Rollie Vincent, Creator and Director of JETNET iQ, and Paul Cardarelli, Vice President of Sales for JETNET discuss how Business Aviation is recovering from the COVID-19 pandemic, market trends becoming visible, and how the industry may shape up as we move forward. Topics covered include:
Paul is part of the foundation that built and supports JETNET. He has been with the company from its inception in 1988 when he began his career there working in the Research Department. There he gained his knowledge of the business aircraft sales trade and the mechanics of the marketplace. In 1994 he was promoted to Sales Director and later Vice President of Sales. In 2011 he participated in the launch of the JETNET iQ Business Aviation Forecast Service tailored to the strategic planning needs of business aircraft and powerplant OEMs and tier I and II suppliers.
Paul is JETNET’s delegate to the NBAA Leadership Council, a member of the Business Aviation Subcommittee of the Transportation Research Board of the National Academies, a member of the AMAC Aircraft Sales and Acquisitions subcommittee to the European Business Aviation Association, and a former member of the board for the International Aircraft Dealers Association (formerly NARA). He holds a Bachelor of Science degree in Business Administration with a concentration in Human Resource Management from the State University of New York at Oswego. He earned his private pilot certificate in 1981.
Paul and his wife Cynthia reside in Ilion, NY. They have two children, Danielle and Nicholas.
Rolland Vincent Associates, LLC (RVA) is a consultancy focused on aviation market research, strategy, and forecasting. RVA’s client base includes the world’s foremost civil aircraft and engine manufacturers, Tier I and II aerospace suppliers, MRO / FBO / flight training service providers, fractional / charter / fleet operators, aircraft lenders and lessors, aircraft brokers and dealers, aviation trade organizations, and the aerospace investment community.
With 35+ years in the aviation industry, Rollie has served as a trusted independent consultant and at Textron, Bombardier, and ICAO in various roles in strategy, marketing, business development, aviation economics and statistics. Identifying a need for enhanced insights into the state of the business aviation marketplace, RVA partnered with JETNET in 2010 to create JETNET iQ, a respected source of independent market intelligence. Quarterly worldwide surveys of 500+ business aircraft owner and operators provide proprietary “voice of customer” insights that are at the core of JETNET iQ. Rollie is immediate past chair of the U.S. Transportation Research Board’s Standing Committee on Commercial and General Aviation, where he oversaw subcommittees focused on business aviation, commercial aviation, and helicopters / vertical lift solutions.
A private pilot, Rollie earned a BA and MA in economic geography and a MBA in international business and marketing from McGill University.
Launched in January 2011, JETNET iQ is a forecasting and premium advisory service for the business aviation market, designed to help customers “Know More”. Available on an annual subscription basis, JETNET iQ has 3 main elements:
For more information on JETNET iQ, please log on to www.jetnetiq.com or contact Rolland Vincent, JETNET iQ Creator / Director at 1-972-439-2069 or firstname.lastname@example.org.
Tony Kioussis (00:33):
Welcome to another Asset Insight podcast covering the Aircraft Ownership Lifecycle. I am Tony Kioussis, president of Asset Insight and your host.
Tony Kioussis (00:43):
For anyone new to the industry, JETNET iQ is a partnership between JETNET LLC and Rolland Vincent Associates LLC that offers business aviation, market research, analysis and forecasting services.
Tony Kioussis (00:56):
Since late 2010, JETNET’s multilingual researchers have been conducting quarterly surveys of the worldwide community of business aircraft owners and operators in order to gauge customer sentiment, brand perceptions, aircraft purchasing, selling, and utilization expectations and other factors.
Tony Kioussis (01:16):
Joining me today to discuss how business aviation is handled and is recovering from the COVID-19 pandemic are Rollie Vincent, creator and director of JETNET iQ and Paul Cardarelli, vice president of sales for JETNET.
Tony Kioussis (01:33):
Let’s start off with a much discussed topic. How has the business aviation recovery from the COVID-19 industry crisis similar to or different from what we experienced in the aftermath of the last big downturn in 2008 and 2009?
Paul Cardarelli (01:52):
I could take a run at that. I would say it was very different. If we looked at the post recession years, it was really a situation where really every facet of business aviation… Especially the OEMs of course.
Paul Cardarelli (02:03):
I would argue every facet had to come to terms very quickly with an industry that was very abruptly at a state of oversupply. New jet deliveries had been exceeding a thousand a year in the run-up to the recession. Very quickly dropped off to 900, 800, 700… Going down to the mid six hundreds by 2013.
