I just had an experience that I am afraid is what we will all be experiencing at an increasing rate. It was not fun.
On a trip back from the southeast I had to make a connection through Dallas. My flight on a regional jet departed on time, arriving at DFW a few minutes early. We were told that there had been some weather event the night before and planes were leaving the gates late so we waited on the ramp for 30 minutes before finally getting to a gate. I dashed to make my 50 minute connection and missed it by 1 minute.
I was rebooked on a flight leaving four hours later. That flight left the gate on time, but as we approached the takeoff runway, the pilot announced that there was weather to the east and the revised departure route would require departing planes to be placed in 25 mile trail instead of the normal 7 miles. I couldn’t count them all but my guess is that there were over 30 planes waiting ahead of us. We finally took off one hour after leaving the gate.
It is clear to me that these delays were not weather delays but rather a result of a broken ATC system. A system that separates aircraft by 25 miles at low altitudes is not only broken, but ridiculous. I am not sure what caused the late push back and jam up at the gate when I arrived, but I will bet it had nothing to do with weather the previous night. My guess is that regional jets were being held at the gate for the same reason we waited on my second leg. Regional jets can not burn fuel for and hour before taking off and fly 3 plus hours. (Hardly a regional trip but becoming more common as the airlines downsize equipment.)
Unfortunately I am finding this is the norm for airline travel. Sooner or later the flying public will stop believing the controller union’s spiel about the finest ATC system, and become tired of the airline and GA alphabet groups’ whining about user fees and who pays what. Eventually the public will wake up to the fact that it is the way ATC is governed that is causing their pain, and demand change.
I have co-authored, with Jonathan Howe, a guest editorial on this subject in the May issue of Professional Pilot magazine. Click here to read what we had to say.
Sunday, May 6, 2007
Saturday, April 7, 2007
The Buzz from Orlando
Last month NATA and PAMA held their annual conventions during the Aviation Industry Expo in Orlando. NATA is the trade association representing FBOs and air charter companies, and PAMA is the mechanics’ association. The ground support equipment folks (fuel trucks, tugs and the like) were also part of the trade show. Most of the news worth reporting came from the NATA and PAMA groups.
Jim Christiansen, president of NetJets, the 100 pound gorilla of the fractional and charter industry, painted a very up beat picture. NetJet’s fleet flew 380,000 hours last year and is expecting to fly over 400,000 hours in 2007. NetJets US operations saw a big turn around in 2006 by earning $143 million compared to a loss of $80 million the year before. FBO operators' eyes opened when Jim told the audience that NetJets burned 120 million gallons of jet fuel last year and is expected to use 135 million gallons this year, and 150 million next year. DayJet, the not-yet-started-up VLJ air taxi company, in a futile attempt to sound important, announced that they would use 25 million gallons in their first year of operations. What they didn’t say was when that year would begin. I have a feeling the DayJet speaker was confusing gallons with dollars. I am sure that DayJet will easily burn though $25 million in the first year.
Europe and Asia seems to be the next-big-thing for business aviation. Warren Buffett, writing in the world’s most readable and most read annual report, talked mainly about Berkshire Hathaway’s NetJets increasing success in Europe. In the first five years of operating in Europe, beginning in 1996, NetJets acquired only 80 customers. He said recently that European demand for fractional shares has “exploded”. In the last two years NetJets Europe has added 586 customers each year with a total base of more than 1,300 today. Eastern Europe and the Far East is a vast untapped market with rapidly growing economies. It was reported that a 30 person delegation from Russia alone attended the event in Orlando.
On the PAMA side Jack Demeis, president and founder of Continuum Applied Technology, opened the most eyes. Jack has been a good friend for years and I consider him one of the brightest technologist and futurists I know in this industry. Jack sees major changes in the aviation industry in the next 15 years. He predicted that there would be 9,000 UAVs in civilian use in this time frame. He reminded the audience that civilian orbital and suborbital flight is a reality today with new spaceports in the planning stage in Singapore and elsewhere. Jack told me that software would continue to drive aircraft. It reminded me of the F-22 squadron that was "shot down" by the International Date Line. Everything mechanical is becoming digital. I just picked up my car from the shop and was told the problem was corrected by rebooting the system.
