Traffic – B

There are two ways of looking at traffic data. US traffic for the year is down 1% on a strong 2023, according to WingX. Compared with the 2022 post-lockdown peak US business aviation is down about 6%. Europe business jet flights are down 2% versus the first half of 2023.

But rather than focusing on this, it is worth comparing with before Covid 19. WingX says that US business jet traffic is up 28.9% compared with the first six months of 2019. The big winners  in the US are super mid-size jets (up 50.3%), turboprops (47.3%), ultra-long range (45.6%) and very-light jets (39.1%).

European business aviation flights are up 7.5% in 2024 compared with the first six months of 2019.

Traffic alone is not a guaranteed sign of a strong industry (it is possible to fly a lot and lose money) but it is an important metric for maintenance providers and OEMs. Who also have a lot to be happy about.

Aircraft and engine manufacturers – A-

Business jet manufacturers are not showing any signs of wanting to suddenly increase  deliveries. Some of this discipline is because supply chains are still catching up. To be fair, this is also because all of the senior managers at manufacturers vividly remember what happened after the global financial crisis when they had an oversupply of aircraft.

As well as building jets, they are also continuing to sell decent numbers at good prices. Demand for new aircraft is down from 2022 but the first-quarter results were very good. It seems likely that book-to-build ratios could fall in the fourth quarter, especially as production ramps up. But it has been a good six months.

Pre-owned market and residual values – C

The state of the pre-owned market is more balanced. The number of business jets for sale has risen significantly, In June 2023 Amstat listed 1,019 business jets for sale. Now it says there are 1,203 on the market. But this is not a massive rise.

The percentage of aircraft for sale is still relatively low. Amstat says that 7.65% of large jets are for sale, 7.22% of medium jets and 6.12% of light jets. This means the market was still balanced at the end of June 2024. Aircraft are not depreciating as you would expect.

Perhaps the biggest worry is that experienced brokers – many of whom have had a good start to the year – are finding it hard to predict what will happen in the next six months, let alone in 2025.

Fractional operators – A+

“Our biggest challenge in 2024 is beating 2023,” says Andrew Collins, co-chair of Flexjet, speaking from Flexjet’s new owner’s lounge in Mayfair, London. Like other fractionals, Flexjet has quietly been investing in new corporate headquarters, buying maintenance and interiors companies, and selling a lot aircraft shares. WingX says that fractional fleets are flying more flight hours than at any time in the  past five years.

Fractional operators are also increasingly important to manufacturers. NetJets has been unveiled as the customer who placed this order in December order for the 12 Challenger 3500 jets. It now has 232 Challenger 3,500 options outstanding. Fractional operators are also set to benefit from owners looking for privacy.

As everyone know, things can change quickly. Looking at the market in June 2007 would have felt very similar (and everyone knows what happened then). The first six months have been pretty good. A sudden economic downturn would, of course, change things very quickly – but worry about that when you are back from holiday. 

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If you walk through one of the many unmarked doors and go down a floor, you find a network of kitchens, storerooms, the staff canteen, loading bays and shortcuts. It typically takes staff a week to learn their way around the basement.

It is the same in business aviation. When things go well, customers do not see the grind that goes into making a flight happen or buying a jet. Unfortunately, they are increasingly seeing these problems. Particularly when aircraft are grounded or in pre-purchase inspections. Some 75% of the nearly 500 delegates believe supply chains are better than in 2022.

“For the first time in modern history, it’s all about the supply chain determining how many aircraft can be built. It is not just affecting production, it is affecting MRO and maintenance as well,” said Kevin Michaels, MD, AeroDynamic Advisory, on the supply chain panel.

Nick McBoyle, procurement director at Bombardier explained how the OEM has embedded about 60 interventions specialists into suppliers to help them manage their supply chains.

“There is a whack-a-mole effect where problems suddenly emerge,” said McBoyle. “We’re then into a cycle of operational gymnastics to make sure that we can continue the aircraft build as close to the schedule as possible and obviously get them out the door.”

