CAVU?

Gil Wolin

I asked Gil Wolin to speak at our Aviation Leaders dinner this year and give us his outlook for our industry.  As Hurricane Sandy caused some to miss and conflicts prevented other from attending, I asked Gil to send me a copy of his remarks.  He told me that he spoke from notes but was in the process of turning the notes into his monthly column that appears in World Aircraft Sales magazine.

(For non-avation readers CAVU is aviation speak for Ceiling and Visibility Unlimited.)

October’s devastating superstorm Sandy not only shuttered the US East Coast and delayed my departure for the NBAA convention – it also highlighted one of the most significant challenges facing our industry today.

For more than a decade, aviation consultant Jim Haynes has hosted The Aviation Leaders’ Dinner the eve of NBAA. I was honored to be asked to deliver the post-repast remarks this year. But after a night of listening to Sandy’s best efforts to reduce to matchsticks the shady glen surrounding our home, I opted to stay put, and wound up addressing the august group from the comfort of my own home – via speaker phone!. 

And that underscores that challenge: face-to-face contact no longer carries the impact or urgency as before, lowering the demand for business jet travel, whether aboard owned, fractional or chartered aircraft.

My first NBAA was in 1973, when 300 new business jets delivered made it a very good year. Today, 700 deliveries is an off-year. Honeywell’s 2012 forecast predicts nearly 10,000 new jet deliveries worth about $250 billion between now and 2022. Projected delivery numbers are flat for the next decade, but the aggregate delivery value increases by 9 percent over the period. 

That’s because, unlike light jets, the demand for larger cabin jets continues to grow, keeping unit deliveries level but increasing in total value. 

That seems counterintuitive. Wouldn’t the largest, most expensive aircraft segment be mostly likely to suffer in a down economy, as travelers seek less expensive ways to travel by business jet?

Two political scientists, Jacob S. Hacker and Paul Pierson, offer some answers to this conundrum in their 2010 book, Winner Take All Politics. Analyzing the increasing concentration of wealth in a small percentage of the population during the past 30 years, they help explain the changing demographic of our industry’s target markets. 

Their analysis goes well beyond the top “1%” to which President Obama keeps referring. Yes, that top 1%, which represents about 1.5 million US households, receives 18% of the total income paid – 23%, if you add in capital gains. No doubt that is a fair concentration of wealth.

But drilling down further, Hacker and Pierson found that the top one-tenth of 1% - about 150,000 households – pull in about $7 trillion annually, which is 12.3% of the nation’s income. That’s an average income of $7.1 million per year per household.

And the top one-hundredth of 1% – that’s the wealthiest 15,000 US households – average $35 million in annual income, up from $4 million in 1974. That’s nearly a nine-fold increase in 38 years. Those 15,000 households represent 6% of the nation’s annual income – they earn one out of every $17 paid.

The Forbes 400’s numbers reflect the same trend. In 1985, their average net worth was a bit more than $650 million – in 2007, it had risen to $3.9 billion. This kind of growth and income concentration in the wealthiest tier – combined with their increased travel to new markets in BRIC and EMEAA countries – creates a market that both needs and can afford large aircraft acquisition and operating costs. 

But what about other business aviation segments?

As before, technological advances in other industries may well dictate the pace of change in all aircraft makes and models. IBM just announced a breakthrough in computer chips that may breathe new life into Moore’s Law: the number of transistors that can be built on a single chip will double at intervals of 12 to 18 months.

We’d about reached the limit on silicon chips – but IBM discovered a way to use nanotubes on carbon chips. And if Moore’s Law is alive and well, so are advances in computerized engine and flight controls, and avionics. These advances will help to drive down the prices on preowned aircraft, as they fall further behind in new generation equipment. 

The cost to update the cockpit – plus the need to train to newer avionics suites – will force even some later-model business jets into early obsolescence.

The good news? The US Presidential election is over. And regardless of their opinions about the outcome, business leaders soon will begin to make commitments on short- and long-term capital spending. That means that flying should begin to increase as we begin to return to business as usual. So as we head into 2013, a few words to the wise are in order:

• SMS is coming, despite resistance among the “old hand” aviation managers. So get ready.
• It’s time to differentiate among the Good, the Bad and the Ugly. The DOT must step up and regulate charter brokers – and eliminate the unreliable and unethical, along with the unsafe.
• Congress must properly fund both the FAA and NextGen. Speak up!

And finally, let’s all stay clear of “Lifestyles of the Rich and Famous” marketing to the 1%. Business aircraft are incredibly effective transportation tools for all leaders – even the President. After all, he spent the last two months using his aircraft to close the deal with the American voting public.

Bad Math

“Lots of folks have bought into the myth that raising $1 in taxes brings in $1 in revenue and that raising taxes on the rich will allow the government to pay down the deficit.  People buy into this flawed [static analysis] naiveté because politicians that believe in big government, and benefit from it, make campaign speeches about it.”  So writes Vaughn Cordle of AirlineForecasts, LLC.  Vaughn is an airline analyst who frequently appears on CNBC and other TV business media, including in The Wall Street Journal.  (Full disclosure, Vaughn is a member of The Aviation Group.)  His recent newsletter to his clients, How Big Government Spending Impacts The Economy and Airlines explains why the current Administration is using bad math and gives an example explaining how the Administration’s tax policy will affect Delta Airlines – their bottom line and their ability to create jobs.

