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JSSI AIRWAYS
THE NEW INDUSTRY STANDARD
RICHARD ABOULAFIA
COMMENTS ON GROWTH
THE PERSPECTIVES OF
GAMA AND NBAA
INDUSTRY PROS
WEIGH IN
®
C E L E B R AT I N G OU R 2 5 T H A N N I V E R S A RY
CONTENTS
®
JSSI AIRWAYS
02.
PUBLISHER’S MESSAGE
03.
25 YEARS OF STRONG GROWTH
FOR GREAT REASONS
Louis C. Seno
Richard Aboulafia
05.
AIRCRAFT MAINTENANCE:
A DYNAMIC REVOLUTION
Staff Report | Featuring Marc McGowan, Doug Meador, Declan O’Shea
07 .
GAMA REFLECTS ON 25 YEARS
08.
BUSINESS AVIATION’S PROUD HISTORY
AND FOCUS ON THE FUTURE
Pete Bunce
Ed Bolen
09.
JSSI LOOKS AHEAD AND REFLECTS
ON 25 YEARS IN THE INDUSTRY
Neil Book and Susan Marr
11.
SELLING AIRPLANES:
CHANGE, THE ONLY CONSTANT
Staff Report | Featuring Spencer Brent, Nick Cerretani, Johnny Gantt, Sabrina Prewitt
15.
TECHNOLOGY FOSTERING CHANGE
16.
BUSINESS AIRCRAFT LENDING:
WHERE ARE WE HEADED?
Aaron Hilkemann
Michael Francis
17.
AVIATION TAXES:
THEN AND NOW
Nel Stubbs
01
JSSI AIRWAYS
JSSI AIRWAYS
PUBLISHER
Louis
C. Seno
PUBLISHER
Chairman Emeritus
Louis&C.Special
Seno Advisor, JSSI
Chairmanlseno@jetsupport.com
Emeritus & Special Advisor, JSSI
lseno@jetsupport.com
EDITORIAL DIRECTORS
EDITORIAL
Neil W.DIRECTORS
Book
Neil W.
BookJSSI
President
& CEO,
President & CEO, JSSI
nbook@jetsupport.com
nbook@jetsupport.com
Susan K. Marr
Marr
General Susan
CounselK.and
CAO, JSSI
General Counsel and CAO, JSSI
smarr@jetsupport.com
smarr@jetsupport.com
ART DIRECTOR
DIRECTOR
ART
AlyssaM.Tepper
Alyssa
Tepper
Designer,
Designer, JSSI
JSSI
atepper@jetsupport.com
CONTRIBUTORS
Jim Gorman
Richard
Berkemeier
jim@gorman360.com
richardaberkemeier@yahoo.com
Marj Rose
Ken Dufour
mrose@market-lift.com
theaircraftappraisers@gmail.com
Richard Aboulafia
Brian Foley
raboulafia@tealgroup.com
b@brifo.com
Ed Bolen
Brad Harris
ebolen@nbaa.org
bharris@dallasjet.com
Spencer Brent
rsbandthegypsy@aol.com
Frank Hattula
fhattula@jetsupport.com
Pete Bunce
petebunce@gama.aero
Keith Hayes
keith.hayes@regions.com
Nick Cerretani
nick@cerretaniaviation.com
Dr. Richard Heist
heistr@erau.edu
Michael Francis
michael.francis@cit.com
Jim Levy
jlevy@jetsupport.com
Johnny Gantt
gantt@ganttaviation.com
Jonathan S. Levy
Aaron Hilkemann
jonl@advocatetax.com
aaron.hilkemann@duncanaviation.com
Jason Liao
Marc McGowan
jasonliao@cbajet.com
marc.mcgowan@standardaero.com
MarjMeador
Rose
Doug
mrose@market-lift.com
doug.meador@bbaaviation.com
Publisher’s Message
We’ve Come a Long Way, and It’s Only the Beginning
During the dawn of turbine powered business aviation in 1965, HawkerSiddley Corporation (later British Aerospace) introduced the DH125-1A
Aircraft, powered by the Rolls-Royce Viper 522 turbo-jet engine. As part
of the purchase, those early operators sent a check to the UK for every
hour they f lew to cover the purchase price of the engines, the operating
costs and repair. When engines were due for scheduled events, they were
removed and sent back to the mother ship for restoration. Coincidentally,
this is when Rolls-Royce coined the phrase, “Power By The Hour” which
became a common expression before the more comprehensive concept of
hourly cost maintenance was designed.
Almost a decade later, Learjet moved from the General Electric model
Louis C. Seno
CJ-610 turbojet engine to the Garrett AiResearch (now Honeywell) model
Chairman Emeritus & Special Advisor, JSSI
TFE731-2-2B turbofan. The engine proved to be very popular, as Dassault,
IAI, British Aerospace and eventually Cessna moved to the “classic” 731 engine. While the engine was
both quiet and fuel efficient, operators clamored for a means to level the relatively high and unpredictable cost of operating the 731. Incorporating the “hourly” concept, Garrett responded with its
Maintenance Service Plan (MSP), still offered today on all Honeywell motors.
In 1989, JSSI took a more innovative approach to the early OEM concepts and addressed a wider market
by designing an engine program for virtually every turbine powered business jet of the era. From the
outset, JSSI’s offerings included all scheduled and unscheduled events, rental engines, pro-rata payment option in lieu of a large buy-in, and independent technical oversight, all of which remain at the
core of the JSSI value proposition to this day.
Fast forward to 1996, a few OEMs offered basic airframe parts programs for the airframes each manufactured, but operators of other aircraft were left on their own. JSSI expanded on parts coverage by
incorporating labor costs and introduced the first all encompassing engine and airframe program,
“Tip-To-Tail® ”, a hallmark of JSSI programs today. Along the way, programs for the different APUs
used in business jets were designed and included in Tip-to-Tail coverage. Then programs for rotorcraft engines and airframes were added to the long list of JSSI programs.
The JSSI Trust, our unmatched f lexibility, our unparalleled technical support and the best customer
service in the business have distinguished JSSI over the years. Today, we are not only the largest independent hourly cost maintenance provider in the world, we are the only provider to offer coverage
for more than 340 makes and models of business jets, turboprops and helicopters, including new
aircraft makes and models coming right off the production line.
Despite JSSI’s continuing evolution, product expansion and innovation, the cornerstones from 1989
continue to make us who we are today. These principles have not waivered for a quarter century.
I would be remiss if I did not thank our clients. Without your loyalty, JSSI could not have enjoyed the
growth and success we have experienced these past twenty-five years. And I salute our JSSI employee
Declan
O’Shea
Nel Stubbs
declan.oshea@vectoraerospace.com
nel@conklindd.com
Sabrina Prewitt
sprewitt@jackprewitt.com
family, a dedicated group of aviation professionals who, along with our strategic vendor partners,
have made us the recognized leader in offerings to clients operating turbine powered aircraft in over
seventy-five different countries.