Jim Christiansen, president of NetJets, the 100 pound gorilla of the fractional and charter industry, painted a very up beat picture. NetJet’s fleet flew 380,000 hours last year and is expecting to fly over 400,000 hours in 2007. NetJets US operations saw a big turn around in 2006 by earning $143 million compared to a loss of $80 million the year before. FBO operators' eyes opened when Jim told the audience that NetJets burned 120 million gallons of jet fuel last year and is expected to use 135 million gallons this year, and 150 million next year. DayJet, the not-yet-started-up VLJ air taxi company, in a futile attempt to sound important, announced that they would use 25 million gallons in their first year of operations. What they didn’t say was when that year would begin. I have a feeling the DayJet speaker was confusing gallons with dollars. I am sure that DayJet will easily burn though $25 million in the first year.
Europe and Asia seems to be the next-big-thing for business aviation. Warren Buffett, writing in the world’s most readable and most read annual report, talked mainly about Berkshire Hathaway’s NetJets increasing success in Europe. In the first five years of operating in Europe, beginning in 1996, NetJets acquired only 80 customers. He said recently that European demand for fractional shares has “exploded”. In the last two years NetJets Europe has added 586 customers each year with a total base of more than 1,300 today. Eastern Europe and the Far East is a vast untapped market with rapidly growing economies. It was reported that a 30 person delegation from Russia alone attended the event in Orlando.
On the PAMA side Jack Demeis, president and founder of Continuum Applied Technology, opened the most eyes. Jack has been a good friend for years and I consider him one of the brightest technologist and futurists I know in this industry. Jack sees major changes in the aviation industry in the next 15 years. He predicted that there would be 9,000 UAVs in civilian use in this time frame. He reminded the audience that civilian orbital and suborbital flight is a reality today with new spaceports in the planning stage in Singapore and elsewhere. Jack told me that software would continue to drive aircraft. It reminded me of the F-22 squadron that was "shot down" by the International Date Line. Everything mechanical is becoming digital. I just picked up my car from the shop and was told the problem was corrected by rebooting the system.
Wednesday, March 7, 2007
Very Light Jets: A Reality Check for Eclipse
Vaughn Cordle, CFA / AirlineForecasts
The perception of easy (i.e., dumb) money and current anti-airline sentiments are fueling the entrepreneurial spirit to create a better mouse trap out of air transportation. New and improved engines, avionics, and manufacturing processes have resulted in new low-cost aircraft designs, thereby encouraging those who think they have a unique business plan to get in on the game.
Lots of people will try lots of things, most of which will fail, and those who do succeed will become very rich, which gets to the very heart of capitalism and the reason why mousetraps are being improved in the first place.
One of the most interesting experiments now in process is the Eclipse airplane being put together by Vern Raburn. Spurred by an understandable desire to bring jet travel to the masses, Raburn has built a very cheap, very small airplane. He has raised a prodigious amount of money and has overcome many obstacles. Now, even with certification in hand, red flags are popping up all over the place as he seeks a production certificate: reports of high altitude instability when fully loaded; design flaws in the windshield; and avionics problems, to name a few. Also, it doesn't help when reputable companies like United Airlines (pilot training) and Avidyne (avionics) have been replaced – or quit - as key suppliers.
Raburn has a long way to go if Eclipse is to become a credible manufacturer. However, if he can get through his troubles, his price point is going to make the Eclipse tough to beat for very short haul, regional flying of the kind that many air taxi companies are proposing and hoping to finance. Better airplanes will undoubtedly be available for other types of air taxi missions, but it will be very difficult for another manufacturer to approach Eclipse price and cost points. Success, however, is dependent, on getting the plane fully built and subsequently, proving that it can support the high utilization rates on which air taxi economics are dependent.
It is premature to predict the demise of Eclipse since there is no other aircraft that has the potential to lower the price point for private aviation as dramatically as it can. Moreover, as of yet, no VLJ manufacturer other than Eclipse has shown an understanding of the parts and support requirements of air taxi companies.
Embraer has an aircraft that may prove to be the default choice for air taxi use, even though it is heavier, more expensive and costs more to operate. The good news for Eclipse is that the Phenom 100 will not be ready until late 2008. The bad news for Eclipse is that the Phenom 100 is designed for comfort and robust utilization, with a cabin and baggage volume twice that of the Eclipse. More importantly perhaps, the Phenom 100 is designed for 35,000 cycles, which is 3.5 times that of the Eclipse, meaning that resale and residual values will be significantly lower for the Eclipse after a few years of heavy use unless it proves more durable than is now anticipated.
