CAA: GA News, "Private Aviation Is Ready to Take Off"

["Stephen Irwin" <stepheni@xxxxxxxxx>]

Sunday, September 23, 2001

Private Aviation Is Ready to Take Off
By KAREN ROBINSON-JACOBS
THE LOS ANGELES (CA) TIMES


Amid concerns about safety and delays, more senior business executives
are expected to bypass major airlines for corporate jets and charters.

Although still prohibitively expensive for many firms, the use of
corporate aircraft and charters has risen steadily in recent years as
companies have reacted to airline fare increases and perceived service
cutbacks.

The Sept. 11 terrorist attacks involving four hijacked planes are
expected to quicken that pace. Several charter and private jet services
said they already have seen an increase in business. "My educated guess
is that there will be a noticeable, measurable increase [in the use of
private planes] and that it will be able to be linked to this tragedy,"
said Kevin Mitchell, chairman of the Business Travel Coalition, a
Pennsylvania-based advocacy group.

"There's always been a security concern with corporations about their
senior managers," he said. "Sept. 11 just pushed that off the chart."

For costs ranging from millions of dollars for sole ownership of a new
jet to $5,000 an hour for a charter, companies can purchase the peace of
mind of knowing who's on board, what's in the luggage and who's piloting
the aircraft. And, with commercial air travelers now advised to allow at
least two hours to board a domestic flight, passengers on private jets
are buying time.

Mitchell and others acknowledged that commercial airlines--which were
looking at more than $2 billion in losses before the terrorist
attacks--will continue to control most business travel.

"To suggest that this is going to have a substantial impact on the
airlines, no I don't think so," said Betsy O'Rourke, senior vice
president of the Travel Industry Assn.

Although the number of defectors may be small, they are expected to come
from the class of traveler the airlines covet most--first-class and
business-class passengers whose tickets provide airlines with their
highest yields.

"The business they are losing is the CEOs, the CFOs, the executive VPs,"
Mitchell said. "The fliers with a high impact on the bottom line, that's
who they're losing. That's the trend, and it's strong. And Sept. 11 just
made it stronger."

At Petersen Aviation in Van Nuys, flight standards manager Thomas C.
Mangum said charter business has picked up, boosted by new clients and
travelers returning home after the suspension of air travel was lifted.
He said business is so brisk that the company may need to hire
additional crews.

"The industry in general had been in a slump" because of the slowing
economy, Mangum said. "Activity was in a downturn on the order of 15%.

"I suspect we'll gain that back and then some," he said.

The charter business is one of two areas that experts expect to increase
rapidly as a result of the attacks. The other is the fast-growing
segment called fractional ownership, in which buyers purchase use of an
aircraft for a set number of hours a year. They also pay monthly
management fees and an occupied hourly fee. The lure, experts say, is
the price point.

Though a new Cessna Citation V Ultra costs about $6.5 million, a
one-sixteenth share costs $400,000 at New Jersey-based Executive Jet,
the largest of the fractional ownership companies. Owned by billionaire
investor Warren Buffett, the company operates 260 aircraft, and has
increased its fleet by about 25% a year over the last several years to
accommodate growing demand.

Figures from the National Business Aviation Assn. show that the number
of owners of fractional aircraft shares nationwide rose to 3,694 last
year from 285 in 1995.

United Airlines Inc., concerned about the flow of first-class passengers
to business jets, this year became the first major airline to move into
the private-jet business.

Analysts are split on whether increased interest in private air travel
will translate into more business for aircraft manufacturers, especially
market leaders Raytheon Aircraft (which makes the Hawker series) and
Cessna Aircraft Co., both based in Kansas; and Montreal-based Bombardier
Inc., which makes the Learjet.

Gulfstream Aerospace Corp., which has 60% of the market for large,
long-range business aircraft, said it has seen increased interest since
the attacks. Executives of Raytheon, Cessna and Bombardier declined to
comment.

Still, one analyst said anticipated growth in private air travel could
mean enough new orders for manufacturers--especially of larger
planes--to forestall a slowdown that had been forecast for the end of
the year.

"Activity throughout the industry had been at a high level [a year ago]
and was expected to drop, with demand continuing to weaken over the next
few months," said Paul Nisbet of Rhode Island-based JSA Research Inc.,
which specializes in U.S.-based aerospace.

"This could be a partially off-setting factor," he said.

But Byron Callan, an aerospace/defense analyst with Merrill Lynch said
that, with the economy poised for further slowing, any gains
manufacturers would get from new clients could be diminished by current
corporate jet owners bailing out to help improve the bottom line.

Some businesspeople definitely will be looking at private air travel,
Callan said. "But there will be another set that says 'How can we afford
this plane in the first place.' "

Security the Motivation for Using Private Planes

David Ramirez, who heads Perez Electric in Walnut, said a private
business plane doesn't have to be a $10-million beauty.

In July 2000, Ramirez bought a 1973 Cessna twin-engine plane, "because
that's all I could afford."

It cost him $230,000, and he said it will help him pursue $1.5 million
worth of business in Arizona this year.

"For my business, it's very important," said Ramirez, who also is the
pilot. "We do electrical installations, traffic signals, street
lighting. I can't fly commercial and take my tools."

That's a factor more travelers may have to consider because of the
increased security on commercial flights.

Before the terrorist attacks, security was a secondary motivation for
using a private plane--behind convenience--for some companies. Today,
one pilot said, that order is reversed.

"Security, we had almost taken it for granted," said Bill Sparks, chief
pilot for Tulsa, Okla.-based Helmerich & Payne Inc., an oil and gas
drilling and production company that spent $9 million on a new mid-size
Learjet in July 2000. "Prior to this event, I'd say it was 30% of the
equation. The convenience of it weighed a lot more.

"After the World Trade Center, a top manager here might assign a lot
more value to security," he said. "It's maybe now 70% to 80% of the
equation."

Although the Federal Aviation Administration issued a lengthy list of
safety precautions before allowing commercial planes back in the air,
general aviation is operating under fewer new restrictions, FAA
spokesman William Shumann said.

Even without FAA action, however, officials within the private aviation
industry said they've taken steps to beef up security, including
checking passenger IDs, maintaining detailed passenger lists and tagging
all luggage.

Such measures can be touted as additional rationale for businesses to
make the switch.

"This tragedy is going to make an even stronger case for personal
ownership or fractional ownership," said Steven Brechter, chief
operating officer of Executive Jet.

"We've already seen it," he said. "People who were on the fence have
been calling to sign up. At least a dozen. This has really shaken people
up."

As sales of used planes and fractional ownership shares extend beyond
"high-net-worth individuals," the industry could shake the image of the
fat-cat business honcho who uses the company plane to go skiing.

"Business jets used to be the dirty little secret," said Callan of
Merrill Lynch. "We're well past those days. I've talked to shareholders
and they don't object," to their executives' use of private aircraft.

"If I'm a shareholder, I want my management at work, not enduring
horrific delays at an airport," he said.

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