Thought leadership

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In September 2014 Aircell, which provides in-flight communications combining air-to-ground (ATG) and satellite communications systems to business aviation, rebranded as Gogo Business Aviation. The business aviation (BA) division sits alongside Gogo’s commercial aviation division, and both divisions are doing exceptionally well. Gogo’s BA revenues grew by 35% in the fourth quarter of 2014, by comparison with the same quarter in 2013. The division contributed service revenue worth US$20.3 million to Gogo’s record fourth quarter results.

Gogo is now on some 2,000 commercial jets and has more than 8,000 systems flying aboard business aircraft. EVA spoke to John Wade, Executive Vice President and General Manager of the rebranded company, about the rebranding and Gogo’s plans for connectivity services on business jets.

A third goal was to introduce delegates to the concept of the EVA Association (EVAA). The aim of the Association is to foster links and to promote and facilitate deals between members that might not otherwise come into fruition. The journal’s wide network of contacts generates a range of opportunities for the EVA team to play “matchmaker” between parties with common interests. Again, as EVAA grows, it will help, in its own way, to promote the industry and help drive things forward, even as EVA’s print and digital editions celebrate the industry’s successes. The idea of the Association was greeted with interest by delegates. Satcom Direct and Rani Awad’s Atlantic FuelEx have both signed up and EVA is in discussion with a number of other companies.

The conference was opened by the Chairman, Jahid Fazal Karim, co-owner and board member of Jetcraft. The first session, on the future of light flight began with presentations by Nextant President and CEO Sean McGeough and Richard Koe, co-Managing Director of WingX Advance. McGeough came to the Futures Conference buoyed by the successful first flight the previous month (January 2015) of Nextant’s second remanufactured aircraft offering, the G90XT twin turboprop, and the fact that Barron’s has named the Nextant 400XTi as the best aircraft in the light jet category.

Perhaps even more important, however, is the fact that the company has so far sold one or more of its aircraft in 14 different countries, showing that the demand for top quality light jets is global and can be expected to grow. Nextant will be delivering its first 400XTi to China in the first quarter of 2015 and obtained its STC validation from the Civil Aviation Administration of China, clearing the way for Chinese operators for acquire the 400XTi. McGeough emphasised that Nextant has proved the success of the remanufacturing concept as a viable route for business aviation. Basically, Nextant has shown that remanufacturing makes it possible to design, build and certify an aircraft that delivers like-new performance for half the cost and in a fraction of the time that it takes to bring a new clean-sheet jet to market. The long term implications of this for the business aviation market have still to play out, but by extrapolation, the process has the potential to refresh whole swathes of the active fleet, and restore as-new performance to some of the most popular older aircraft models out there.

McGeough pointed out that while a remanufactured jet was not for everyone the process has already turned an ageing aircraft into a sparkling new addition to the light jet segment. Koe addressed the prospects for recovery in the light jets market, particularly in Europe, where so many business trips have a journey time of under two hours and involve no more than two or three passengers. “Journeys of under 2,000 nautical miles (3,700 kilometres) form a considerable proportion of all business trips across Europe. As intra-Asia trade grows and the infrastructure roll out of new airports and the opening up to business aviation of what are now military airfields continues, prospects for the light jets market will improve. Flight departments are under pressure to address business private jet travel in a fiscally prudent manner and light jets with high quality business jet-style interiors and facilities such as wi-fi and broadband communications, have much to offer in this space, he pointed out.

Session Two, OEMs and Operators – Joining the Dots, was one of the strongest sessions of the conference, and featured Brad Nolen, Director, Product Strategy and Market Development, Bombardier Business Aircraft, plus Jose Eduardo Costas, Senior VP, Marketing and Market Intelligence, Embraer Executive Jets, and Achuzie Ezenagu, Managing Director at Toucan Aviation.

Jose Costas addressed what is undoubtedly one of the biggest challenges facing OEMs today, namely the way technological changes and market demand are combining to dramatically shorten the design cycles for new aircraft models. “OEMS have been accustomed since the middle of the last century to recycle their old models, stretching the fuselage a little, adding more range, and so on. But innovation and market demand is now pushing OEMs to think much more in terms of new clean sheet designs and we have to do it so much faster than before,” he noted.

