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Spring 2008

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The economy seems to be the big story. With downward pressure from slowing economic activity, issues with the bond market, rising fuel prices, and sinking dollar – I would expect the re-sale marketplace to be terrible – and it’s not. Why? Is it coming? The only answer I have is the sinking dollar is keeping the aircraft market afloat.

Aircraft can be looked upon as a commodity. Commodities have been increasing in value (at least based upon the dollar value). We have seen exports increased so far this year. They still are a small portion of the total market, but steadily increasing.

The largest effect that this phenomenon is having is on the long-range, relatively new aircraft. We hear Falcon 7X’s are selling for more than $60M, BBJ’s in the same range, new Global 5000's in the $50M, G550's in the $60's, etc. This looks crazy on the surface, but when you look at the sinking dollar you realize that they are paying the same amount of euro’s, rubles, etc. These markets are currently stabilizing.

The international market has been helping the later model aircraft moreso than the older aircraft. EASA certification has had a lot to do with this. It is much easier to get a newer aircraft with fewer modifications, upgrades or repairs approved and registered in Europe.

Most surprisingly, the U.S. market has been active. We are on the same pace as last year in our sales, and our biggest problem has been getting listings.

We do see some prices falling, especially in mid-sized jets—the Hawker 800XP and Citation Excel come to mind.

Smaller jets such as the Encore, Hawker 400XP (aka BE400A) and the CJ2/CJ3 are stable, but seeing increased inventory. This is putting some pressure on pricing, but nothing significant.

The Turbo Prop marketplace reflects the jets. Later model aircraft are selling, but older ones are taking longer. The King Air B200 market has been hot with strong upward pressure on the pricing. Sales of the C90GT seemed to have cooled from the last quarter. The King Air 350's have been mostly stable with a couple “fire sales” that have put a question on the market.

The biggest influence to this market that has not been addressed is the availability of lenders and their interest in aircraft financing. Right now, many lenders are looking to diversify and additional aircraft loans will help balance the loan portfolios that may have been tied up with real estate loans. As long as the banks keep financing aircraft, this potential downturn will be minimized.

INTERNATIONAL REGISTRY – SMOOTHER SAILING
by Tim Keeney

If you have bought or sold an airplane since March 1, 2006, then you know about the International Registry (“IR”). If not, here is a little IR 101 followed by an update on the second year of the IR’s existence and a bit of a preview of what’s to come.

The International Registry was created by the Cape Town Convention on International Interests in Mobile Equipment (now you know why we short hand it as IR) and implemented on March 1, 2006. The IR is basically a record of who owns each airplane and/or engine(s) and who has a financial interest (be it ownership or lien) in a particular airplane or engine. In many ways the IR duplicates the information that has always been filed with the FAA to show ownership, to transfer ownership of airplanes, and to record liens against an airplane for financial institutions.

However, unlike the FAA, the IR will not accept “mechanic’s liens” against an airplane. Another difference is that all filings with the IR occur via the Internet and are accepted by consent of all parties to a transaction. So, you ask, what is the benefit gained by participation in the IR? To domestic U.S. participants…not much because we function in a realm of customary business practices supported by a well-established rule of law that lays the ground rules for “owning” assets and transferring that ownership.

However, with the emphasis properly placed on the International in IR, you will find that the IR provides similar ground rules and protections for parties choosing to do business in and with parties in other countries who signed on to Cape Town. One extreme example: what if a financial institution leased a fleet of aircraft to an airline in one of the signatory countries, and through a hostile change of government and subsequent act of that government, the financial institution’s lien on that fleet were declared invalid or just plain ignored? With the IR in place, there is at least an enforceable interest to be pursued.

With its second year behind us, it is reassuring to hear that improvements have been made to the IR’s software and methodology. Year two saw the implementation of a procedure to record a fractional interest in an aircraft, thereby, bringing a huge number of airplanes into the system that were initially ignored.

Checking in with several escrow and title companies, I found they believe the IR works more smoothly now and they are into a groove. SITA (the vendor responsible for administering the IR) has taken proactive steps to learn what improvements and additional features would enhance the IR’s utility. Hopefully, this will bring further improvement to the already substantial reduction in the time required to register as a “user” from more than a week initially to as little as a day or two now. It is easy to see that the slow process experienced in the early days of the IR could put a transaction in jeopardy. It is still important though to register as soon as you contemplate a transaction.

While these improvements make the IR easier to live with, not all have been successful. Early IR users may recall a lack of standardization in aircraft make and model designations. A recent attempt to introduce a software application that would have saved a substantial amount of time by searching for similar model designations has been sent back to the drawing board for further development. One interesting glitch is that the IR lacks a mechanism for releasing financial interests that have been assigned from their original filer to another party and then to be released by that third party. In today’s world of sophisticated financial transactions involving securitization and open market trading of financial instruments backed by aircraft as collateral, this problem could catch the occasional IR user unaware and delay closing or, worst case, scuttle a transaction (not many buyers will settle for less than “clear title”).

Even though the IR is settling in as a fact of life in the aircraft industry, there remains some question as to its benefit and some opposition to it. At the very least the IR adds to the cost of doing business; several hundreds to thousands of dollars per sale once all parties are included. After all, the United States already had a well developed method for documenting and transferring ownership of aircraft. It is estimated that U.S. IR users have paid in ninety-two percent of the fees collected so far by the IR, amounting to some four million dollars over the past two years. That’s four million dollars to run an office staffed by only five or so employees. Indeed, some would say that we already had a good system, and that those who wanted it expanded should bear the additional cost as they are deriving the benefit.