Despite these efforts, 37% of delegates do not expect supply chains to return to pre-pandemic normality until 2025. (32% believe it will be 2026).

Predicting demand is much harder. Research firm Vertical Partners says that business jet OEMs had an average book to bill of 1.4x in the third quarter. It says that manufacturers had a 1.2x average for 2023. But delegates are worried that high interest rates and political turmoil could make 2024 a difficult year.

Some 69% of attendees were very optimistic about the next 12 months (with 19% fairly optimistic). But not everyone was that bullish. “Is it me or does this feel a lot like the spring of 2008?” said one delegate.

The general consensus from people at the event is that they expect fewer transactions in 2024 (although the first quarter may benefit from delayed fourth quarter deals) and demand for charter to soften.

Andrew Collins, co-CEO, Flexjet said that demand had clearly fallen from 2020: “Demand for jet cards was so strong I could have sold them by knocking on my neighbour’s door.” But he added that Sentient Jet and Flexjet are on track for great years in 2023.

Most believe that many of the richest customers that discovered business aviation will continue using it. “There is a reason why hearses don’t have luggage racks,” said Peder von Harten, president, Nicholas Air.

Every speaker agreed that predicting the market is harder than ever.

Michael Amalfitano, president and CEO of Embraer Executive Jets opened the conference by highlighting how business aviation is leading aviation decarbonisation. He stressed how business aviation is a test-bed for innovation.

Ed Bolen, president and CEO, NBAA also used this argument in his keynote. “Every new business aircraft model being delivered today is 30% more efficient than the aircraft it is replacing,” said Bolen, outlining the new Climbing. Fast. campaign. “Business aviation is an incubator for new technologies.”

Some customers like to see the workings of the industry. Apparently Frank Sinatra, Dean Martin and Sammy Davis Jr (who filmed the original Oceans 11 film at the Fontainebleau) used the underground passages to slip around the hotel without being spotted.

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George Mattson, the new Wheels Up head, plans to be based at the company’s Atlanta Operations Center, rather than the New York City offices. Todd Smith, who has been interim CEO since founder Kenny Dichter stepped down in May, will return to his role of chief financial officer (CFO).  

With Delta investing more in Wheels Up (it has already lent $60m before the restructuring programme is agreed upon) it is no surprise that Mattson, a former Goldman Sachs banker, has a strong connection with the airline. He has been on the board of Delta Air Lines since 2012 and knows Delta CEO Ed Bastian well.  

“George is an exceptional business leader whose background will be instrumental to the continued success of Wheels Up,” said Bastian. “With new leadership in place, Wheels Up is well-positioned to drive strategic, operational and financial improvements for its customers and stakeholders in the months and years ahead.” 

Mattson should understand Wheels Up well. He was on Delta’s board when it agreed to merge with Delta Private Jets in 2019 (in return for a 27% stake). He is also the chair and largest investor in Tropic Ocean Airways, a seaplane operator. Wheels Up invested in Tropic Ocean Airways in March 2022 as part of a partnership agreement.   

“George is an exceptional choice to lead the company through this important time.  He will serve customers, employees, and stakeholders consistent with the elevated experiences that have always defined Wheels Up,” said Dichter. “I am very enthusiastic about the future of Wheels Up.” 

Wheels Up says that Mattson has 25 years of aviation experience – it says that he oversaw transportation and airlines when he was co-head of the Global Industrials Group. Mattson also led two SPACS. One merged with Virgin Orbit, a small satellite launch company, which filed for Chapter 11 this year. The other acquired electric trucking company Xos. 

He is due to start working for Wheels Up in early October. His decision to be based in Atlanta is significant. Wheels Up opened the 34,000sqft Member Operations Center earlier this year. It has been led by Dave Holtz, chairman of Operations at Wheels Up, who spent 43 years at Delta.  

Flexjet last week opened its $50m stunning new headquarter global operations centre (pictured) in Cleveland. The 51,453sqft it adds brings Flexjet’s Cleveland campus to 243,000sqft.  