At the same time, doing this in an already crowded market, where there are some 40 different aircraft models fighting for total sales of less than 700 units in 2014, is a very tough call. “What we are also seeing is that market segments are starting to overlap, so distinguishing between a mid-range and a super-mid range jet is getting more difficult. Features migrate from one category to another and become the new standard, so now everyone has flat floors and stand up cabins. Wet galleys and larger baggage holds are now table stakes so you have to find still other ways of differentiating your product,” he commented. “What is absolutely clear is that technology life cycles are now much shorter than the economic life of the product, so we have to take account of this at the design stage,” he noted.

We have already seen fly-by-wire migrate to the mid-size aircraft. Top of the line avionics that combine synthetic vision with state-of-the art topographic mapping are now available for the light jet segment, not just the mid-size or large continental jet. For the end customer, pilots and operators, this is all good news, but the challenge for the OEMs is figuring out how to stay on the leading edge of the innovation curved while still remaining profitable.

At the same time, OEMs need to provide very comprehensive, global levels of customer support. “AOG is a huge challenge unless you have a global support network. At the same time you have to be able to cap owner costs through maintenance programs that transfer risk back to the OEM. Since 2008, some 80% of aircraft sales in this market have been replacement aircraft to existing owners, so customer retention is a vital part of business success for OEMs, just as it is for the rest of the sector. You can’t rely on large numbers of new customers coming in to replace those you lose, he pointed out.

Brad Nolen cheered delegates up by reiterating Bombardier’s confidence in its forecast that the sector will see sales of some 9200 new jets through the next ten years. 50% of the revenue generated will be in the large body, inter-continental category. The expectation is that sales will be slower in the first five years, ramping up in the next five. Of itself this number is more than enough to keep the sector profitable if people stay at the top of their game. Nolan agreed with Costas that range, speed and seating are all becoming commoditised. Competition in the years ahead will increasingly come down to design.

“This is basically a small market where hand finishing and craftsmanship can make all the difference. Attention to detail is going to be key,” he told the audience. More and more OEMs will want to innovate in avionics, in the cabin interiors, in seat design and this will put pressure on suppliers already in those niches, he suggested.

On the plus side whereas in business aviation’s dominant market, the USA, there are around 60 business jets for every £100 billion of wealth, in countries such as China and India the corresponding figure is just one business jet for every £100 billion of wealth generated. That leaves tremendous scope for additional aircraft to come into those markets in the years ahead, he pointed out.

Toucan Aviation’s Achuzie Ezenagu told delegates that he expected short hop, under two hour trips to dominate business aviation in Africa for years to come. Intra-Africa trade is slowly emerging but there is a tremendous amount of work that still needs to be done in terms of harmonising flight regulations between countries before we will see anything corresponding to European private flight schedules, he commented. Nevertheless, Ezenagu said that Toucan was expanding its fleet with the addition of two further mid-range jets.

Session Three, The future for FBOs, saw Allan McGreal, CEO of Rizon Jet UK warning the industry that it needed to rethink the current trend that portrays FBOs as merely a short strip of polished marble flooring located between the car park and the ramp, which the client wants to move through with all possible speed. FBOs can be so much more than this and can offer the client a great deal, including being a place to relax and hold meetings. However, for FBOs to attract investment on the scale of Rison Jet’s £29 million Biggin Hill FBO, stripping FBO services down to the bare, functional minimum won’t work. Owners have to be encouraged and educated as to how time spent at the FBO can add value to their journey and the facilities have to be of a standard that top CEOs and high net worth individuals expect. The whole industry is in danger of losing the client to the first class operations mounted by commercial carriers, he warned.

“Between them, the major commercial carriers have spent over £690 million in the past twelve months on new and enhanced visitor lounges to enhance the experience available to executives and wealthy passengers. Our industry will not be able to compete with that level of spend if we keep pushing FBOs to be simply functional “gateways”, he warned.

McGreal’s message to FBO operators was that they need to diversify their revenue streams if they want to survive. “Make no mistake, this is about survival. You need to forge links to your surrounding communities and use your FBO investment to host events that both generate revenue and demonstrate to prospective customers how attractive your facilities are,” he commented.

