Plane Conversations

There’s an old song from the World War II generation that says, “Wishing will make it so…”.  Buddy DeSylva’s lyrics speak of hope, optimism, and belief.  Yet wishing can’t give you more hours in a day, or more productivity while travelling, or access to places difficult to reach.

Flying can make it so.

That being said, we need to tell our stories, ways that aviation assists us daily in carrying on our various activities and work.  This is partially because we gain strength and synergy when we see that there are others much like us who know and understand the real benefit of flying.  This doesn’t have to be a $20million dollar corporate jet.  It can be as simple as a Diamond DA-40.  It’s the story of the DA-40 that I want to pass on to you today.

Last week our company’s CEO, VP of Sales, and I took a DA-40 to visit a customer in Jonesboro, AR.  We then had a pop-up visit with a lead in Little Rock, AR.  We then lunched in Tunica, MS on our way home (no gambling, just food) and returned home in time for a local Chamber event in our hangar.

The plane, by business aircraft  norms, was really modest.  In fact, a LearJet pilot teased me as I preflighted my plane parked next to his.  The only refreshments were in the small cooler I packed with green tea, water, and peanut butter crackers on my way to the airport that morning.   The only in-flight entertainment was an iPad.   And the air conditioning?  On this 97+ degree day, it was inoperative.  So we climbed until we felt comfortable at 60 or so degrees at 7,000 feet.

And yet, even in this basic small aircraft we were able to condense over 14 hours of drive time into 6.2 flight hours.  Had we driven we would have certainly been out overnight in order to drive and have time for our meetings.  And while it was a long day, it was an easy day.  So we made our rounds, saw our clients, and returned before dark.

Yes, aircraft are fun.  Some aircraft are luxurious.  Some aircraft are expensive and some are not.  But for the businesses that operate them, they are tools.  Their value in time savings and multiplied productivity is astonishing.

Flying can make it so.

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Recently I was talking with a friend about business flying.  He is not in business nor is he a pilot.  But he had trouble getting around the notion that business aircraft are all about excessive luxury for the super-wealthy.  I commented that there might be some merit to his claim if the majority of business aircraft owners were all super wealthy individuals.  But they aren’t.  This opinion also belies a scarcity mentality that assumes if someone “has” then it is because they have taken it from someone who, as a result, “has not”.  Funny, but we forget that the vast majority of the world lives on less than 2$ per day and considers anyone who has an automobile to be “rich”.  Perspective and assumptions are often overlooked in these discussions.   Personally,  I reject the idea of a closed economic system and the resulting scarcity mentality that accompanies it.  But, alas, I digress.

Yes there are aircraft owned by the super-wealthy who utilize them mainly for pleasure.  But that is the exception (as well as their prerogative, by the way.)  However, according to a 2009 study from the National Business Aviation Association (NBAA) small businesses own the majority of business aircraft.  Less than 1 in 4 passengers on business planes are top level leadership.  More often, 70% of the time, business aircraft are used to transport mid-level mangers, sales, support and technical staff. 1  The image of the aircraft being utilized only by the CEO or COO as a luxury is simply not factual.

The practical uses of business aircraft are many.  You can more efficiently fly into airports not serviced by the airlines and reduce the expense of hotel stays and car rental.  Employees can work during the flight and not waste precious time standing in line at security or waiting for standby flights because their original flight was cancelled.  Those travelling on business aircraft said that they felt 20% more productive on the plane than in the office and felt that on the airlines they were at least 40% less effective.2

The larger businesses that operated corporate aircraft are reguarly among the most profitable (which means, in turn, they are able to hire and employ) and respected in our country.  NEXA Advisors, LLC, conducted a study to see if business aircraft ownership actually had a correlative effect on the health of the business operating the aircraft.  In short, yes, it did.  It made a solid positive difference in these companies.  The report’s conclusion was, “Business airplane users continue to outperform nonusers in terms of revenue growth, profit growth, and asset efficiency.” 3

Moreover, what is lost in the grandstanding on Capitol Hill and the media’s constant badgering of Business Aviation is how much business aviation contributes to our economy and to the success of companies that employ tens of thousands. Aviation and it’s related businesses directly employ more than 1.2 million people and infuse $150 billion into the economy.  Aviation is a signficant contributor to our nation’s health.4

The businesses operating their own aircraft were to be found on lists such as : Business Week’s 50 Most Innovative Companies, Fortune’s 50 Most Admired Companies, Business Week’s 25 Best Customer Service Companies, Fortune’s 50 World’s Most Admired Companies, and Corporate Responsibility Magazine’s 100 Best Corporate Citizens.5  Again, the caricature of the business jet operator is found to be just that -a caricature that does not accurately represent reality.

