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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But is there a link between big events at Wheels Up and NetJets announcing aircraft options?

NetJets announced a deal with Embraer for 250 Praetor 500 options in May, two days after Kenny Dichter stepped down as CEO of Wheels Up. This week it signed options for 1,500 Textron Aviation aircraft, releasing this news hours before Wheels Up announced it had closed a $500m financing.

The 15-year agreement covers Cessna Citation Ascend, Citation Latitude and Citation Longitude aircraft. NetJets will also be fleet launch customer for the Citation Ascend, when it enters service after 2025.

It is worth stressing that these are options not orders. Warren Buffett, chair of NetJets parent Berkshire Hathaway, once said: “It is impossible to un-sign a contract, so do all your thinking before you sign,” and NetJets takes this to heart. 

But even though they are not firm orders, these options should be taken seriously. Analysts at Jefferies say that Textron has taken between 19% and 30% of all Textron jet deliveries over the past five years. The investment bank says that the options may be worth $30bn to Textron.

In June 2012 NetJets placed options for up to 150 Citation Latitudes. Four years later it added another 50 options. Since then, it has taken delivery of almost 200, more than half of all Latitudes that have been built. 

As well as giving Textron production certainty and introducing the aircraft to new customers, these large orders should not worry other Textron customers. NetJets does not have a habit of dumping large numbers of aircraft on the market – in fact its whole business model makes this unlikely. You can expect the fractional operator to keep its Latitudes for 15-20 years. 

As well as QS Partners, its in-house sales broker, NetJets also has options for disposing of older aircraft. Amber Aviation spoke about its innovative Chinese AmberNet fractional lease product at Corporate Jet Investor Asia this week. NetJets has a small stake in AmberNet and has moved older Gulfstreams to the company. Hopefully we may eventually see it take some Textron aircraft from NetJets into China.

The closing of the Wheels Up credit facility is not a surprise but is good news for the company. Delta Air Lines, Certares Management and Knighthead Capital Management have successfully closed the $500m investment in Wheels Up that was announced in August. Cox Enterprises, the family-owned media and communications company has also joined as an investor. Perhaps, coincidently, Wheels Up’s former chief financial officer and its first chief technology officer were both former Cox employees. 

Delta, CK Wheels (a new Certares and Knighthead fund) and Cox have agreed a $350m term loan. The airline has also agreed to a $100m revolving credit facility.

It is unclear what secures the debt. Two market sources believe that collateral includes broker Air Partner, the few aircraft not included in Wheels Up’s aircraft EETC or aircraft-backed bond, all the company’s intellectual property including the brand, and all other assets. In return for closing the loans, the lenders have received 80% of Wheels Up’s stock. This is expected to get to 95% if investors agree to new shares being issued. Wheels Up’s advisers – Jefferies and PJT Partners – are also in talks to add another $50m lender.

This cash is designed to get Wheels Up to profit by late 2024. “This investment represents both an important source of capital for Wheels Up to support our strategy for financial stability, future profitability and long-term growth on behalf of our members and customers, as well as a vote of confidence in our path forward from a group of investors with deep experience in the premium travel space,” said George Mattson, Wheel Up’s new CEO.

The new lenders will also dominate Wheels Up’s new board. Delta will have four directors, Certares and Knighthead two each, and Cox one. There will be a seat for one company executive and two places for independent directors from the old board.

Obviously negotiating aircraft deals takes many months and NetJets will no doubt say its announcements are coincidental. The fractional operator is not going to announce any more options in the next few months so we can not prove it.

This is a shame. As Ian Fleming, the creator of 007, wrote, “Mr Bond, they have a saying in Chicago: ‘Once is happenstance. Twice is coincidence. The third time it’s enemy action’.” 

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This agreement extends NetJets’ existing agreement, and includes options to increase the number of aircraft each year, with a choice of Cessna Citation Ascend, Citation Latitude and Citation Longitude aircraft.

NetJets has also been named the fleet launch customer for Textron Aviation’s newest jet — the Citation Ascend. Currently under development, deliveries of the Citation Ascend are expected to begin in 2025.