Vaughn occasionally strays from airline analysis but sticks with aviation.  A few years ago he predicted the failures of the very light jet charter companies like Day Jet, and even the Eclipse, the aircraft upon which these failed companies’ business models were built.  He went toe to toe with Bob Crandall, the celebrated retired CEO of American Airlines, debating the dubious outcome of his proposed very light jet air taxi startup Pogo.  Bob had teamed up for this venture with Don Burr.  Remember People Express?

In his newsletter he points out that. “As a group, progressives and liberals are great when it comes to helping the poor and working to improve the public safety net, but they don't do math very well and apparently don't consider [or understand] dynamic analysis, which takes into account how the economy is likely to respond to changes in tax policy.”  He says the current White House's budget proposals would:
•     Reduce the rate of economic growth
•     Result in lower employment
•     Reduce personal savings
•     Reduce disposable income
•     Reduce consumer spending
•     Result in higher interest rates

He points out that “Bush came into office in 2001, the year of 9/11.  Federal receipts, outlays and surpluses or deficits are a function of the economy.  So, it's best to view these variables as a percentage of GDP.”  

Average federal receipts / average outlays / deficits as a % of GDP:
Bush years [2001-2008]: 17.6% / 19.6% / -2%   
Obama years [2009-2012]: 16.1% / 24.6% / -8.5%

As for Delta Airlines, Vaughn says, “If Obama's tax policies are allowed, it would reduce Delta's top line revenue around 1%, operating earnings 12%, but bottom line "net" earnings around 20%. This would result in a lower market value of equity, a higher cost of capital and a big hit to shareholder returns for all of those retirees, shareholder employees and other average Americans that hold stock in airlines.  Effectively, Delta would have less capital to spend and hire new employees because it will be less profitable. This is the same for all other businesses, small and large, that will be negatively impacted by a foolish tax policy designed to support a size of government that the economy simply cannot afford.”

Before he buried his head in numbers, Vaughn could be found in the left pilot seat of a major airline flying international routes.

The Three Year Tsunami

It was in the fall of 2007 when the worst case of prosecutorial excess struck the general aviation industry.  But it was the week of June 7, 2010 that the final nail may have been driven into the coffin of one of the most bizarre and saddest stories in general aviation history.

In 2007 TAG Aviation, USA/AMIJC had become the largest, safest, and probably the most highly respected aircraft management/charter company in the United States if not the world. Aviation Methods, Inc. was founded by Roger McMullin, Duncan Higgins and Jim Markel some thirty plus years ago.  Jake Cartwright, who later would become CEO of TAG Aviation, USA was an early partner of McMullin and company.  In 1998 the company was sold to TAG Aviation, a Swiss company controlled by the Ojjeh brothers, who had been early clients of AMI. Therein lay the rub.  The Ojjeh’s were Swiss citizens.  An archaic U.S. law forbids foreign nationals from owning a controlling interest in a U.S. air carrier.

TAG Aviation USA was a division of TAG Aviation, a global company that today operates the London Farnborough Airport and is actively engaged in aircraft management in Europe and Asia.  For almost ten years TAG Aviation, USA operated under an arrangement whereby AMI, which was majority owned and controlled by U.S. citizens, was the air carrier/charter operator for US-based TAG-managed clients seeking Part 135 charter.  The FAA was fully aware of this arrangement and frequently audited the company’s operations, as did the DOT, which conducted their own audit in 2004. In 2007 an aggressive lawyer at the FAA, decided the arrangement was not legal, and despite TAG’s perfect safety and operations record, revoked their air carrier certificate, and assessed the company a $10 million fine, the largest FAA fine in history.

What was left of TAG Aviation, USA’s assets were sold in early 2008 to JetDirect Aviation, a charter/management roll-up which operated under the Sentient Jet card banner and was directed by Sentient executives. This new amalgamation could not handle the influx of more than 100 business jets to their operations, and sold the Sentient charter division in an attempt to salvage the management business under the JetDirect brand. But it was to no avail, as JetDirect declared bankruptcy in early 2009, stiffing employees, customers, and vendors.  A third resurrection, under the name of Wayfarer Aviation, was attempted by Robert Pinkas of Brantley Partners.  Wayfarer was the name of another highly regarded aircraft management company started by the Rockefeller family.  (The original White Plains-based Wayfarer Aviation had been acquired by TAG in 1999.)  This effort, too, failed, and Brantley investors removed Pinkas from any management of Wayfarer.  

Most recently Arcadia Aviation, a relatively new company, has signed a binding letter of intent to acquire “certain assets”, which can only mean the “10 or more” Part 135 air carrier certificate of Wayfarer.  Arcadia acquired two very small FBOs at, Martinsburg, VA, and Monticello, NY.  Monticello is in the Catskill Mountains near the site of the infamous Woodstock Festival held during the summer of love.  Neither of these are centers of business jet activity.  But Wayfarer’s customers could use some love.  We will have to wait and see if this deal closes.  Is this the end of the story?  Stay tuned.