Without a doubt business aircraft have a degree of luxury about them.  And why not?  Do you chastise someone for having leather seats in their car?  An .mp3 player?  Satellite radio?  GPS?  But those things are pretty standard these days in our cars.  Perhaps one of the major issues is that business aviation stands in stark contrast to the miserable state of the commercial airline experience that we all know only too well.  If you had the choice of driving in a 76 Plymouth or a 2011 MKZ, would you really have to think long about the choice? (And for the record I drive a decade-old Ford Taurus with 140,000+ miles)  If it’s your car or boat or plane, why not make it comfortable and functional?  But at the end of the day, that’s not the point as my friend’s faulty assumptions illustrate.

Most businesses don’t operate aircraft because they simply like the luxury.  They operate them because they make practical and financial sense.  They don’t buy an aircraft so they can look cool and yet lose money.  No, they have learned that business aviation can make good business sense.  And the business aviation industry stands ready to be an integral part of the equation to help individuals and business achieve the success that, in the end, makes us all stronger.

1.  Real World Business Aviation 2009, page 5 (http://www.nbaa.org/business-aviation/Real-World-of-Business-Aviation-2009.pdf)
2. IBID, page 6
3.  The Bizav Advantage: The case for bizav, in dollars and cents Robert P. Mark, Business Jet Traveler, Oct 1, 2010
4. Aviation Week, Kansans Demand Obama End BizAv Rhetoric, July 22, 2011
5. IBID, Mark

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An article in CAIXIN Online  states that China is opening up a low altitude segment (less than 1000 meters) of its airspace for General Aviation. This may seem like small news since you can’t do much with business aircraft below 3000 feet, but it is really the beginning of a change that will have a major impact on the growth of General Aviation in China.

A friend of ours in China followed on with an email yesterday that said “Beijing  Lanzhou and another 3 cities have opened the low altitude airspace for policy trial yesterday”.

Wichita is sitting around waiting on the rebound in the US and World Business Aviation market and the opportunity is about to be unleashed in the largest country in the world. Maybe a little more attention should be focused on the largest market opportunity for Business and General aviation for the next 20 years?

Here are some interesting excerpts from this article about the potential in China:

According to a research report from the State Council, China’s general aviation sector is at an “initial stage of quick growth.” The report expects China’s general aviation aircrafts to increase to up to 100,000 units. Currently, only 1,000 general aviation aircrafts are operated in China, compared with more than 200,000 in the United States

In case anyone missed that: “units” mean “aircraft” and the numbers were growing from 1,000 to 100,000.

According to the report, as the world’s largest aviation market, the U.S. has seen its general aviation industry create more than US$ 102 billion in value every year, accounting for more than one percent of the country’s GDP. Liu Ping, chief editor of the industry journal China Civil Aviation said that the effective access to low altitude airspace will create 100 million yuan in growth within the general aviation industry as well as large number of job opportunities.

China’s government seems to understand the impact that aviation would have on economic growth by viewing the impact of General Aviation in the US. I think maybe they get it more than the politicians in Washington DC. A growing General Aviation market means new and well paying  jobs.

One of the limiting factors for China opening up airspace will be overcome if they can implement a satellite based air traffic control system. By doing so they would leap ahead of the US who is using 1960’s technology to control air traffic flow through ground based radar. Presently China is working with limited air traffic control capacity and using systems that are also outdated and restrict traffic flow in major hub airports.  

The question is: How long will it take for China to address the issues that really open up airspace for practical use of business aircraft? Can they open up the airways for real air traffic flow as they have done on the ground with the massive road building projects?  

When they do address these issues the sky will be the limit.

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In less than three weeks those of us in the US will go to the voting polls to cast our votes in what we call the mid term elections, mid term between the four year interval of the Presidential election cycle. This election is probably the most important one in my 32 years of being old enough to vote.  

We are now two years into a new presidential administration, and the economy is still not healed from the crisis that became apparent two years ago when the banking industry started collapsing. Unemployment is in a  holding pattern at near 10%.  