“NetJets customers around the world continually select Citations as their aircraft of choice. We’re honored to be the largest provider of industry-leading aircraft to NetJets and look forward to continuing to work together to design and deliver the best aviation experience based on customer feedback,” said Ron Draper, president and CEO, Textron Aviation. “Expanding and adding the Citation Ascend to the NetJets fleet will provide its global customers with even more versatility and flexibility to accomplish their missions, building upon the exceptional performance and popularity of the Latitude and Longitude.”

Since the inception of the more than 40-year relationship between the companies, NetJets has taken delivery of more than 800 aircraft from Textron Aviation.

Doug Henneberry, NetJets executive vice president, Aircraft Asset Management said: “As a long-time, trusted ally who shares our commitment to safety and service, Textron Aviation is the ideal partner to help us expand our offerings to NetJets Owners with the introduction of the new Ascend to our midsize jet class, as well as by growing our overall fleet. Based on past demand for the popular Citation Latitude and Longitude, the new Ascend and all our new Citations will undoubtedly be well received by our Owners, particularly those who depend on NetJets to help them do more and miss less.”

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The Le Bourget Maintenance Service Hub creates a 24/7/365 MRO (maintenance, repairs and operations) service with JetSupport  in response to growing demand, according to the company. The new facility, together with the additional hub at London Luton Airport, is designed to ensure the smooth operation of NetJets’ 450,000 global flights each year.

Le Bourget’s service hub hangar covers 4,014sqm plus a ramp area covering an additional 11,329sqm. Big enough to accommodate the fleet’s largest aircraft models, including the Bombardier Global 6000 or Bombardier Challenger 650, the facility will help to deliver maximum aircraft availability, said the company.

Christian Luwisch, executive director, NetJets Europe said: “I am delighted to officially announce the opening of our brand-new Maintenance Service Hub at Le Bourget. As we continue to expand our fleet across Europe, it is imperative that our operations that keep our aircraft airborne expand at the same rate to ensure our owners can continue to fly. At NetJets, safety is our priority and both Le Bourget and Luton are strategically located to ensure seamless proactive servicing.”

As the facility becomes established in the coming months there is scope for more aircraft to be serviced each due to the ample capacity of the hangars, said the company.

The Le Bourget Maintenance Service Hub, was officially opened on May 16th with a ribbon cutting ceremony attended by NetJets executives and partners from JetSupport.

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On Sunday (May 7th), at the annual Berkshire Hathaway investor day Warren Buffett, chair and CEO, praised the performance of NetJets. “It’s in a class by itself. It’s done what Ferrari has done in a different sort of way in cars.” Charlie Munger, vice president of Berkshire, said that NetJets is now worth the same amount as a major airline (credit to Private Jet Card Comparisons for listening to the six hour meeting to get these quotes).

Buffett was also asked about Wheels Up. He did not hold back saying: “It has 12,600 people who have given them over a billion dollars on prepaid cards and I think there’s a good chance some people are going to be disappointed later on.”

Buffett’s comments focused interest on Wheels Up’s first quarter results which came out on Tuesday. The big news was that Kenny Dichter, its founder and CEO, was stepping down. Over green juice in the Wyn Hotel at NBAA back in 2013, he pledged that he would build the biggest brand in business aviation. He did and it will be fascinating to see what he does next.

Todd Smith, Wheels Up’s CFO, has been named interim-CEO. Ravi Thakran, who led the SPAC that acquired Wheels Up, is now executive chairman.

The financial results were overshadowed by Dichter’s departure. Wheels Up lost $100m in the first quarter, with adjusted EBITDA of  –  $49m but this is not a big change. It lost $89m in the same quarter in 2022 (with a $49.5m EBITDA loss). No one expected it to make a profit in the first three months of the year.

Aside from Dichter, there were three key things announced. First, there are signs that demand is starting to fall. Active members fell 1% to 12,285 for the first quarter of 2023 compared with 2023.

