Making quantifiable gains
In many ways, the Canadian business aviation industry is at a crossroads. Living in a regulatory environment that is clearly dictated by and influenced at all costs by the commercial airline industry, the Canadian Business Aviation Association (CBAA) is constantly seeking ways to assert the interests of its members on a myriad issues, from regulatory consideration from the government, proper (and fair) direction on taxation from the Canadian Revenue Agency (CRA), and even justifying the industry’s value and influence as a critical economic driver of the Canadian economy.
September 19, 2016 By Matt Nicholls
It’s a constant, often spirited battle with Transport Canada (TC) and the federal government on the part of the CBAA to illustrate the needs of its members and industry – one that makes a significant contribution to the Canadian economy. This doesn’t even touch on other key issues such as airport access, international relations and much more.
“I don’t care where you go across this country, they just don’t understand who we are or what our needs are to get it right the first time,” says Merlin Preuss, vice-president of government and regulatory affairs with the CBAA. “There are on going challenges. The trick is to get on their radar.”
In an effort to do just this, the CBAA recently partnered with Canadian aerospace leaders Bombardier, Pratt & Whitney Canada and CAE to produce a detailed survey to illustrate the industry’s importance. The 2016 Economic Impact of Business Aviation in Canada, reveals that Canadian BizAv generates some $5.1 billion in GDP annually, $730 million in taxes and operates out of every province and territory. Canadian BizAv is a well-paying sector, with the average annual income of $80,600, some 66 per cent higher than the national average wage of $48,600. Moreover, each business aircraft in Canada generates a total of 12.4 jobs, $820,000 in wages and $2.9 million in economic outputs each year.
Impressive numbers for sure, but Canadian BizAv still faces real challenges. To discuss some of them, Wings sat down with key industry leaders during the CBAA Convention & Exhibition July 5-7 in Calgary (see, “The players,” page 32) at the Million Air FBO. The spirited discussion didn’t solve all of BizAv’s issues, but it did offer great insights into where the association – and industry – sits in a challenging operating environment.
What effect have economic realities in Canada and U.S. and other emerging economies had on your operation and business aviation as a whole?
Rod Barnard, director aviation and travel, aviation services/chief pilot, Kal Aviation Group: Our two airplanes provide support for the Kal Tire’s network. The energy sector has presented some challenges, although there are some positives with the B.C. and Ontario markets holding their own.
Michael Fedele, vice president/general manager, Execaire: The global economic slowdown hasn’t had a significant impact on our operation because our business model is quite diverse. We have many revenue channels and aspects to our business – management, charter and maintenance. On the management side, a lot of the businesses that have aircraft, which we deal with, have larger aircraft. What we have seen for owners of light- and medium-sized aircraft, over the past five years, is that their businesses have had tougher times – these are smaller businesses. The larger aircraft still seem to fly, in good times and bad times. Often in bad times, they are flying more hours because there are better deals to be had. In forecasting the next 12 months, there is some uncertainty because we have seen flying hours flatten out a bit.
Bill McGoey, president, Aurora Jet Partners: The sluggish economy and its effect on flight departments is one of the biggest challenges affecting business aviation. Regulatory issues are uncertain, yes, but we adapt. The economy is something we can’t control. We are experiencing regional economic differences in Canada with respect to the recession. We are closer to the downturn in Alberta, and parts of B.C. and Ontario are doing better. But from a greater perspective, oil went down and so did the Canadian dollar, which is directly tied to the price of oil. When the dollar drops to 65 cents, I have a hard time selling a jet because the exchange rate increases the price. The Brexit situation in the U.K. is also something to consider. We tend to think we’re here in Canada and it doesn’t affect us. That’s not true. Aviation worldwide is connected and the Brits have thrust themselves into a real situation of uncertainty on their exit. A bad economy hurts business aviation, but an uncertain economy acts just like a bad economy because decisions are slowed down, owners sit back and wait and we see things stall. The question with Brexit is did they jump off a sinking ship and who’s next? Then there’s the American election, which may also have an effect on the economy.
Rudy, what are you hearing from operators across the country?
