FT SPECIAL REPORT Corporate Aviation Tuesday October 21 2014 www.ft.com/reports | @ftreports Inside Political climate chills Anxious sector awaits upturn demand in China Private jet industry is years behind global It is unclear whether 2013, Shawn O’Day, manager of busi- norms for service ness aviation marketing for GE Avia- Page 2 negative publicity or tion, the aero engine maker, says. “We’re in 2014,” he says. “It’s still not the business cycle is comingbackinthewaythatwehoped.” Market still thinks that behind weak demand, There are certainly some reasons for big is beautiful optimism. Pat Gallagher, head of sales Global trade dictates reports Robert Wright for NetJets, which offers customers “fractional ownership” of aircraft – the need for longer range hen the corporate avia- right to use aircraft for set amounts of aircraft and larger cabins tion industry execu- flying annually – points out that flight Page 2 tives gather in Orlando hoursforbusinessjetsworldwideareup for the National Busi- 5percentonlastyear. Ukraine crisis casts W ness Aviation Associa- “The market is doing quite well year tion’s annual conference today, a single on year,”he says, although he notes that pall over Europe Gulfstream G550 owned by Tesco, the levels are nowhere close to their peak in Region is unlikely UK’s largest retailer, will feature in 2005or2006. to return to its manyconversations. According to Kriya Shortt, head of Tesco took delivery of the aircraft, its sales and marketing for Textron Avia- 2006-08 heyday fifth corporate jet, this month. Yet, tion, which builds Cessna jets, the pau- Page 3 when the Financial Times reported the city of second-hand aircraft available aircraft’s delivery at the beginning of could push would-be buyers towards Interview October, it heightened shareholders’ new aircraft. Only 2 per cent of Cessna uneaseabouthowthestrugglingretailer Citations 10 years old or less are cur- Textron’s Marine wasmanaged. rently for sale, against more than 10 per Eugene on meeting Tescowasquickttoannouncethatthe centin2013. customers whose new jet and the rest of the company’s “That’swhatreallydrivesthenewair- fleetwereallupforsale. craft market,” Ms Shortt says. “If [cus- fortunes The controversy is reminiscent of the tomers are]having a difficult time are row that erupted in November 2008 sourcing a pre-owned aircraft, their rising after it emerged that the chief execu- attention is very focused on the new air- tivesofGeneralMotors,FordandChrys- craftmarket.” and ler, the automakers, had used a corpo- Dustin Dryden, chief executive of falling rate jet to travel to Washington for a Hangar8, a corporate aviation charter Page 4 congressionalhearingwheretheywould and management company, suggests ask for government rescue money for the continuing robustness of demand GMandChrysler. for the largest, longest-range jets might The question for the corporate avia- fit a pattern from previous business tion industry is whether public scepti- cycles. cism about the value of private aircraft The issue is critical because industry ingtotheGeneralAviationManufactur- Economies: proponents of corporate “The big market grows, then the mid for corporate customers is acting as a activity levels remain so far below those ers’Association,onlyjustupfrom672in jets say they utlimately save thenthelight,”hesays. On FT.com significant brake on demand. Alterna- at the 2008 peak of the industry’s last 2012andbarelyhalfthe1,313in2008. companies time and money – Alamy Yet the continued bias in demand For regular updates and tively, the industry might simply be cycle. Everyone in the industry is still wait- towards the larger aircraft can also be analysis of the aviation industry go to: High Flying slumped towards the bottom of a nor- There were only 678 business jets ingforamorerapidrecoveryindemand readasasignofthemarket’sproblems. malsupply-demandcycle. delivered worldwide last year, accord- that had been expected in 2012 and continuedonpage3 ft.com/high-flying 2 ★ FINANCIALTIMES Tuesday 21 October 2014 Corporate Aviation Infrastructure and politics hamper market ripe for growth population – and those factors com- preferences,andpublicperception. maintenance and operations support, facing, which result in frequent and The model requires a large and liquid China bined with strong economic growth While nearly all early buyers paid notes that many wealthy Chinese are lengthydelaysforpassengers. private jet market, because if the meanthemarketisfullofpotential. cash,financinghasbecomeincreasingly basing themselves and their businesses Brian Foley, an independent aviation operator of the fleet cannot provide Private jet industry is years However, growth is expected to slow popular. inHongKongorSingapore. consultant, says the industry is being