For more on this disaster see General Aviation Tsunami and The Debacle Story Continues.

The Need for Speed

We now live in the fast lane.  Snail mail is now e-mail.  Fast-lanes for commuters are becoming ubiquitous.  High speed rail, if not yet a reality in the US, is on the tip of our tongues.  But with advent of enhanced security and the scrapping of the Concorde, the speed of air travel has declined.

Bill Garvey in his, as usual excellent, editorial in the June issue of Business & Commercial Aviation, Studebaker Time, reminds us that it has been 63 years since Chuck Yeager pushed the Bell X-1 faster than the speed of sound and became celebrated as the first human to do so.  Except for the Concorde, a technological triumph and an economic disaster, as Bill correctly describes this British and French bird, civilian air travel has been restricted to subsonic speed.  He suggests that a business jet may be the first to make supersonic travel possible in the next ten years.

Behind Yeager’s well-known tale of his famous flight in the X-1, there is a little known story about a man who may have reached the other side of the “sound barrier” before Yeager.  There is substantial evidence that George Welch, a civilian North American Aviation test pilot, exceeded the speed of sound in an XP-86 the week before Yeager did.  My good friend Al Blackburn’s book, Aces Wild, the Race for Mach 1, tells the story of pilots who explored this unknown region of flight in the Mojave Desert in the fall of 1947.

George Welch was an Army Air Corps fighter pilot who shot down at least four Japanese aircraft as they attacked Pearl Harbor.  Some records say that Welch should have gotten credit for six kills that awful morning, but there were no gun site cameras to record the action.  George would have needed only one camera as one gun jammed.  He decimated the enemy aircraft with only half of his weapons!

After the World War II, Welch joined North American Aviation, the company that designed and built 17,000 T-6 Texans.  Almost all military pilots in the 40’s and early 50’s received basic training in the T-6.  The two most successful combat aircraft developed by North America were the P-51 Mustang and the F-86 Sabre.   The latter was the first swept wing jet fighter and dominated the sky during the Korean War.

While test flying the XP-86, Welch would routinely create a ba-boom over the famous, or infamous, desert watering hole, Pancho’s.  All the while Bell engineers and Yeager were furiously trying to get the X-1 in flying condition.  The X-1 was a single-purpose rocket ship that could not take off by itself, but was carried aloft by an Air Force B-29 bomber.  The government had spent millions on the X-1 trying to prove supersonic flight was possible despite the fact that Nazi V-2 rockets exceeded Mach 5 thousands of times years before.  Stuart Symington, Secretary of the Air Force, determined that the V-1 should be the first over the Mach 1 line, directed North American Aviation to keep the gear down on XP-86 test flights.  Welch ignored the orders, proving there was no such thing as the Sound Barrier.

There’s a Trail for That

The Department of Transportation’s mission is to "Serve the United States by ensuring a fast, safe, efficient, accessible and convenient transportation system that meets our vital national interests and enhances the quality of life of the American people, today and into the future."  Under the DOT is the FAA, the Federal Highway Administration (FHWA), the Federal Railroad Administration (FRA), The Federal Transit Administration (FTA), and the Federal Maritime Administration (FMA).  So now maybe we will have under the DOT: FAA, FHWA, FRA, FTA, FMA and be adding FBA, the Federal Bicycle Administration, to that alphabet soup.

Recently Transportation Secretary Ray LaHood, who likes to ride his bike in Washington’s Rock Creek Park on the weekends, has decided that the government is going to give bicycling the same importance as automobiles in transportation planning and the selection of projects for federal money.  A manufacturers' blog called the policy "nonsensical."  One congressman suggested LaHood was on drugs.

Shall we have runways or bike trails?  You decide.  You can vote now at Hangar Talk or next November when it really counts.

Go Girls

I watched Angela Braly’s testimony before Congress and could not help drawing the contrast to the testimony two years ago by the automobile CEO’s trying to explain their corporate jets in a similar setting.  Braly, CEO of WellPoint, a large health insurance company, was there to explain their recently announced rate increases.  She was polite but took a firm position defending her company.  When asked what her compensation was, she answered in detail explaining her salary, and all benefits, never looking at a note.  Her inquisitors, the congressional members, as usual looked foolish trying to be tough and get sound bites for the home town media.

I grew up in an age when the sexes were separated almost from birth.  After third grade and through college, I never had a class with a girl in it.  Now it is hard to find a single sex school or college.  My youngest daughter graduated two years ago from Washington & Lee University, which was all male until the 1980s.  Now I am told there are so many bright girls (sorry, I guess I should be saying women) that apply that the boys/men feel disadvantaged.

So when I see a bright attractive woman, there I got it right, dishing it back to some cranky old men, I say “Go Girls!”