Rudy Toering, president/CEO, Canadian Business Aviation Association: Certainly from the Alberta perspective there is some concern. Some of the smaller operators have expressed a desire to sell their aircraft. But fortunately, a lot of those aircraft are being sold internally in Canada, which is a good thing. It seems Saskatchewan has been a little more insulated because of potash and other resources that are not oil driven. B.C. seems to be very robust still, but the concern is that Ontario will become affected because some of the manufacturing business is starting to slow down.
MF: If you look at used aircraft inventory, it is on the rise. It is to some degree a buyer’s market. And when used aircraft are readily available, new aircraft prices tend to drop. When this happens, everything starts falling apart. Don’t be surprised if this recent trend continues. I also think that another factor at play with the drop in aircraft pricing is that there are a lot of international regulatory changes requiring equipment modifications to aircraft. These modifications are not cheap, so you have a lot of owners thinking, “why would I spend a lot of money on upgrading an aircraft that’s not worth it?” You have all of these upgrades to do, and when you add it all up, it’s a significant cost to make for a heavily depreciated asset.
David Weger, senior director of administration services, Potash Corporation of Saskatchewan: Business aviation is highly correlated to the economy and a company requires reasonable stability from government in the form of regulation and taxes. The ebbs and flows of the economy are always going to be one of the concerns for businesses around the world. There is a tremendous amount of world debt and I think that is why a lot of companies are very conservative right now. With so many governments raising taxes, from a business aviation perspective, we need to have stable regulations and tax laws. I am reasonably optimistic about the future and business aviation professionals need to take a long-term view of their assets.
Which is a nice segue into talking about the challenges the Canadian business aviation industry has with optics; justifying its relevance to government and the general public.
RT: This is a good place to talk about the CBAA’s 2016 Economic Impact of Business Aviation Study, which uses hard data plus case studies to demonstrate the value of our sector to Canadian companies to remote and rural communities, and even to potential employees. For example, we now know that each aircraft used in this country generates more than 12 jobs, $800,000 in wages and $2.9 billion in economic output every year – so you can imagine the potential for growth every time we put a new aircraft into service, or the huge potential loss if government policies or actions lead to fewer business aircraft flying. The study has been a game-changer: I find politicians and bureaucrats are much more receptive and are taking our issues far more seriously than they have in the past.
David Hall, maintenance manager/general manager, Irving Air Service Inc.: I’ll quote our chairman on that point – just because you can afford it [a business jet] doesn’t mean you should buy one. That’s just the Canadian way.
RB: We have the same thing happening with one of our aircraft – it’s a 2003 and needs some refinement – but it comes down to optics. When you are asking your company to pull back and be conservative, even if you have the money to buy a new airplane tomorrow, it’s a challenging decision.
BM: It’s exactly your point about the Economic Impact of Business Aviation Study. Even our owners show caution – like we should be ashamed of this jet because this is for a rich kid or something. Yet, this is not true. They couldn’t have gotten where they are without using all of their business tools.
RT: It comes back to awareness, like CBAA’s earlier Business Aviation Matters campaign or the NBAA’s No Plane, No Gain initiative. The booklet they created about BizAv and its benefits for American firms is case and point. NBAA’s COO Steve Brown addressed our members at CBAA 2016 and said the presidents and CEOs of the companies that are highlighted in that booklet are always proud of the fact they are involved with BizAv and the role it plays. The CBAA hopes to create a similar booklet with Canadian business leaders.
Anthony Norejko, director of aviation/chief pilot, Walmart Canada: Internally, there’s a tool we use and have for some time. It’s a time/cost/benefit analysis for every trip we do. We are able to show internally, here’s the commercial alternatives, here’s what the choices are, we know where we need to go, what stores we want to visit . . . so we quantify that. That’s how we decide what trips we can do.
So, how do you take the info. in the CBAA Economic Impact Study and show TC and government officials the value of BizAv in Canada?
RT: We will have a full French and English version of the study for the first time. We are also sending the study to every MP in Canada; there will be a very wide distribution. We are also meeting with the NBAA and IBAC to work together to help create a strategy of how to use the information and enable members to proudly talk about the role of BizAv.
BM: You also need to make sure it goes to the Canadian Revenue Agency (CRA). They seem to nickel and dime BizAv owners instead of realizing the tax benefits they are bringing to the industry.