Second, the company is radically restructuring its programme. Rather than try to fly countrywide, it is refocusing on two core markets: east of the Mississippi River (with part of Texas) and west. It will keep its King Air fleet in the east. Offering light, mid-size and super-midsize aircraft in both regions, it is cutting the cost of flying and daily minimums. Using a King Air will be 7.6% per hour cheaper. Customers outside these areas will be encouraged to book charter with Air Partner.

This is a big shift. The company says that 80% of its customers are in these two markets. It also makes it much easier to support the fleet – particularly King Airs – reducing delays. With the programme changes it has now announced its clearest plan to get to profit.

Third Wheels Up also announced more cooperation with 21% shareholder Delta Air Lines more closely. Large Delta corporate clients will now be sold Wheels Up flights. Wheels Up customers will continue to get Delta frequent flier points and perks.

Launched on Wednesday, at the excellent International Aircraft Dealers Association (IADA) conference in Florida, Vista Global Trading is an exciting venture. It will be led by Bill Papariella, chief business officer at Vista.

Papariella was CEO of Jet Edge International which Vista acquired in 2022.

As well as helping existing owners trade their aircraft for programmes, Vista Global Trading is looking for large multiple aircraft deals.  At Jet Edge, Papariella bought and sold hundreds of aircraft – particularly Gulfstream G4SPs and G450s and Bombardier Challenger aircraft.

He loves trading and Vista Global Trading could become a significant business. Jet Edge Partners will continue to operate as a separate US aircraft broker led by Kevin White, but will work closely with Vista Global Trading.

The timing of the announcement is a bit of a surprise. Normally you would expect this to come at a large industry event like EBACE (which is next). Surely this has nothing to do with any other news last week?

This is from Corporate Jet Investor’s One Minute Week email – you can sign up for free here

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With deliveries expected to begin in 2025, it will be NetJets’ first time offering the midsize Praetor 500. The firm has been operating Phenom 300s, one of its most popular aircraft, for over a decade. The partnership between the two companies began in 2010 when NetJets first signed a purchase agreement for 50 Phenom 300s. Also, in 2021, after Embraer successfully delivered over 100 aircraft, the pair signed a continuing deal for up to 100 additional Phenom 300/E jets, in excess of $1.2bn.  

Michael Amalfitano, president and CEO of Embraer Executive Jets, said: “Since 2010, Embraer has enjoyed NetJets’ ongoing commitment to our industry-leading aircraft, which is a true testament to the value of our brand and our ability to deliver the ultimate experience in business aviation. Our strategic partnership has been an integral part of our business growth, with NetJets taking all aircraft delivery options that have been ordered with Embraer since inception. After building this successful foundation with the Phenom 300 series, it’s our pleasure to have now signed this monumental deal for the Praetor 500 midsize jet, and we look forward to an even more exciting future ahead.” 

The Praetor 500 offers best-in-class range, with US coast-to-coast capability, and it’s the only aircraft in its category with full fly-by-wire flight controls. Doug Henneberry, executive vice president of NetJets Aircraft Asset Management. “We are eager to add the Embraer Praetor 500, one of today’s most state-of-the-art business jets, to our midsize fleet. This historic fleet agreement is another way that we are growing our fleet for the benefit of our loyal customers. By adding up to 250 aircraft to our fleet, we will continue providing NetJets Owners with exceptional service and seamless access to all corners of the globe.” 

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The union, which represents 3,000 pilots employed by NetJets, said it filed the lawsuit in response to “NetJets’ threat to discipline or to discharge pilots” for referring owners and customers to a union website.

The website raises questions about salaries and pilot fatigue due to high demand and pilot shortage. It claims NetJets has “lost its competitive edge” in career earnings for pilots, stating that low-cost and regional airlines are paying pilots more.

In a statement on the website, the union said: “Competing in today’s marketplace requires bold action and proactive thinking. Sadly, NetJets has yet to rise to the occasion. What was once a career destination for professional aviators is slowly transitioning into a stepping stone, a place where new aviators come to build time before transitioning to more lucrative opportunities elsewhere.”