Please come see us at this year’s NBAA Convention in Orlando. When you do, we’ll give you a peek at
Nel Stubbs
nel@conklindd.com
To write to the publisher: send email to pr@jetsupport.com.
Editorial contributions should be addressed to: JSSI AirWays, 180 North
Stetson Avenue, 29th Floor, Chicago, IL 60601, and must be accompanied
by return postage. Publisher assumes no responsibility for safety of artwork,
photographs, or manuscripts.
what the next 25 years will bring.
Blue skies and tailwinds,
Permissions: Material in this publication may not be reproduced, stored in a retrieval system, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording or otherwise) without the prior written permission
of the publisher.
The views and opinions expressed in JSSI AirWays are those of the authors and
do not necessarily reflect the policy or position of JSSI. Articles presented in
this publication are for general information and educational purposes and do
not constitute legal or financial advice.
©Copyright 2014 by Jet Support Services, Inc.
All rights reserved. Printed in the USA.
JSSI AIRWAYS
02
25 Years Of Strong Growth
For Great Reasons
RICHARD ABOULAFIA
At 25 years old, JSSI has been around for exactly half of the business aircraft market’s life. Fortunately, this has been the far more
interesting and lucrative half.
For the first 25 years after the first traditional business jets were delivered, the business aircraft market was rather flat and relatively
small – about $4-6 billion in annual deliveries. There were cyclical ups and downs, but the market simply wasn’t a major segment of the
world aviation industry, let alone the world economy. Business aircraft were used by the largest corporations and the very richest individuals. It was a very small user community by today’s standards.
“ 25 YEARS PROVED TO
BE A GAME CHANGER.
AS THE WORLD WAS
TRANSFORMED BY
NEW TECHNOLOGIES,
FASTER AND CHEAPER
COMMUNICATIONS AND
TRANSPORT, AND FREE
TRADE AGREEMENTS, THE
BUSINESS JET MARKET
WAS TRANSFORMED
ALONG WITH IT.”
Then, the second 25 years proved to be a game changer. As the world was transformed by new technologies, faster and cheaper communications and transport,
and free trade agreements, the business jet market was transformed along with it.
Globalization and wealth creation accelerated, particularly for the top segment of
society. The second half of the 1990s, and the years 2003-2008, grew the market
to a peak of over $30 billion (in 2008 deliveries, but using constant 2014 dollars).
What’s great about the transformation of the business aircraft market is that it
correlates very nicely with all the leading indicators of global economic progress.
Corporate profits and equities markets track very nicely with the market’s growth (our
chart compares US pre-tax corporate profits with business jet deliveries). So do high
net worth individual indices. And for an interesting comparison, in 1989 the combat
aircraft market was eight times the value of the business aircraft market; by 2008
business aircraft deliveries were nearly twice the value of combat aircraft deliveries.
Meanwhile, business aircraft have become accepted tools of doing business. Even
mid-sized companies expanding their sales, distribution, and production facilities in
new markets and countries are far more likely to consider private aircraft as a transportation option. In short, businesses have prospered with company aircraft, and
company aircraft demand has grown with business prosperity. That’s a virtuous cycle.
BUSINESS AIRCRAFT DELIVERIES
AND CORPORATE PROFITS
Corporate Profits in Billions
2014 Deliveries in Billions
Corporate Profits
2,000
1,800
25
20
15
1,000
10
500
0
‘64 ‘66 ‘68 ‘70 ‘72 ‘74 ‘76 ‘78 ‘80 ‘82 ‘84 ‘86 ‘88 ‘90 ‘92 ‘94 ‘96 ‘98 ‘00 ‘02 ‘04 ‘06 ‘08 ‘10 ‘12 ‘14
Units Delivered
30
Value of Deliveries
1,500
LET'S KEEP THINGS
IN PERSPECTIVE
2014 Market Value in Billions
Units
35
Value
1,500
30
1,200
25
900
20
15
600
10
5
300
0
0
5
‘64
‘68
‘72
‘76
‘80
‘84
‘88
92
‘96
‘00
Includes: Jetliners, RJs, Turboprops | Source: US BEA, Teal Group Research
03
JSSI AIRWAYS
40
‘04
‘08
‘12
‘16
‘20
‘23
0
Today, this market is almost
five times larger than it was
25 years ago – $26.5 billion
in deliveries in 2013 versus
$5.7 billion in 1989. But with
larger size comes greater pain
during the inevitable bust cycles, the natural consequence
of a much more diverse customer base and a much larger
industry. There was a serious
downturn in 2002-2003, and
of course today the business
jet market is recovering from
the Great Recession.
The post-2008 downturn, in
terms of total drop from the
market’s peak, has been no
worse than the last downturn
– revenues fell about one-third
lower than the peak. But this
downturn has been far more
durable. The top line stayed
down through 2012, or twice
as long as the 2002 downturn.
There was no real recovery
until 2013, which saw 16.9%
growth over 2012.
This downturn is also different
because all of the pain was felt
by the bottom half of the market. Jets with a $26-75 million
price tag weren’t hurt at all.
Jets with a $4-25 million price
tag, which before 2008 constituted about half the market by
value, fell by 57%. This bifurcation persisted through last
year, with the topline market
recovery exclusively benefiting high end jets.
Whether or not we’re finally
seeing a full market recovery,
it’s important to keep in mind
the experience of the market
over the last 25 years, and the
close correlation we’ve seen
with all the important macroeconomic indicators.
“ IN SHORT, BUSINESSES HAVE
PROSPERED WITH COMPANY
AIRCRAFT, AND COMPANY
AIRCRAFT DEMAND HAS GROWN
WITH BUSINESS PROSPERITY.
THAT'S A VIRTUOUS CYCLE.”
As of mid 2014, the bottom half
of the market is finally seeing
growth, with delivery numbers
up nicely over the first half of
2013. While there have been
false starts to a bottom half
market recovery before, the key
market indicators are strong.
In particular, used jet availability is down for all market segments, and well into healthy
territory. This implies that the
present deliveries upturn could
well be sustainable for all segments of the industry.
If you believe in renewed global economic growth, then you
believe in the future growth of
the business aircraft market.
There are absolutely no signs
of a break in the links between
wealth creation and business
aircraft demand.
Therefore, as the world continues to recover from the financial trauma of 2008 and
all the economic aftershocks
associated with it, we will
see further business aircraft
growth. Our forecast assumes
a full recovery in the next few
years, followed by a new market peak by the end of the decade.
Further out, let’s assume that
the industry sees only modest
growth of 4% per year over the
next 25 years (compared with
5.7% average annual growth
over the last 25 years). Then,
when JSSI celebrates its 50th
birthday in 2039, the business
aircraft market will be worth
over $73 billion annually (also
in today’s money).
Meanwhile, business aircraft
manufacturers and their suppliers will continue to stimulate
the market with new products
and technologies. Compare
today’s business jet choices and
features with those available
in 1989. Then, imagine what
will be available in 2039.
