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A professional association best shows its strength and relevance when it digs into a crisis in search of ways to help its members out of those tough times. So it is for the National Aircraft Resale Association. Going into its 20th year- NARA worked relentlessly to foster better times for its members against a backdrop of industry chaos over the past two years.

Dave Higdon   |   1st March 2010
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Dave Higdon Dave Higdon

Dave Higdon writes about aviation from his base in Wichita Kansas. During three decades in...
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10 Questions For Susan Sheets
NARA exec weighs in on the state of business aircraft sales.

A professional association best shows its strength and relevance when it digs into a crisis in search of ways to help its members out of those tough times. So it is for the National Aircraft Resale Association. Going into its 20th year- NARA worked relentlessly to foster better times for its members against a backdrop of industry chaos over the past two years.

In preparing for a ‘Ten Questions Interview’ with Susan L. Sheets- president- NARA- the research turned up the last time World Aircraft Sales Magazine interviewed her back in July 2007. The chaos of recent times certainly represents a significant reversal since our last meeting with Sheets. The first paragraph of that 2007 interview read thus:

“These are great times for 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up with the expanding maintenance and service businesses- and recycling those perfectly good airplanes that have been replaced by new ones.”

Not only did the paragraph hold true- it had been true for about the three prior years; new airplane sales and pre-owned resale levels were excellent - unprecedented- no less. Yet- little did we all know what lay around the corner- appearing initially as a mere minor retreat from growing sales and escalating values in late 2007 actually marked the start of a wider sales and value collapse.

The signs of downward-trending sales and upward-trending pre-owned inventory first started to materialize in late 2007 – and initially pretty much blew past analysts and observers. “It’s a blip- an aberration – just look at those new-plane backlogs- for goodness sake!”

What happened between then and now is well enough documented- and among the questions we are faced with in today’s market are “What now?” and “When?” As the downturn bit hard- compounded at the end of 2008 by the near-total collapse in the credit markets in general that specifically impacted pre-owned sales (a problem compounded by a precipitous decline in hull values directly related to the inventory growth – which in turn made lenders even more wary of financing pre-owned aircraft sales)- Sheets convened a crisis meeting of NARA members for the start of 2009 in Dallas aimed at addressing the situation.

The crowd of about 200 spent hours discussing the individual elements of their problems- hearing from panelists from finance- insurance and title-search as well as from sales operations- large and small. While the sessions helped the various players better understand the dynamics at work- the gathering was also able to draw out some suggestions for survival tactics to help stay afloat until times improved.

The value of NARA seems to have shown through this crisis as evidenced by the stability of its operation and membership. “NARA (dealer/broker) membership has remained very stable in spite of the economic hardship-” Susan Sheets observed.

Today 33 dealer/broker members and 45 associate members belong to NARA - both graphic testaments to the job Sheets and her staff have been doing- and the value of a common-cause organization. The associate membership did decline in the past couple of years but the attrition- Sheets noted- resulted primarily from mergers and acquisitions in the banking and other service segments of the business.

As a result- NARA members continue to account for more than 20 percent of the sales- brokering- insuring- lending and titling activity in the realm of pre-owned business aircraft sales. The financial crisis and the collapse of business aircraft sales battered and bruised NARA’s membership- but they remain engaged with their association as it continues to provide support to them as the market shows initial signs of a slow- plodding return.

Meantime- Sheets- her staff and board continue to work toward advancing the profession- its activities and its strength. As NARA works through its 20th year- it’s against this backdrop that Sheets agreed to sit down with World Aircraft Sales Magazine for another Ten Questions interview.

WAS: The year just ended is not one likely to be missed- particularly by people in business aviation. At the NARA meeting in Dallas last February your membership was already suffering. Looking at the entire year- how hard was 2009 on NARA’s primary membership and their community overall?

Sheets: No one is unhappy to have 2009 behind us. It was a difficult year for the resale market- hamstrung by the economy. There was less business to conduct and the business that did take place was less profitable.

With rising inventories and prices falling off some 30-40% in some models- some NARA broker dealers followed where the activity was- in more repo work with the banks. Entrepreneurs are best at retooling the game plan and finding new opportunities- and that’s just what they did. Those who had a more diversified product-base fared better throughout the year.

The good news was that 2008 was such a good year that reserves carried the day in 2009 for those companies who where well positioned to stay the course.

One of the unseen advantages of the year is that it ferreted out the “bottom feeders” in the industry who couldn’t survive the stiff competition in a down market. Though activity levels are still spotty and financing is still tight- the market is better in that buyers are buying at the right prices now compared to last year where there was little buying activity.

WAS: Has the business of reselling business aircraft ever experienced a year with this degree of retreat?

Sheets: No. This downturn is unlike any other. It was dramatically different from the 2000-2001 recession – that was basically a rebound from the .com failures. Ten years ago- the banking industry didn’t collapse and aircraft values didn’t take the big hit they did in 2009. When the stock market plummeted- aircraft values got hammered.

The suddenness and swiftness of the (current) downturn was also surprising. Even the OEMs on the new side had unprecedented- negative order books.