This administration did not cause the crisis and is glad to let us all know that they inherited it. This administration also has the misguided belief that “big government” in Washington can solve the problem by becoming “bigger government”.

Congress on the other hand can’t point the finger to the politicians that are no longer in office. Most of the leadership that is in place today in Congress, in both the Senate and the House of Representatives, has been around for a long time. Possibly too long?  

So what does all of this have to do with Business Aviation in the US?

Business Aviation is dependent on the success of all business in the US economy. Or maybe better put, the success of business aviation as an industry is intertwined with the success of the economy. Those of us in this industry believe we are a contributor to the overall prosperity of the economy by increasing the efficiency of business through time saving and productive travel. Our industry contributes to the success, but also feeds off the success of the economy. If the economy is productive and prospers then individuals and businesses have the ability to use business aircraft as a means of travel, both in their business and personal travel needs.

A big majority of the elected politicians and those that feed off of the system in DC believe that prosperity emanates from inside the beltway. They have lost touch with reality. They do not understand that that the real prosperity, that has built this nation, comes from small and large businesses alike, and the men and women work in those businesses; People who innovate, create and produce goods, services and new knowledge that increase the standard of living.

When you go to the polls to cast your vote, think about voting for the candidate who is most likely to support small business and free market capitalism. Has the candidate ever started, run or worked in a small business? Have they ever stayed up late at night worrying about how they can make the payroll on Friday and the year end tax payment? Have they created jobs and paid health insurance and contributed to retirement accounts by putting in long hours delivering a product or service that the market values? If not, are they close to someone who has?  If so, then they probably get it.

Who are the politicians that are friends of Business Aviation?

I would posit that those politicians who understand businesses, large and small, must prosper in a global economy are friends to our industry. Those who understand that wealth creation is not a bad thing, because a poor man can’t give another one a job, are friends to business aviation.

When the US economy prospers, then our industry will be one of the ships that rises with the tide. If the ecnomy sinks the only people riding in business jets will be the politicians.

Party politics don’t mean much to me. There has been a lot of sell out to big government and fiscal irresponsibility on both sides of the aisle.

It is time for a change with people serving us in Washington who get it and will not forget who they work for.

Consider seriously who to vote for and make sure to take the time to cast the vote on November 2.

Business Aviation needs people in Washington who understand Business!

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An economy is defined by, or limited by, time and productivity. Value is created in an economy when an improved use of the resource of time creates gain in productivity.

The purpose of travel by aircraft is to gain time over other means of travel, time that can be used to create new value.

Inside the experience of travel the journey itself can either add to or subtract from productivity. If I can be productive while traveling I gain value during the travel in addition to the gains on both ends of the journey.

Every day, those of us in business aviation, witness the gains in productivity both in time saved and in the positive experience of travel by private and business aircraft.

Business travelers who have experienced this form of travel know what I am talking about.

Business travelers who use the airlines will testify to the negative impact on productivity from the time drain and wear and tear of airline travel.

The airlines, and the system they have created around the hub and spoke, have done a lot to try and ease the journey by creating nice terminals with food, shopping, and wifi connections to the Internet.  However, am I more productive sitting at the Airport Starbucks on my laptop for three hours waiting on the connecting flight, or being at my destination three hours earlier?

What about the time en-route?

If I can conduct a meeting in the air with clients, vendors or fellow workers what’s it worth?

When is the last time you had a business meeting while traveling on an airline in coach class or even in business class?

Business aviation wins hands down both in time saved in the journey and productivity experienced during the journey.

So why doesn’t everyone travel using a business aircraft?

Price and perceived value!

Business aviation is expensive when compared to the perceived value.

If our industry created a true cost-productivity calculator application that took into consideration not only the value of the time savings, but just importantly the productivity gains experienced during the journey, would it change the perception of the value of business aviation?

The technology is here today to do this.  

I would challenge our friends in the tech sector to come up with an application that calculates the “true costs” of the various modes of air travel.

What would an application like that be worth to those of us in Business Aviation?

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A September 27 press release  by the National Business Aviation Association applauds the President for signing a piece of legislation for small business that includes a provision for bonus (accelerated) depreciation for strategic business purchases. The provision includes new aircraft and major aircraft components such as new avionics, interiors and engines.