We will see everything from
single-engine microjets to
Supersonic Business Jets,
with a very wide range of hightech choices in between.
Richard Aboulafia
Vice President of Analysis
Teal Group
Q Richard is Vice President of Analysis at Teal Group. He manages
consulting projects in the commercial and military aircraft field and
analyzes broader defense and aerospace trends. Frequently cited as an
aviation industry authority, Richard has appeared on many news programs
including ABC, BBC, Bloomberg, Reuters, CBS, CNN, NBC, NPR and PBS.
He has spoken at numerous conferences and served on the National
Aeronautic Association Collier Trophy Selection Committee in 2012,
2013, and 2014. He presents a yearly lecture to the National Defense
University/Industrial College of the Armed Forces and has served as an
expert witness in aerospace markets. Before he joined Teal Group, Richard
analyzed the jet engine market at Jane’s Information Group.
S TA FF REPORT
AIRCRAFT MAINTENANCE:
A DYNAMIC REVOLUTION
What are some of the most substantial changes that you have experienced in your business
in the last 25 years? And in what ways has your business evolved to adapt to all the changes
within our industry?
One of the most significant trends over the last 25 years is the very dynamic that enabled JSSI to
emerge and thrive as a service provider to this industry: the increasing interest in and reliance
upon service plans as a means to both predict and control maintenance costs. Operators were
looking for a way to create a predictable budget for maintenance on their aircraft as opposed to
waiting to see what a specific maintenance event would cost them. Thus the service plan was born
wherein the operator could charge a monthly or hourly use fee to cover their upcoming maintenance costs and thereby reduce the riskiness or uncertainty, typically associated with aircraft
maintenance events. An added benefit to the operator is the control of these costs as part of the
service provided by JSSI and others who provide such plans.
What future developments do you foresee making the most impact on the MRO industry?
The single largest change will be keeping pace with engine technology advancements and the
movement from “time or interval-based shop visits” to “on-wing / on-condition” maintenance. In
the past, an MRO provider could evaluate the investment necessary to obtain an OEM authorization for repair and overhaul of an engine against a relatively predictable revenue stream of
investment returns based upon these major engine overhaul events coming into our facilities.
The new model makes this return much less predictable and extends the maintenance intervals
significantly. The major overhaul events which form the basis of our engine MRO business today
will be much less frequent and much more maintenance will be performed “on wing” and/or in the
customer’s facilities as opposed to our own. This requires a different business model both for the
OEM and also for us as an independent service center performing maintenance on these engines
on behalf of our OEMs. This is still evolving.
05
JSSI AIRWAYS
Marc McGowan
President
Business Aviation
StandardAero
Marc McGowan is President,
Business Aviation of
StandardAero. Prior to
joining StandardAero, he held
several leadership positions
at Honeywell Aerospace,
including Vice-President,
International Defense & Space,
Vice-President, Airlines –
Americas and several other
executive positions. McGowan
served 29 years in the U.S. Navy
as a Flight Officer and Naval
Reserve Officer, accumulating
over 2,500 flight hours and 300
carrier landings. He served as
the Commanding Officer of two
Reserve Augment Units and
retired as a Captain.
What are some of the most substantial changes that you have experienced in your business
in the last 25 years? And in what ways has your business evolved to adapt to all the changes
within our industry?
Doug Meador
President
Dallas Airmotive
In 1973, Doug Meador became
President of Dallas Airmotive.
He heads up Dallas Airmotive
(DAI) global engine repair
and overhaul operations. Previously, he was Plant Manager
at General Electric Engine
Services in Dallas where he
was responsible for the $200
million GE turbine engine
overhaul subsidiary. His prior
GE roles also encompassed various financial and operational
leadership positions. He is a
licensed CPA and a former U.S.
Army Finance Officer.
Global expansion and on-condition maintenance are probably the two most significant changes
we’ve seen in the past 25 years. We’ve served customers globally forever but the vast majority of
those customers were based in the United States so they didn’t have expectations of us having a local
presence. That has changed with almost half of our business now originating from customers based
outside of the United States. These customers expect us to be more local to serve their needs. The
growth in on-condition maintenance has also led us to think differently about how we best serve
customers.
What future developments do you foresee making the most impact on the MRO industry?
Technology, industry consolidation, and the global economy. These are all going to be influencers on
our industry. One of our major focuses for the future is our customer base. Customers will expect
increasing levels of service and support. They expect service in their areas that results in convenience, expedited turn times, and lower costs. This is why we are investing millions into modernizing
our facilities, building a new state-of-the-art test facility, expanding our global service network and
pursuing opportunities like our recent P&WC DOF authorizations. Our goal is to make it easy for
customers to do business with us no matter where they are in the world. That is one of the reasons
we created our F1RST SUPPORT global customer support center and the MyTurbine app. Investing
in technology and the speed and efficiency which comes from it will be a key market differentiator
for the MRO industry in the future.
What are some of the most substantial changes that you have experienced in your business
in the last 25 years? And in what ways has your business evolved to adapt to all the changes
within our industry?
Changes noted by Vector Aerospace have included the geographic expansion of the MRO business, a
demand for broader service offerings, and a focus on lean enterprise.
Declan O’Shea
President & CEO
Vector Aerospace
Declan O’Shea was named
President and CEO of Vector
Aerospace Corporation in
2008. His 30 year career in the
aerospace industry has been
focused in the maintenance,
repair and overhaul sectors.
Declan has served as Executive
Vice President Sales, Marketing
and Business Development of
SR Technics’s global presence
and as CEO of SR Technics,
Ireland. He has also held senior
management and board positions with TEAM Air Lingus and
UK Based FLS Industries.
Geographically, while North America and Europe generally remain the largest markets, we have seen
significant growth in Asia, South America and Africa. Vector has responded to these evolving demand
trends by establishing a new facility in Singapore, acquiring facilities in South Africa and Australia
whilst augmenting our traditionally strong presence in North America and Europe.
With regards to new service offerings, the strong demand for engine trading services – including
rental engines and asset management – has led Vector to establish a dedicated engine trading division. We have also responded to global demand for aircraft leasing by establishing Vector Aerospace
Leasing Services, focused initially on Super Puma helicopters. Innovative new products and services
such as JSSI’s Tip-to-Tail® coverage are also welcome changes within the industry.
Finally, the corporate-wide adoption of a ‘lean’ organizational culture has been driven by the requirements of meeting the demanding quality standards of the global marketplace, enhancing customer service, and delivering cost-competitive services to our customers.
What future developments do you foresee making the most impact on the MRO industry?
Trends in engine technology and customer expectations are likely to impact the industry in several
ways. On the one hand, customers will likely demand additional ‘by the hour’ services, as championed by JSSI, as well as performance-based logistics type contracts. This in turn will require MRO
providers such as Vector to maximize delivered quality while minimizing turn-around times.