The star shaped building hosted more than 1,200 guests and even had a static display of all the operator’s aircraft. The senior manufacturers in attendance are also a sign that you can expect at least one order from Flexjet at NBAA BACE. 

Inside the star-shaped building, Flexjet has installed the largest seamless LED screen in the US. It is 176ft (53.6m) wide by 19ft high with 1,572 individual panels. Although it would be great for playing video games, the screen displays every Flexjet, Sentient Jet, and FXAir flight around the world in real time. 

“If anyone sets foot into the Global Headquarters, they instantly realise how serious we are about building a global company,” says Andrew Collins, co-CEO, Flexjet. 

“I was over in Europe when everyone started moving in and I was blown away when I came back. It is beyond expectation. It has injected so much energy into the company,” says Collins. “You can tell, as soon as you walk in, that it has also been designed from a workflow standpoint to absolutely service a customised product set.” 

Flexjet now employs more than 4,000 people around the world. Some 670 of them are based in Cleveland. Ricci, its founder, is also passionate about design and architecture. In the control room there is a table made from the fuselage of the first Gulfstream G4. Coincidently, Ricci has flown the aircraft.

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Today (Wednesday August 9th), Wheels Up will report its second-quarter results. The first-quarter announcement was overshadowed by the departure of founder Kenny Dichter as CEO. This time the numbers will get much more scrutiny.

Many will focus on how much cash it has. At the end of March, it had $363m. It could be getting close to breaking debt covenants. We will find out more soon.

The company had record first quarter sales and its new strategy of focusing on two regions looks sensible, but 12 weeks is not a long time to implement it, especially for a membership business. Wheels Up does still have some supportive large investors – especially Delta Air Lines, which owns 20%.

Wheels Up launched in a market when investors were happy to support what were called pre-profit companies (and many pre-revenue ones). It was unlucky that this mood changed before it became profitable.

But it does make you ask: why would any business aviation firm want to go public today? Surprisingly, a lot of companies do.

Last week Volato, the fractional operator with a fleet of 25 aircraft, announced plans to merge with a SPAC. Jet AI (formally Jet Token) is likely to become listed this week. North Carolina charter operator flyExclusive is still in the process of listing. Set Jet, which has access to a fleet of five Bombardier Challenger 850s, is hoping to merge with a SPAC by the end of the year.

These are very different businesses. And have very different motivations in listing. (Pictured is the New York Stock Exchange building).

Matt Liotta, Volato’s founder, accepts the risks in becoming public, but says there are real benefits. “One of the benefits of being public is the increased transparency for customers and prospects,” he says. This is also a good thing for a market where it is difficult to get hard data.

They are going public at a time when demand for business aviation is cooling from its post-lockdown highs. Private Jet Card Comparisons says that hourly jet card rates fell 1.3% in the second quarter of this year, after a 5.2% drop in the first three months.

“The overall market is cooling,” says Liotta. “Charter traffic is down and private traffic is down but fractional is up compared to last year. We are not a typical fractional company and are seeing strong demand.”

Kenn Ricci’s FlexJet has stayed private. In October last year Flexjet announced a merger with a SPAC sponsored by long-term investor and partner Todd Boehly. This was cancelled in April citing market conditions.  Last week Flexjet acquired Flying Colours to bring more maintenance – especially completions – in-house.

Flying Colours received strong interest from a mixture of strategic and financial investors (it was advised by Jefferies). The fact that it was not listed is arguably an advantage when closing deals.

Spare a thought for Surf Air Mobility which became public through a direct listing on Thursday July 27th at $4.60. It is now at $1.50. Surf Air is a very different business – relying on small aircraft and certification of electric aircraft – but now is not a fun time to be running it.

SPACs get a lot of criticism but the fact they typically launch at $10 is useful.

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The expansion represents a continuing five-year growth trend in this category. This year, the operator plans to bring its global fleet to more than 270 aircraft (excluding helicopters). So far in 2023, Flexjet has added the Embraer Praetor 600 to its North American fleet, as well as a Bombardier Challenger 350 (pictured) in its super midsized private jet offering.

