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Signs of Recovery?

It’s time to review the corporate aviation world in Canada and it goes without saying that this year’s report is different from those of previous years. Simply put, 2008 began like a space shuttle launch but finished on a downward slide and 2009 started where the previous year left off. However, there is some good news out there.


May 20, 2009
By Rob Seaman

Topics

It’s time to review the corporate aviation world in Canada and it goes without saying that this year’s report is different from those of previous years. Simply put, 2008 began like a space shuttle launch but finished on a downward slide and 2009 started where the previous year left off. However, there is some good news out there.

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Business aviation serves as a lifeline for communities all across the country.
(Photo courtesy of Dassault Falcon Jet Corp.)


 

According to Sam Barone, president of the Canadian Business Aviation Association (CBAA), “Canada’s business aviation community is all about supporting Canadian business and the Canadian economy.… Business aviation is far more than luxury jets and travel perks.” Industries such as mining, hydroelectricity, petroleum and natural gas, and diamond and forestry sectors, depend on business aviation and have gone on to prove the value that corporate aircraft bring to their bottom line. As Barone points out, the contributions of Canadian business aviation to our nation’s employment, commerce, international competitiveness and health care are profound, but not always well understood. He goes on to say that we need to get the word out to all Canadians that business aviation is working for Canada – both at home and abroad. It is also serving as a lifeline for communities all across the country that are seeing the scheduled airline service continually reduced or eliminated from the smaller regional markets. Says Barone, “At a time when we are facing almost unprecedented economic challenges, Canadian businesses need tools that will help them enhance productivity, maximize flexibility and maintain strong communications. Canadian business aviation is critical to tens of thousands of cost-conscious companies fighting to succeed in a difficult market. Canadian business aviation also provides humanitarian assistance to charities such as Hope Air, where life-saving treatments are accessible and only possible through this mode of transportation.”

In speaking with many corporate aviation service and support facilities from coast to coast, it is evident that many companies are starting to notice some good news creep into their bottom lines. By March, many FBOs advised that traffic on their ramps was starting to increase and show signs of recovery. FBO managers reported, on average, a 10 to 20 per cent increase in financial numbers over the first couple of months of this year and fall of last year. That said, these numbers do not necessarily mean an increase in fuel sales, as more and more operators – from the United States in particular – are putting into practice the “tanker fuel method.” This same sentiment is echoed by most of the fuel resellers. In addition, the overnight stays are not as frequent, especially for non-Canadian registered aircraft. Quick turns or day trips are more the norm.

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Some have taken this opportunity to invest in the future and prepare for when the aircraft business returns to normal levels. Long-standing FBO pioneer Sky Charter at Toronto’s Pearson International Airport has recently completed a significant FBO improvement; the hangar facilities have been extensively upgraded and the passenger lounge has been increased in size, redecorated, and turned into a more modern facility – modelled after the more current global aviation standard. Fittingly, it has acquired a significant new tenant, AirSprint, that will be relocating its Toronto offices and aircraft to Sky Charter.

As for news from the west coast, Scott Harold of Landmark Aviation reports most of the focus is still on getting ready for the 2010 Winter Olympics. This effort will require all the FBOs to work together to accommodate the anticipated influx of corporate aviation traffic and massive increase in heli support required for the event.

On the aircraft charter side, the latter part of 2008 and the first two months of 2009 were nothing less than a disaster according to most. One Toronto-based charter provider actually offered that in his opinion, the ad hoc charter market is dead forever. Fortunately, this opinion was not upheld in the marketplace and by March, most operators were reporting a healthy resurgence of interest in their charter aircraft. The market is still by no means back to levels of last year; however, it’s a far cry from what it was through December, January and February.

Looking to the aircraft management side, several firms are reporting that their current owners are not only using their aircraft again, but also considering upgrades or replacements. There are also across-the-board reports from all operators of new owners and new shared ownerships coming their way in the near future. Calgary-based Sunwest Aviation’s Ian Darnley reports that despite the end of year slowdown, it added eight new managed aircraft to its fleet last year that included the recent delivery of a new G150 and the addition in the early part of 2009 of a new Citation Sovereign. Darnley says that for them, 2008 was a banner year in aircraft sales and acquisitions, worth more than $70 million.

Likewise Toronto-based Image Air advised that it will be adding at least two new aircraft to its Toronto operation, with more to come. Similar news is coming from other operators in this field. Overall, these are signs of good news with some indication of a turnaround, and the continued acceptance of the value of corporate aviation as part of a company’s travel mix.

One firm that always seems to find new and different ways to promote itself is Toronto-based Chartright Air, which has subsidiary bases in Kitchener, Ont., Vancouver and Moscow. Its Vancouver operation recently participated in the launch of a new BMW series automobile and used the event as a way to cross-promote its aircraft services to the higher-end automotive market. Similarly, Skyservice Business Aviation has played host to Sports Hall of Fame events at its FBOs. As we all know, hard economic times breed innovative marketing and communication strategies. Both firms report that this mixed marketing approach has helped to bolster their image and create new business.

Generally, for the first part of 2009 most corporate flight departments were not flying very much at all. In fact, numbers tracked by various associations in the United States showed that across the board, corporate aviation flying was down by as much as 40 per cent due not only to the downturn in business, but also to the increased sensitivity of many flight departments regarding the use of the corporate jet as a travel tool. The net result is that today in Canada and the U.S. there is a record number of corporate aircraft posted for sale through the various brokerage and resale outlets. That said, the numbers really do not tell the entire story. Many brokers and business analysts are stating that the inventory numbers are in fact artificially high, as many firms were pushed to post their aircraft for sale in order to appease investors and shareholders. The fact is these aircraft are not necessarily for sale if the price is not right. And with the flood of availability right now, prices are fluctuating -– mostly to the downside – and many owners are not willing to accept these deflated values.

According to Brian Foley, a well-known and respected industry analyst, inventories will peak by midyear. “That’s not to say it will be an immediate decrease, just that it won’t be getting much higher,” says Foley. He goes on to say that “at the peak, inventory levels will meander for a few months before falling somewhat by year end.

Soon, one in five of the world’s active business jet fleets will be up for sale.” According to Foley, used aircraft prices will continue to drop after the inventory peak and through almost to year end. Overall, he feels that the most desirable equipment on the market will slowly begin selling through the second half of this year. In general, Foley predicts the market will further stabilize when those who have to sell get out of the market. When the market turns, as Foley says it will, buyers will be taking advantage of the best pricing in years. At the same time, other sellers will simply take their jets off the market as their improving balance sheets will no longer justify the need to sell.

For those in the market to buy an aircraft, choices have never been better. Many manufacturers have options and positions available as some of their purchasers are now trying to divest themselves of their commitments. As one broker said, desperation breeds interesting pricing strategies. On the downside, money is not as readily available as it once was. For those who qualify, there are lenders willing to work a deal. Unfortunately the interest rates are nowhere near what they were at this time last year. The best deal you can find today starts around eight per cent.

The bottom line is that corporate aviation as an industry segment is alive and will survive. OEMs are continuing with new product development (in some cases at a reduced or revised pace), the avionics world continues with optimistic foresight and generally everyone is working to preserve the bizav business model. Once we get past the CNN-driven recession and the business community becomes more comfortable with how it will conduct itself, things should start returning to a more sustainable and agreeable level. In the meantime, everybody is playing a wait and hope game and looking for the bright spots as they come along.