At the same time, the utilization of data will become ever more important, in terms of the growing use
of health and usage monitoring systems (HUMS) and the trend towards on-condition maintenance.
Vector itself has already implemented a radio frequency identification (RFID) system to track engine
components through our repair process in real time, and our dedicated Pathix ASP division positions
us well to meet the future demands of customers in terms of MRO information management solutions.
JSSI AIRWAYS
06
GAMA REFLECTS ON 25 YEARS
PETE BUNCE
The past 25 years in business aviation have been a time of incredible innovation and exciting expansion.
General aviation manufacturers are producing many more models than we were in 1989 and reaching
brand-new customers throughout the world. The next quarter-century promises to be just as dynamic—
as long as manufacturers are able to bring new, safety-enhancing products to a global market, quickly
and efficiently.
Pete Bunce
President & CEO, GAMA
In 1989, the industry manufactured about 250 business jets worldwide and, at our peak in 2008, that
number was 1,313 jets. Our deliveries dropped during the economic downturn but new product development did not wane. In 1989, GAMA’s members sold only about 17 different business jet airplane
models. Compare that to today, when approximately 40 models are in production. This increase includes
the introduction of more large-cabin, long-range jets and faster, more fuel-efficient models across the
entire jet spectrum.
The business jet cockpit has changed dramatically as well. Across the product spectrum, our avionics suites are now equipped with advanced navigation capabilities such as Wide Area Augmentation Spectrum (WAAS), enhanced and synthetic vision systems, and Heads Up
Displays. They also feature modern ADS-B capable transponders and traffic systems, in-cockpit weather, and datalink to support worldwide flight operations, making many aircraft in our fleet more capable than those flown by our friends in the commercial airline world.
The business aviation market beyond jets has expanded significantly as well. It was not that long ago that many in the industry were debating the rapid decline of turboprops due to the same customer preference that dramatically reduced the number of turboprops in the regional airline fleets. But thanks again to engine, airframe, and avionics innovation, coupled with fuel price volatility, turboprops are now
a very stable and growing market with a range of about 300 to 500 turboprops delivered by a broad spectrum of global manufacturers.
In 1989, the primary single-engine turboprop sold was the Cessna 208 Caravan. Today, companies including Pilatus, Piper, Quest, and
SOCATA have joined Textron Aviation’s Cessna in the single-engine business turboprop marketplace, and there are other exciting entrants
on the drawing board. The innovation in the turboprop market will continue in response to customer demand. As one example, Europe is
considering a rulemaking proposal to allow commercial operations to use single-engine turboprops. If that happens, Europe’s fleet of 12
single-engine turboprops that are in commercial use will naturally expand. As far as twin turboprops are concerned, Textron Aviation’s
Beechcraft King Air line and Piaggio’s Avanti remain very popular.
Another significant change is the growth of the charter and fractional market. General aviation manufacturers used to sell almost exclusively to individual customers and, although that segment accounts for about 80 percent of our deliveries, the fractional and charter
market is now very significant. Selling to charter companies allows business aviation manufacturers to gain an important foothold in
emerging markets, where buyers may not be able to afford purchasing an airplane.
Our business aviation market has shifted in other important ways as well. In 1989, 80 percent of our customers were based in North
America. Today, just half are based in the United States. This is good news because the market is not finite; rather, it is expanding as our
globalized economy wakes up to the utility of business aviation. The general aviation market in Asia, South America, and the Middle East
is growing, and the new government in India has made expansion of the business aviation market an early priority.
As general aviation manufacturers look to the future, we are excited to keep growing and innovating. But to do so, we need an efficient
and effective product certification and validation process. That’s why we are working with the FAA to fully implement needed certification
improvements as part of the FAA Modernization and Reform Act of 2012, and better focus limited resources on safety areas. We are also
working with EASA, Transport Canada, ANAC, CAAC, and other aviation regulatory agencies throughout the world to ensure our manufacturers can offer new products to their customers without having to go through overly burdensome regulatory hurdles.
If the next quarter-century is as exciting as the last 25 years have been, we’re in for a pretty phenomenal ride.
Q Pete Bunce is President and CEO of the General Aviation Manufacturers Association (GAMA), which is headquartered in Washington, DC, with additional offices in
Brussels and Dubai, and representation in China. He and the GAMA staff travel worldwide engaging regulators, policy makers, and elected officials to promote general
aviation and advance the interests of GAMA’s international membership of more than 85 airframe, avionics, engine, and component manufacturers, as well as the world’s
leading business aviation maintenance, repair, and overhaul companies.
07
JSSI AIRWAYS
BUSINESS AVIATION’S
PROUD HISTORY
AND FOCUS ON THE FUTURE
ED BOLEN
Our nation’s business aviation industry has experienced an impressive evolution since Jet Support Services, Inc. (JSSI) first opened its doors for business 25 years ago. This 25-year mark presents an opportunity to reflect on some of the changes, challenges and opportunities that have emerged, and how the
National Business Aviation Association (NBAA) has worked to represent the interests of business aviation over that time.
For example, as we looked in 1989 toward the start of a new decade, NBAA and business aviation were
moving into a new era, marked by an increasingly international focus. With NBAA’s support, the International Business Aviation Council (IBAC) - formed just eight years prior, in 1981 – was becoming instrumental in the creation of the federation of national and regional associations. These groups elevated
business aviation’s profile, and increased the ability of the industry to make its voice heard on policy
and other matters worldwide.
Ed Bolen
President & CEO, NBAA
At the same time, new aircraft and equipment were coming online, some of which were being designed to reach, non-stop, international
destinations where companies wanted to do business. We also witnessed the expanded use of composite materials to save weight, and
the installation of winglets to improve aircraft performance and efficiency. Inside the cockpit, electronic flight instrument systems (EFIS)
were beginning to appear. Although “glass panel” flight displays were only available on top-end aircraft at the time, it was obvious that
these technologies were the way of the future. As these and other products and technologies came online, NBAA’s annual Business Aviation
Convention & Exhibition, and the association’s other events, remained the premier venues for their introduction and marketing.
Of course, over the past quarter century, significant advances in aviation haven’t been limited to those applying to aircraft. We’ve seen the
continued development of a “NextGen” system for managing the nation’s network of airports and airspace. Modernization of the aviation
system from one that is ground-based to one based on satellite technology will boost its safety, efficiency and capacity. NBAA has continued
its long-standing leadership role in representing the interests of business aviation when it comes to aviation system modernization, with
staff representation on all the major NextGen government-industry working groups.
The association has also remained focused on advocating a host of other policies and priorities for the industry. NBAA’s work before
the U.S. Congress, government agencies, state legislators, city councils and others has, among other benefits, helped preserve access
to airports and airspace; turned back onerous, often unnecessary taxes and fees; and advanced effective, yet workable proposals on
safety and security.