“Together with the existing Embraer Praetor 500 and Challenger 350 aircraft flying in our fleet, the addition of the Praetor 600 and the Challenger 3500 has given Flexjet the industry’s leading offering of mid- and super midsized aircraft,” said DJ Hanlon, executive vice president, Sales, Flexjet. “The aircraft available to travellers within this offering present mission versatility that is unmatched by any other private aviation provider.” 

Flexjet said that the Praetor 600 is the “backbone of its growing European fleet” and its introduction to the US fleet reflects the jet’s success in Europe. The North American fleet also includes the Embraer Phenom 300 and the Praetor 500 and 600; the Bombardier Challenger 350 and 3500; and the Gulfstream G450 and G650.

Hanlon added that investment in Flexjet’s mid- and super midsized fleet in North America has been vital to meet the growing demand for coast-to-coast travel in the US. The firm also plans to invest in personnel, with the hire of 388 additional flight crew members and 338 aircraft maintenance technicians expected in 2023.

“Our ability to fly our aircraft owners on these in-demand aircraft today, and not at some distant time in the future, is further validation of our forward-looking approach,” said Hanlon.

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The fractional jet business revealed in October 2022 its intention to merge with Horizon, a special purpose acquisition company (SPAC), to go public and be listed on the New York Stock Exchange. The deal was set to close in the second quarter (Q2) of this year.

Flexjet said its “strong financial performance will allow for continued opportunistic acquisitions, as well as strategic growth in infrastructure, fleet and geographic expansion without the need for public capital”. However, it didn’t rule out going public in the future.

Kenn Ricci, chairman, Flexjet said: “In 2022, we outperformed the financial targets provided at the start of the SPAC transaction and continue to deliver significant cash flows and compelling year-over-year growth. Our position of strength gives us the flexibility to access the public markets at the appropriate time.”

Ricci said that there will be “no impact” on the company’s recent growth initiatives and added the decision is in the best interests everyone involved.

“Changing course mid-stream is not the easiest path, but I have always respected our team for having the discipline to do just that,” he added. “We will remain nimble and alter course if necessary to ensure we are always doing what is truly in the best interest of our business.”

Todd Boehly, chairman, CEO and CFO, Horizon said: “We have enjoyed and will continue our long partnership with Flexjet’s management team and respect their decision. We are glad that Flexjet and Horizon were able to agree to the termination in a manner that is fair.”

When the SPAC deal was first announced, Ricci said Flexjet had “never been in a better position to find opportunities to grow”.

In February, Flexjet acquired MRO services provider Constant Aviation and plans to acquire further companies throughout the year.

Recently, Wheels Up, which went public through a SPAC in 2021, reported adjusted net losses of $555m, more than double the loss of $197m it reported in 2021. 

Flexjet’s 2023 growth plan – at a glance

• Adding 37 aircraft to bring total fleet to 270
• Developing new Cleveland headquarters
• Hiring 388 flight crews
• Hiring 338 aircraft maintenance technicians
• Continuing acquisitions

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Question one: Is charter taking a dip?

If you answered Yes, take a point. There has been a 16% year-on-year (YoY) dip in charter demand in the US by the 11th week of 2023, including a 22% decline in Florida, according to WINGX. And Europe’s charter flights dropped 10% since this time in 2022.

James Leach, chief marketing officer, Air Charter Service (ACS) agrees: “The feedback from the market for us is that overall, the charter market is cooling.” While he recognises the drop in charter sector-wide, he says that ACS has experienced a levelling out, partly due to former Russian businesses still contributing in February last year.

Doug Gollan, founder, Private Jet Card Comparisons, Andrew Collins, co-CEO, Flexjet and Glenn Hogben, CEO, The Air Charter Association (ACA) all agree charter has dipped. Hogben thinks this is no surprise. “This year’s figures, compared with 2022, have fallen. But 2022 was an exceptional year for demand,” he says. “It was anticipated that there would be a reduction or levelling off in demand as the market normalises.”

Question two: Why is this happening? (Multiple choice).