Paul Cardarelli (02:23):
I think it was 2009 that they actually exceeded 1200 deliveries. You’re down nearly 45, 50% in just four years in business jet deliveries. If you look at the pre-owned side, the inventory of pre-owned jets, they were already high actually looking into the run-up to the recession in the early years.
Paul Cardarelli (02:41):
I think they were up 12% in 2007 but by in 2009, they were over 18% getting on to 19%. One of my business jets was on the market at that time. I would argue it was very different. The recession was far more abrupt.
Paul Cardarelli (02:57):
If we look at the last year with the COVID crisis… that came upon us all is an abrupt event. I think it was on or about March 15, 16. The president really pulled the chain particularly here in New York State where I am.
Paul Cardarelli (03:11):
This became a real dilemma throughout the country but the business jet markets were really cooling down in the fourth quarter of the prior year already. Rollie and I were talking about this and Rollie who’s got a lot of insight on this was kind of predicting this as I recall in the summer of 2019.
Paul Cardarelli (03:28):
It’s an election year. It’s going to be a contentious election year and it sure was. Brexit was unresolved and there had just been a lot of sales that had taken place in the last two years. A lot of post recession pent up demand.
Paul Cardarelli (03:40):
I would argue it was satiated particularly in 2018 and early 2019. A lot of those sales had been culminated and demand was down. I think it’s a pretty different situation than it was 2010 as we entered the recession.
Rollie Vincent (03:55):
I think it starts with looking at the reasons we got into these crises. If you go back to ’08 and ’09, Tony. That was obviously the global financial crisis which came upon us suddenly as Paul mentioned.
Rollie Vincent (04:07):
The thing is if we recall that time, it was an instant lack of credit availability. We had all of these companies and all of these industries not just on Wall Street. This sort of panic of not having access to credit and you start looking around in the businesses said, “I’ve got assets that have value.”
Rollie Vincent (04:24):
Get rid of the airplane sort of thing. That is exactly different from what is going on and it has been going on certainly through 2020 where obviously we’re all in this massive shock of the COVID crisis. We had a little bit of inkling that something was coming and then suddenly it was a pandemic.
Rollie Vincent (04:39):
What I found so different this time was that not as many airplanes were put on the market. The pre-owned market took a little while to kick in it. You know, everything went silent in April, May of 2020.
Rollie Vincent (04:49):
After that, it just started to pick up and some airplanes are coming onto market. The pre-owned inventory drops. It’s down below 7% worldwide available right now. That’s very different and Paul knows this better than anyone.
Rollie Vincent (05:01):
I think we jumped to 18% available inventory a couple of years after the ’08, ’09 crisis. We’re nowhere near that. We’re in a totally different world.
Rollie Vincent (05:10):
There’s a very positive image of business aviation now where 12, 13 years ago the three amigos that went from Detroit to Washington to ask for money and there were Gulf streams. Everybody remembers that. We don’t have this negative image today. We’re actually recognized as part of the solution.
Tony Kioussis (05:25):
Yeah. I think both of you have extremely good comments on the subject. I find this particular time period very different than the ’08, ’09. Let’s talk about valuations.
Tony Kioussis (05:36):
They were under pressure during much of 2020 which no doubt helped drive pre-owned business jet sales to their highest ever levels last year. Now that the for sale inventory has tightened especially for younger and higher pedigree models, what are some of the market forces that are impacting values today?
Paul Cardarelli (05:57):
I don’t think the pandemic in the year that just transpired had a whole lot of impact on residual values and that can be looked at as good or bad. Good side is I don’t think they’re any worse.
Paul Cardarelli (06:08):
That whole value proposition about a business jet which was really turned upside down to the post recession. That’s where we went from the notion of… By business jet, it’s probably going to depreciate about 20 to 25% in the first five years.
Paul Cardarelli (06:22):
As you know today, that’s more like 40% in the first five years. I don’t think that trend really changed at all during the pandemic. Certainly there was pressure on asking pricing. We saw this at JETNET.
Paul Cardarelli (06:34):
Considering the nature of what transpired in the past year… I look at the market of all business jets. Everything from a light jet right up to a global or a G650 and asking prices were down about a total of 4% overall.
Paul Cardarelli (06:49):
There were winners within those if you look at the various categories. Super Light Jets were down half a percent. They were really flat for the most part. Midsize jets were actually down maybe 1%.
Paul Cardarelli (07:03):
The part of the market that really took the beating I think was the ultra long range jets. The globals and the G650s which for the past year due to quarantines and border restrictions and alike, you just couldn’t operate those airplanes as they were intended.