an aircraft when and where needed, it behind global norms in over the short term because of insuffi- Chinese buyers still prefer wide-body Ms Wu, who predicts 10 per cent stymied by lengthy application proc- must charter another one to fulfil the flexibility and service, cient infrastructure and the national jets, in part for the prestigious image, as annual growth in aircraft numbers over esses for entry permits, flight plan order. moodagainstpublicdisplaysofwealth. jets, like private yachts, are seen as plat- the next few years, says there are 377 approvals and routing requests, which Eric Wong, China vice-chairman of writes Cameron Dueck “There has been a crackdown on con- forms for entertaining clients and busi- private jets in China, with an additional undermine the efficiency and flexibility NetJets, which pioneered the fractional spicuous spending in China, and the nesspartners. 344 Chinese-owned jets stationed thatappealtocorporateexecutives. ownership model, says: “In China, the effects will extend well into next year,” The distances Chinese executives There are fewer than 200 civil air- infrastructure does not support such a China’sbusiness jet fleet is growing rap- says Jeffrey Lowe of Asian Sky Group, a need to fly on a regular basis also influ- ports available to private jets, and land- product. The congestion in the air and idly and the aviation industry sees great businessaviationconsultingfirm. ence their tastes, as they are as likely to 377 190 ing at many of them requires applica- on the airport tarmac, the restrictions opportunity in the country. However, Headds:“Thelastthingthechairman fly to Sydney or Tokyo as to a Chinese Number of private Total number of tion processes that take days. The US on operations mean that a fractional jets in China with Chinese challenges ranging from infrastructure of a company wants right now is a city. 344 more Chinese- billionaires after has some 5,200 airports open for pri- productisnotyetattractive.” to public perception mean that it will be microblog publishing a picture of him Wealth-X, a research company that owned jets around 33 were added to vate jets and permissions take only a NetJets has partnered with Chinese years before the country’s private fliers walkingdownthestairsofaprivatejet.” collects data on wealthy individuals, the region the club in 2014 fewhours. privateequityfirmHonyCapitalandan get the same flexibility and service that Private jet ownership in China began says Asia’s billionaire population grew China is seen as one of the few devel- investment unit of the Fung family to arefoundinmoredevelopedmarkets. as a personal luxury for the country’s by 10 per cent in 2014. The region pro- around the region – a relatively small oping markets which could support a provide services in China, and last Industry executives say demand for wealthy elite and only now is beginning vided 52 new entrants to the billionaire number given there are about 20,000 fractional ownership model in which month secured a licence to fly from the corporate jets in China has been rising to evolve into a service demanded by club, 33 of which were from China. private jets operating globally, accord- customers buy shares in the service Chinesecivilaviationauthority. and are positive about long term pros- Chinese companies as they expand Chinanowhas190billionaires. ingtoaviationexperts. rather than in a specific aircraft. This Mr Wong estimates that the market pectsfortheindustry. overseas. Jackie Wu, an aviation specialist with China’s private jetsector is facing gives them guaranteed access for a pre- needs several more years of develop- They point out that it is a large coun- With that shift in demand come Jetsolution International Services, many of the same infrastructure con- determined number of days, hours or ment before fractional ownership can try–bothgeographicallyandintermsof changes in service requirements, buyer which provides aircraft transaction, straints that the commercial industry is miles. beintroduced. Industry hopes next generation of aircraft will encourage sales New models Modified engines, wings and controls bring improved efficiency, writes Robert Wright t is far from obvious visiting Gen- “You used to have to make trade-offs, Bombardier’s CFM joint venture with Snecma of the improved efficiency to provide a lapsedafterthe2008financialcrisisand eral Electric’s sprawling Peebles which might be baggage for passengers, Global 7000, France. The Passport is adapted to the larger cabin for up to nine passengers. remains flat or declining across much of test site that the work it is under- or speed for range, or fuel load for pay- above, will be rigours of operating at up to 51,000ft, Textron Aviation, Cessna’s parent has theindustry. taking should give