Is the answer: The airlines’ recovering schedules, Rising prices, or Satiated demand? Gollan believes the first option is the correct one. “While the airlines [schedules] are still awful, if people are flying alone and don’t have to check baggage, they will pay $1,000 to fly first class for a two-and-a-half-hour flight, instead of $20,000 for a light jet,” says Gollan.

Leach also thinks the airlines are to blame. “There were a lot of new customers coming into the charter market over the past two years,” he says. “While some are now chartering regularly, many have returned to scheduled service for most of their air travel, chartering only occasionally.”

Richard Koe, MD, WINGX says that while industry-wide issues are affecting travel, people also don’t have the same appetite for jet travel as they did immediately post-lockdown. “Economic uncertainty and down-trending equity markets have capped business jet charter demand in the last nine months,” he says. “Combine that with the inevitable drop off in ‘revenge travel’ as pent-up demand from lockdowns dissipates. Year-to-date, scheduled airlines are flying well above last year and closing the gap on pre-pandemic levels.”

But ACS’s Leach also sees another factor. “Pricing has also played a big role,” he adds. “We have seen charter pricing rise significantly over the past 12 months and no doubt this will have priced some lower end charterers out of the market.” Leach says this is evident in the ACS statistics, which show flight numbers in February this year level with February 2022, but overall gross revenue rose by 20% YoY.

Question three: Should we be worried?

“Very hard to say,” says Gollan. “There was more demand than the market could support. There are still issues with supply chains, maintenance delays, pilot shortages, training slots, so this is giving everyone a chance to take a breath and begin again providing a dependable product.”

But Gollan adds a warning: “That said, a slide in charter was a precursor to the 2008 financial crisis.”

Leach worries not for the sector overall, but perhaps for some companies. “It will be a cause for concern for those organisations whose business model requires strong growth to service debt or who over-expanded their cost base during the boom,” he says. “However, a big economic shock if the banking crisis escalates may change things.”

On the other hand, ACA’s Hogben is optimistic. “The growth experienced over the last two years has been exceptional, and for this to be maintained is still a very positive situation for the industry.”

Collins adds: “Looking ahead, pre-sold demand is strong and will eventually unlock flight legs.” US passport renewals for international travel have seen a 30-40% YoY increase in applications, which shows there is still strong demand. “We will see a return to a more normalised world of flying,” he says.

Koe adds that appetite for business jets is still strong, with charter activity in Europe and North America still “well up” from 2019.

So, how did your answers compare with ours? (Please let us know via email). Whether you answered the last question Yes or No, it could be time for a well-earned drink – after work.

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Corporate Jet Investor understands that the helicopter programme, which will initially focus on the UK, will eventually become available on a fractional basis when the fleet expands. The company is hoping to add to the fleet by the end of the year, but CJI understands it could be even sooner due to the listing of the company through a special purpose acquisition company (SPAC) merger due to close in summer.

Until then, Flexjet will offer jet owners on the ultra-long-range jet programme complementary helicopter transfers to and from their jet at airports in London or the US operating regions, as well as a standalone service for the helicopter programme.

The move follows Flexjet’s similar helicopter service in Florida and the north-eastern US, which was launched in June last year.

Each Sikorsky S-76 can seat up to eight passengers and features handstitched leather seats with metal and leather accents throughout the interior.

“No other private jet provider can offer access to an in-house helicopter fleet, which is yet another example of what makes our service stand out from our competitors,” said Marine Eugène, European MD, Flexjet. “Following the successful model already pioneered in the US, our new UK helicopter division defines us as the leader in combined fixed-wing operations and private urban mobility.”

Alongside the Sikorsky S-76, Flexjet will offer on-demand helicopter charters on its fleet of Agusta AW109 and AW169 aircraft, which were acquired during the company’s acquisition of Halo Aviation in 2021.

Eli Flint, president, Global Helicopter Operations, Flexjet said: “We see significant market potential for our premium helicopter programmes here [in the UK] and we’re raising the bar in rotary operations in every respect.”