Golfers, Gentlemen, and Pilots

I first met Russ Meyer 30 years ago when I was selling Cessna airplanes. Russ often gave me a ride to Wichita in a Citation when I was picking up a small Cessna to ferry back to Virginia. At one point he told me about his friend Arnold Palmer and how Arnold always bought the first of every new Citation model.

Russ met Arnold Palmer when he was a young lawyer at IMG, the powerhouse sports management firm. You can read more about this long Palmer/Meyer relationship in the February edition of Business Jet Traveler by clicking this link.

This is a great story, but what it doesn’t tell you is that Russ Meyer is a scratch golfer. Both of these men have been my heroes for years and I have dreamed of being on the golf course with them. That will never happen, but being in the cockpit with half the team has and is something I will never forget.

Note: I wrote about Russ Meyer in my Summer 2009 Newsletter when he was inducted into inducted into the National Aviation Hall of Fame along with Jimmy Stewart, and astronauts Ed White and Eileen Collins. Every living astronaut was there to honor Russ and the other inductees.

The Debacle Story Continues

In November of 2007 I posted an article, The General Aviation Tsunami.  That story was only the beginning of the disaster to come.  Hundreds of jobs were lost and over $100 million of invested capital became worthless.  Two highly regarded companies, TAG Aviation USA and AMI Jet Charter, were decimated by one of the best examples of over regulation and malicious prosecution by the Federal Government.  Supposedly the revocation of the operating certificate of AMIJC, a company with a perfect safety record for 10 years, was done in the name of safety.

Recently, Bill Garvey, editor of Business & Commercial Aviation magazine, tells the story in an excellent article, Lessons From a Debacle.  Bill says, “Now that emotions have calmed slightly, it’s time to consider what it all meant.”

I was reminded again this week about the injustice of the FAA when I read a story in the Wall Street Journal about the FAA’s plan to fine American Eagle, a unit of American Airlines, $2.9 million for a safety violation involving over 1,100 flights.  The FAA fined AMIJC $10 million, the largest fine ever, for ceding operational control of their charter flights to a foreign corporation who was an AMIJC minority investor. That investor was TAG Aviation USA, a highly experienced aircraft management company owned by a Swiss organization.  This fine was paid in full.  It is highly unlikely American Eagle will pay anything close to $2.9 million as fines like this are always appealed and substantially reduced.  AMIJC never had that chance – when they tried, the FAA simply revoked their certificate, laying waste to the company’s future.

My emotions haven’t calmed, even slightly.

Is NextGen Dead?

Maybe Not

Those who know me well and those who follow this blog know that I have been a long-time advocate of moving the Air Traffic Control away from the operational control of the FAA and making it an independent self-sustaining organization.  Today our large complicated and antiquated ATC system is dependent on the whims of Congress and the Administration.  Four of more times Congress has failed to approve a budget for the FAA.  In the State of the Union address the President proposed a budget freeze, which I initially thought NextGen, the long overdue remaking of ATC, would be pushed even further into eternity.  However, just two weeks later the White House asked Congress for a $1.14 billion budget in Fiscal Year 2011 for NextGen, a 31-percent increase from the FY 2010 figure.  There will be a lot of debate on the budget so stay tuned.

My friend Bob Poole recently asked me to review and comment on an article he has written on NextGen that will be published in the March issue of Professional Pilot magazine.  Bob is the founder of the Reason Foundation, a public policy think tank, and has for many years advised Administration officials of both parties on transpiration issues, especially ATC and airport security

Bob makes the case for the many advantages of NextGen.  But he also lays out the complications of making it happen.  The technology is here today and in a perfect world every airplane could fly the best route and takeoff on and land on time.  Fuel burns and carbon emission would be reduced.  No one disagrees on these points, but on funding NextGen there is little agreement.  Understandably the airlines and business aviation is not willing to pay for the expensive new equipment that is necessary to fly in a NextGen system until they are assured that NextGen will be in place on a date certain.  Too often the aviation community has made the investment and seen some new FAA driven technology fail to be developed or pushed far into the future.

Over ten years ago Canada “depoliticized” their ATC system, which was a part of Transport Canada, the equivalent of our Department of Transportation. Unshackled from their government except for safety regulation, the independent and not-for-profit NavCanada jumped far ahead of the United States in ATC service and technology – not quite NextGen, but they are moving rapidly in that direction.

Is it possible that the debate over the budget freeze could finally push the unshackling of the U.S. ATC system forward and create for our country what every other non-third world nation has?  An ATC system that pays for itself and operates as any high tech business should.

A Tale of Two Standards

Remember VHS vs. Batamax? Business aircraft charter saw tremendous growth in the 1990s and received another boost after 9/11/2001 when airline travel was extremely restricted. Major corporations and fractional companies like NetJets, FlexJet and others needed to be confident that the companies operating the business jets they chartered had the highest level of safety.

Although the U.S. market had several quality auditing firms performing independent safety audits, the charter community and the buyers of charter, were desperately seeking a globally accepted solution to the myriad of audits and standards being utilized. With the support of International Civil Aviation Organization (ICAO), and in conjunction with numerous business aircraft operators and regulators around the globe, International Business Aviation Council (IBAC) developed the International Standard for Business Aircraft Operators (IS-BAO), and introduced it to the aviation community in 2002.