The point has also been made that, in signing the treaty, we have sacrificed a certain measure of sovereignty over enforcing laws already on the books in the U.S. Remember, if you have a dispute with the IR it does not get resolved in U.S. courts; you go to Ireland to pursue your claim. It has been suggested that there is no better time than a presidential election year for those in opposition to organize their efforts and make their displeasure known to their representatives in Congress as they are the only body with the power to counter the treaty.

Finally, until such opposition is successful in changing the status quo, we have found it best as you approach a transaction to be sure to engage the services of professionals who deal with the IR on a daily basis. Like a prepurchase inspection, their fees are money well spent to avoid a frustrating and possibly costly delay in closing your transaction.

LIFE SAVING EQUIPMENT THAT YOU SHOULD HAVE ON YOUR AIRCRAFT
by Jeremy R.C. Cox

The type of Life Saving Equipment that is installed on your aircraft depends to a large extent, on how old your aircraft is, and to which certification standard you fly. A new aircraft that is operated in accordance with FAR Part 135 regulations, and flown internationally, will most likely feature the latest, most up-to-date safety equipment on-board. If you are in this category you may skip this article if you wish; otherwise I suggest that you read on.

My personal view is that aviation life saving equipment can be divided into two categories: (1) equipment that saves the entire aircraft and its occupants; and (2) equipment that saves individual occupants on the aircraft.

• The first category includes devices that improve the crew’s situational awareness, which include: Electronic Flight Instrumentation Systems (EFIS) ‘Looks like several TV screens’
• Multi-function Displays (MFD) ‘Same as EFIS but multiple information sources can be displayed’
• Graphically displayed, Terrain Awareness Warning Systems (Class ‘A’ TAWS)/Enhanced Ground Proximity Warning Systems (EGPWS) ‘This system shows the ground even in cloud or darkness’
• Traffic Collision Avoidance Systems (TCAS) ‘Shows you where other aircraft in-flight, so you don’t hit them’
• Mode ‘S’ Transponders which enable automatic sharing of collision avoidance data with other aircraft and air traffic control ‘Prevents you from hitting other aircraft in-flight when equipped with TCAS’
• Runway Awareness and Advisory Systems (RAAS) ‘Prevents you from landing or taking off on too short of a runway’
• Sophisticated Weather Radar that includes both vertical and horizontal weather depiction ‘Prevents you from flying through hail, tornados, wind-shear and severe turbulence’
• Heads-up Display (HUD) ‘Allows the captain to keep his eyes outside the cockpit while flying in zero-zero conditions’
• Enhanced Vision System (EVS) ‘This infra-red device is night and cloud vision for aircraft’
• Angle of Attack System (AOA) ‘This informs the crew of how close the wing is to a stall’
• Airborne Camera System (ACS) ‘When mounted on a wing, this device will positively confirm if your under carriage is extended ready for landing.’

The second category includes devices that will save the lives of the occupants on board the aircraft, after things have gone wrong, which include:

• Automated External Defibrillator (AED) ‘Small portable device which restores a heart beat after a heart attack’
• 406 MHz Emergency Locator Transmitter (ELT) ‘A truly global locator tracked by the global satellite system’
• Smoke Hood/Personal Breathing Equipment (PBE) ‘This enables you to see and breath during a fire with heavy smoke, until you can exit the aircraft’
• Portable Oxygen Bottle (POB) ‘Just in case the masks don’t drop in the cabin, during an emergency decompression’
• Fully enclosed survival Life Raft with supplies ‘If you have to ditch and wait for pick-up, in most waters you will not survive with a only life-vest’
• Portable Iridium Satellite Telephone ‘No matter where you end up, you can reach out for help’
• A subscription to ‘MedAire’, or similar service supplemented by an Enhanced First Aid Kit ‘There might not be enough time to ‘land’ and seek treatment for some ailments that might strike at altitude. This provides a direct, open line to professional medical treatment, while in-flight.’

Unfortunately many aircraft owners and operators allow the issue of cost to overrule safety. If, hopefully never when, you are the victim of an aviation incident or accident, I promise you that you will absolutely rue the day that you chose to save money, when you had the opportunity to increase the safety of your aircraft, and the safety of all of those people who ride in it, including yourself. The catch phrase “Safety is no accident” is so true!

DIRECT OPERATING COST

The DOC (Direct Operating Cost) used in the comparison charts includes fuel ($4.95 per gallon), engine reserves (either MSP or overhaul agency estimates), and maintenance costs using information gathered from operators. All inspection estimates are based upon the aircraft operating 400 hours per year and averaging 1.5 hour legs.

PLEASE HELP US

The DOC (Direct Operating Cost) used in the comparison charts includes fuel ($5.50 per gallon), engine reserves (either MSP or overhaul agency estimates), and maintenance costs using information gathered from operators. All inspection estimates are based upon the aircraft operating 400 hours per year and averaging 1.5 hour legs.

We have added many new aircraft in this issue and would like to know if we are inaccurate on this data. Please call 1-800-532-6900 or E-mail tcrowell@jetbrokers.com with any information.

JET AIRCRAFT COMPARISON SUMMARY

TURBO PROPS COMPARISON SUMMARY