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In its recent report, Top Trends in Fractional Jet Ownership for 2023, the firm said the addition of hundreds of aircraft to fractional fleets will cut waitlists in the next 12 months.

The report highlighted that fractional companies are adding to their fleets rather than just replacing aging aircraft. NetJets is aiming to have 1,000 aircraft in its fleet by the end of this year, up from 750 in its pre-pandemic fleet. Similarly, Flexjet is expanding its fleet from 160 aircraft before the pandemic to around 290 by the end of 2023.

The additional fleet, along with demand leveling off, will make fractional ownership a more attractive prospect for customers. Ultra-long-range jets will have the most limited choice, according to the report, but wait times for these will also reduce.

Looking at the year ahead, Nick Copley, president, SherpaReport said: “The next 12 months will continue to be very busy for the fractional market. The reasons are multifaceted, but key trends for increased activity relate to a wider variety of aircraft, shorter wait times to gain access to fractional ownership, a more favorable buyer’s market, flexible structures and an increased focus on sustainability.”

Top trends in fractional ownership for 2023 – at a glance

• New aircraft being added to fractional fleets to meet wider variety of needs
• Waitlist to become fractional owner diminishing
• 2023 will be kinder year for buyers in buyers’ market
• New flexible structures will entice some to fractional ownership
• Actions underway to cut carbon footprint

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Since 2019, nine of the 20 largest Part 135 US operators have been acquired by competitors. Five were bought by Vista Global – which also acquired Air Hamburg in Europe last year. Jet Edge went from being an acquirer to being acquired.

Wheels Up bought four of the top 20 operators. It also acquired Air Partner for $110m less than a year ago. Wheels Up reported its figures for 2022 yesterday. While it grew last year, the company’s key focus is on becoming profitable next year. It is much more focused on integrating its past acquisitions than looking for new ones. While Thomas Flohr likes surprising the market, the same appears true at Vista Group.

“In the last few years operators have been focused on securing supply to meet the increased demand from both new and existing customers. Now that they have secured additional lift, they will be focused on optimizing their fleets and infrastructure to make operations as efficient as possible,” says Bobby Femia, aviation investment banker at Jefferies, the investment bank that has worked on the most business aviation mergers. “We are likely to see more acquisitions where operators are investing in technology, maintenance or software enhancements.”

Flexjet’s acquisition of sister Directional Aviation company Constant Aviation is a clear example of this. Constant Aviation, a well-regarded independent maintenance shop, will now focus on supporting the Flexjet fleet.

In a statement announcing the deal, Jay Heublein, senior vice president maintenance Flexjet, described the acquisition as “one of the most significant infrastructure investments in the history of our industry”.

This might sound like an exaggeration – especially for a deal involving two sister companies – but it is a fair comment. There are two big reasons why Flexjet wants Constant.

First, every operator has faced challenges keeping aircraft flying in the past few years. Flexjet, which now plans to list on the NYSE American exchange as part of a SPAC, believes that having its own maintenance division – which includes 28 mobile aircraft on ground teams – is an advantage.

The second, most significant reason, is that in recent years only manufacturers (and their subsidiaries like Jet Aviation) have made big maintenance investments as they try to grow their services businesses. While it makes sense for OEMs to do this, not all customers want them to have this power.

Directional could easily have sold Constant to a manufacturer. But instead, as one of the largest operators in the world, Flexjet can continue to push back against manufacturer dominance just as airlines with large MROs – such as Delta TechOps or Lufthansa Technik – do. Like these airline divisions, Constant Aviation says it intends to stay in the retail market space and keep its brand.

The last three years have been dominated by operators looking for supply with 2023 focused on efficiencies. You will know that demand for charter falls when they start buying demand – as Directional did with Sentient Jet in 2012. One major broker that was in talks to buy competitors, says they are holding back on any acquisition for the first half of the year until they can judge customer demand.

It is not always a mistake to buy at the top of the cycle. General Dynamics’ acquisition of Jet Aviation in 2008 was a good one. But like aircraft owners, sellers of operators in 2022 can be happy with their timing.

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