IS-BAO was designed to establish a professional safety code of practice for flight departments worldwide, developed by the industry, for the industry. This safety standard has applicability for domestic and international flight operations, private as well as charter, and scales from one aircraft operators to the largest fleets. Through tremendous efforts over the last 7 years, hundreds of business jet operators have gone through or are going through the IS-BAO registration process. Regulators around the world recognize the validity of the IS-BAO standard.

In 2009 a second standard was announced by the Air Charter Safety Foundation (ACSF), a new organization developed by the National Air Transportation Association (NATA). ACSF will limit audits under their standard to only members of ACSF.

ARG/US, Inc. has been a globally recognized and respected data collection, analysis and auditing firm of aircraft operators for over a decade. ARG/US has declined to endorse or join ACSF as they see no value in introducing another standard created by a U.S. trade association that has no acceptance outside of the United States. Furthermore they feel the ACSF plan dilutes the enormous efforts by IBAC in achieving global acceptance of IS-BAO.

The wounded (by the collapse of JetDirect) aircraft management/charter industry does not need a battle like this.

Business Aviation, Twittering the Recovery

The cover of the June 15th edition of Time magazine is a picture of an iPhone, or a similar device, with a Tweet about the cover story on Twitter, the innovative fast growing social network. What could this possibly have to do with the recovery and growth of Business Aviation? Read on.

In my last article for Hangar Talk I wrote about Glenn Hutchins, founder of Silver Lake, and his prediction that innovation would lead us out of this recession. This week in the cover story for Time Magazine, author Steven Johnson writes about the amazing growth of Twitter, the social networking site that has grown using "end-user innovation," a concept that Johnson explains as, "where consumers actively modify a product to adapt it to their needs.”

Twitter was introduced to the Internet and the social networking community in 2006 and like blogging was picked up first by teenagers as a way to stay connected. They have a compelling need to know what their circles of friends are doing. In fact when you go to Twitter the first thing you see is a text box asking the question, “What are you doing?”

When I first saw this my questions were, “Who cares, and why do I want to know?” But alas I am not a teen or even a 20 something, but believe me, they want to know. Not what I am doing, but what their circles of friends are doing. Then came The Campaign. Hundreds and maybe thousands of young campaign workers wanted to stay connected. With Twitter they could do so, and view the Tweets, which are limited to 140 characters, on cell phones and BlackBerries as text messages (SMS), and on computers. I have a feeling that the need for Twitter feedback, and not just email, might have been behind President Obama’s fight to keep his BlackBerry.

Johnson tells of attending a small private conference on the future of education attended by 40 educators, entrepreneurs, scholars, philanthropists and venture capitalists. At the beginning the organizers announced that anyone could record their comments and questions on Twitter. During the conference comments were being displayed on a screen. Before the end Tweets were pouring in from far beyond the confines of the room where the attendees were sitting.

This week I am attending the Air Charter Summit where over 100 business jet operators will be assembling at a hotel and discussing how to address and solve some of the very significant challenges facing the business jet industry. Will this group be Twittering their thoughts in real time along with many others not at the meeting? Maybe not, but think about how more productive the meeting might be with thoughts, not just from the 100 physically present, but from many others not able to attend in person.

(Full disclosure, Steven Johnson, the author of five best selling books, contributor to The Wall Street Journal, The New York Times, The Guardian, Wired Magazine, and a futurist much in demand on the lecture circuit, is my nephew.)

Will Innovation Lead the Way?

Glenn Hutchins one of the founders of the highly successful private equity firm Silver Lake, after studying and outlining how we got into this mess, sees the way out - Innovation.

Hutchins says, "While at times rushed and incoherent, the public policy response to the crisis has been breathtaking in its scale. The approximately $10 trillion in resources shoveled at the problem dwarfs any prior undertaking in our history including World War II - which is estimated to have cost $5 trillion in today's dollars. This is the all-important difference between today and the '30s. In contrast to the passive and counterproductive actions taken then by the Hoover administration and the world's central bankers, today's leaders - having learned the lessons of the Depression and quickly grasping the ramifications of the Lehman failure - resolved to err on the side of doing too much rather than too little."

Hutchins is may be right about innovation but consider that ninety percent of new products fail. Venture Capitalists have shoveled billions at innovation for years yet only one in ten shows any return and most are returns are modest. The aviation is landscape is littered with the wrecks of the dreams of dreamers. The Eclipse Jet is only the most recent disaster.

Tony Ulwick developed a concept he calls Outcome-Driven Innovation® (ODI) and founded Strategyn, Inc., a global innovation management firm. ODI starts not with a product but by finding the answer to the question, “what does the customer want to accomplish? Or as Harvard professor Theodore Levitt often remarked, “People don’t want drills, they want holes.” DARPA didn’t want the Internet; they wanted a way to communicate.