Our work on these and other specific issues has gone hand-in-hand with our ongoing effort to educate policymakers and opinion leaders
about the broader benefits business aviation provides to citizens, companies and communities. From town halls to Capitol Hill, we have
continually reminded decision-makers that business aviation generates over a million jobs, provides a lifeline to communities with little or
no airline service, helps thousands of businesses of all sizes to be more productive and efficient, and offers emergency and humanitarian
services to people in need. This message, delivered primarily through the association’s No Plane No Gain advocacy campaign, has helped
pierce the myths, and dispel the misperceptions about business aviation.
As we look to where our industry might be 25 years from now, it’s increasingly clear that the importance of delivering that message will
only continue to grow – and NBAA will be there to fulfill that mission.
Q Ed Bolen is President and CEO of the National Business Aviation Association (NBAA). Prior to NBAA, he was President and CEO of the General Aviation Manufacturers
Association (GAMA). In 2001, Bolen was nominated by President Bush to serve on the Commission on the Future of the U.S. Aerospace Industry. He chaired the
Management Advisory Council (MAC) to the Federal Aviation Administration (FAA) from 2000 to 2004. Ed is a former majority general counsel to the Senate Committee
on Labor and Human Resources.
JSSI AIRWAYS
08
] LOOKING BACK ]
BY: SUSAN MARR
It was January of 1989, and the only comprehensive business aviation hourly cost maintenance program in existence was Honeywell’s Maintenance Service Plan.
The four JSSI founders, John F. (“Rick”) Haskins, Marla Rabin (now, Gelfond), Ron Zilberbrand and Rick Eriksen, with the consultation of industry veteran, Lou
Seno, came together with a new idea: to offer hourly cost maintenance programs for virtually all makes and models of business aviation engines, independent of
the manufacturers. Over the years that followed, JSSI pioneered the concept of pro rata payments in lieu of a full buy-in, created the JSSI Trust administered by
a third-party financial institution to hold client maintenance reserves, teamed with Global Aerospace to provide insurance protection to cap JSSI’s exposure for
unscheduled maintenance events, recognized the value of a talented and experienced JSSI Technical Services Team to watch over the maintenance of our clients’
aircraft and made a concerted effort to participate actively in key aviation industry groups and trade associations, such as NBAA, NARA and NAFA. In short order,
the JSSI brand was established and today is recognized for excellence in client service and innovative, flexible, customized programs for the efficient management
of aircraft maintenance.
In 1991, as a young lawyer, I had the good fortune of working for the Chicago law firm engaged by the JSSI leadership team to support their efforts. In the years
that followed, I assisted the JSSI team in fine-tuning their contracts with clients and strategic partners, advised them in planning and executing their early Board
of Directors Meetings and saw first-hand the creativity and strong work ethic that led to the development of maintenance programs designed to cover virtually
every make and model of business aviation engine, APU and airframe. During this period, JSSI created its revolutionary Tip-To-Tail® Program and contracted with
a growing base of loyal JSSI clients and maintenance providers around the world. We prided ourselves on leading the way in our industry, in many cases offering
programs that the manufacturers, themselves, had not yet begun to offer. In 2002, I was honored to join JSSI as General Counsel and have enthusiastically worked
closely with dedicated JSSI employees to advance JSSI’s growth and development since then. In May of 2008, we completed the sale of the company to an ownership group led by Robert H. Book and Joseph E. DaGrosa, Jr. And the next critical and exciting phase of JSSI’s progress began...
General Counsel & CAO, JSSI
JSSI Opens for Business
Technical Services
Team Created
First to offer a Pro-Rata option
in place of a large Buy-in
1989
1990
First Client Enrolled,
Still Covered by JSSI Today •1989
Boise Cascade Corporation
09
JSSI AIRWAYS
Tip-To-Tail® Introduced
Tip-To-Tail® offered for airframes, engines and APUs
1997
First Helicopter Enrolled
at NBAA •1994
Won the first of many 5-Year
Contracts with the FAA•1998
] LOOKING AHEAD ]
BY: NEIL BOOK
It was a great thrill to be a part of the ownership group led by Bob Book and Joe DaGrosa that acquired JSSI from its founders in 2008. I know I speak for Bob and Joe
when I tell you just how proud we are of how this business has evolved over its 25 year history. You’ve heard from Susan about the early days, and it is my privilege
to share some of the steps we’ve taken over the last six years to bring JSSI into an exciting future filled with tremendous possibility.
Looking back, we saw a company with a unique service offering and a strong base of talent. We also saw a company that had not yet reached its potential and still
had significant room for growth. The key question for us was how to best tap into this potential?
First and foremost, it always comes down to the people. Having talent was not enough. Today, we complement incredible talent by having the right people in the
right jobs, up and down the organization. Our growth is being fueled by a more diverse customer base than ever before. We now have customers in every corner
of the globe and programs to match any engine, airframe or APU the industry has to offer. We are signing both small fleets and large, new and in-service aircraft,
providing custom and standard programs at a competitive price.
We have upgraded our systems, leveraging technology in new and exciting ways. With 25 years of maintenance data, we are using predictive analytics to manage
the business more efficiently and effectively than ever before. We have created new partnerships and strategic alliances, which has given us a global network of
referral sources, contributing to strong sales growth in new markets around the world.
As we all come together this year at NBAA, it is with great pride that I thank our customers for their loyalty and trust and congratulate my colleagues on a wonderful
25 years. I say to our suppliers that I truly value our partnership and look forward to future success. While we are still driving hard to reach our potential, we will
continue to grow and evolve and it is with great excitement that I tell you, this is just the beginning.
President & CEO, JSSI
JSSI Mascot
Introduced
2002
JSSI Expands:
New Europe HQ
Tag Aviation | Farnborough, UK
2010
VistaJet Signs Historic Deal with JSSI
VistaJet enrolls fleet of new Global 5000 and Global 6000
aircraft engines and APUs valued at over $205 million.
2013
©BCA ShowNews
MyJSSI.com Client
Portal Launched •2004
10,000th Asset
Enrolled at EBACE•2013
®
JSSI’s 25th
Anniversary Year•2014
Initiated new Customer Service Center
JSSI AIRWAYS
10
STAFF REPORT
SELLING
AIRPLANES
CHANGE ,
THE ONLY
CONSTANT
11
JSSI AIRWAYS
L
ook at how the world of aviation has changed in the past 25 years.
Telephones became cell phones, which became smart phones.
Desktop computers became laptops, then tablets. And had you even heard
of email 25 years ago? Needless to say, those same changes and more have
impacted every corner of the aviation industry, and that includes the art
of buying and selling business jets. Coincidentally, as JSSI was beginning
our journey 25 years ago, the National Aircraft Resale Association was
also being formed, becoming the first professional organization to set
standards on the practice of being an aircraft broker or dealer. We gathered
some of the most experienced NARA brokers and dealers and asked them
to reflect on the changes they have seen in their businesses.