NJASAP said it surveyed its member pilots in January this year and found that more than a fifth (22%) of them planned to move on from NetJets within a year if no pay increase was achieved. Only 44% said they would recommend the company to other pilots seeking employment.

According to the union, Alan Bobo, chief operating officer, NetJets sent an email to NetJets pilots on March 8th accusing some of violating the company’s work rules. NJASAP said its representatives asked NetJets how pilots should respond if asked questions about contract negotiations, but NetJets refused to answer this and did not lift the ban on speaking about the website.

Speaking about the lawsuit, Pedro Leroux, president, NJASAP said: “The aircraft owners and customers we fly engage our pilots in conversations every day, including about their jobs and a wide variety of other topics. It is only natural that they would ask us for basic information about our current labour despite when they see picketers.”

Leroux added: “Referring to a union website is a professional and legal way to respond to their questions. We believe NetJets’ discriminatory ban on union-related speech is unprofessional and illegal.”

Brian Foley, founder, Brian Foley Associates told Corporate Jet Investor: “In business aviation there will always be labour disagreements or efforts to unionise particularly at the largest operators. Others can lessen their exposure to these types of adversarial spectacles by taking a page from fractional ownership provider Flexjet, whose pilots in 201 succeeded in decertifying their union in part by management allowing them to determine their own course.”

Foley added: “During contract negotiations, it’s always the silly and predictable season of politics. Publicly tangling with NetJets management has historically been the way the game is played. Despite past skirmishes, there has always been an eventual agreement.” 

NetJets has been contacted for comment.

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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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The firm, which offers fractional aircraft ownership, private jet leases, and jet card programmes, will eventually operate a fleet of 24 Global 8000s, which includes the new order, as well as eight conversions of Bombardier aircraft previously ordered. The remaining 12 jets will be delivered when NetJets upgrades its existing Global 7500 fleet progressively in the coming years.

Patrick Gallagher, president of Sales, Marketing and Service, NetJets said the aircraft will offer its customers “the pinnacle in unforgettably personalised experiences aboard the finest ultra-long-range aircraft available”.

He added that by the end of 2023, NetJets’ worldwide fleet will be 30% larger than it was at the beginning of this year.

Éric Martel, president and CEO, Bombardier said: “NetJets’ experience and expertise make them the ideal partner to unlock the full potential of this revolutionary Mach 0.94 business jet in a large fleet context. Our valued relationship continues to grow stronger, and we are proud to share this historic milestone together.”

The delivery of the aircraft will allow NetJets’ clients to access a wide variety of destinations “faster and farther than ever before”, according to Bombardier. The routes that NetJets clients can travel will expand to include Dubai to Houston, Singapore to Los Angeles and London to Perth, Australia.

The Global 8000 was launched at EBACE in May this year. It has an 8000nm range and has the same landing capabilities as the Global 7500 so it can fly into more difficult airports such as London City.

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NetJets, the world’s largest business jet operator, will take 100 new aircraft in 2023 – roughly 12% of all deliveries. Patrick Gallagher, president – sales, marketing and services, NetJets, explained this as part of a fireside chat at Corporate Jet Investor Miami 2023.

It is due to take delivery of 75 new aircraft in 2022 – more than 40 have already been delivered. It expects to hire more than 700 pilots in 2023. 

The fractional company has 500 aircraft in its US fleet and 100 in Europe. Executive Jet Management also manages more than 250 aircraft.

NetJets is investing in maintenance and infrastructure to support its record fleet growth.

Gallagher discussed how NetJets has been forced to reduce sales due to record demand. “For now we are limiting jet card sales strictly to renewals from existing members.”

The last two years have seen record business jet operator consolidation but Gallagher said NetJets is not interested. “You have seen a lot of consolidation, people buying other operators to buy lift. We made the very conscious decision to not do that, so it forced us to wait longer than we would have liked, because we had to wait for the deliveries and go out and hire pilots,” said Gallagher. “Consolidating certificates is difficult, consolidating cultures is even harder.”

Corporate Jet Investor Miami 2023 will take place on November 6th and 8th 2023

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