AirlineForecasts has examined the business plans of many of the new upstarts that will use the new, low-cost VLJs. Most are based on unrealistic assumptions of consumer demand and have significantly understated the true cost of providing on-demand air taxi service. Most should not be financed.
Several of the air taxi aspirants may actually get launched, but their success will depend on choosing aircraft that appropriately match demand in the markets they wish to serve, on good management skills, and on the ability to raise sufficient capital.
JetBird and Pogo are two examples of new VLJ air-taxi operators that have the right management capabilities. Moreover, both potentially have the kind of financial capability that will be required for survival of the “surge and shakeout” that AirlineForecasts expect to occur over the next several years.
Mao Tse Tung once described our attempts to innovate by saying “A hundred flowers will bloom,” pointing out that our potential is great but only if conditions are just right. Low cost and abundant capital, combined with a demand for low cost and hassle-free air transportation, results in a market ripe for innovation and entrepreneurship. However, only a lucky few will blossom fully, while others quickly wilt under the searing heat of competition and market realities. It is too soon to tell which type of flower Eclipse will be, but it is certain that Raburn’s ingenuity and doggedness will be sorely tested in the months to come.
The perception of easy (i.e., dumb) money and current anti-airline sentiments are fueling the entrepreneurial spirit to create a better mouse trap out of air transportation. New and improved engines, avionics, and manufacturing processes have resulted in new low-cost aircraft designs, thereby encouraging those who think they have a unique business plan to get in on the game.
Lots of people will try lots of things, most of which will fail, and those who do succeed will become very rich, which gets to the very heart of capitalism and the reason why mousetraps are being improved in the first place.
One of the most interesting experiments now in process is the Eclipse airplane being put together by Vern Raburn. Spurred by an understandable desire to bring jet travel to the masses, Raburn has built a very cheap, very small airplane. He has raised a prodigious amount of money and has overcome many obstacles. Now, even with certification in hand, red flags are popping up all over the place as he seeks a production certificate: reports of high altitude instability when fully loaded; design flaws in the windshield; and avionics problems, to name a few. Also, it doesn't help when reputable companies like United Airlines (pilot training) and Avidyne (avionics) have been replaced – or quit - as key suppliers.
Raburn has a long way to go if Eclipse is to become a credible manufacturer. However, if he can get through his troubles, his price point is going to make the Eclipse tough to beat for very short haul, regional flying of the kind that many air taxi companies are proposing and hoping to finance. Better airplanes will undoubtedly be available for other types of air taxi missions, but it will be very difficult for another manufacturer to approach Eclipse price and cost points. Success, however, is dependent, on getting the plane fully built and subsequently, proving that it can support the high utilization rates on which air taxi economics are dependent.
It is premature to predict the demise of Eclipse since there is no other aircraft that has the potential to lower the price point for private aviation as dramatically as it can. Moreover, as of yet, no VLJ manufacturer other than Eclipse has shown an understanding of the parts and support requirements of air taxi companies.
Embraer has an aircraft that may prove to be the default choice for air taxi use, even though it is heavier, more expensive and costs more to operate. The good news for Eclipse is that the Phenom 100 will not be ready until late 2008. The bad news for Eclipse is that the Phenom 100 is designed for comfort and robust utilization, with a cabin and baggage volume twice that of the Eclipse. More importantly perhaps, the Phenom 100 is designed for 35,000 cycles, which is 3.5 times that of the Eclipse, meaning that resale and residual values will be significantly lower for the Eclipse after a few years of heavy use unless it proves more durable than is now anticipated.
AirlineForecasts has examined the business plans of many of the new upstarts that will use the new, low-cost VLJs. Most are based on unrealistic assumptions of consumer demand and have significantly understated the true cost of providing on-demand air taxi service. Most should not be financed.
Several of the air taxi aspirants may actually get launched, but their success will depend on choosing aircraft that appropriately match demand in the markets they wish to serve, on good management skills, and on the ability to raise sufficient capital.