I am concerned that throwing $10 trillion at our current problem might result in getting a lot of “drills” that don’t work very well. It may be too late to apply ODI concepts to what we need. But perhaps in a small way we can fund innovation in a different way. Ulwick and Jay Haynes have formed a new venture capital firm, Strategyn Ventures, to fund ODI proven products and services. If they can change the odds from 1:10 to something much less, perhaps innovation will lead the way out.

A Marvel, Misunderstood

Why are we vilifying a $100 billion sector of our manufacturing economy? The business jet is an important tool that permits businesses to compete effectively in multiple locations domestically and internationally. It has been documented that the most profitable companies own business aircraft. Cessna Aircraft (Textron), Gulfstream (General Dynamics) and others are tightening their belts against the economic tsunami, but perception may be their greatest challenge.

Who is responsible for the economic mess we are in? We all are, says Steven Pearlstein in a column in the Washington Post, “Let’s Put Down the Pitchforks.” Today the villains are the AIG bonus recipients, the Treasury Secretary, members of Congress, and so on. For the last few months it has been almost anyone seen stepping on or off a business jet.

On Super Bowl Sunday the New York Times published an Op-Ed piece by Bill Garvey “The Mile High Office.” Bill gives the example of two competing companies. Both travel to a prospective client’s office. One company travels by a business aircraft that can fly directly to almost any airport. The other takes the commercial airlines. The latter suffered through security lines, perhaps changed planes and maybe missed a connection and arrived, well let’s just say hassled.

Guess which company has the best opportunity to close the sale? The business people with the corporate jet won’t just arrive faster; they’ll also show up better prepared, rested and alert. In their own airplane they were free to discuss confidential information or polish up a PowerPoint presentation. They were able to use phones, BlackBerries and the Internet en route. In other words, they were in their office while they were traveling.

Malcolm Forbes called his business jet, "The Capitalist Tool." Warren Buffett called his first business jet "The Indefensible," and then quickly renamed it "The Indispensable," and then bought NetJets, the largest operator of business jets in the world.

The business jet manufacturers are seeing orders canceled and backlogs shrink. Major suppliers like General Electric (engines), Honeywell (engines and avionics) and many others are feeling the effects of the slow down. This manufacturing industry is far different from the auto industry. Not one business jet manufacturer has asked for bailout funds, and I predict none will. The biggest threat is the negative public image inflicted by grandstanding members of Congress and a President who is trying to distract attention from a failing financial system, a broken economy, and mistakes by his own administration. CEOs do not disappear on business jets. They are off closing deals, fixing assembly lines, and yes, flying to Washington to raise funds to save the auto industry.

Miracle in the Pacific

About 45 years before US Airways Captain Sully Sullenberger successful ditched an Airbus in the Hudson, a Pan Am crew, flying Flight 943, a Boeing 377 Stratocruiser, did the same in the Pacific halfway between Hawaii and California. The ABC Evening News ran the fascinating story, The Hero Pilot of 1956, in mid-February. The Boeing 377 was the last of the large commercial transcontinental/oceanic piston engine transport aircraft. It had private staterooms and a lower deck lounge. It was just a few years after this accident that the jets arrived – first the Douglas DC-8 and the Boeing 707.

My wife Nancy was a flight attendant for Pan Am in the 1970s. After leaving Pan Am, she worked as a safety specialist for the Association of Flight Attendants. Pat Pimsner, a flight attendant on Flight 943, tells of her experience that day, October 16, 1956. My wife says Pat reminds her of her boss, Del Mott. Bright, beautiful, and tough is how Nancy remembers her. Del is also a former flight attendant who became a safety hawk and is credited with many of the cabin safety procedures that are common today. Some no doubt helped bring about the more recent Miracle on the Hudson.

Note: After she read my original post, I received an e-mail from Del Mott explaining that Flight 943 was not a DC-7, but was a Boeing 377. After a little research, I discovered that of course she was correct and I made the change. Thanks Del.

Gliding to a Soft Landing

Last year the words “soft landing” appeared frequently in the press. They were used to describe the economy. Today “crash” is the word we hear most often. For a few days in January, the media moved Wall Street and the economy to page 2. "The Miracle on the Hudson" became the lead story. A select few really understand how this could happen. The emergency landing of US Airways flight 1549 was not a miracle, but the result of a crew that remembered their training, and a pilot with a glider rating who understood and had experienced “off-field landings”.

For many years I flew gliders, or sailplanes as they are known to those in the sport. Racing sailplanes is very similar to sailboat racing but with a third dimension. I was a Naval Aviator for 5 years flying carrier-based jets. I have flow many different aircraft. Sailplanes have always been my favorite. It was in these aircraft I really developed my flying skills.

The article (click this link), “Training for that Moment When Every Second Counts”, explains how Captain “Sully” Sullenberger accomplished the amazing feat of saving his passengers and crew. In this article you will see a couple of pictures including one of a sailplane water landing.

My sailplane was a LS1-f (similar to the one below). I landed it often “off-field” but never in water.