 This law is good news for small businesses in the aviation services sector as well as manufacturers of business aircraft. For companies considering the purchase of a business aircraft, or doing upgrades on their existing aircraft, there has never been a better time to make the purchase decision. Manufacturers and service providers are hungry for business.  The combination of aggressive pricing, and the tax advantage of this new legislation, will hopefully stimulate spending for those who are close to the decision already.

I don’t want to sound negative at this point, but this legislation is more of a band aid to a problem than a cure. The business aviation industry in the US has a chronic and severe cold and bonus depreciation will relieve the symptoms for the next year which will make us all feel a little bit better. It will not cure the problem.

For the manufacturers in Wichita it will keep people employed, and for those of us in the maintenance business it will hopefully generate sales of aircraft equipment upgrades.

What we really need is a cure for the root problem which is lack of demand.

Until more business and leisure travelers can afford to fly in private aircraft the industry will continue to languish or at best have a slow growth that mirrors the economy we are in.

A few percentage points of growth as a best case, or stagnation as a worst case, does not put people back to work in long term jobs.

Travelers who use business aviation are passionate about the experience, benefits, and value of flying by private aircraft. The limiting issue seems to be price. Everyone I talk to wants to fly in the private jet but not everyone can afford the price.

Over the long haul, if we are to cure the problem of demand, we must solve the price problem in our industry. A lot of manufacturing and service jobs in aviation are at stake, so it is worth thinking about a solution.

The technology sector of our economy has solved this problem of price and now everyone can afford mobile computing devises with computing capacity that could only been dreamed of a few years ago.

Surely our industry of business aviation can solve this problem as well.

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Yesterday I spent time with clients considering the upgrade of their turboprop aircraft, a King Air 200, to a business jet. Their travel needs are growing and the trips they do are reaching farther out from their home base, so a jet is in consideration.

As we talked a few questions were asked: Have the values of used aircraft hit bottom? Is it a good time to buy, and if we decide to buy what would be the best investment? These questions sound much like the questions Jim Cramer might hear on Mad Money about which stock to buy.

I have also had conversations this week with two representatives from manufacturers of business jet aircraft.

Discussions centered on the current state of the market for new and used business aircraft. One of the problems the manufacturers of new aircraft are facing is the competition with their own late model used aircraft on the open market.

Starting in late 2008, and throughout all of 2009, the prices of used business jet aircraft fell in some cases as much as 50-60%. In an uncertain economy no one was buying and sellers could not get an established value without buyers.  

A four-year-old low time jet in like new condition today may be selling for half of its new price when delivered in 2006. Compare this to 2007, and the ten years prior, when a four-year-old aircraft could sell for 85% to 105% of its new price, depending on the manufacturers backlog of orders in production for the same model.

The brokers in our industry would probably confirm that the market of used aircraft has started to move, and the first aircraft to sell are those late model low time aircraft that took a huge hit in a “no buyer” market. As worldwide buyers absorb this inventory the prices have and will continue to firm up. 

Aircraft older than ten years, although still in excellent condition, may be slow to recover their value of two years ago, if ever. The supply of older used aircraft for sale is still greater than demand and will stay that way for a few more years. Prices may not go down much more, but will most likely not recover anytime soon.

Back to the original question:  Is it a good time to buy? If you have established the need and defined the mission of business aviation for your company, then it is a good time to buy. If you are ready to upgrade to an aircraft that better fits the mission, or a newer aircraft that will provide more capability, lower maintenance costs, and better reliability, then it is a great time to buy. 

Talk to people in our industry including manufacturer sales reps and reputable brokers of used aircraft. Wheels Up contributor Jeremy Cox  is one of those guys.  

Talk to other business jet operators, flight department managers, and aircraft management companies for insight. Do the analysis that determines what aircraft best suits the mission. Look at new versus used and the pros and cons of each.

There is a lot of knowledge in our industry and most everyone I know is willing to talk to you to share what they know.

If you have the need to travel to grow your business there has never been a better time to buy. It is a buyers market and there is good value in both new and used business jets.

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A business aircraft is a productivity tool. It is no different than any other tool we use in business to become more productive. It has a cost and it brings, or should bring, value. The value has to exceed the cost. If it does then we get a positive rate of return on the investment. If the value does not exceed cost then it is not a good investment.