DW: It’s a very shortsighted way of looking at things really [the CRA’s attitude towards BizAv]. When you look at the contributions BizAv makes, not just the dollar amounts, but the multiplier effect that executives bring to our economy. We need to connect the dots and better illustrate the size of this industry.
DH: And, really, the influence is even greater than that. We operate in a global economy. So the asset, that aircraft, not only sells the aviation product, it highlights much more – the lumber, the steel, and the end-use product.
AN: The common theme, whether it’s about the economy or regulations, it’s about educating the CRA and government officials that there’s a forest behind the trees you see in front of you – whether that’s about regulations or any other issue.
It seems the interests of the commercial airline community always takes precedence over business aviation. How does the CBAA deal with this reality?
RT: The fact is, business aviation is an essential part of Canada’s transportation infrastructure – a point clearly made in the Economic Impact Study. And regarding the issue with the CRA, it is clear to me that there is a real vacuum in terms of both their understanding of what business aviation is and how it operates. The CBAA is trying to address this at the senior level of the CRA. At the same time, many of our members are dealing with tax assessments that are coming out of left field – totally unexpected and in our view unwarranted and unfair. This is so extreme, there are instances of companies selling their aircraft or cancelling purchases. As a result, we are also working directly with members and their tax and legal advisors to at least mitigate the current evaluations until more reasonable interpretations can be put into place nationwide.
Merlin Preuss, vice president government and regulatory affairs, CBAA: I’m listening to this conversation and I think the problems are well understood. But I am going to say something here and I hope everyone understands. We are never, never, going to win in the Canadian press. The NBAA can win in the American press. So, the things we are talking about here, we can’t expect the press to be on our side about it. Can you imagine the current Prime Minister standing up and saying he supports business aviation? It’s not going to happen. We can influence what happens whether it be with customs or immigration or safety or security, by getting the officials to be directed. And the business that we are doing right now, trying to create an aviation core in government, going to every MP – we started with the new government. It’s probably something we should have done before. The next thing you do when you talk to MPs is you make sure you tell him or her how many jobs they are going to lose in their ridings – and you bring it right down to votes. And that is the only way that you are going to beat the system because you will never get president of Bombardier to stand up and walk in and use one if his three Federal silver bullets to support his flight department. It’s about votes. We are getting way more sophisticated [as an association] than we were four or five years ago. And we have to be or unfortunately, we are going to lose out.
Let’s talk about business aviation and airports. A lack of options, access, de-icing issues – how is business aviation coping with the current environment in Canada?
BM: There are so many challenges, particularly in major centres like Toronto. Many times it seems like Toronto Pearson just doesn’t want business aircraft. There is no hangar space for future business aircraft and the airport does not seem accommodating to the growth of business traffic there. We also have been pushed right out of the Edmonton City Centre Airport when they decided to close it to build a new subdivision. We are now at Edmonton International. De-icing is also a problem at these major airports where business aircraft are having to line up with airliners at the de-icing pad. When they continue to take out the smaller feeder airports where our owners want to go anyway . . . it tells me the industry needs protection placed on the airports just like the government protects national parks. Airports are a necessity much like a utility and are a real economic benefit. Canada just needs more airports . . . we should have 10 times the number of airports we currently have in this country.
AN: There’s the issue with the GTAA. We did a cost assessment and considered Hamilton as a possible location. Plotting the location of where the bulk of our associates live and considering that the drive distance would be greater than the commute to Pearson, the potential savings of a move would be lost in both time and cost – it didn’t make economic sense.
MP: We shouldn’t overlook the fact that all of this stupidity with the airports is created by the air policy that is in place today. The attitude with the airport with regards to business aviation is the issue. Everything that exists in terms of air policy right now is there to support Air Canada, end of story. Everything we have today is a scheduled carrier based policy – this can’t work for business aviation. Even if it is a simple policy from the airport point of view, it will be a start. This will take some work, but even if we can get something in place it will work. . . and it’s realistic.
Let’s finish by talking about safety. How safe is business aviation in Canada and are we doing enough to ensure it is as safe as can be? What else needs to be done?
