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How has the European Business Aviation Market changed in the last twelve months? This question certainly got some direct answers from a selection of top people in the brokerage- sales- charter and FBO segments of Europe’s business aviation industry. • “It’s changed completely.” - Thierry Boutsen- Président Délégué- Boutsen Aviation. • “We know who’s about to go under- and who hasn’t paid landing fees recently.” - Keith Haynes- Director ...

Mike Vines   |   1st May 2009
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Twelve months of change

How has the European Business Aviation Market changed in the last twelve months? This question certainly got some direct answers from a selection of top people in the brokerage- sales- charter and FBO segments of Europe’s business aviation industry.

• “It’s changed completely.” - Thierry Boutsen- Président Délégué- Boutsen Aviation.

• “We know who’s about to go under- and who hasn’t paid landing fees recently.” - Keith Haynes- Director of Sales Corporate Travel- Chapman Freeborn Air Chartering.

• “…European charter hours are down 15-30% depending on aircraft size.” - Neil Harvey- Manager- Executive Aviation- Hunt and Palmer plc. Despite the last 12 months- there is hope out there according to some; “I think the European aircraft sales market is close to bottoming out-” predicts Andrew Hoy- Executive Director- Group Sales- ExecuJet Aviation- whose company also offers air charter- and has a string of FBOs and maintenance operations on four continents. On charter he added- “We are down on our budgets- but they were set right at the beginning of the downturn last July.”

In his observations on FBO activity- Hoy continued- “European business aviation movements are 15-20% down- hence FBO lounges are getting hit- and this fits with our experience…”

The answer to improving market share- according to Hoy- is to offer that bit more. At the company’s Zurich terminal- a Maybach limousine is used to ferry passengers into town- and the terminal facilities have recently been upgraded. “Everyone is pushing very hard and competition is very high-” he commented. “As a result our lounges at Zurich have probably only seen a drop of 5% in numbers.”

Boutsen adds- from his aircraft sales viewpoint- “Business has changed completely over the past year- from having a lot of buyers and no aircraft- to a lot of aircraft and very few buyers. We and our clients have had to adapt to the new market. A major problem is convincing clients to bring down their asking price to current market acceptance.”

20-50% price drops
According to Boutsen aircraft asking prices have dropped anywhere between 20-50% since August 2008. “This is no exaggeration- we found a buyer who paid 50% less than the original asking price for one aircraft-” he revealed. “Aircraft are moving and we are delivering two airplanes this month (a Beechcraft B200 and Learjet 60) with a Gulfstream G150 in negotiation – this is more or less normal for us.”

When asked if sales of larger wide-body aircraft were more stable than the lighter end of the market- Boutsen shared- “There is nothing stable at the moment- it all depends on the reason for selling - the owner needs cash urgently- a client needs to downsize- some are putting their aircraft on the market just to see what it is worth.”

Hoy concurs that he has seen a 20-50% drop in price for some aircraft types in the last 12 months- but does see a light at the end of the tunnel. “In September last year nobody was spending money over here; nobody was buying airplanes – there was no business. Since January or February- we’ve seen potential aircraft buyers coming out of the woodwork. My feeling is that aircraft with distressed prices will all be sold within the next six months- then we can hopefully see a return to some kind of price normality by year-end.

“The current problem is that if just one aircraft is sold (because the owner is desperate for cash) for say $5 million under the current average price- it can affect the whole market for that aircraft type.

“It’s fair to say that the market is way down from what it used to be. A year ago a brand new Global 5000 would have cost in the mid-$50m range- currently it’s down to the mid-$30m range. Our current advice to sellers is- ‘take the first offer you get as it’s probably the best you’ll get. It could be depreciating at a rate of a million dollars per month. For cash buyers our advice is- ‘say you’re a cash buyer at the beginning and you could net some extremely attractive deals at the moment’.

“There is still a market out there- people need their business jets and it’s not about ‘Walnut and Leather’ it’s about four meetings at four locations in a day- that is driving this-” Hoy continued. “If you’ve got the money- negotiate directly with the OEMs for the best deal- as they are desperate for orders. Even better- book delivery for 2011 which is when the market should be picking up.

Despite the pervading wrap-around gloom- Hoy says that he sees opportunity everywhere- “some of which could still result in multiple aircraft orders for this company.”

Charter/financial stability…
From the Air Charter Broker’s point of view- Keith Haynes explains his company’s 32 offices in 22 countries gives a very important insight into booking the most reliable and solvent business jet operators. He maintains that more charter buyers are going to the larger- well-known and trusted brands- like his company Chapman Freeborn. “People are worried about some of the smaller brokers surviving and concerned about what would happen to their deposit and contract in the event of failure.”

Because there is less financial trust between companies in the current environment- Haynes says there is more talk of charter buyers employing Escrow Accounts as a hedge against risk with the smaller companies. “We would suggest it is safe haven time- so work with someone you know and trust.”

Hoy agrees; “We’ve noticed that people chartering are tending to avoid some of the smaller brokers and smaller charter operators because of worries over financial stability. Some have said to us- on more than one occasion- that they are happier working with a large company like ours which has over 800 employees and 150 aircraft around the world- they know we’re not going to disappear with their money overnight.

“We’re also finding that operators who didn’t want to deal with us [brokers in general] in the past are now looking for long-term partnerships to get regular work. Brokers are remaining financially vigilant and checking that the operators aren’t cutting corners.”

Neil Harvey of Charter Broker Hunt and Palmer reveals: “Checking out the operator has never been more important. Now is also a good time to improve charter operator efficiency and standards- some of which were lost during the past busy times. We want to make sure that operators position the aircraft 90-120 minutes before the passengers are due to arrive and improve the whole business passenger experience.

“It’s certainly a changed market from a year ago-” Harvey continues. “There is a lot more aircraft availability - therefore prices have come down significantly.”

Hoy tends to differ on the price-point however: “I believe charter prices are remaining where they were a year ago – margins are so light anyway that if you go cheaper you might as well sell the airplane. Prices have to stay where they are. Over the next few months I expect more owners who haven’t previously made their aircraft available for charter to do so with us to help offset fixed costs.”

Hoy also believes that the European charter market is on the brink of recovery from its 15-20% decline- with a slight improvement showing in CFMU figures by early April. “I believe the reason for this is that a lot of people went back to the commercial airlines over the last five or six months- but are now coming back to business jet travel as they want to make more efficient use of their time-” he says.

Despite the pervading wrap-around gloom- Hoy sees opportunity everywhere- some of which could result in multiple aircraft orders.

Another factor for the declining number of business aviation charter flights- Haynes believes- is that many large companies have the money- but are worried about being seen spending it on a charter flight.

And Haynes hits on a point regarding fractional ownership in today’s market. “The price of the fraction that you bought two or three years ago is now worthless-” he suggests. “So if you want to cash your fractional chips at the moment you’re not going to get anything like the return you were hoping for.”

Over the summer months Harvey concludes that he fully expects a reasonable step up in charter business- but thinks November- December- and January will potentially be as tough as this year has proved to be.

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