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Marsh Brothers Aviation
Marsh Brothers Aviation
The monthly news publication for aviation professionals.
Going in with eyes wide open – will next year's crop of new business aircraft give you a good return?
A number of new private aircraft are expected to enter into service over the next 18 months and EBAN asked its readers to pick their preferred, if theoretical, factory-new investment for the year. Which new types should hold their value and which offer the best charter recuperation? We also talked to some of the manufacturers about where these aircraft will fit into the marketplace, and the models they are set to replace.
Read this story in our December 2017 printed issue.

gA number of new private aircraft are expected to enter into service over the next 18 months and EBAN asked its readers to pick their preferred, if theoretical, factory-new investment for the year. Which new types should hold their value and which offer the best charter recuperation? We also talked to some of the manufacturers about where these aircraft will fit into the marketplace, and the models they are set to replace.

Speakers at a recent Corporate Jet Investor conference agreed that owners of new business aircraft should now expect their asset to have depreciated by at least 50 per cent at year five, while owners of aircraft older than 15 to 20 years need to realise that they might be its last owner. Business aircraft steeply depreciate in the first five to six years of life, with depreciation flattening out between years 10 and 15. This aligns with Conklin & de Decker analysis showing that over the first 10 years the yearly market depreciation will be four per cent for business jets, five per cent for helicopters and six per cent for turboprops.

AvBuyer figures show that before 2008 three to four per cent per year depreciation was used to gauge future business jet values. Its recent analysis suggests that there is now a higher percentage depreciation per year. It also notes that aircraft with greater range, speed and cabin volume, that are equipped with the new generation of avionics and supported by hourly maintenance programmes, tend to retain value better.

First ever Swiss business jet

Pilatus has just obtained type certification from EASA and the FAA for its PC-24. There are eight models on the assembly line in Stans, Switzerland, with deliveries to customers planned throughout 2018. The company claims it is the first business jet worldwide designed to take off and land on very short or unpaved runways and to come with a cargo door as standard. It also boasts a spacious cabin with an interior that can be adapted to suit personal requirements. Are purchasers to be found within the Pilatus stable, perhaps operators of the PC-12?

Abu Dhabi-based GI Aviation operates two PC-12 NGs and at the moment limits itself to flights within the Gulf Cooperation Council, but if it were to add a twin-engine PC-24 then the range in which it comfortably operates could be expanded to open up central Asia, India and east Africa. “The aircraft appears to be priced right and should have reasonable operating costs that will make it very competitive in the charter market,” says general manager Captain Patrick Gordon.

Despite fears that aircraft used on dirt strips are more likely to sustain damage, which could impact on second-hand prices, historically Pilatus Aircraft have held their resale value well. Gordon thinks there is no reason why the PC-24 wouldn't follow suit: a good investment that should maintain a great deal of its intrinsic value. Colleague and first officer Gabriel Cordova lauds the Phenom 300 for value retention too, and notes that Embraer is still improving the product and providing great support.

Both Gordon and Cordova recognise limitations with the PC-12s when operating on a commercial licence rather than as an owner/pilot. These are ETOPS-type restrictions which mean the single engine aircraft must always be a given amount of time and gliding distance from an emergency airport. “In Europe and America that is not a problem because there are airports all over the place, but here in the Middle East the airports are a little bit further apart, as are the cities, so we have to be thorough in our flight planning,” Gordon says. “It is not dangerous, but it does take a little more time to flight plan this aircraft than it would for a typical twin engine.”

The company is also looking at the Phenom 300E, which Cordova says would meet the requirements of some of its more demanding customers. Although the PC-12 is a very safe aircraft, the perception that a twin jet is safer is another benefit. And being able to run the engines to idle power on the ground and have the cabin cooled down by the air conditioning would bring some added value too. The Phenom 300 and the PC-24 both have this capability but Pilatus is not taking any orders at the moment. The Embraer, on the other hand, is immediately available.

Belgian operator NextGen Aviation has been running PC-12s for more than three years. CEO Tim de Meijer believes that approval of single engine commercial ops by EASA earlier this year will mean even higher potential in terms of value and resale value. “Pilatus does a great job because it protects the market a bit,” he says. “It doesn't over-produce the aircraft, and with the PC-24 the order list has already been closed for quite some time.” Like the PC-12, the PC-24 should be a robust and stable product to invest in, but he sees a challenge for Textron to get its clean-sheet single engine turboprop, the Cessna Denali, into a market that has been served very well by Pilatus for quite some time. The Denali price is fairly high so if he were buying again he would go for a PC-12. “The Cessna Denali still needs to prove itself,” he adds.