MF: Business aviation has a proven track record, and it is probably one of the safest industries out there. I previously worked at a major Canadian training company, simulation-based training. We wanted to bring the concepts of aviation training to the medical industry because of the safety record found in aviation. And taking those concepts of recurring training, checklists, SOPs, CRM . . . all of these concepts. Aviation is likely the best industry in terms of public safety. You can always strive to do more and we do as an industry. The work effort and focus that been put on SMS over the last couple of years has been very beneficial. Building our SMS programs up and increasing the level of preparedness and ability to respond to risks is critical. I believe that we shouldn’t think of it as managing safety – it is indeed risk management. It is a function of managing risk – and understanding what those risks are, determining and establishing mitigation strategies and approaches to minimize the risks, or changing your operation to avoid risks. The more we improve our SMS culture, the safer we shall become. It is through these types of programs that we achieve improvements in an already extremely safe industry.
BM: We are all in aviation, we all know the risks associated. Canada is ranked as one of the safest aviation industries in the world. The TSB published a report that shows the accident rates and based on the definition of an accident, there is something like 3.6 accidents per 100,000 aircraft movements. But the point is, that has improved over the last 10 years, from 2005 to 2015 so we are obviously doing something right.
MP: I think SMS has had a lot of the effects that we expected. If we had had this discussion 10 or 12 years ago, how many people around this table would be talking so positively about their safety initiatives? What has happened now, it doesn’t matter where I go, people are talking about risk management. As soon as you start talking like that you are automatically more aware. You are doing things with more thought and care. You are talking about managing risks and finding hazards and finding ways to establish a safer operation.
DW: Business aviation is very safe, but accidents are random. It’s all about culture. We invest a lot of money in our employees and in all aspects of their technical skills training flight, their flight training, and personal development – all aspects of their development. It is investing money in your employees and ensuring that they are well qualified to do the job that they were hired to do. And you have to invest the money in nurturing that.
A who’s who of the 2016 Wings/CBAA roundtable – and their greatest challenge
Name: Anthony Norejko
Role: Director of aviation/chief pilot, Walmart Canada Corp.
Key Challenge: “Keeping abreast of the upcoming and proposed regulatory changes. Engaging with your teams internally and operators across the country to ensure we are able to influence the direction of business aviation.”
Name: Michael Fedele
Role: Vice president/general manager, Execaire
Key Challenge: “The amount of time it takes to get through the procedures to register an aircraft and get it on your operating certificate has been a challenge for the past five years.”
Name: Rod Barnard
Role: Flight department manager/chief pilot, Kal Aviation Group
Key Challenge: “We spend more time trying to wrap our heads around are we in conformance with the regulations – and are we headed in the right direction – when we don’t really have the pieces of the puzzle in place yet.”
Name: David Weger
Role: Sr. director administrative services, Potash Corporation of Saskatchewan Inc.
Key Challenge: “Staying in compliance with the regulations remains a concern, but we are also challenged with succession planning and making sure the next generation is ready.”
Name: Rudy Toering
Role: President/CEO, CBAA
Key Challenge: “As the association representing BizAv in Canada we have many challenges. The key challenge is to ensure that the BizAv sector is fully understood and through understanding that regulations and policies are appropriate to our sector.”
Name: Merlin Preuss
Role: Vice president government and regulatory affairs, CBAA
Key Challenge: “My job is hard because of who we are. I don’t care if its safety, security, customs or immigration, the first thing you need to do is kick the door down, because the people that control that door are more worried about Air Canada than they are about us.”
Name: Bill McGoey
Role: President, Aurora Jet Partners
Key Challenge: “I thought long and hard about what is the biggest challenge in our business and I came to the conclusion that it isn’t just one thing; it’s a number of things such as airport access, regulatory changes, economic challenges etc. If it was as simple as ‘one challenge’ I could say, ‘let’s just change this and we would be off
to the races.’ ”
Name: David Hall
Role: Maintenance manager/general manager, Irving Air Service Inc.
Key Challenge: “Dealing with regulatory delays, level of services, excessive bureaucracy, not just with TC, but also the Federal Department of Labour. And when you get the cumulative additions of both, your time involvement dealing with regulatory control with various organizations within government. Anything that we can do to minimize this, streamline this, would be ideal.”