“Don’t play games that you don’t understand, even if you see lots of other people making money from them. ”
Editor's Desk: October-November 2008
When we launched Business Jet Traveler magazine in October 2003, the stock market and the U.S. economy were struggling to recover from their spectacular fall following the dot-com meltdown and 9/11. The Dow Jones Industrial Average was at about 9,500, a level it had first passed through in early 1999 on its way up. It eventually climbed to almost 12,000 two weeks after New Year's Day Y2K, before hitting the downward slopes.
The aftereffects on the economy following the 2001 terrorist attacks were ongoing in October 2003, although the impact of the war in Iraq, then just six months old, had yet to show. Some signs pointed to an improving economy-and with it better prospects for private and business aviation. Nevertheless, uncertainty was all around, making the launch of a new publication particularly risky. But our gut feelings told us that a magazine directed at the users of private air travel was worth the chance. We knew from experience that business aviation belatedly follows economic cycles and it looked likely that the economy was slogging its way upward. Now, with the benefit of five-year hindsight, our decision seems almost a no-brainer.
So here we are in 2008, like the Roman god Janus, looking back and forward in time. We've seen big changes in the last five years. Private air travel has grown at an unprecedented rate along with the general economy. And as the housing downturn evolved into the credit crunch, the dollar deflated, deficit war spending diverted tax revenue, the skyrocketing price of oil exacerbated the cost of everything and we now find ourselves in a probable recession, the anticipated downturn of business aviation has yet to materialize-at least not entirely. Current anecdotal evidence shows a decrease in charter flying, the inventory of used jets is at an all-time high, several high-profile business aviation acquisitions indicate good buy opportunities and at least four startup airplane manufacturers are having financial problems. But the established bizav manufacturers continue to report record deliveries and backlogs-due increasingly to booming markets outside the U.S.
In my first Editor's Desk in the October 2003 edition, I wrote that private air travel is robust with options and that new ones seem to appear almost every day. That was a bit of hyperbole, though it remains true to some extent. However, just in the last two years, the FAA has appeared intent on limiting one sector of business aviation, namely management of aircraft and their use in charter operations.
We've written before about the FAA's revocation of TAG USA's Part 135 charter certificate because of alleged foreign ownership and influence. To close the lid on this late last year, TAG paid a $10 million FAA fine and sold its operation to Sentient Jet for an undisclosed but certainly below-market-value price. Then just this August, FAA lawyers subpoenaed several Sentient executives in an apparent attempt to find out if TAG is somehow still involved in the operation.
This situation is ongoing-and no one is talking on the record about it yet-but industry insiders have told me they are observing considerable and understandable angst among airplane owners whose aircraft are under contract with management companies. The big attractions of having your aircraft managed are to avoid the hassles of running your own flight department, reduce a few costs (such as fuel and insurance) and maybe earn some charter revenue.
But if the FAA continues to harass and put safe, respected management companies out of business, then this option becomes less and less attractive. What owner wants to keep his or her aircraft with a company that the FAA may soon close on a whim? To be sure, many good management companies are still available, but only a few of them are big enough to negotiate the really substantial fuel discounts that many owners are finding more and more attractive. Reducing competition among management companies will benefit only a few.
I don't usually like to throw stones at the FAA-it's just too easy a target-but this is one time I really believe it is causing irreparable damage to business aviation. The agency needs to come clean and tell the industry what it is up to.
I can't tell you what will happen with the economy and private air travel the rest of this year or next year or in five years. I only hope that at BJT's tenth anniversary, when we look back at 2008, we'll find that the FAA's leadership came to its senses and put a stop to the actions of its misguided, rogue lawyers.