All of the mainstream and social media conversations about the “extravagance” or “corporate excess” associated with the business jet play well with the anti big business crowds and populist politicians, but they lack substance. So far, these conversations have had nothing to do with the reality of what a business aircraft does to enhance the productivity of a company and its most valuable assets – its people.

The discussion about the value of business aircraft should be all about productivity. If using business aircraft increases the productivity of an organization, and the measured gain in productivity exceeds the cost, then it makes sense. Bottom line!

I just purchased an iPad. I can use this device to increase my productivity in internet research and communications or I can play games on it. How I choose to use it doesn’t make it inherently good or bad. How I use it does determine its value in my personal and business productivity.

In that way, a business jet is no different than an iPad.

Those of us in business aviation need to do a better job of first understanding, and then selling the value proposition of business aircraft as a tool to enhance productivity.

Billions of dollars have been spent in research and development of new high technology aircraft that will take us higher, faster and further on less fuel.  All the while, business aviation has invested very little in the technology to truly measure the enhancement of productivity gained by flying in a private aircraft. It is not just the time saved that we need to measure and quantify. What about the social and physiological experience of travel and its effects on human productivity and creativity?

Additionally, we should invest in the technology to learn how to better utilize the business aircraft to bring the costs down. How do we cut the inefficiencies of business aviation without reducing the experience?

An industry-wide increase in the efficient use of the business aircraft coupled with a measurable understanding of the value would do more than just silence the naysayers. More importantly, it would grow the industry that supports business aviation and bring an innovative increase in the productivity of our economy.

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VIP is an acronym used often to describe Very Important People or those that, for some reason or another, are more important than other people. It is most associated with music stars, sports stars and the rich. But, let’s face, it: We all want the VIP treatment. It makes us feel special or important. And feeling very important? Well, that’s really cool.

 More than VIPs, I like the idea of MIPs. Most Important People. Who are the MIPs in our lives? Family first, best friends, and coworkers who are also friends.  We like spending time with our MIPs. When we are away from our them, we can hardly wait to get back to them.

 So for all of you Road Warriors, you business travelers I see in airports all the time with wearied expressions on your faces and Smart Phones in your hands, what is it worth to you to get more time with your MIPs?

With all the negative things that have been said and written about riding around in business jets (could be a propeller aircraft, as well)  – about the costs and luxury, the one thing the critics always fail to mention is the time private jet travel saves. Time - that finite resource we all possess and want to maximize.

 With travel by business aircraft you get security, privacy and, most importantly, you get time. Time not wasted in an airline terminal can be spent with your MIPs.

 So, like a lot of things we spend money on, methods of travel have different values to different people. If you don’t travel and like to stay home then a private jet doesn’t bring much value.  You are less likely to understand why anyone would spend that much money using that mode of transportation. But if you have been financially successful, you do travel and the your market values you highly, then you are more likely to understand the value proposition.

 As I have said in other posts, the way our industry will continue to grow is to find ways to bring the costs down so that more people can take advantage of the value proposition that we can provide.

For all of you road warriors out there riding on the airlines every week, going to sell your product, meeting your vendors any doing everything else you must do to grow your businesses, you deserve to get more time back – just like Oprah or any other VIP does.  To get that time back, you don’t have to ride around in a Gulfstream jet (even though it would be nice to do so). If  time is what you are looking for, then your options are numerous. You can charter an aircraft or you can learn to fly, renting or buying a small aircraft to get around. Flying yourself compares to using air mass-transit like driving your car compares to taking the bus.  In some cases riding the bus saves time (when you are in big city traffic) but in other cases driving yourself is more efficient.  Or maybe there isn’t even a bus to ride and driving the car is the only way.  It works much the same with airplanes.  In a lot of cases, the time savings of flying yourself versus flying on air mass-transit ultimately translates to monetary savings.

On one end of our business spectrum sits the Gulfstream G550 business jet and on the other end sits the small Cessna or Cirrus propeller aircraft.  The Gulfstream that requires years of piloting experience, but the Cessna and Cirrus can be flown by anyone who takes the time and effort to learn to fly. In between are a world of options that make sense at levels where the value of your time increases.

At the end of the day, the goal is to spend more time with your MIPs; so, I say go take a look at what our industry has to offer to help you achieve this goal. If you have to travel there is no other device invented yet that can save your time like the private aircraft.

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