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TEN QUESTIONS FOR NARA

Dave Higdon

Dave Higdon   |   1st July 2007
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Ten Questions For NARA:

A look at the pre-owned market from NARA’s perspective.

These are great times for the business aviation folks - keeping up with the growing demand for new corporate aircraft- keeping up with the expanding maintenance and service businesses- and recycling those perfectly good airplanes that have been replaced by new ones. Growing factory deliveries usually means a robust business turning over pre-owned business aircraft- and in these days- that business is as well as you could expect.

   While some owners do handle their own selling and buying chores- somewhere around 80 percent of all pre-owned business aircraft transactions go through the hands of a dealer or broker- according to industry figures. Obviously- at this high percentage- the demand for moving most of the pool of pre-owned business jets and turboprops provides a fertile climate for specialists in moving those aircraft – as well as an attraction for people looking for a way to make their fortune in aviation… people of sometimes unknown capabilities- even with the best intentions.

   And the variety of choices available can make for tough decision making when the time comes to select a representative to handle a transaction for that 80 percent who go that route. Helping owners find a suitable representative is but one of the services offered by the National Aircraft Resale Association.

   Founded in 1991- NARA today boasts a membership of more than 30 members – companies that buy and sell corporate aircraft – and about 70 additional associate members- companies with a related specialty such as finance- legal- maintenance- refurbishment and aircraft management. These days- NARA member companies handle about 20 percent of all pre-owned business aircraft transactions.

   Under the leadership of president Susan L. Sheets- NARA created a code of ethics to which all members must perform. The NARA seal serves as notice to consumers that a dealer or broker is dedicated to conducting its business with the highest degree of honesty and integrity.

   The association also provides a network for members to communicate and exchange information- political representation in Washington- D.C.- and resources designed to help aircraft owners or potential buyers learn some of the intricacies of a transaction as complex as the act of buying or selling a multimillion-dollar asset – the aircraft.

   The association holds meetings each year for its members and associate members- giving them a chance to learn and enhance their knowledge base- talk about trends and travails they share- and for leaders of the dealer/broker community to get some face time with the service companies on which they depend.

   NARA’s board and members also get together during the annual convention of the National Business Aviation Association. Clearly- communications and cross pollination are important aspects of the association’s role.

   With membership hovering around 100 and business booming- we prevailed on Sheets to spend a few minutes with us and respond to current issues in a World Aircraft Sales Magazine ‘Ten Questions Interview’.

   When we contacted Sheets she was- like so many association executives in the nation’s capital- following closely pending legislation authorizing the Federal Aviation Administration’s future spending and taxing plans. So that’s the topic with which we kicked off this month’s ten questions.

WAS: All of aviation seems abuzz about the FAA- and Air Transport Association-supported reauthorization proposal released in February. Recently- a Senate proposal cleared out of the Commerce Committee after the defeat of an amendment to strip out a $25-per-flight user fee for so-called small turbine aircraft. Where does NARA stand and how do members feel about the user-fee proposals now in play?

Sheets: NARA is a member of the Alliance for Aviation Across America and is a strong advocate for funding the modernization of the air traffic control system through the existing system. We are against the $25-per-flight user fee because it has the potential to jeopardize safety- it creates a bureaucratic nightmare to collect- and it has not yet been proven necessary as an alternative funding mechanism.

   NARA members understand that we may have to pay more at the pump and we are ready to contribute our fair share for modernization; but user fees paid by GA to subsidize the commercial carriers is not the solution.

WAS: Does NARA and its members endorse retaining the current system of fuel- ticket and cargo excise taxes?

Sheets: Yes. It’s the most equitable and efficient way of paying- and history tells us it’s a system that works well.

WAS: Aside from the FAA/user fee issue- what federal issues most concern NARA and its members?

Sheets: The Cape Town Treaty- ratified by the U.S. Congress and put into place in March- 2006- continues to be a thorn in the side of NARA members and all brokers and dealers registering aircraft transactions on the International Registry (IR).

   Since its implementation- documenting and closing aircraft transactions have become much more time consuming. Closing costs are greater (i.e. escrow- legal and title company fees have escalated) and closing delays have increased the cost of money. The system is not user friendly or efficient and clouded titles have killed deals while remedies are being sought. What’s more- improper registrations are jeopardizing authentic transactions.

   One recent improvement is that the system can now accommodate multiple or fractional ownership. Another encouraging note is that the IR actively solicits input from the business aviation community concerning user experiences- problems with the system and ways to improve its efficiency.

   The IR is still a work in progress- but going forward- NARA’s focus is to manage the change brought about by the Cape Town Treaty and to minimize its effect not just on our members and their clients- but for all aircraft brokers and dealers.

   Another challenge to U.S. brokers- dealers and manufacturers is the stringent policy enforced by the European Aviation Safety Agency (EASA) regarding aircraft certification. With the European continent accounting for 13.3% of the global jet market- and pre-owned business jet sales at record numbers- we are concerned about the exorbitant increase in costs for certification based on a flat fee for aircraft weight versus the former schedule based on hourly fees.

   The new policy unfairly equates aircraft validation with aircraft certification- in effect lining EASA’s pockets with fees paid by U.S. manufacturers for services that are provided by the U.S. FAA. This unfair principle applies to supplemental type certificates (STCs) that are direct costs to the resale market.

   NARA supports EASA’s mission and the collaborative spirit that has characterized U.S. / European relationships- but this new policy flies in the face of that mutual effort.