JetBird and Pogo are two examples of new VLJ air-taxi operators that have the right management capabilities. Moreover, both potentially have the kind of financial capability that will be required for survival of the “surge and shakeout” that AirlineForecasts expect to occur over the next several years.
Mao Tse Tung once described our attempts to innovate by saying “A hundred flowers will bloom,” pointing out that our potential is great but only if conditions are just right. Low cost and abundant capital, combined with a demand for low cost and hassle-free air transportation, results in a market ripe for innovation and entrepreneurship. However, only a lucky few will blossom fully, while others quickly wilt under the searing heat of competition and market realities. It is too soon to tell which type of flower Eclipse will be, but it is certain that Raburn’s ingenuity and doggedness will be sorely tested in the months to come.
Eclipse – Barely Breathing
In the last few days we have seen a flurry of articles in the aviation press about the trouble Eclipse is having getting FAA production certification approval. Only one aircraft has actually been delivered since December when David Crowe took delivery of the first aircraft. Recent troubles became apparent when a week ago CEO Vern Raburn announced the end of Avidyne’s involvement in the program. Avidyne was a key supplier of almost the entire avionics suite. Avidyne is not the first respected subcontractor to be terminated. Williams International, whose engine the Eclipse was designed around, dropped out early in the program requiring a major redesign and delay of production. Last week Raburn said that serious problems have “plagued virtually every aspect of development, design and production.” Within hours United Airlines dropped the Eclipse training program. A type certificate is required to fly the airplane and to my knowledge the only pilots authorized to fly the Eclipse are production test pilots. With no training program, Eclipse typed pilots will be hard to find. I am sure this does not make the pioneering Mr. Crowe very happy, or any of the hundreds of others waiting for delivery. I wrote The Eclipse of the Eclipse? last August, but I did not foresee these problems, nor did I expect to see this company on life support so soon.
I asked Vaughn Cordle, one of my partners in The Aviation Group, CEO and Chief Analyst of AirlineForecasts, and a B777 pilot for a major airline, for a reality check. I will be posting his reply here.
I asked Vaughn Cordle, one of my partners in The Aviation Group, CEO and Chief Analyst of AirlineForecasts, and a B777 pilot for a major airline, for a reality check. I will be posting his reply here.
Tuesday, January 30, 2007
Too Much Money
When too much money chases too few goods, prices rise – Economics 101 – and weak business plans get funded. It looks like that idea is being applied to the emerging VLJ industry. I count 14 manufacturers that have entered this space or have announced they will very soon. Seven air taxi business plans are being circulated amongst the investment community. There seems to be no shortage of capital waiting to be wasted away on this dream that has yet to fly a single commercial flight and, so far, has only one viable aircraft (the Cessna Mustang) capable of flying a paying passenger. I have no doubt that VLJs will be produced in quantity, but far lower than almost all forecasts. I feel equally strongly that the VLJ air taxi models will fail and the manufacturers that are basing their production plans on these models will be sadly disappointed. Most of these manufacturers will also fail.
2006 was the best year ever for business jet manufactures. Backlogs are high and the outlook for 2007 is very promising. But with the exception of Embraer, Cessna, and Honda, the VLJ companies are skating on very thin ice – ice being capital. The ice supporting the VLJ air taxi companies is even thinner. A hiccup in the economy or a VLJ accident could cause big problems for the under-capitalized companies.
At the moment there seems to be plenty of ice. It is 19 degrees outside my window. Watch out - warmer days are coming.
2006 was the best year ever for business jet manufactures. Backlogs are high and the outlook for 2007 is very promising. But with the exception of Embraer, Cessna, and Honda, the VLJ companies are skating on very thin ice – ice being capital. The ice supporting the VLJ air taxi companies is even thinner. A hiccup in the economy or a VLJ accident could cause big problems for the under-capitalized companies.
At the moment there seems to be plenty of ice. It is 19 degrees outside my window. Watch out - warmer days are coming.