From piston aircraft to Denali

“The Cessna Denali is entering the market at an exciting time,” says Cessna project engineer Dan Lyon. Company research shows that the single turboprop engine market is growing and Textron anticipates the clean-sheet design and advanced features will make a big impact: it is not only a logical step up from piston aircraft, but is also targeted at owners already operating single turboprop aircraft who will be attracted by its lower operating costs. A first flight is scheduled for the end of 2018 and Textron Aviation will begin static and component testing at the beginning of the year. Certification will follow during 2019.

The Denali's large cabin has big windows and a pressurisation ceiling of 31,000 feet, which will suit special mission and air ambulance operators. “Some operators are flying lower than optimal to keep the cabin altitude low, and we didn't want to make that sacrifice,” says Lyon.

Textron Aviation expects much interest within Europe, Africa and the Middle East given that it is designed to perform well on the short and unimproved runways common to the region. “The team has put a lot of effort into the design of this aircraft to ensure the Cessna Denali enjoys a long life,” adds Lyon. “And with the support of Textron Aviation's global service network, Denali customers can be confident their aircraft will be supported throughout their ownership experience.”

Farewell G450, hello G500 and G600

According to director of corporate communications Heidi Fedak the Gulfstream G500 is still on track to meet the 2018 first customer delivery date announced at the aircraft's launch in 2014. G600 deliveries will follow later in the year. At the moment both aircraft are still in their respective flight test programmes.

Enhanced performance standards were announced in October which means the G600 will now deliver 6,500 nm of range at Mach 0.85, and 5,100 nm at its high speed cruise of Mach 0.90. The G500 will fly 5,200 nm at Mach 0.85 and 4,400 nm at Mach 0.90. “Flying at Mach 0.90 can save up to an hour versus flying at Mach 0.80 and on a yearly basis this speed could result in significant time savings of more than 50 hours,” Fedak says. In addition to reducing the passenger's time on the aircraft, the reduced flight time results in a longer duration between scheduled maintenance visits, higher resale value due to lower accumulated flight hours, and lower yearly costs for parts and service programmes.

At the moment neither Belgium-based ASL nor its sister company JetNetherlands operate ultra long range business jets, but safety and marketing manager and pilot Maxime Wauters has been keeping an eye on new aircraft developments and believes the G500 and G600 are probably the most revolutionary in terms of design and equipment, and represent a greater challenge for Gulfstream than for Bombardier with its Global 7000. “I think the market for these aircraft lies in the existing GIV, G550, Global Express, G5000 or G6000 customers, willing to upgrade to a newer, larger, faster model,” he says.

Gulfstream-heavy in Germany

According to Luxaviation Germany MD Dirk Bruse the company is now quite Gulfstream-heavy since its clients moved away from Falcons, so he will be looking at the new G500 and G600. Its pilots should be type rated next year and, having looked at the maintenance provisions, the company should be one of the first in the region to have expertise on the new types.

“We will start replacing the fleet, including the G550 and G450, but I also see the new types as additions because their range is not quite as good as the G550 and G650,” he says. The new models compete more with the Falcon 900, 7X and CL604/605; their design is easy on the eye and he thinks his clients will love them.

Compared to Bombardier models, he believes Gulfstream products hold their value very well. But having been in the industry for 25 years he remembers a time when you could buy an aircraft, fly it for 10 years and then sell it for the same price or even for a mark-up. But times have changed, and he adds that even a six-year-old G450 or G550 may only be worth around $32 million, which equates to a loss of on average 15 to 20 per cent. “If you go to Bombardier now you can get aircraft for below the list price,” he notes, “and that doesn't bode well for residual value for existing clients. That's not helpful in my opinion.”

As part of his consultancy work Bruse advises clients on which aircraft is best for them. However experience has shown him that if a client has a particular preference, perhaps because a friend has a certain aircraft, nothing will change their mind, even if that particular aircraft is not their optimal fit. “The client has made up his mind already and I won't try to change it,” he say. “I used to try to do that and lost clients as a result.”