JSSI AIRWAYS: What changes have you made in the way you do business to
cope with the rapidly increasing complexity of buying and selling aircraft?
Johnny Gantt: The intense pressure of competition has made us work harder to find good airplanes because so many brokers around the world are
looking for the same aircraft. And they’re harder to sell. We keep airplanes
in inventory longer than we used to.
Spencer Brent: I’ve seen the erosion of fees and commissions. And once
it’s started, it’s hard to stop. Many brokers have gone from commissions
to fixed fees and are feeling pressure to keep cutting those fees because
they are being undercut by less experienced brokers, or a consultant with
little or no experience. Frequently, flight department managers will say
they’re afraid to go to the boss to justify the higher cost. The CEOs and
the boardroom are not being educated on the importance of having a top
professional in their corner. They’re looking at millions of dollars for an
aircraft and the flight department is concerned over a $50,000 difference.
Sabrina Prewitt: Technical specialists in reviewing maintenance history
and in managing the process of technical assessment of aircraft are now
essential. Costs have increased dramatically in the areas of heavy maintenance and repair. The old days of “as-is deals” are gone for good.
Nick Cerretani: Aircraft transactions have always been complex. However,
the internet and the volumes of information now available for all to study
make buyers more aware of the depth of analysis required to make good
decisions. Given the increased awareness, the process may seem more
complex. In reality, while the tools used by the broker may have changed,
the way we do business has not. Integrity, competence and the confidence
to offer informed guidance never lose their value.
JSSI AIRWAYS: How has the ready availability of information and
misinformation online impacted the sales process?
Sabrina Prewitt: The Internet has disseminated once proprietary information and placed it into the public domain. In light of this, the professional
networks with which we work routinely have become much more important to provide insight and advanced intelligence.
Spencer Brent: Now, everyone thinks they can buy and sell airplanes because everybody can see what’s available instantly. And everybody thinks
they’re an expert. Often, somebody thinks that because he was a chief pilot, it qualifies him to find the right airplane and go through the extremely
complex process of buying it. The trouble is that the CEO doesn’t know the
difference between a true expert and someone with just enough information to be dangerous.
JSSI AIRWAYS
12
Nick Cerretani: A large volume of information has the ability to inform,
but also the ability to confuse. From a flood of unfiltered information, a
good broker is able to extract the important data, and help a buyer come
to the correct decisions. As a result, helping “information overloaded”
clients understand key decision points has become an increasingly important component of our transactional process.
Johnny Gantt: Everybody in the world can get the answers about an airplane. That’s good in a way because it gives the customers more ability to
find out information without having to ask anybody. Unfortunately, the
internet doesn’t discriminate between accurate information and inaccurate, or incomplete, information.
“ NOW, EVERYONE THINKS THEY
CAN BUY AND SELL AIRPLANES
BECAUSE EVERYBODY CAN SEE
WHAT'S AVAILABLE INSTANTLY.
AND EVERYBODY THINKS
THEY'RE AN EXPERT. ”
JSSI AIRWAYS: How has your international business changed? Grown? Laws? Regulations? Conditions of aircraft flown overseas?
Nick Cerretani: At one time, the main driver of international transactions was the fluctuation in currency values. Throughout the 1980s and 1990s, for
example, the aircraft flow to and from Europe was quite predictable and dependent on the value of the dollar vs. European currencies. For the most part,
moving an aircraft from operations under US FARs to the regulations of the importing country was manageable. More recently, the difficulty and expense
related to placing an aircraft on a foreign registry and obtaining operating authority in the country of destination has increased significantly, especially
in The European Aviation Safety Agency (EASA) countries. At the same time, demand for the aircraft we typically sell has declined, especially in Europe.
Sabrina Prewitt: International business was, at best, 20% of our volume twenty years ago; it now often exceeds 50-60%. EASA has become a major factor in EU transactions, as the regulatory and technical hurdles to moving aircraft of any age between the US and the EU can be significant. US banking
restrictions that require transparency regarding clients have caused major political issues with many clients who historically have been accustomed to
a high degree of confidentiality.
JSSI AIRWAYS: How did the Recession of 2008 change the business temporarily? And what changes are permanent? Can you think of positive changes?
Nick Cerretani: In many ways, the Recession of 2008 is still with the aviation industry, making the distinction between temporary and permanent changes somewhat uncertain. Clearly, however, the unprecedented decline in the price of pre-owned aircraft upset the historical relationship between new
and pre-owned pricing, with the most dramatic effect being experienced by new aircraft manufacturers. The painful loss of aircraft market value experienced by owners after 2008 has not been lost on buyers currently in the market, and their decisions are based on more realistic expectations regarding
their ownership experience.
Johnny Gantt: It put a lot of dealers out of the business of buying airplanes and keeping them in inventory and turned them into brokers of aircraft owned
by their customers.
Sabrina Prewitt: 2008 severely damaged operator confidence in predictability of values for used aircraft, and particularly for aircraft over 15-20 years
of age. This appears to be permanent.
©Shutterstock
13
JSSI AIRWAYS
Spencer Brent
Nicholas Cerretani
Johnny Gantt
Sabrina Prewitt
VP & Publisher (Retired)
Murdoch Magazines
President
Cerretani Aviation Group
Founder
Gantt Aviation Group
Senior Vice President
Jack Prewitt & Associates
Q Before Spencer Brent became
one of the most respected brokers in
business aviation, he was publisher
of two of the most respected aviation
industry magazines: FLYING and The
AC Flyer. In 1989, Spencer, along
with Johnny Gantt, became a founder
of the National Aircraft Resale
Association.
Q Nick Cerretani has been in the general aviation industry for almost 40
years. He founded Cerretani Aviation
Group in 2001. Nick’s experience
includes sales, maintenance, management and flight operations for a
wide variety of aircraft, both in whole
and fractional ownership scenarios.
He holds an Airline Transport Pilot’s
license, has over 5000 hours flight
time and continues to fly regularly.
Q Johnny began his aviation career
as a 17 year-old cropduster and started buying and selling aircraft for his
employer soon afterward. It wasn’t
long before he struck out on his own
and formed Gantt Aviation Group in
Georgetown, Texas. His first big deal
was when he bought the entire fleet
of 11 Diamond Jets when Mitsubishi
was selling the model to Beechcraft.
Q Sabrina Prewitt was born into the
aviation industry, spending countless
hours as a young girl with her father,
Jack Prewitt, at the local airports,
radio shops and completion centers.
Sabrina came to work with the family
business thirty years ago, working
side by side with her father. Today
she is responsible for the administrative and operational aspects of Jack
Prewitt & Associates.
“ AVIATION AND AIRPLANES ARE UNLIKE ANYTHING ELSE.
TO BE INVOLVED IN AVIATION IS TO BE INVOLVED IN AN
EXCITING, COMPELLING INDUSTRY THAT CREATES A NEARLY
IRRESISTIBLE ATTRACTION FOR ENERGETIC, ENTHUSIASTIC,
INNOVATIVE YOUNG PEOPLE.”