Session 4, The pre-owned market, was presented by Jahid Fazal Karim, co-owner and board member, Jetcraft. With some 2,200 aircraft on the market, Jahid pointed out that the business aviation market is getting appreciably closer to the “normal” benchmark, which is where the pre-owned market constitutes around 10% of the active fleet. Values in both the large and the mid-sized markets appear to have stabilised and the whole market is drawing a sigh of relief at the fact that the US economy saw growth of 8% in the final months of 2014, and appears to be on track for 3% or better, year on year GDP growth. However, to see a real recovery in the business jets market we need demand in all regions to return. It may take several years more to get to the levels seen in 2007, before the Great Recession, but steady growth in the major markets would help.

Unfortunately, growth is still very patchy, with some regions doing well and some doing badly. Russia, Jahid noted, is now a very difficult market, given the way the economy is being hammered by sanctions over Russia’s support for the separatists in Eastern Ukraine. Europe is a mixed story, with Spain showing some positive growth finally. China is difficult, both because of a slowdown in the economy and because business jets are being caught up in the anti corruption campaign being waged by the Chinese government.

“The Middle East has always been a good market for business aviation, and continues to be so today, with the exception of Syria. Brazil is slowing, while demand in Mexico continues to grow. Mexico is important because it absorbs a good deal of the lower cost side of the pre-owned inventory,” Jahid commented. He pointed out that despite the lack of buoyancy in the market since 2008, Jetcraft has nevertheless managed to grow its business year on year by around 10%. “The thing to remember is that you can still grow in tough times – you just need to stay strong and stay focused,” he told delegates.

Session 5: Completions – designing the dream jet interior was presented by Daron Dryer, Director of Engineering at Comlux America, and Howard Guy, CEO, Design Q. Having a designer and an engineer on the platform for the session gave delegates a chance to see how essential it is that both professions work together to produce the dream interior. Dryer’s presentation was an eye opening glimpse into how aircraft interiors might look a decade or so from now, when curved surface viewing screens allow designers to replace aircraft windows with a full side wall surface viewing screen stretching from one end of the aircraft to the other – or segmented if the design calls for that. This kind of technology breakthrough will pose no difficulties for engineers and will give designers the ability to use high definition screen technology to transform interior walls into dreamscapes or realistic views. Users could have as much control over what is depicted as they now have over mood lighting in some of the more advanced business jet interiors.

Another piece of future-tech Dryer sketched out was the extrapolation from today’s technology of noise cancelling headphones, to noise cancelling cabins, where the persistent rumble and hum of aircraft engine noise vanishes completely.

Howard Guy, who had some 13 years experience designing Jaguar car interiors before taking up business jet interior design 17 years ago, warned that designers need to ensure that they do not allow themselves to be overly guided by the customer’s view of what they want. “If your goal is to wow the client, simply giving them what they expect will not achieve that. You have to go beyond their vision and show them something they have not yet imagined but that captivates them when they see it,” he comments.

The closing session on Day One, Session 6 – The future for business aviation in Asia, was presented by Robert Molsbergen, President of Executive Jet Management (EJM) and COO of Global Aircraft Management for NetJets. EJM is the first international operator to be approved for a CCAR-135 operating certificate in China, but as Molsbergen emphasised, getting there was a long and somewhat tortuous road. EJM began discussions with the Chinese regulator in 2010 and it took four years to get there – two and a half, if you start the clock from the time EJM announced its joint venture with its Chinese partner. However, much has changed since 2010. The two big clouds hanging over the continued growth of business aviation in China are the slowdown in the Chinese economy and the government’s current anti-corruption campaign. The latter, in particular, is a serious concern since its impact as a chilling factor on the use of business aviation should probably not be underestimated, Molsbergen warned.

Nevertheless, China remains a very exciting market with phenomenal growth potential. There is every chance, taking the long view, that the China market will grow to rival the US market. In the short term, even at more subdued rates of growth, China is likely to generate some one million high net worth individuals. The NetJets strategy is to move slowly, initially deploying EJM’s aircraft management and charter skills and waiting until the time is right to introduce a fractional model into China. At present Molsbergen noted, the fractional model is ruled out by legislation preventing the part ownership of private jets, so there is a lot of development work and lobbying to be done yet.

