cash flow and is preparing to restart production sometime in the next two years.
Another airframe manufacturer, Diamond Aircraft, announced plans to move forward with its VLJ, the five-seat, single-engine D-Jet, powered by a lone Williams FJ-33 turbofan. The aircraft was about two-thirds through its development program and slightly less than two years from scheduled completion when activity on the program was halted. Three prototype D-Jet had been built and were undergoing flight tests. Diamond recently announced it planned to recall furloughed worker and move toward full production, now that an undisclosed source has committed to provide significant investment.
While more light jet than VLJ, the SJ30-2 has resurfaced as the SyberJet following acquisition of the program from bankrupt Emivest Aerospace by a U.S. company, MT, which is affiliated with Metalcraft Technologies based in Cedar City, Utah, USA. Designed by the legionary Ed Swearingen as the SJ30 nearly 25 years ago, the design was sold in the early 1990s to non-US investors and marketed under the name Sino-Swearingen. The aircraft received FAR Part 23 certification in 2005 as the SJ30-2. In 2008 Emirates Investment and Development of Dubai acquired the assets of Sino-Swearingen and renamed the aircraft the Emivest Aerospace SJ30-2. The four SJ302s currently operational will be serviced by MT from facilities in San Antonio, Texas. Future aircraft will be manufactured in Utah and sold under the SyberJet name.
Noteworthy
LightSquared, a year-old startup company proposing to erect a network of 40,000 powerful ground stations for high-speed internet across the USA, continues to battle with the GPS community over possible interference from its system that would significantly compromise satellite navigation and positioning systems. Many entities in the USA objected, the most compelling objection being the comments of the prestigious RTCA, the government advisory body responsible for proposing avionics standards and specifications. RTCA stated that if the spectrum proposed by LightSquared were approved “…GPS-based operations will likely be unavailable over a whole region [of the USA] at any normal aircraft altitude.”
In responding to the LightSquared application, authorities emphasized that all non-US operators approaching the USA would experience GPS interference. ICAO, the international body overseeing global aviation, advised the Federal Communications Commission (the US body responsible for assigning spectrum to potential users) that “…the potential disruption to aviation use of GPS caused by the LightSquared system would have a far-reaching impact on current and future aviation operations.”
While LightSquared announced in June that it would vacate the frequency that caused the most interference with GPS signals, some GPS receivers still had difficulty acquiring and processing appropriate data from satellites when the LightSquared transmitters were functioning during tests. The issue, which has yet to be resolved, warrants careful attention by the global aviation community.
Associations Are Essential
Recently the state of Connecticut proposed a 2.0 percent property tax on all private aircraft based within its borders, in addition to maintaining the existing aircraft registration fee that runs as high as $2,500 annually. Furthermore, an exemption for certain sales taxes on labor performed on aircraft would disappear under the proposed legislation. Many corporations are located in Connecticut, a relatively small state situated in an important area for commerce between New York City and Boston, Massachusetts, and the value of the business jets they own is substantial. Obviously, the state of Connecticut was anxious to collect its 2.0 percent in new taxes each year.
Wiser heads prevailed, however, when representatives from the National Business Aviation Association (NBAA) and the Aircraft Owners and Pilots Association (AOPA) alerted Members of their respective associations to the proposed taxation plan. The Connecticut Business Aviation Group (CBAG) also moved swiftly. Information was gathered and communicated to state legislators as well as to the Connecticut Governor.
The unified message was clear: If the propose tax were enacted, most of the companies would relocate their aircraft outside the state, and some might relocate their business as well. Total tax revenues would fall, not increase, if the Connecticut legislature enacted the proposed levy. After all, Members noted, aircraft can pick up passengers at any location—there is no need for them to be based in the state where the company is located. Several firm emphasized that they presently base their aircraft in Connecticut but pick-up and dislodge their passengers at nearby Westchester Country Airport, in adjacent New York state.
Upon hearing from constituents and Association officials, legislators decided wisely not to go forward with the tax proposal.
Advocacy—an Ongoing Need
Business Aviation is not commonplace. Most legislators and many business people do not understand the unique contributions of this important form of transportation, and they are quick to pass negative judgments that are unwarranted and potentially damaging to users of business aircraft. Hence, there is an ongoing need to advocate the reasons why Business Aviation is a positive tool for economic development. In particular, the General Aviation Manufacturers Association (GAMA) and the National Business Aviation Association (NBAA) do an excellent job advocating Business Aviation through their ongoing program called No Plane. No Gain.
The need for ongoing advocacy is reflected in the recent rhetoric of top officials in the US Government as they attempt to find new sources of revenue to reduce the nation’s deficit. Owners of corporate jets have been the target of unconstructive bashing. As users of business jets, they are perceived as being guilty of receiving special advantages. Specifically, Administration officials take exception to current tax laws in the USA that allow aircraft used for private, not-for-hire transportation in the furtherance of business to be depreciated as a business expense in five years, while the same type of aircraft used for commercial transportation (e.g., an aircraft used for charter) can be depreciate in no less than seven years. While it is reasonable argument to rationalize the US tax code so that like assets are depreciate in like fashion, it is counterproductive to single out owners of business aircraft as a classic example of questionable behavior. There are many aspects of the U.S. tax code that need examination, not simply those affecting business jets.
Attempts of the US Department of Transportation (DOT) to eliminate the Blocked Aircraft Registration Request (BARR) program is another example of policy leaders not understanding the nature of Business Aviation. While not interfering with ATC’s tracking of the aircraft’s position, the BARR program prohibits the aircraft’s registration number from being displayed. Thus companies can use their aircraft without fear that competitors will be able to follow their travels and learn about actions related to business strategy or possible acquisition plans.
It is particularly disturbing that the U.S. Administration and leaders of Congress are quick to find fault with Business Aviation when in fact they are extensive users of this form of transportation. While they may not call their use of special mission aircraft Business Aviation, that is precisely what it is—the use of aircraft to address their needs for highly efficient, productive and secure travel. JWO