Paul Cardarelli (07:18):
We’re measuring those asking prices down from January to December of 2020. They were down 31%. That’s the portion of the market where the dollars are most robust and for the last 10 years or so, the units have been quite considerable.
Paul Cardarelli (07:31):
That’s a component of the market that drives a great deal of the overall business aircraft market but it was the only component that was really truly adversely affected in terms of pricing during the last 12 months.
Rollie Vincent (07:43):
Evaluations are so important to understand and Tony, you and Asset Insight… The work that you’re doing there is just leading edge when it comes to really understand the underlying causal factors whether it’s maintenance condition or aging or all the other good work that you and your team does.
Rollie Vincent (07:57):
From our perspective, I look at it more from a market point of view. What’s going on in the big market. Clearly, we had inventory tightening you’d expect in a normal world that would cause prices and valuations to go up.
Rollie Vincent (08:08):
We’re still waiting to see that as an across the board change but we’re already seeing it in some sectors like for instance turboprop. Single engine turboprop in particular but also utility type machines and others especially at the lighter end of the market. We’re seeing strengths.
Rollie Vincent (08:23):
In fact, in some cases year over year increases in appraisals now for the same model year. It’s happening, it’s starting but it’s not an across the board change. Generally speaking, prices valuations are down.
Rollie Vincent (08:35):
We had seen that over a long period of time. That whole recovery period we’d been through the last 8, 9, 10 years. Just generally, slow declines in valuations. The nice thing is now very tight markets, OEMs are not back up full production rates yet and they’re not planning to.
Rollie Vincent (08:49):
That’s another market factor that keeps inventory limited. If you want a new or nearly new airplane on the Freeland Market, good luck find yourself a really, really good broker.
Paul Cardarelli (09:00):
Yeah. To Rollie’s point, the inventory rate now of aircraft business jets offered for sale… Just looked at it. It was 7.2%. Called at 7%. It’s unheard of how low it is. I went back to check that data 15 years.
Paul Cardarelli (09:14):
Very rarely did we ever get below 10%. Just briefly on a few occasions and I’ll answer to guess you could go back 20 years and I’ve never seen solo at 7% but the conundrum is if you’re an aircraft buyer, you’re looking at a pretty limited selection of aircraft out there.
Paul Cardarelli (09:31):
A lot of this is coming off of a lot of the pent up demand that was finally released with a lot of buyers coming forward in 2018 and 2019. As you’re aware, there were just a flurry of sales in Q4 of last year. Really the second half of last year. It just ramped up considerably but you forward particularly December, we saw a great deal of sales happening.
Paul Cardarelli (09:51):
The result is what’s left over is a lot of older aircraft, [retired 00:09:56] aircraft that are not necessarily that market appealing. I think when a late model G550, Falcon 7X or whatever it is comes to market today, it’d get scooped up very quickly.
Paul Cardarelli (10:07):
To your point to what your original question, Tony… Yes. That should translate to I would think some firming up of valuations and asking prices in the market going forward. We’ll have to see what the next quarter holds. The world and particularly the United States really feels that this pandemic is truly behind us. I would expect that would start to happen.
Rollie Vincent (10:28):
Just to add to that, we’re seeing some really nice numbers in terms of economic growth expectations forecast for this year. Obviously, underlying everything we’re talking about is a return to strengthen our economies.
Rollie Vincent (10:39):
Just yesterday, the IMNF came out with its latest forecast. We’re expecting 6.1% GDP growth in 2021 in the United States and around 6% worldwide. In these are numbers we have not seen in most of our lifetimes on this call.
Rollie Vincent (10:53):
That’s really nice to see. Obviously, we’re not through the worst of the pandemic in some areas where third, fourth variants are coming along. Oh my goodness. The GDP numbers we’re seeing right now… The growth rates are going to take us way over even where we were when our economy entered the recession. We’re going to get all of that back and some.
Tony Kioussis (11:14):
Yeah. I think the growth figures to your point Rollie that I’ve seen are truly unbelievable. You got to wonder whether it’s a misprint when you see it in writing. It’s been such a long time if ever that we’ve seen numbers like that.
Tony Kioussis (11:27):
That kind of leads to my next point. Starting back in the summer of 2020, interest in aircraft acquisitions for first-time buyers was beginning to translate into real activity, real buying and a real desire frankly not to travel on a commercial airliner. Do you have a sense of whether that is still the case with respect to pre-owned aircraft buyers?