In the evening delegates attended EVA’s Elite Business Aviation Networking Party, with entertainment and an open bar till midnight, courtesy of the generous sponsorship of Rani Awad, CEO of Atlantic FuelEx. As readers will see from the photo session, a great time was had by all! Day Two began with Session 7 – the future of aircraft management, when delegates were treated to the contrasting views of Mike Moore, Vice President of Aviation Sales at Meridian Air Charter, and Dagmar Grossmann, CEO of Grossmann Jet Services.

Moore began by reminding delegates that there is nothing simple about identifying an appropriate budget for maintaining and running a particular aircraft. “There are key variables that you have to consider such as where the aircraft is in its life cycle, how far off it is from its next major inspection, the upgrades that are likely to be needed, what the owner’s appetite is for charter and of course, how much it is going to be used,” he noted. A typical split across the industry in the US when it comes to charter fees is and 85/15 split, with 15% of revenues going to the management company. Fuel surcharges are passed 100% to the owner. This is an expensive asset and owners need to take the trouble to identify an aircraft management company that is going to be the appropriate choice to manage a multi-million dollar asset. “Going with the company that charges you slightly less, so that price is the only determinant is a very strange way to treat a $23 million aircraft,” he pointed out.

Dagmar Grossman is at the other end of the scale from the Teterboro-based Meridian, since Grossman Jet Services manages a single large private jet. Grossman emphasises that the operator’s life has changed dramatically in the last few years. “Instead of just taking care of an asset for the client, the operator is now very often in a tri-party agreement instead of a bilateral agreement. It is no longer just you and the owner, now the bank or banks are part of the deal. Banks worry, since the 2008 crash, about having to repossess an asset that has deteriorated in value, so they want to bring the aircraft management company into the deal and give them the responsibility for keeping the value of the asset as high as possible,” she notes.

Grossman was instrumental behind the founding of the industry forum, CEPA, Central European Private Aviation, in 2009. In her view, management companies and operators need to get together to agree minimum rates so that no one poisons the market through reckless undercutting in pricing. “I am of the view that we as management companies would benefit from having a regulatory framework that we all adhered to,” she told delegates.

Session Eight, The future flying office, was a panel discussion with James Person, Director, Global Business Development, General Aviation at ViaSat, Ken Bantoft, VP at Satcom Direct, Kurt Weidemeyer, VP, Inmarsat, and Karina Larsen, VP, Satcom1. With two satellite companies and two of their major resellers on the panel delegates were treated to an in-depth account of how broadband speeds are going to improve when the next wave of satellite services commences. ViaSat is due to launch its fourth satellite this summer, while Inmarsat’s Global Xpress will be the first high-speed broadband network to span the world. Person noted that the exponential growth of mobile data consumption on the ground is now being seen airborne. Networks will require a similar increase in capacity to support a true office in the sky environment. Satcom1’s Karina Larsen pointed out that while broadband connectivity in business jets has trailed woefully behind the kind of speeds that users enjoy in their homes, within a short space of time, anyone who currently has only a couple of megabits per second broadband to the home, will find that business jets have a vastly superior connection to their home service. “It really is going to flip round,” Larsen noted.

The panel stressed the fact that an enormous amount of effort is going in to ensuring that broadband connectivity in jets is as secure as it possibly can be and that on the pricing side, owners and passengers are protected from unpleasant surprises when they get the bill for the service. Ken Bantoft pointed out that Satcom Direct has a complete suite of tools to help both operators and users get the most out of whichever network service is appropriate for them. James Person explained that when ViaSat-2 launches later this summer, ViaSat’s coverage will include the Atlantic Ocean between North America and Europe and will provide an order of magnitude faster broadband connectivity than existing satellite systems.