Thursday, November 30, 2006
The Conundrum of GA Airports
While the largest commercial service airports produce substantial operating surpluses and can finance their investment needs for capital expenses, this does not apply to all airports, especially general aviation airports. In fact, many smaller airports have an operating deficit and therefore generate no funds for capital projects. The FAA’s Airport Improvement Program (AIP) pays for at least 90% of capital investments (runways, taxiways, ramps, etc.) at GA airports, but they must rely on the local community’s tax revenues to cover operating deficits. The federal government supports GA airports because they connect smaller communities to the nation’s air transportation system. But the federal government does not fund operating expenses. School, public safety, roads, transportation, and social programs compete for these dollars at the local level. In times of economic uncertainty, local support for a GA airport wanes. Education, safety, etc. trumps attracting and maintaining an economic and employment base in the community.
Revenue at GA airports is generated by land and building leases, fuel flowage fees, and for a very few, landing fees. What can airports (and their local communities) do to improve the financial position of these smaller airports? Basically, the answer is the same as it is for any underperforming business:
Increasing Revenues
Small airports generally rely on lease income from land leased to aircraft service businesses (FBOs, maintenance providers, charter companies, etc.), and fuel flowage fees collected from anyone delivering fuel on the airport as their principal sources of revenues. Strategies to attract companies that operate business jets and turboprop aircraft should be pursued. These aircraft consume a large amount of fuel compared to small piston powered aircraft. Business jets require hangar space whereas the majority of small aircraft can simply be tied down on the ramp. Maintenance, part sales, and other services for these turbine powered aircraft are substantially higher than for the piston fleet. Attracting these types of aircraft depends on the facilities at the airfield both in terms of safety and amenities. On the safety side, precision instrument approach capability as well as runway length and runway safety areas are required.
Commercial service airports charge a landing fee, but very few GA airports charge a landing fee. This should change. A small fee of $5 to $10 per landing could put most GA airports in the black.
Controlling Costs
Many GA airports have public employees staffing the airport. A full-time airport manager and other public employees at the airport perform administrative, maintenance (grass cutting, snow removal, etc.) and other functions. A lower cost alternative might be for the fixed based operator to assume these responsibilities on a contract basis. For example, fuelers and other FBO personnel could be trained in airport maintenance duties. The cost reduction to the community could be substantial. The municipality that owns the airport could maintain governance of the airport including control of master leasing of land and buildings.
Investments
Local communities might consider converting land that is surplus to the operation of the airport, or land that might be restricted because of building height or other FAA horizontal surface limits, to commercial uses. A good example is a golf driving range in the runway protection zone (RPZ) that would not interfere with aircraft operations.
Solutions for this GA airport dilemma are not easy, but creative out-of-the box thinking is paramount.
Revenue at GA airports is generated by land and building leases, fuel flowage fees, and for a very few, landing fees. What can airports (and their local communities) do to improve the financial position of these smaller airports? Basically, the answer is the same as it is for any underperforming business:
- Increase revenues
- Decrease operating expenses
- Make investments revenue-generating and self-financing
Increasing Revenues
Small airports generally rely on lease income from land leased to aircraft service businesses (FBOs, maintenance providers, charter companies, etc.), and fuel flowage fees collected from anyone delivering fuel on the airport as their principal sources of revenues. Strategies to attract companies that operate business jets and turboprop aircraft should be pursued. These aircraft consume a large amount of fuel compared to small piston powered aircraft. Business jets require hangar space whereas the majority of small aircraft can simply be tied down on the ramp. Maintenance, part sales, and other services for these turbine powered aircraft are substantially higher than for the piston fleet. Attracting these types of aircraft depends on the facilities at the airfield both in terms of safety and amenities. On the safety side, precision instrument approach capability as well as runway length and runway safety areas are required.
Commercial service airports charge a landing fee, but very few GA airports charge a landing fee. This should change. A small fee of $5 to $10 per landing could put most GA airports in the black.
Controlling Costs
Many GA airports have public employees staffing the airport. A full-time airport manager and other public employees at the airport perform administrative, maintenance (grass cutting, snow removal, etc.) and other functions. A lower cost alternative might be for the fixed based operator to assume these responsibilities on a contract basis. For example, fuelers and other FBO personnel could be trained in airport maintenance duties. The cost reduction to the community could be substantial. The municipality that owns the airport could maintain governance of the airport including control of master leasing of land and buildings.
Investments
Local communities might consider converting land that is surplus to the operation of the airport, or land that might be restricted because of building height or other FAA horizontal surface limits, to commercial uses. A good example is a golf driving range in the runway protection zone (RPZ) that would not interfere with aircraft operations.