Paul Cardarelli (11:50):
I know what I hear primarily from the brokers and you’re right. Starting second quarter of last year, they said their phones were starting to rain with folks they had never heard from before.
Paul Cardarelli (11:59):
I don’t know that is actually translated into a measurable volume of new aircraft owners. I hope it has. I think it’s something the industry desperately needs but at this point there’s really no measurable data on that. Would you agree, Rollie?
Rollie Vincent (12:13):
I think so, Paul. Our conversations are going on every day, every hour with the owner-operator community, with the broker dealers, the stakeholders, financiers, lessors. You name it. We’re talking with them and we are hearing consistently from every corner that prospective customers that have been coming forward.
Rollie Vincent (12:30):
A lot of them have not owned an airplane before they may have chartered. You know, one of their buddies had a fractional share. They flew in the back, et cetera but it’s so difficult to find good data but the good news is we are hearing it in all kinds of calls that we’re making into the community. The answer is yes. I wish we had detail on the data.
Tony Kioussis (12:48):
Yeah. It’s tough to find the detail on that, isn’t it? Is there any particular trend or trends that stand out in your view during the early months of 2021?
Paul Cardarelli (12:59):
Inventory is continuing to be extremely low. The few dealers that I have talked to… A little bit can sometimes be as a group, pessimistic but they’re all anticipating. It’s going to be a year of struggling to find good inventory to satiate the buyers that are coming forward.
Paul Cardarelli (13:15):
Again, I’m looking for that to translate into some firming up of pricing. I don’t know that this necessarily corrects the residual value trend that’s been the result of the post recession years.
Paul Cardarelli (13:27):
I would think pricing should start firming up. I think it probably already has. Again, if you bring that late model G550 to market… If the airplane’s clean and it has all the boxes checked, I think that airplane sells at [ask price 00:13:39] or maybe even get into a slight bidding war with your airplane and it moves quickly. That’s the only trend that I can identify.
Rollie Vincent (13:46):
The other thing I want to talk about is utilization. Clearly, if people are using their airplanes, they may be in the market for looking at another one or replacement or whatever. If they’re not using the airplanes, that call or that decision is tough to justify.
Rollie Vincent (13:58):
What we saw last year of course is a big drop-off in utilization across the world. Call it 25%. It’s probably about that. Depends on the geography, the region, et cetera. In the US, maybe a little closer to 20 than 25%.
Rollie Vincent (14:11):
That’s flying that went away. We have to get all of that back before people… I think start in a big picture way, getting interested again in more airplanes. They’ve got enough capacity out there.
Rollie Vincent (14:20):
Our fleet is certainly underutilized generally. Picking up utilization, what are we seeing? Charter and fractional flying in the US. It’s come right back, especially in this first few months of this year, as you saw.
Rollie Vincent (14:32):
Some of that was really just people using airplanes. Let’s say they brought their families together And now they’re going back to their homes. Let’s say in January, as opposed to maybe in December.
Rollie Vincent (14:41):
We saw a little bit of that bump in the early part of the year. What we’re not seeing yet is a real full recovery of part 91. So-called private flight operations as the corporate flight departments but obviously underlying that is the lack of business meetings going on out there.
Rollie Vincent (14:54):
It seems to all be about visiting friends, relatives, relocating second and third homes And we’re still not seeing that business. Flying, of course, convention still nowhere on the short-term horizon.
Rollie Vincent (15:05):
Looking for utilization bumps, we’re still about 80% maybe where we were and we’re looking forward to that to fully recovering by maybe the end of next year. I think it’s going to take that long.
Tony Kioussis (15:17):
Do either of you see any tailwinds or headwinds that could impact the market for business aircraft either positively or negatively in the near future? Are there any early indications of market sentiment or actual demand?
Rollie Vincent (15:31):
On market sentiment, we are seeing a nice bounce back from a floor. We check on this with the owner-operator community continually and we’re in the field right now with our Q1 2021 survey.
Rollie Vincent (15:42):
We are well back up off the floor we were at in Q2 of 2020. Not fully recovered to our highest levels or anything but it’s just so encouraging. Regionally, the US in particular is doing better than any other region right now in terms of the sentiment.
Paul Cardarelli (15:57):
Yeah. What I’ll add to that is what I do sometimes see are from the dealers and brokers, speaking on behalf of their clients, the ultimate end-users of the aircraft is some concern about whether or not the new presidential administration will roll back or terminate a bonus depreciation.
Paul Cardarelli (16:14):
I tend to feel that there’s much more else that is played right now than to be messing with that. I don’t anticipate that being a factor in the immediate short term but all the more reason for someone to buy now, I suppose.
