The State of General Aviation

Infrastructure: Supporting Players

June 1, 2005

More jet fuel and better avionics in the future

A recent survey of aviation schools, avionics shops, and fixed-base operators (FBOs) revealed that many in the general aviation industry connect continued growth to a steady economy. Almost every respondent said that business had rebounded from the slowdown following the terrorist attacks of September 11, 2001, and is as good as or better than before the slowdown.

The State of General Aviation

The only iffy portion of the growth pie is regional differences in maintenance training — more than a few long-established aviation maintenance training schools located on the West Coast are closing while schools are opening in the Midwest and South.

"Maintenance training is a hard sell, and it's difficult to find new students who are interested in aviation maintenance," says Mike Kratchmer, executive director of the Arkansas Aviation Technologies Center (AATC) in Fayetteville, Arkansas. Kratchmer says one factor is the public's perception of aviation as reported by the mainstream media — ongoing reports of huge layoffs, labor disputes, and airlines teetering on the edge of bankruptcy.

"Our flight school is doing twice what we projected last year and the charter side of our business has grown humongous," says Jim Willis, one of a group of business-savvy pilots who bought a small flight school in San Luis Obispo, California, four years ago. Located midway between San Francisco and Los Angeles, this area is served by no less than five on-demand charter operators. The positive charter business report is echoed by most on-demand charter operators.

96 percent of AOPA members surveyed said they believe it is the federal government's responsibility to fund the flight service station system as a no-fee service to pilots.

The upcoming introduction of affordable very light jets (VLJs) will be a big boost to the already-swelling fleet of air-taxi operators because of a growing awareness of the economy and utility that are part and parcel of GA's airport-to-airport travel capabilities (see " The State of GA: Dawn of an Era," page 88).

"Our industry is booming and it's more than just the government mandates for reduced visual separation minimums (RVSM) and terrain awareness warning system (TAWS) driving the demand," says Paula Derks, president of the Aircraft Electronics Association (AEA). "The customer is finally able to quench their thirst for the sophisticated systems and displays that once were found only in the upper-end business jets and commercial aircraft. We don't see a slowdown in this desire for new innovations at prices that consumers can actually justify."

Statistics from AOPA's 2004 fact sheet show that 98 percent of the fuel consumed during 2002 was jet fuel. A similar study by the California Division of Aviation showed that jet fuel usage doubled (in California) in the 10 years from 1993 to 2003, while avgas usage declined by 25 percent. In the future more and more GA flying will be turbine powered.

In spite of a bright outlook for the future, some FBOs are struggling to make ends meet.

"Since 9/11 there's been a huge swing in the industry. We're seeing bigger airplanes that are more fuel efficient. We have had to institute facility fees to offset the costs of the services we have to provide to keep our customers," says Clint Kummer, operations manager of the Million Air facility in St. Paul, Minnesota. Kummer cites the costs of complying with government requirements for more safety and security training as an example of costs that weren't part of anyone's budget a few years ago.

As the years click off the calendar, general aviation's appetite for avgas will shrink while the demand for jet fuel will continue to grow. The amazing and finally affordable avionics that have been the catalyst for the huge upsurge in GA spending and revitalized some new-airplane sales recently will become so widespread that instrument-panel-mounted moving maps with integrated terrain, weather, traffic warning, charts, and approach plates will become commonplace.

Small FBOs will have to start pumping jet fuel. Large FBOs will morph into the role of becoming miniterminals to accommodate the increased number of charter passengers. Amid these changes, there will be more airplanes flying direct routings from airport to airport. Flight training will move strongly toward computer-based interactive learning. After their first gotcha flight, students will complete their first 10 hours of training in a full-motion simulator before they ever return to the controls of an actual airplane.

Since a steady supply of airplane maintenance and avionics technicians is critical to the continued growth of aviation, industry and the FAA will have to work together to create training curricula that stimulate growth and better prepare technician graduates to join the twenty-first-century workforce.


Associate Editor Steven W. Ells began his career in aviation maintenance more than 35 years ago in the U.S. Navy. To complement the experiences gained over a lifetime of working as a general aviation A&P mechanic (with inspection authorization), he is a voracious reader and has written on aviation maintenance for more than 10 years.


Fractionals: Traditional and Owner-Flown

The era of the professionally managed shared ownership?

BY JULIE K. BOATMAN

No doubt about it, fractional ownership has changed the face of business aviation. Just open The Wall Street Journal on any given day and you'll find an ad for one of the major fractional companies and its latest service.

Fractional operators now have their own set of regulations, Subpart K under Part 91, for companies that provide a crew with the airplane share that they sell. Shares have grown to more than 6,000 held across all companies offering fractional ownership. Last year, fractionals bought 98 new aircraft, mostly business jets, accounting for 15 percent of those sales. Convenience is the selling point, as well as a more moderate investment for a business than adding a traditional flight department would entail. And in the past couple of years, several fractionals have introduced "jet cards" — or credit cards that come loaded with 25 or 50 hours of flight time, for an even lower cost barrier to entry than before. The upshot? In a slightly weaker business-jet market, the fractional companies remain some of the biggest customers on the order books.

The same hallmarks of a traditional fractional ownership program — convenience, lower commitment, predictable cost — can also be found at the lighter end of the general aviation market. And according to the pioneers in this business, the same growth that major fractionals have enjoyed is going to play out here in the personal-aircraft market as well.

What's a PMSO?