Solutions for this GA airport dilemma are not easy, but creative out-of-the box thinking is paramount.
Tuesday, September 26, 2006
Private Airports
The majority of the 7,400 airports in the United State are publicly owned. The land, runways, taxiways, and other infrastructure are titled to municipalities and airport authorities that are often governed by boards of directors appointed by multiple jurisdictions. A good example and one I am very familiar with is the Washington Metropolitan Airports Authority or MWAA. While MWAA is typical of other airport authorities, its history is unique. The two major Washington, DC airports, Reagan National and Dulles International, were originally owned by the Federal Government and operated by the FAA for many years. For as long as I can remember (which is before World War II and I won’t disclose the year), National Airport, and beginning in 1962, Dulles Airport operations and development were subject to the whims of Congress. The most visible evidence of this was the dozens of parking spaces marked Reserved for Members of Congress a few steps from the airport’s front door.
The real and somewhat hidden problem was money. Congress controlled the purse stings. Dollars needed for operations, and capital improvements had to be appropriated by Congress and were expense lines in the Federal budget. Long range planning was one year. Airport employees were government employees. Hiring and firing practices were subject to Federal regulations. In the late 1980’s Congress saw the light and leased these airports to the newly formed MWAA. (Of course part of the deal was a continuation of the parking perks.) Overnight these airports were transformed into modern marvels of air transportation. The private capital markets provided billions in bond financing after carefully buying into long-term plans for the airports. The FAA airport employees left the Federal till and became private employees of MWAA. Freed of the chains of government, the cream, and there was a lot of it, rose to the top and more miracles happened. All this was led by my friend Jim Wilding who spent most of his career with the FAA beginning as an engineer. Jim was always a great leader and visionary, but MWAA gave him the opportunity to really shine.
Today we have yet another new airport model emerging. The FAA has a pilot program to privatize a few airports. The most notable is Chicago Midway. Chicago got a taste of what privatizing can do when they leased the Chicago Skyway toll bridge to Australia’s Macquarie Bank for $1.8 billion for 99 years. In many ways Midway reminds me of the old rundown National Airport. Hopefully privatization will shine a new light on Midway. As with highway funds, airport funding is finding stiff competition for a share of Federal dollars in the face of growing deficits, as well as disaster, terror, and war funding.
Let government regulate and private industry operate. It should be the American way.
For a history of airport privatization worldwide read Bob Poole’s 1998 address to AAAE, Why Airport Privatization's Time Has Come.
(Next the conundrum of general aviation airports.)
The real and somewhat hidden problem was money. Congress controlled the purse stings. Dollars needed for operations, and capital improvements had to be appropriated by Congress and were expense lines in the Federal budget. Long range planning was one year. Airport employees were government employees. Hiring and firing practices were subject to Federal regulations. In the late 1980’s Congress saw the light and leased these airports to the newly formed MWAA. (Of course part of the deal was a continuation of the parking perks.) Overnight these airports were transformed into modern marvels of air transportation. The private capital markets provided billions in bond financing after carefully buying into long-term plans for the airports. The FAA airport employees left the Federal till and became private employees of MWAA. Freed of the chains of government, the cream, and there was a lot of it, rose to the top and more miracles happened. All this was led by my friend Jim Wilding who spent most of his career with the FAA beginning as an engineer. Jim was always a great leader and visionary, but MWAA gave him the opportunity to really shine.
Today we have yet another new airport model emerging. The FAA has a pilot program to privatize a few airports. The most notable is Chicago Midway. Chicago got a taste of what privatizing can do when they leased the Chicago Skyway toll bridge to Australia’s Macquarie Bank for $1.8 billion for 99 years. In many ways Midway reminds me of the old rundown National Airport. Hopefully privatization will shine a new light on Midway. As with highway funds, airport funding is finding stiff competition for a share of Federal dollars in the face of growing deficits, as well as disaster, terror, and war funding.
Let government regulate and private industry operate. It should be the American way.
For a history of airport privatization worldwide read Bob Poole’s 1998 address to AAAE, Why Airport Privatization's Time Has Come.
(Next the conundrum of general aviation airports.)
Subscribe to:
Posts (Atom)