One of his clients flies mostly from Moscow to Palma de Mallorca with his wife in a G550. He has a G650 on order but again is planning to use it just for those trips, and maybe the occasional ski trip and a once a year flight over to South America. The best fit for this customer would be a Falcon 2000 or Challenger 350 because he doesn't have luggage and just needs a roomy cabin. But Bruse knows there is no use trying to change his mind. Some people want what they want.

Wide body operator falls for G600

Portuguese operator Hi Fly operates mainly wide body, long range aircraft such as Airbus A330s, A340s and soon A380s, alongside a Challenger 604. New aircraft under consideration are an Airbus ACJ, a Bombardier Global 7000 or, current favourite, a Gulfstream 600. President and CEO Paulo Mirpuri says: “It has the range that we need for our business activities, and maintenance-wise Gulfstream has very good product support so we are not concerned about this being a problem.”

As with the purchase of any other transportation asset, Mirpuri allows that the latest available technology comes at a price. However maintenance costs will be significantly lower on a new aircraft over the first few years. The engines are more efficient and that has a positive impact on direct operating costs: using less fuel means flying further at a higher speed. The G600 will have all the modifications that are required to fly all over the world already incorporated into its systems, including ADS-B Out, FANS and predictive windshear. “It's an expensive package but we believe that it is efficient,” he adds.

Long range and a four-section cabin

Assembly of Bombardier's Global 7000 has now started and the company expects deliveries from Q1 2019. Germany-based K5-Aviation will be one of the first operators in the region. “I can only speak on behalf of our customers but the Global 7000 is a great choice because it is the biggest purpose-built private jet available,” says accountable manager Luca Madone. “It has a 7,300 nm range combined with a four-section cabin and this has not been seen in the market before. It has a very high cruise speed too at Mach 0.925.”

The Global 7000 will give the operator access to new city pairs, connecting the Middle East to the USA in many route combinations. For this reason the additional cabin zone is a huge plus, allowing room for a master bedroom with ensuite shower. Madone expects the value to increase at delivery, as happened a few years ago with the G650, and anticipates very high demand for this type as well as considerable interest for charter. “The Global 7000 will be almost exclusively available for charter, which might be a rare thing in 2019,” he says. “The reason for having this aircraft from the owner's point of view was to create high charter revenue.”

According to AvBuyer the value of a five-year-old business jet used to be 80 per cent of its new price. Today, it is likely to be nearer 50-60 per cent. The average length of business jet ownership has increased since 2005 across all makes and models, from 3.6 to 5.3 years, as owners have held on to their aircraft during difficult economic times. And the Falcons have the highest average length of ownership compared to others.

Dassault Aviation's all-new Falcon 5X made its first flight earlier this year and further flight tests were being undertaken, but repeated issues with the Safran Silvercrest engines have caused the OEM to cancel the programme in favour of a new Pratt & Whitney Canada-powered jet, due in 2022.

With the Falcon 8X now settled in the marketplace, Dassault is preparing for the future of the Falcon family. Its design engineers are at the concept design stage of a new model. While we know no more at this point, president and CEO Eric Trappier has said that this process will benefit from the company's ongoing transformation plan in which full digitisation will improve Dassault's competitiveness, reactivity and capacity for innovation.

Rotary issues

With three H160 prototypes now in flight testing Airbus Helicopters is currently preparing for EASA and FAA certification and entry into service in 2019. According to the head of the H160 programme Bernard Fujarski this was originally set for 2018 but was moved back due to problems encountered on some systems that had to be redesigned. The first version to enter service will be for passenger transport and oil and gas operations, followed by the emergency medical services version and then the VIP version scheduled for 2021.

UK helicopter company Starspeed MD Dr Simon Mitchell believes the market has been desperate for a suitable replacement for the EC155/S76 medium class of aircraft. On paper, the AW169 looked perfectly poised to take a massive market share and to become the dominant supplier in the years waiting for Airbus to catch up. “But I think that Airbus Helicopters has been given a 'get out of jail free' card by dint of Leonardo failing to deliver the AW169 properly,” he says. “There is no doubt that Airbus made a mistake with the timing for H160, but it will probably get away with it because Leonardo failed to deliver a fully finished and complete product in the AW169.”

