ExecuJet ploughs a path through the crunch

The Middle East has been viewed as a cash rich market, and while certainly the Sheikhs and Princes remain recession-proof, lower down the ladder the crisis is taking its toll, believes Andrew Hoy, ExecuJet’s executive director for Aircraft Sales.

“The biggest problem is that the banks have stopped lending,” he says. “Before, it was easy to get asset-based financing, and because the banks were happy to lend buying a business jet was easy over the past few years. But now banks are seeing the drop in aircraft values and are not offering the same finance packages.”

“If you have a Bombardier Challenger that is sold for $19 million, the banks view the aircraft as having a wholesale value of $16m and therefore are only offering $14m in finance,” said Hoy.

Yet for Hoy and his sales team throughout the world, including four representatives in the Middle East, the downturn is stabilising. Aircraft values may be falling, but Hoy is seeing increased demand in narrowbody aircraft such as the Bombardier Learjet 45.

Bombardier narrowbodies such as this Learjet 40 XR are proving a popular choice

“As a result the narrowbody prices are also dropping. A Learjet 45 can be bought for $5m. What we’re seeing is that someone who is looking to buy a widebody would need to put down that sort of figure as part of the financing package. The result is that some customers are opting to purchase a smaller aircraft instead,” he said.

Hoy says his sales team is close to closing three Learjet 45 sales in just a month in Europe and the Middle East, while as the exclusive agent for the Learjet 85 in the region, his team have sold nine aircraft in the past few months.

“The Learjet 85 has been the biggest seller among narrowbody aircraft in the region, even in a market downturn. This shows that there is confidence in the market, as well as the aircraft,” he said.

The customers are there, but they are just harder to find, Hoy says. “Before the credit crunch there were plenty of customers who wanted to buy an aircraft. Out of 100 customers, around 20 had a genuine need for them. The rest just wanted one. Those 80 customers that just wanted a jet have mainly washed away. We just have to look harder for the customers with a need.”

The Middle East still offers many challenges to selling business aircraft, especially with the smaller companies that have jumped on the business jet sales bandwagon. Hoy said: “The first question asked of a potential customer is ‘do you have financing arranged?’ Before that was never an issue.

“There are a lot of smaller companies that are hungry to do deals and are knocking down their commission rates. We want to work out a fair commission structure that offers the value we add. We can sell the aircraft, manage it, crew it, refurbish it and maintain it. We aren’t just a fire and forget company. We have over 800 people working here and have local expertise,” he said.

Funding issues aside, Hoy says finding customers with the need can be a challenge. You have to convince customers as to why they should buy from a company with ExecuJet’s background and experiences. “ We look after them,” he said.

First time buyers in particular are proving more of a challenge. “They are less impulsive, better informed and are taking longer to look around. Because there is more choice on the market they are not rushing and won’t pay a premium. They will scan the market and make sure they which they want,” he said.

This choice is becoming so apparent for buyers.  “A buyer can right now choose the colour schemes.

“They can come to us and ask for a Challenger 604, with less than 4,000h with cream upholstery, dark wood, two DVD players and SATCOMs.
And they can get just that,” said Hoy.

He believes that one of the reasons for ExecuJet’s success is that his sales team are focussed on finding the aircraft that the customer wants - even if it means passing up something on the company’s exclusive mandate.
But it is also the company’s handle on local expertise and worldwide coverage alongside its other business aviation-related activities.

“We currently manage 155 aircraft. Eventually these aircraft are going to be up for sale, and they’ll come up for sale through us.

“When our customers want to upgrade from a Challenger 604 to Global 5000 we’ll be able to sell it,” he says.

“A lot of buyers in the region want an aircraft on the A6 [UAE] register so that it can go straight into commercial operations, or on the N [US] for private operations,” he adds.

Floor of the price drop

With used aircraft prices beginning to flatline Hoy believes that over the past quarter prices have dropped by as much as 20% on some types. “I believe we’re at the floor of the price drop. This is not because of guesswork but I am seeing prices become static.

“How much lower than $5m can you go for a Learjet 45? I have Challengers available for $12m, and these are not old aircraft. Prices just cannot go any lower.”

Hoy believes the Middle Eastern market is less nervous than the rest of the world. It is less affected by the credit crunch, though it has been exposed to a degree.

The Middle East’s view on business jets has previously focused on the luxury aspect and keeping up with others. “Previously there would be a case of ‘you’ve got a G4, I’ll get a G5’. But the region is quite well served with good airlines and first class is becoming more common. It is less of a business need and more of a luxury,” he believes.

He believes that for many corporations ExecuJet’s SimplyFly service will become more and more appealing, and certainly he thinks it could bode well for the Middle East. “For many companies it is important to get the aircraft off balance sheets. This is in part due to the bad press,” he says.

“Business will not succeed or grow if you shrink back and stop your sales team from seeing customers.” Andrew Hoy

SimplyFly involves ExecuJet owning the aircraft and thereby taking it off of a company’s balance sheet while in all other respects the aircraft belongs to the customer. “ We own the aircraft and manage it as well as provide the crew.
But it is entirely yours; it is your interior, your magazines and your DVD collection. The customers lease the aircraft back from us on a fixed monthly rate and are guaranteed the costs for the next five years,” he explained.
The result is that the aircraft’s use is tax-deductible as business travel “that isn’t necessarily seen by shareholders” and that customers are not owning a depreciating asset, he said.

“You are boarding your own aeroplane. You will recognise the pilots because you chose them.”

Hoy believes that the Middle East is stepping away from the luxury aspect of a private jet, and that as the region becomes more business-centric it will be the smaller firms that are tempted by SimplyFly.

While the market is having some shakes Hoy is adamant the market is still strong and that the Middle East remains a top priority.

The pre-owned market “still remains hot”, he said. “There are naturally some white tails [unsold new aircraft] and some great deals to be had. There are customers that had 2010 deliveries scheduled but are putting this back to 2012, and during this period of uncertainty are buying something cheaper.”

Hoy hopes business will pick up by the third quarter of 2009. “People are watching the banks and the construction industry, but the Middle East needs efficiency in business. A business jet can give that efficiency. The market will stay stable at is current position and once the summer holidays in the region come to an end around October we think we’ll see an increase in activity,” he says.