New York, New York

It would have been impossible for anyone to have missed the amazing story of US Air Flight 1549, and the heroes of this event – the crew and first responders. However, some may have missed a story in USA Today only a few days before, “Airlines Go Two Years With No Fatalities”. When a flock of Canadian geese tried to end this streak, New Yorkers saw to it that everyone aboard was safely on ferry boats that beat NY Fire Department rescue boats to the sinking plane. As a write this a New York City parade of heroes is being talked about.

One man, who should be in the parade and probably will not, is a former New York City cop. Nick Sabatini, the FAA’s Associate Administrator for Aviation Safety, retired at the end of 2008. Nick began civilian life by joining the NYC police department after completing a tour with the Army where he was a helicopter pilot. In 1979 he joined the FAA and he spent next 30 years with a safety bone in his teeth. No one person can lay claim to the outstanding safety record that all aviation enjoys, but no one doubts that Nick made a significant contribution.

Food for Thought

Many years ago I met Wilbur Ross who was a college and business school classmate of a friend of mine. Since that meeting Ross has become a billionaire. He began his business career (he first aspired to be a writer) by gluing back the wrecks of Michael Milken's junk-bond financings. Last fall he was interviewed on National Public Radio. He talked about one of his newest investments, SpiceJet, a low-cost airline in India. During the interview he elaborated on one of the reasons for his investment in SpiceJet:

“India is a very large land mass, very large distances between the major population centers, but ground transportation is very, very difficult. They've not put enough into infrastructure for roads or even railroads to make that a very good means of transport. So air transport, we think, is uniquely important to India.”

I found this interesting because the same can be said about many other emerging economies, such as China, Russia, etc. And when you think about it - how easy is it to get to places like Spring Hill, Tennessee (the location of the original Saturn plant) or many other small factory towns in the United States? Driving, taking a train, or bus is not practical when speed is of the essence to restart a shut-down assembly line.

The three Detroit automobile CEOs should have taken a page from Lee Iacocca when he came begging for loan guarantees in he early 1980s. Iacocca replied to the grandstanding congressmen when they suggested he sell his company’s Gulfstream jet, “OK, I’ll sell it, but I will be damned if I know how I will run Chrysler’s plants in small towns all over the USA. I guess will just have to lease it back.” And that’s what he did, and he saved Chrysler.

How Iacocca got to Washington is not known, but it was not the public relations disaster of last fall. The Washington offices of the car companies advised the CEO not to fly to Washington in their companus’ jets. Thet ignored the advice and the rest is history.

And where is Iacocca when we need him. Well he is back and has written a new book, Where Have All the Leaders Gone? If you have an answer, post a comment below.

A Dysfunctional FAA

Last year was not a good year for the FAA and 2008 is shaping up as even worse. How this important agency, which has a major role in not just aviation but a major impact on our economy, can reinvent itself is the $64 billion question. The FAA is mismanaged, not by the FAA leadership but by the micromanagement of Congress. (Left, Nicholas Sabatini, FAA Associate Administrator being grilled by Congress.) Until this problem is resolved there is risk to every aviation business and every business touched by aviation. The one bright light is that business aviation and business aviation service companies are booming at the expense of the airlines.

The problems at the FAA began with airline deregulation. Regulating a deregulated industry was an adjustment. However, most but not all of today’s issues are operations not regulation. All the FAA’s problems seem to be politically driven. Last fall the FAA shut down one of the largest business jet charter companies alleging safety violations. (See General Aviation Tsunami) This company had never had an accident since its founding over 20 years ago. It had never received a safety violation. Its independent operational auditors ranked the company as the best of the best. But several years ago a foreign entity purchased 51% of the company. For this sin the FAA shut down the company and levied a $100 million fine.

Next the FAA discovered a problem with Southwest Airlines inspection routine. As that was being dealt with, Congress began demanding tighter oversight on inspections. The FAA reacted by grounding the entire American Airlines MD80 fleet of over 300 aircraft. 700 to 1,000 flights a day were cancelled, disrupting tens of thousands of passengers. All this was over wiring bundle straps that were spaced a fraction of an inch out of tolerance. The FAA demanded one inch spacing, while Boeing delivered many aircraft with 4 to 8 inch spacing. There has never been a problem with these wiring bundles.

Airspace and airports have reached capacity. Again Congress has created both problems. The FAA has never been able to modernize Air Traffic Control. Closing and consolidating facilities is subject to Congressional review and almost never happens. Billions have been wasted on systems that were long delayed, far over budget, and eventually scrapped. The controllers union, which has strong support from the majority in Congress, has been a major deterrent of modernization.

Former House Speaker Newt Gingrich in a paper My Plea to Republicans: It’s Time for Real Change to Avoid Disaster, says, “The problems of the Federal Aviation Administration are symptoms of a union-dominated bureaucracy resisting change.”

General Aviation Tsunami

On October 4th the FAA first suspended and eight days later revoked AMI Jet Charter’s air carrier certificate. Immediately a shock wave of tsunami proportions was felt in every sector of the general aviation industry. Until AMI Jet Charter was acquired by TAG Aviation USA in 1996, this company was known as Aviation Methods, a highly successful and highly regarded aircraft management company and charter operator.