He adds that Airbus has done extensive customer research and taken the time to try and understand what the market needs and so it should deliver something that could potentially mark a turning point and start a period of recovery and success. “We expect the H160 to be a good product,” Mitchell notes, “and the challenge for Airbus will be to ensure that its product support improves to the same level.”

Airbus Helicopters' H160 medium twin aircraft has a maximum take-off weight of 5,670 kgs. According to media relations manager Laurence Petiard this will enable operators to perform the majority of their missions with the flexibility, for example, of performing single pilot IFR missions and accessing hospital landing zones under FAA regulations. An extended gross weight up to 6,050 kg will be offered at entry into service without any power-by-the-hour penalty or major flight envelope impact.

The H160 will replace the Dauphin and has been developed to regain market share in that category. With 68 dedicated patents the aircraft has sound-reducing Blue Edge blades and an exceptionally low level of vibration. Pilots will also appreciate the high level of external visibility in the cockpit and the Helionix avionics suite that reduces workload. Letters of intent have been signed for almost all market segments the world over.

The OEM has also launched Airbus Corporate Helicopters, a dedicated private and business division to complement sister company Airbus Corporate Jets. It uses the ACH prefix to identify the company's range of private and business configured aircraft.

The 525 is unlike any aircraft Bell has brought to market

Bell is actively working toward 2018 certification for its clean-sheet design 525 Relentless. The company has received good customer response for the only aircraft that can fly gross weight at Category A; many aircraft in its class have to remove payload to do so. Bell has signed letters of intent with a number of Middle Eastern, African and Irish companies for use on a wide range of missions.

Starspeed's Mitchell finds this to be a very different product. Whereas the H160 is a replacement for the EC155 and S76, and there is a ready and waiting customer base for that size of aircraft, he believes the B525 does not quite replace anything as such. There is no evident existing market for this size of aircraft; Bell Helicopter is attempting to define a new sector.

The price will be the most obvious limitation in the VIP sector he says, but there are also the less obvious infrastructure issues. Many heliports, especially in the Riviera, have size and weight limits that the B525 will exceed. So who are the customers and what sort of places do they want to go? Will the B525 be too big?

“It's like a jet customer buying a BBJ767,” he adds. “They are suddenly restricted to where they can take it.” So what does that mean for the utility of owning the aircraft? On the upside he notes that there is always something different about the quality of a Bell in comparison to its competitors, that makes it stand out. And as it is designed primarily for oil and gas work it has notched up sales in the Middle East already, as well as China.

“When you are buying an aircraft you are not just buying the asset, you are investing in all the services you need to get it operational, including maintenance and training,” says Finnish Aviation Academy trainer Petri Louhivuori. The availability and cost of training is a key issue in the selection of aircraft and helicopters, and Louhivuori believes those for which training is readily available are the better sellers.

This is one of many types of after-sales market support that can affect resale prices. It is noticeable that manufacturers are extending their support networks in all regions and this will enhance the ownership experience and protect asset values.

Forecasting sales

But where are the buyers? Market analysis company Teal Group predicts that sales of aircraft costing more than $26 million could return to the 2008 peak within four years, while the smaller cabin segment at $4-$26 million could take longer due to continued weak demand. Generally there is increased utilitsation and a shrinking used aircraft inventory, but pricing trends and sales figures are still weak. This makes it difficult to properly predict whether the industry is on the cusp of recovery or whether these green shoots are about to wither.

GI Aviation's Gordon is surprised at how long the aviation market has been depressed, and doubts whether used prices have hit the bottom yet. “They just keep going down more each month,” he says. “This will limit new aircraft sales because now, for a very reasonable price, it is possible to buy a high-performance used business jet that gives a lot in range, power and performance. I doubt that anyone knows how long this economic condition will last but it's going to be tough deciding whether to buy new or used for the next few years.”

He does not envisage much change next year even though the economy in America has begun to expand. “While everyone got excited when the price of fuel dropped there is still a glut of used aircraft for sale along with a lot of new aircraft trying to crack the same market. I can remember that in years past you could buy an executive jet, fly it for 10 years and then sell it from anywhere between 70 to 120 per cent of what you paid for it,” he adds, echoing Bruse.

They made for magnificent investments, especially in a generous tax environment, but he fears those days are gone for good.

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