Tony Kioussis (16:26)
You have any indication of whether private flying will increase or decrease once the COVID vaccine has become widely available?
Paul Cardarelli (16:34):
I believe it will increase. It’s just another pent-up demand kind of situation. Number one. Number two, if we see this aviation starting to make the move to being more about private aviation, more family offices and individuals buying an aircraft to support their lifestyle needs as opposed to just business needs, I would see ultimately an increase in flight activity.
Rollie Vincent (16:57):
This is an opportunity to rebuild our businesses and also to make the experience of business aviation perhaps for the first time for people an incredible one that they just didn’t know about.
Rollie Vincent (17:07):
Now that they do know about it, they’re going to stay with us. It’s an opportunity for us as an industry across all sectors whether it’s working with that new buyer or ensuring that that maintenance visit was just what was expected. There’s so many areas of opportunity for us to just really support new and existing customers stay with us. This is really the best way to fly.
Paul Cardarelli (17:27):
Yeah, I can’t agree more. This is an opportunity and it’s one that the industry really needs and everybody needs to embrace it. It’s not just the OEMs. All of us that participate in this great industry need to get onboard this opportunity to hopefully recruit more new buyers coming into business aviation because wealth is on the uptake, of course.
Paul Cardarelli (17:45):
Throughout the globe which statutes in the United States, more and more ultra high net worth individuals being created all the time… What we found out here is that there are going to be times when commercial aviation just to not to service is we need to be served.
Paul Cardarelli (17:58):
Business aviation, we use this great alternative and we should embrace however people choose to come into business aviation. If It’s through initially being introduced by charter or fractional share or a jet card, let’s embrace all those things and see that we sustain ourselves into the future because we’re not going to sustain ourselves if every business jet operator is somewhere north of senior citizen discounts.
Tony Kioussis (18:22):
Yeah, that’s true. Let’s follow that through a little bit more. What are some of the long lasting changes to business aviation that you anticipate as a result of the pandemic?
Paul Cardarelli (18:33):
You look to the OEMs and the kind of aircraft that they determined to build. We’ve seen some great products in the last few years, particularly with what they’re doing over in Switzerland and Pilatus with PC-12 And now the PC-24.
Paul Cardarelli (18:46):
I think airplanes like that are very enticing to bring you new potential operators and an aircraft owners into the industry. it’s not just them. We certainly liked very much what we see going on over at Embraer.
Paul Cardarelli (18:57):
They’ve done very nicely with the Phenom particularly the 300. We’re seeing some new products now coming out of Textron as well I think there’s some great opportunities in there. Particularly if you look at the light, super light and midsize jet segments,
Rollie Vincent (19:13):
A lot of us use commercial airlines to get to and from meetings, to get to and from inspections of aircraft or sales of aircraft. We need this industry on the commercial side to recover. We need it to recover fully.
Rollie Vincent (19:23):
I want to see commercial aviation performing well. We need to be able to get to meetings and to be able to move parts and people inexpensively and that’s really where the airlines come in.
Rollie Vincent (19:32):
I don’t want to see any long-term disruption to that and if we do see that disruption, that is a change in the industry that I don’t think we’re ready for. I do think business travel on the airlines is really going to be under pressure now for many, many years.
Rollie Vincent (19:45):
They’re going to be looking at different business models. How do they make money flying their Airbus and Boeing equipment? I think it’s going to be a tough world for them and if it’s tough for them, it’s going to change the way we have to do business in our sector.
Tony Kioussis (19:57):
All good points greatly appreciate your industry insight to both of you. I also appreciate receiving Pulse, which I find to be an exceptionally well-written publication that is always well worth the read, Rollie. What do you want listeners to know about JETNET iQ services?
Rollie Vincent (20:15):
We try to be unique. We try to go from data to insights using analytics and that’s where Asset Insight has shone and continues to shine. That’s where we are hopefully shining as well.
Rollie Vincent (20:24):
One thing we’ve tried to do from the beginning… First of all, source and then amplify the voices of customers. There just doesn’t seem to be enough information we can ever have and insights on what our customers need, want and are thinking about and we try to do that. We have unique services and unique data and unique analytics and glad to share those with the community.
Tony Kioussis (20:45):
This has been another Asset Insight podcast covering the Aircraft Ownership Lifecycle. Please visit our ever-growing podcast library at assetinsightpodcast.com and select from any number of topics discussed with business aviation industry experts. This is Tony Kioussis and as always, thank you for listening.
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