WAS: From every indication we hear these days- these are indeed good times to be making business jets. How does this translate for the business of NARA members? Are times as good in the pre-owned resale field as they seem to be for the folks selling new corporate aircraft?

Sheets: Yes- there is usually a strong synergy between the new and pre-owned jet markets. Good sales activity for the OEMs in favorable economic environments generally translates into increased availability of high quality pre-owned aircraft- but not in every market.

   Current worldwide demand for business jets as a result of expanding economies in Europe- Russia- the former Eastern block countries- the Middle East- India and China have created strong demand for business aircraft- particularly larger/longer range jets. This notable shift to increase international sales is made all the more attractive by a cheaper U.S. dollar.

   As always- the instant gratification of ownership of a pre-owned aircraft rather than a two-to-three-year wait for a new one is a benefit to both buyer and seller. As a result- the demand for late model - and in particular long-range pre-owned aircraft - is strong- driving prices to record highs.

   However- like the new aircraft segment- the pre-owned field has its strong and weak points. Markets for some of the smaller business jets- like the older 550 Citations- are currently 'oversupplied-' while newer CJ1- CJ2- CJ3- Excels and Encores are experiencing brisk sales. Conversely- on the high end- there is intense competition for listings because of lower inventories.

WAS: Do good times seem to attract new players to the dealer/broker field?

Sheets: Yes- and that’s not usually a good thing. In good times- it’s relatively easy to set up shop as a broker- but we’ve seen over the years of cyclical markets that these types of organizations don’t last very long.

   End users are best served by experienced brokers and dealers who have the staying power and resources to help their clients make smart long-term decisions. There is also an ethical component at work here. Only dealers and brokers who have proven themselves to be trustworthy participants in the market year after year can be relied upon for good advice and effective representation of the end-user.

   Thankfully- buyers and sellers are more knowledgeable today than ever before. Many have experience from fractional and charter programs- and most want to do business with a dealer or broker with a long history of professional service in our industry. This gets to the heart of why NARA was formed 17 years ago; to establish and promote the most ethical business practices in the pre-owned aircraft market.

WAS: How does a potential client for a dealer or broker know to whom to turn with so many more companies out there than represented by NARA?

Sheets: Many first time buyers are not aware of NARA and simply turn to someone they know- or with whom they’ve crossed paths who seems to have some “airplane experience.”

   A good start for any first-time buyer is to look to the leading brokers and dealers in the industry who are a reliable source of credible- accurate and useful information. NARA has a list of well-recognized broker and dealers who abide by the Association’s stringent code of ethics. Hiring a NARA broker or dealer is like an insurance policy that guarantees a beneficial- professional buying or selling experience. As it is with most other businesses- referrals and a stellar business reputation are the best guides to finding a good representative for one’s aviation interests.

WAS: We’ve seen a rash of consolidation in the FBO community over the past few years. Has consolidation been a factor for the dealer/broker community?

Sheets: Not as yet- but there are compelling business reasons that it could be. Much like airport services- aircraft sales organizations require significant back office support. With increased business activity on a global basis and geographic distribution of human capital- consolidation could be a key to efficiency.

   The challenge- as with any merger- is getting the companies to adapt to cultural differences between the formerly stand-alone organizations- usually led by entrepreneurs with strong personalities. It will be interesting to see what happens in the next five or 10 years when many of the giants of the broker/dealer community move into retirement.

WAS: Finding suitable talent to meet the demands brought by growth has challenged staffing needs of both operating and supporting companies. Is the dealer/broker community facing similar challenges in finding the people they need to keep going and keep growing?

Sheets: Finding quality people with the right sales skills combined with sufficient aeronautical knowledge and the right ethics is a challenge that frequently constrains a company's growth.

   It can be challenging to staff the aircraft maintenance side of the business with qualified personnel who have the right skill set. On the sales side- it is important that a candidate is trained on all the complexities including a growing array of aircraft models and numerous regulatory issues.

   That being said- aviation has so much cache as an exciting business that we think there will be qualified applicants eager to start in our industry.

WAS: How does NARA work to attract potential clients to consider association members for handling their aircraft needs?

Sheets: While the Association does a certain amount of advertising and PR- we are primarily focused on helping our members to be the best-equipped- best-educated and best-networked participants in the industry. That’s what really attracts a new client to one of our members.

   NARA and its members are deeply committed to the welfare of the entire pre-owned aircraft industry. They have defined and continue to uphold the most rigorous ethical guidelines for the market. From acting as a liaison between industry and government- to providing its members with professional development- education- training and resources- NARA seeks to improve the industry one transaction at a time.

WAS: When the week seems to never end and the pressures of the job seem overwhelming- what helps you maintain balance and sanity?

Sheets: I think that question is best answered by John Quincy Adams (1767-1848) who wrote: “Courage and perseverance have a magical talisman- before which difficulties disappear and obstacles vanish into air.”

   I’ve learned the value of determination and resolve- which are necessary in the ever changing global market. Knowing how crucial the resale market is to the overall health of general aviation also helps me keep focused. And because NARA members represent the very best in the industry- it’s a privilege to serve the people who are making the pre-owned aircraft marketplace a better place to do business.

WAS: Thanks for your time Susan!

National Aircraft Resale Association. Founded: 1991 Broker/Dealer Members: 30+- Associate Members: 70+ Market Share: Members oversee about one-fifth of all pre-owned business jet transactions President: Susan L. Sheets- email: slsheets@nara-dealers.com
More information from: 4226 King Street- Alexandria- VA 22302- Tel: +1 703 671-8273; Fax: +1 703 671-5848 Web: www.nara-dealers.com


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