"It's a lot like going to a country club — you enjoy the day, then you go home." Ginger Davidson, founder of Time Pieces Inc., looks on professionally managed shared ownership (PMSO) as a building force in aircraft ownership. And she's using the term to describe not jet ownership, or even new-aircraft ownership, but the fleet of three Piper Cubs that her company and a franchise operator manage for 30 shareholders. "People are so busy today that they don't have time for the details." As people become increasingly specialized in their careers and pursuits, the pilot who has the patience and time to deal with all the details of ownership is becoming more and more rare.

"It's a challenge to the industry: What are we doing to attract more users?" asks David Lee, president of AirShares Elite.

Taking a page from the playbook of traditional fractional ownership programs like NetJets and Flight Options, PMSO companies have carved a new brand of aircraft ownership for those pilots who have some means and some time — but not enough of either to justify owning an entire airplane. The major players on the new-aircraft PMSO market are AirShares Elite and OurPlane. Taking numbers from the companies that AirShares founder David Lee has identified, roughly 480 shares are active across North America. That is up from just three shares in 1999, when the modern idea of PMSO launched. Lee boldly describes the trajectory of increasing share amounts as akin to that of the traditional fractional business. If that growth model holds true, he speculates hopefully that there may be as many as 22,000 shares in 2010 — accounting for roughly 3,600 new airplanes.

PMSO also helps those pilots who might be pursuing a traditional flying club membership avoid what Davidson terms "management by committee." Instead of having a group of (soon-to-be former) friends collectively decide upon the operation and maintenance of an airplane, PMSO companies manage the aircraft, and "we hope you like the way we manage it," says Davidson, or you're free to take your equity and go elsewhere.

As OurPlane President Graham Casson puts it, "Buying just what you need and getting the newest aircraft make better sense." And by offering a line of aircraft, a shareholder can move "backwards and forwards" more easily, says Casson, growing from a single-engine Cessna to a very light jet (VLJ) as needs change — and back again. As far as VLJs go, Casson sees the PMSO as the model for VLJ ownership, and is convinced that this area of VLJ utilization will happen more rapidly than that of the promised air-taxi segment. "We've spent six years educating our customers about fractional ownership," says Casson. "Any sort of air-taxi program will require that kind of education."


E-mail the author at julie.boatman@aopa.org.


Belt Tightening

Turbulence ahead in aviation insurance

BY GREG STERLING

Today's aviation insurance market is a very small niche in the vast world of insurance. Only nine insurance companies currently write aviation risks, down from more than twice that number just 15 years ago. Since most of the companies that exited the aviation market did so because of unprofitable results, the remaining companies are under tremendous pressure to sustain a profit, something that this market historically has had difficulty doing. With fewer insurance companies, the rising costs of aircraft repair, and the almost-nonsensical growth in liability awards, we could see insurance premiums creep higher in 2005.

While there are only a small number of aviation insurers, they all approach underwriting differently, applying their own "mix" of evaluations, rates, and credits in an effort to attract the pilots and aircraft they feel are desirable. "We rely a great deal on our historical data to support our underwriting decisions, and we endeavor to underwrite the pilot, the aircraft, and the infrastructure around it as if it were a single system," commented Jeffrey S. Bruno, senior vice president of general aviation underwriting for Short Hills, New Jersey-based Global Aerospace. "Accounts that score high in all areas will enjoy preferred terms and conditions," he said.

Another way carriers separate the wheat from the chaff is through the use of minimum pilot qualifications. We are seeing many underwriters tighten pilot requirements for six-place, retractable-gear, and higher-value aircraft, now requiring higher minimum flight times and/or an instrument rating. Flying clubs also are feeling the effects of tighter underwriting with carrier Avemco announcing it will no longer offer coverage for most high-performance, retractable-gear aircraft operated by flying clubs.

Another way carriers try to attract good accounts is by offering premium credits. Many companies now offer this incentive for an instrument rating, hangared aircraft, and recurrent training beyond FAA-mandated minimums. The year also marks the third year of the 5% AOPA member discount offered by insurer AIG Aviation. "If you've added an instrument rating, hangared your aircraft, and joined AOPA, you could be looking at a decrease in your premiums," noted Jim Anderson, vice president and head of light-aircraft insurance for AIG Aviation.

Of course, opposite the credit is the surcharge, which companies use to increase premiums on risks they feel cannot be written profitably at base rates. Since the beginning of the year, they appear to be in increased use. One early target for surcharges has been older aircraft, with one company now adding surcharges for all aircraft produced prior to 1974.

46 percent of AOPA members surveyed said they believe the economic environment for general aviation today is good

Concerns over the ravages of time don't stop with the aircraft either. The same insurer adds pilot age surcharges beginning at age 60, and increasing each year, with pilots over age 75 seeing significant increases. Older pilots with an older aircraft insured with this carrier could therefore see dramatic increases. While the final premium created by these multiple surcharges is often still competitive with the market at large, the one-year premium "climb rate" could make many pilots' ears pop. To aid the affected members, AOPA has negotiated improved terms for older pilots with two major insurance carriers and has initiated a major study into pilot aging to determine if actual accident rates justify the stance of some insurance companies. "This study is extraordinarily important to pilots, because the answers could very well affect general aviation safety and the cost of flying for everyone — something that members constantly tell us is a primary concern," said AOPA President Phil Boyer.

Finally, 2005 is seeing a continuation of 2004's rapid growth in the sale of nonowned aircraft or renters liability policies. More and more pilots understand that the FBO's policy seldom affords them any insurance coverage at all and, for less than the cost of a few hours of flight time, they can obtain their own liability policy. In contrast to the "owned" aircraft market, renters' insurance rates do not appear to be on the rise. AIG's Anderson pointed out, "The rates for our personal nonowned liability insurance were reduced last year and we also offer a 10-percent renewal discount for current, claims- and violation-free clients."


Greg Sterling is general manager of the AOPA Insurance Agency.