Session 9, the future of fuel, was presented by Miguel Moreno, Global General Aviation Manager, Air BP. Miguel pointed out that the level of service required from fuel providers in meeting the needs of business aviation is extremely high, while at the same time, the level of product innovation taking place right now is enormous. The need to produce “green” fuels which help the industry to respond to public concerns about emissions is inescapable. “There is tremendous potential to reduce carbon emissions on a country by country basis. Carbon emissions from UK aviation could be reduced by 1.7 million tonnes per annum by 2030 by switching to include biofuel, and by 18% by 2050 through the uptake of sustainable aviation fuels,” he commented.

Air BP is working with partners to address these goals and is actively investigating how to differentiate its fuel offerings through the introduction of low carbon products. It is working with the parent company, BP, to develop a “reduce, replace, neutralise” strategy which will benefit business aviation as a whole. “Air BP is an active participant in all facets of the carbon market,” he told delegates and provided a range of examples of active projects already in hand to reduce emissions across its operations.

Session 10, The future of charter, was a panel discussion led by Richard Koe, Managing Director, WINGX Advance, as moderator. The panellists were David Roberts, Director of Regional Sales & Aircraft Management, Avjet Corporation; Oliver King, Managing Director, Avinode, and Glen Heavens, Managing Director of Synergy Aviation. The themes that really came out of this session were the dramatic changes taking place across the charter industry, driven by the twin facts that end users are becoming ever more “savvy” about selecting and pricing charter flights even as specialist internet services give them the ability to find information about charter flights and pricing for themselves. This in turn is leading to a much more cost effective use by customers of empty leg bookings at discounted prices. Glen Heavens pointed out that there has been almost no growth in the charter market in Europe in the last five years – though figures from the US are now looking much more promising.

Oliver King talked about the recent sale of Avinode, which provides an electronic platform to bring sellers and buyers of charter services together, to Multi Service Technology, which is owned by World Fuel Services. “We wanted to make sure that Avinode continues to be a powerful business-to-business market place for aircraft charter and the deal with Multi Service gives us the strength to develop the platform further,” King said. Avjet’s David Roberts said that Avinode was a very useful tool in their business, bringing approximately 10 to 30 charter requests a day, often resulting in one to three additional bookings a week. However, every inquiry has to be followed up in depth by the sales team to ensure the right fit between client and aircraft. Despite the rise of new platforms aimed directly at giving the end user the power to find and book charter flights for themselves, the panel felt that there would always be a role for brokers who took their business seriously.

The final session of the two day event focused on how the industry identifies and provides services to high net worth individuals. Christina Riess, CEO of the aircraft management company, A/SQUARE, gave a presentation and it was followed by a panel discussion, with Christina being joined by Synergy CEO Glen Heaven and Miguel Moreno, Global General Aviation Manager, Air BP. Christina pointed out that by the end of the decade there will be some 2,325 global billionaires, and around 900,000 HNWI millionaires. The definition of an UHNWI she suggested is investable financial assets of more than $20 million, while a HNWI would be someone with investable assets of $1 million a year. Using those criteria there were approximately 211,275 UHNW individuals in the world in 2014. These individuals, and/or the businesses they run have just over an 82% share of the business aviation market in terms of jets owned. As Glen Heaven commented during the panel discussion, while the business jet is undoubtedly a powerful business tool, the whole industry rests on the purchasing power of a tiny proportion of the world’s population. “Even if we broaden the numbers out to include everyone who charters an aircraft, I suspect that we would all be a little shocked at how small the numbers are, by comparison with the general population,” he noted.

Christina provided delegates with a fascinating insight into the principles that drive UHNWIs. “They do not want to be served up the most expensive option, just because they are wealthy,” she pointed out. They want control and transparency and they only work with people they trust and who they judge can do that particular job better than they can do it. And they only recommend someone to a friend if they thoroughly trust that person. So the importance of building a trusting relationship cannot be overestimated, she emphasised. Miguel Moreno has extensive experience of HNWIs and UHNWIs, having previously held senior roles in BP’s marine division, dealing with the refuelling of super yachts. “Yachts are pure luxury items, with a little business thrown in, while business aviation is mostly business, with a little leisure component. What we have to ask ourselves all the time is what is it that this particular client wants? What are his goals and how can we help him fulfil them as far as business aviation is concerned?”