The worst part was the prevailing uncertainty not only about the banking system- but about the loss of confidence in government. Politicians demonizing business aircraft ownership brought about a paradigm shift in ownership that still adversely affects buying behavior.

WAS: Looking at some of the top aviation issues we discussed back almost three years ago- it struck me how little progress we’ve made on almost all of them. In terms of aiding the growth of business aviation- what issue at the Federal level do you feel most needs resolution- first and foremost? NextGen- FAA Reauthorization- General Aviation Security- or something else?

Sheets: First and foremost for aircraft sales- the economy has to improve. Increased consumer confidence- employment growth and government policies to stimulate business - such as an investment tax credit - would all bring back some vitality to sales.

NextGen funding will help drive the nation’s economic recovery and stimulate job growth- but long-term measures don’t help the immediate need to get more buyers to the table now.

WAS: Do your members have any feel- research or instinct about the trend in pre-owned business turbine sales looking out at the next couple of years? How do they see the next year to two years?

Sheets: We’re not in the business of forecasting- but many members think that the worst is over. Bank repos are declining- inventory levels are shrinking and prices are stabilizing. Members are witnessing more qualified buyers and increased activity in the January/February timeframe. There is also some optimism in the increase in market performance in European and international markets.

WAS: Getting back to the domestic issues of the economy and the market; how has this downturn impacted employment among your members- and also in the broader pool of brokers and dealers- inside and outside of NARA?

Sheets: NARA members have tightened their belts to weather the storm like all other businesses that have survived. With the exception of the OEMs- whose furloughs and layoffs are well documented- most members have been able to hold on to their employees.

Doing more with less is the new norm- as benefits and budgets are scrutinized like never before. When the economy rebounds- NARA members will be well positioned to serve their client base.

WAS: Among the reasons NARA came into existence was the belief many held that the field needed to establish and promote its own code of conduct and ethical business practices. Hard times are often accompanied by increases in consumer complaints about how companies have treated them. Has NARA experienced any instances of complaints from unhappy consumers? Have complaints increased- and how does NARA work to resolve any such complaints- if they exist?

Sheets: Complaints were prevalent last summer when bottom-feeders were kicking tires for sales that weren’t there. They were aggressive and annoying- but their numbers quickly subsided as they failed to compete against more reputable- professional companies.

NARA broker/dealers observed just the opposite behavior; that with fewer clients- even greater service was provided as employees took more ownership of client services. They realize how difficult it is out there and that every customer is important. In the event that there is an ethical dispute over business practices- NARA established a grievance committee- designed to govern the measures to be taken in the event of an infraction against the association’s 12-point Code of Ethics.

WAS: Three years ago NARA members were struggling with issues related to the Cape Town Treaty implementation- and the International Registry: Knowing the international nature of aircraft transactions- has that “work in progress” made progress toward being less of a “thorn in the side” of dealers and brokers- as you put it in 2007?

Sheets: The Cape Town Registry is now a matter of course in an aircraft transaction. It’s part of normal closing procedures. Title companies have been a great help to the brokers and dealers in transitioning through the learning curve by offering the services needed to comply with the Registry.

Appointed by the Registry to act as Administrator for the users of the system- NARA’s escrow companies take care of the administrative burden for the brokers and dealers. After three years- most of the bugs have been worked out.

WAS: Another challenge to U.S. brokers- dealers and manufacturers that you cited last time was the stringent policy enforced by EASA regarding aircraft certification: You noted that the 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.”

Has the policy or its interpretation changed or improved – and if not- how have your members adapted to the policy?”

Sheets: EASA negotiations with the U.S. for more reasonable fee schedules with regard to certification have been under discussion for two years- and is on its way to resolution. In the meantime- the first shock of increased fees has passed and companies have adapted to budgeting for the extra costs: there is still the expectation that EASA and the U.S. will reach a more equitable solution than the one that is temporarily in place- however.

WAS: You’ve already noted that your active dealer/ broker membership has remained stable through these tough times. Is there one main element in what NARA provides its members that keeps them renewing from one year to the next?

Sheets: Yes. We are stronger collectively than we are as individuals; “No one of us is as smart as all of us.” NARA has always been about a sense of community.

By providing a forum for industry peers- brokers and dealers can leverage the expertise of all NARA members for the benefit of a better informed client. The chance to talk to fellow colleagues has been invaluable to the broker/dealer and associate membership- especially in light of how many challenges 2009 presented small business owners.

WAS: NARA recently relocated from its old headquarters space in Alexandria- Va.- to new facilities at Washington National Airport. What are the best and worst aspects of having NARA’s headquarters right on the airport?

Sheets: My top ten best aspects:
1) Access to members flying through DCA;
2) Metro access for downtown DC;
3) witnessing the G.A. traffic that still transits through the Signature facility;
4) contact with other trade association colleagues co-located at Hangar 7;
5) parking right outside the front door;
6) the Smell of jet fuel- and the sound of engines;
7) 10% tenant discount at airport concessions;
8) daily supply of popcorn- cookies and Starbucks- with complements of Signature;
9) a bike path right outside the front door to walk off number 8; and
10) just being at an airport.

The only negative is writing out the address for Fedex pick-ups…

More information from www.nara-dealers.com

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