JSSI AIRWAYS: What has not changed in the past 25 years?
Sabrina Prewitt: The importance of maintaining client relationships and being available as an advisory resource, whether or not the client is buying or
selling, never changes.
Nick Cerretani: Realistically, almost everything has changed. However, there have been certain constants. The most significant is the importance of personal relationships and reputation. Success is dependent on the quality of our personal connections with our clients, bankers, attorneys, other brokers
and all those responsible for the care and operation of our products. Over the years, one’s conduct during these interactions creates a reputation, good
or bad. In a small industry such as ours, the reputation that precedes you can either open doors or keep them closed forever. This was the case when I
entered the business and remains so today.
JSSI AIRWAYS: Where do you see the business going in the next 25 years?
Nick Cerretani: Aviation and airplanes are unlike anything else. To be involved in aviation is to be involved in an exciting, compelling industry that creates
a nearly irresistible attraction for energetic, enthusiastic, innovative young people. Their entry into the industry and development into skilled professionals has taken us to places we couldn’t have imagined 25 years ago, and this remarkable progress will continue. Twenty-five years from now, I expect they,
as we, will look back at their careers in aviation with pride and satisfaction.
Sabrina Prewitt: Standards for legal, regulatory and technical expertise will be much higher, and it will not be possible to service clients without in-house
specialists. It appears that the migration to larger, longer-range aircraft will continue and that light and mid-size aircraft will become more niche-specialized.
JSSI AIRWAYS
14
TECHNOLOGY
FOSTERING CHANGE
A ARON HILKEMANN
Technology has created some of the most significant changes in our business over the last 25 years.
Today, Duncan Aviation team members access parts catalogs and manuals online from wireless computers throughout our hangars. Work instructions are completed and signed off by team members
simply by scanning their badges. Customers can approve squawks online from anywhere in the world
by accessing their secure myDuncan account. They can also obtain repair alternatives and view photos of squawks found without being onsite during the inspection. In addition to reducing paperwork,
these technologies have enabled our workflow to be more efficient as customers approve items in a
more timely manner and have access to a running total of additional approved costs.
Technology has also impacted repair procedures and allowed for better identification of cracks and corrosion through the use of digital boroscopes
and NDT equipment. Improvements to equipment such as tugs, power carts and lifts have enabled team members to operate more reliable equipment that is also easier and safer to use. Improved fall protection, new LED lighting and more efficient heating systems have also helped to create a
safer and more comfortable hangar environment for our team members and customers. Through the use of technology, we use safer and more environmentally friendly products throughout all of our shops, including not only cleaners and solvents, but an entire new system of chrome-free paint
products used by our paint shop technicians. By using these more environmentally friendly paint products, we have been able to decrease risk to
our workforce while increasing the number and size of aircraft painted in any one location while meeting all EPA-induced environmental standards.
The emergence of the large and ultra large business jets has ‘shrunk’ our previously built hangars, causing the MRO industry to build new and much
larger hangars. The planes considered ‘big iron’ 25 years ago are now considered mid-size aircraft. Another development is the addition of winglets on aircraft of all sizes. Winglets, while making the aircraft more efficient, make stacking the MRO hangar more complicated. These large and
ultra-large business aircraft have expanded the worldwide fleet and have created the perfect business tool for the new worldwide economy that has
emerged. Future developments that will impact the MRO industry include regulation and the continued growth and emergence of the worldwide
fleet. New regulations and interpretations of existing regulations have significantly impacted our business during the past 25 years. Many repairs
for corrosion in the past were quickly resolved and signed off using 337s. Today, even many smaller inspections generate corrosion repairs that
must be accompanied by engineering drawings that significantly increase the cost and timeliness of the repairs.
While the FAA continues to focus on streamlining regulation and delegating more authority, EASA appears to be focusing on writing new and more
complex regulations. The result of both actions by the FAA and EASA will continue to increase costs to MROs that will be passed on to operators.
The FAA’s focus on establishing delegated authority for MROs has resulted in increased oversight which in turn results in increased MRO staffing
to support and oversee the delegated authority. This is expected to continue. EASA’s certification charges continue to be significant along with
the additional costs to prepare the documentation required to obtain the certifications. While safety remains the most important issue for operators and MROs, it appears the operating costs to maintain and certify new equipment and repairs are growing
exponentially in relation to new policy directed toward improving safety.
The emergence of significant deliveries of aircraft worldwide during the past 25 years has created the need for
MRO service providers throughout the world. The MRO industry will continue to build new facilities to service
these aircraft and it will continue to be challenged to identify skilled workers to serve these markets outside of
the U.S. While many international operators will continue to return to the U.S. for service, there will be a need
for skilled workers to maintain these aircraft on a daily basis throughout the world. The MRO industry will
need to continue to be innovative to help these operators fly and maintain their aircraft throughout the world.
Our industry remains in a strong position to facilitate business growth and expansion throughout the world.
Based on the significant deliveries during the past 25 years, it is hard not to be optimistic about the next 25
years of business aviation.
Aaron Hilkemann
President & CEO
Duncan Aviation
Q Aaron Hilkemann has been on the Duncan Aviation leadership team since 1996 and was named President and CEO in 1997. Prior to joining Duncan Aviation, he was
Vice President and Director of Financial Operations at FirsTier Financial, Inc. He previously served on the Board of NBAA and is currently a Board Member of the General
Aviation Manufacturers Association (GAMA).
15
JSSI AIRWAYS
BUSINESS AIRCRAFT LENDING:
WHERE ARE WE HEADED?
MICHAEL FR ANCIS
When I was asked to write this article I first thought, “What’s changed in the industry
in the past 25 years?” My immediate response: “What hasn’t?!”
After all, we just went through a historic global economic downturn, with two boom/bust cycles over the past two decades. Like many industries,
trends in aircraft finance are cyclical and generally follow the health of the economy. While some facets of aircraft finance have changed, there are
certain aspects that have remained consistent. In particular, the main players are still in the market (albeit fewer due to acquisitions), financing
is still a critical component of the industry, and Gulfstream IIs (among others) are still flying. There are two forces, however, independent of any
business cycle that are causing permanent changes to the aircraft finance industry: expansion of business aviation into overseas markets and increased government regulation and oversight. While a book could be written on either of these two topics, I’ll offer a few thoughts on their impact.