Aviation Methods was founded by Roger McMullin and Jake Cartwright 30 years ago. One of the major customers of Aviation Methods was TAG Aviation USA, owned by TAG Aviation S.A., a Geneva-based holding company founded by Akram Ojjeh (1923-1991) and his sons, Mansour and Aziz.

Because of a law that prohibits a non-US entity from owning controlling interest in a U.S. air carrier (a company operating under FAA part 121 or part 134), TAG Aviation USA purchased only 49% of Aviation Methods. Fifty-one percent remained owned by two US citizens. All of Aviation Methods aircraft became management clients of TAG Aviation USA.

One of the reasons for the certificate revocation was the FAA's allegation that TAG, not AMI, was exercising operational control of flights, which would mean it was, in the words of the FAA, "under active control of foreign interests".

The Department of Transportation oversees the ownership issue of all air carriers operating within the United States. The DOT enforces an arcane law (49 U.S.C. § 41101), passed in the 1930s, that prohibits control of any U.S. air carrier by a foreign entity. In today’s global economy this law makes no sense and should be repealed. In September of 2005 the DOT issued an exemption to this law for air carriers providing “assistance in the carriage of freight and people affected by Hurricane Katrina”. Sam Skinner, who was Secretary of Transportation from 1989 to 1991, proposed repealing this law in the interest of bringing more capital into the U.S. airline market. Jeff Shane, Under Secretary of Transportation for Policy, and others have long been advocates of repealing or amending this law, but all such proposals have run into a buzz saw of special interest opposition on Capitol Hill.

At the recent Aviation Business Roundtable meeting I sat across from Mary Peters, the current DOT Secretary. I wanted to point out to her that the largest aviation service companies in the GA industry are 100% foreign owned. Directly on her left was the CEO of BBA Aviation, a British owned company and the parent of Signature Flight Support. Three chairs down on her left was Jet Aviation, owned by a German investment company. At the adjoining table was Landmark Aviation, owned by Dubai Aerospace. Not in the room was the largest (70 bases) FBO in U.S., Atlantic Aviation, owned by the Australian financial power house Macquarie Bank.

So where’s the beef and what harm is there in having foreign ownership of business jet charter companies? Mrs. Peters, or anyone else, please explain this to me.

Footnote:
In researching this article I consulted with my cousin Langhorne Bond. Langhorne’s father worked for Pan American World Airlines. In the 1930s and 40s he set up and operated China National Aviation Corporation which Pam Am controlled. You can read the whole story in “Wings for an Embattled China”. I also found an article, “30th Anniversary: TAG and Bombardier”. Much of this story was related by Bill Juvonen who along with Jim Taylor, Dave Hurley, and Barry Smith helped launch the Bombardier (then Canadair) Challenger. Today Bill Juvonen is a part of The Aviation Group.

Of Vacuum Tubes and Sealing Wax

This week I was part of a six member panel of “elder statesmen” that held a press conference in the Capitol building. I my case they may have had the first part of the description correct but I was out-eldered by Alfred Kahn (above), who is about to turn 90. Kahn, a former Chairman of the CAB and known as the “father of airline deregulation”, is as sharp as a tack and full of P&V. Others on the panel were former DOT Secretary Jim Burnley, and former FAA Administrator Langhorne Bond. Jonathan Howe and yours truly represented the General Aviation industry. Jonathan was a former President of NBAA.

We were on the Hill touting a Statement we had signed onto. The statement called on Congress to look beyond the current squabble over user fees and controller contracts, and to begin the process of completely reorganizing Air Traffic Control. If you are wondering why traveling by air has become such a mess. Read two excellent pieces that appeared in the Wall Street Journal the same week I was on the Hill. The video interview with John Fund is a must watch, and Holman Jenkins’ Op-Ed article A Dream of Air Travel is a must read.

Jonathan Howe pointed out that the General Aviation trade associations, AOPA, NBAA, and NATA, were doing their members a disservice by not getting on the ATC reform bandwagon. He said that when the system reaches saturation, GA will be left waiting as aircraft with large passenger loads, the airlines, will be given priority in the airspace system. It has happened before. Jonathan reminded everyone of the GAR program during the controller strike of the 1980s.

I pointed out two success stories of two freed former government entities. Canada’s air traffic system became NavCanada ten years ago and is governed by a stakeholder Board and operated independently from the government. Costs are down and efficiency is up. My second example of freedom-from-government concerned Washington National and Dulles airports. These airports were once anachronisms - some called them dinosaurs. However, when freed from governance by Congress and management by the FAA, they became modern marvels. Jim Wilding was the manager both under the FAA and MWAA. Once empowered by a free market and with access to the capital markets, he was free to work his magic.

Believe it or not there are still vacuum tubes in ATC radar, and as John Fund points out in the video, there are only 6 programmers left who understand some critical ATC software code. It is indeed Alice in Wonderland.

Others signing the statement were Aaron Gelman, founder of GRA, Inc., Clint Oster, former research director of the Aviation Safety Commission, and James Wilding, former CEO of the Metropolitan Washington Airports Authority.