GLOBALISM
Every segment of business aviation has been affected (mostly positively) by the increased demand for business aircraft in overseas markets. Who
would have thought 25 years ago that more than half of new deliveries would be outside of the United States – and much of it with large cabin
equipment? It wasn’t long ago that lenders would look to countries such as Brazil, Nigeria and Mexico to sell their older assets. Today, the emerging demand in developing economies for modern business aircraft and the use of financing to acquire them have changed the landscape for global
lenders. How are lenders adapting and what is the outcome for buyers seeking financing? Aircraft lenders, especially asset-based lenders, are
primarily concerned with a few key objectives: enforcement of their security position, preservation of the aircraft’s value, and prompt repossession of the aircraft in the event of a default. Historically, meeting these objectives was challenging in many developing parts of the world where
the infrastructure, both physical and legal, was inadequate. Fortunately, the infrastructure has evolved. OEMs are expanding their global service
and parts networks, many established western management companies are expanding overseas, and a variety of transparent aircraft registries are
popping up around the world. Aircraft owners who invest in a modern business jet, align themselves with a well-established operator, and register
their aircraft in a well-used registry will now find a variety of financing options and lenders available to them.
REGULATION
Increased scrutiny and regulatory compliance stemming from the events of 9/11 and the economic crisis of 2008 have had a considerable impact
on the industry. As recently as July 2014, the Wall Street Journal published an article stating, “Citigroup Inc. will put nearly 30,000 employees to
work on regulatory and compliance issues by the end of this year…...that will push compliance staffing up 33% since the end of 2011…equal to 13%
of the bank’s total headcount.”1 Citigroup isn’t alone, as all banks have had to develop and enhance controls to maintain compliance with new
regulations. The article illustrates, though, how quickly banks have had to adapt in order to comply with new
government regulations. Ensuring that banks are properly monitored with the goal of stability in the global
financial markets is a worthy exercise. The way most aircraft buyers will notice these changes is through a
process called “Know Your Customer” (KYC), which results in additional disclosure from borrowers and adds
another layer of complexity to an already complex process. Buyers, especially international, who are not
accustomed to dealing with large regulated banks, are sometimes put off by the amount of disclosure that
banks are now required to review in order to satisfy their KYC process. The reality is that increased disclosure
is the new normal, and that will continue to be the case as governments continue to introduce new regulations in the aftermath of the economic crisis.
THE FUTURE
What will the future of aircraft financing bring? Continued investment in the global business aviation infrastructure is the cornerstone that will fuel demand for business aircraft – and financing along with it. As
demand continues to grow globally, banks will continue to adapt to the challenges posed by expansion into
new markets. While we probably will not see Gulfstream IIs still flying 25 years from now, it’s more than likely
that the aircraft financing market will continue to remain an integral part of the business aviation industry.
Michael Francis
Vice President, Sales
CIT Business Aircraft Finance
1. Patel, Sital. “Citi will have almost 30,000 employees in compliance by year-end.” Wall Street Journal. Web. 14 July 2014.
Q Michael Francis is a Vice President of Sales with CIT Business Aircraft Finance and is responsible for business development in North America. He has previously
managed private aviation for a family office, and was a sales manager for a fractional aircraft ownership company. Michael has an MBA from Northeastern University
and a BS in Aviation Management from Daniel Webster College. He holds a commercial pilot’s certificate and resides in Fort Lauderdale, Florida.
JSSI AIRWAYS
16
AVIATION TAXES: THEN AND NOW
NEL STUBBS
The more things change, the more they stay the same, as the saying goes, and that is what came to mind when I took a look back at aircraft sales and fuel
taxes over the past 25 years. Most aviation professionals that have been around this industry since the late 1980s have seen countless changes. From
new glass cockpits and GPS technology to the introduction of the fractional ownership concept, it has been a wild ride and an exciting evolution for our
industry. Yet, we are still waiting for the Super Sonic business jet, and whatever happened to the Flying Car in every garage? It is fascinating to discover
that in some areas of the industry, change has been negligible, especially when we are looking at it from a tax perspective.
State Sales Tax
If we look back at the State Aviation Sales and Use tax from 1988, the greatest change over the years is no surprise; taxes have gone up in 24 states. But
the interesting part is that over the same period, three states lowered their sales tax, and an impressive 14 states are using the same rate as they did 25
years ago. Four states have no sales/use tax (AK, MT, NH and OR), and three more states (CT, MA, RI) joined the others by eliminating their sales/use tax
on aircraft during this period. Granted, the majority of the states (48%) have raised these taxes by an average of 22.29% over the last 25 years but it is
impressive to see that 28% have stayed the same. The chart below depicts this data.
Jet Fuel Tax
Jet fuel sales tax seems to make sense for most states, but, believe it or not, we have seen the numbers digress over the years, from more than half of
the states imposing Sales Tax on fuel in 1988 to only 19 states currently charging this type of tax. But when you look closer at the excise tax on fuel by
each state, it appears that this may be a new trend. State Excise Fuel Tax is based on the consumption of fuel (gallons) and not on the total sale price. It
is believed by some that Excise Taxes can be easier to administer and are dedicated to an aviation trust fund, per the Federal Aviation Administration.
Another interesting statistic that has shown little change in over 25 years is the number of states that impose both Sales & Use Tax and Excise Tax on jet
fuel. In 1988, seven states did this and in 2014, eight states imposed both types of aviation taxes.
Federal Excise Tax (FET)
All business aircraft operators, private and commercial, pay either FET on the transportation of persons or property by air or a fuel tax. FET is a percentage tax on the amounts paid for the transportation of persons or property by air or a fuel tax for non-commercial operations. In 1988 everyone believed
that if the business aircraft was operated under FAA Part 91, then the commercial FET did not apply. However, we now know that every time an aircraft
is provided with a crew for compensation, then commercial FET is potentially due. Looking back to 1988, the commercial FET was 8% and now in 2014,
it is 7.5%, plus a $4 per leg, per person segment fee that is adjusted annually.
Fractional FET
Effective, April 1, 2012, aircraft operated in a fractional, FAR 91 Subpart K program are no longer subject to the commercial FET. Rather, they now pay
the fuel tax, plus a fuel surcharge of 14.1 cents per gallon. The exemption from the commercial tax for fractional operators expires on September 30,
2015, but the 14.1 cent per gallon surcharge is scheduled to continue until September 30, 2021.
Summary
These are just a few comparisons that reflect the evolution of aviation taxes over the past 25 years. There is no doubt that State and Federal Governments will continue to look for ways to enhance their revenues, and Business Aviation will continue to be on their radar screens as a source. Most tax
rates have increased, but the way our industry is taxed hasn’t changed significantly over this period. So this could be an indication that the current
methods are sufficient, and there isn’t a need to change anything yet!
Nel Stubbs
Vice President and Co-Owner
Conklin & de Decker
17
JSSI AIRWAYS
Nel has been in the business aviation industry for more than 25 years and
consults with numerous companies and individuals on aviation tax issues
(Federal & State). Nel’s expertise includes working with aircraft owners in
the structuring of ownership of their aircraft to maintain compliance with
the rules and regulations governing aircraft ownership and operations.
She is instrumental in developing and supporting the Conklin & de
Decker seminar program and marketing efforts. Nel was formerly with the
National Business Aviation Association and developed the tax program
during her tenure. Nel has a Bachelor of Arts in Mathematics and a Master
of Aeronautical Science.
JSSI AIRWAYS
04