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High Season Heat Challenges Business Aviation

Posted on by Ivanna Nikolskaya

Widespread cost pressures, lack of availability and the emerging general economic recession are all casting dark clouds over the business aviation horizon. The challenges of the typical high summer season for the European aviation industry appear to be even more complex this year. As usual, there is a significant increase in demand for aircraft, but this summer the challenges have a different origin and, in fact, come from almost all areas linked in any way to aviation: financial, social and economic, as well as political.

In this challenging summer after the pandemic crisis and its aftermath, a complex process of excessive growth in charter prices along with declining availability is evident. It’s important to look at the situation closely and consider exactly what’s happening and what are the causes.

The first thing that catches the eye is the current political environment and the new international sanctions imposed as a result of the military conflict between Russia and Ukraine. The sanctions have a significant impact on the economy and the business operations, as the export of civilian aircraft and parts to Russia or to certain sanctioned Russian individuals is now prohibited. The sanctions also have an impact on passenger behavior and their travel options. So, in addition to certain airspace bans that affect both passengers and aircraft, there is also a broad list of restrictions on Russian airlines as well as private and corporate aircraft owners. This includes, for example, a ban on any form of transfer and sale of products and technology suitable for use in the aviation or space industry, the provision of insurance, as well as any maintenance work and assistance of any kind, from technical to financial.

Because of sanctions, business jet buyers, vendors and carriers must now carefully conduct due diligence on the parties involved. If any questions about beneficial ownership of the aircraft arise during transactions, buyers must exercise enhanced diligence regarding the exact ownership history to ensure there are no ties to sanctioned entities. Although the Russian-Ukrainian military conflict has created additional problems for business aviation operations, it’s important to know your customer in this situation: both individuals and companies. Ultimately, it’s essential that operators and vendors know who they sell to and do business with, in order to protect the rights of a bona fide purchaser of an aircraft and to mitigate the consequences of possible penalties.

Traditionally, there is a growing demand for private jets in Europe during peak summer months and it has already reached new heights with the start of summer vacations. According to market data, there have been 38% more business jet sectors flown in Europe in the first half of 2022 than in the first half of 2021, and 17% more than between January and June 2019. Globally, the first half of 2022 heralded a new peak in business jet demand, and although the rebound is slowing, growth compared to 2019 is holding steady at about 20%. Overall, this is an excellent trend for business aviation. However, due to the high demand for used aircraft when the market is virtually empty, and the sluggish build-up of new capacity due to the reduced supply of new acquisitions, the delivery volume is under serious pressure and is not keeping up with demand. And while the conflict in Ukraine is having a rather restraining effect, there is still a growing demand related to the pandemic. The large network airlines have still not been able to increase their capacity to the same extent as before the pandemic, and many new customers are still testing business aviation to ensure mobility regardless and with less risk of infection.

Aircraft availability, particularly at large network airlines, is also greatly affected by manpower shortages due to the impact COVID-19 has had on airport operations. Thousands of canceled flights are indicative of personnel shortages at all ends of the process chain, because of the pandemic-related layoffs in flight operations and the significant amount of time needed to hire new employees.

Another reason relates to the shortage of parts at maintenance facilities. Since the network airlines had ceased operations and are now slowly rebuilding, business aviation is trying to compensate at least in its segment. The focus is on doing more in the charter sector because the existing need for charter capacity to service customers is only growing. This applies in particular to cargo and customers from this sector acquired during the pandemic, where the potential may be further exploited. 

As previously mentioned, another problem is the shortage of personnel. Pilots, maintenance technicians and flight attendants are being aggressively courted by recovering commercial airlines, as well as by business aviation. As a result, even the market leaders in this category are operating with limited fleets.

The other challenge is the supply chain for aircraft parts. Because of supply chain issues, the procurement of aircraft parts is becoming increasingly difficult. Delays in deliveries, longer waiting times and rising operating costs occur as a result. In addition, necessary maintenance and repair work now takes longer to complete or is stretched to the maximum time due to personnel shortages.

Looking at the financial sector, it’s unmistakable to state that inflation is affecting private aviation on all fronts. Along with the challenges listed above, fuel costs are also rising due to increased fuel prices. The perceived artificial fuel shortages are an unpleasant consequence of global economic correlations in stock markets and trading centers. For example, fuel prices are rising not because of a military conflict, but because players believe there might be a shortage. The lack of gas supplies from Russia is fueling this perception. Rising fuel prices increase the cost of providing this service. Demand could therefore decline in the future, but currently this is not the case because buyer groups in other areas are substituting this service thanks to their high capital resources.

Prices are rising in other areas of the business aviation industry as well. For example, the prices of insurance, the purchase of aircraft, as well as the cost of pilots’ and flight personnel’s wages. Even more concerning, however, is the rising cost of maintaining and operating the planes themselves.

The whole summer is expected to be turbulent because many macroeconomic effects are coming together. Global monetary policy is another reason, if not the cause. Pandemic-related social and operational aid to companies may have been a prop, but it was funded through money supply expansion. This effect is now having its full impact, causing an unprecedented rise in inflation, with all the macroeconomic consequences that follow. On the one hand, the depreciation of money leads to a general loss of purchasing power, which entails a fall in the overall demand for goods and services. On the other hand, the degree of indebtedness of almost all companies is so high that debts can no longer be serviced, and as a result the danger of bankruptcy increases. All this also affects business aviation, although not as much as many other sectors.

In any case, the situation is changing rapidly, and companies must be prepared to review and adjust their business interests, keep abreast of information flows, and try to anticipate trends in future developments. In navigating today’s complex market, now is a chance for business aviation companies to re-position themselves by acquiring industry-specific tools and gaining the capabilities to work faster and more efficiently, to increase the fleet utilization or to organize more flights with less effort.

Sources:

WINGX – https://wingx-advance.com

National Business Aviation Association (NBAA) – https://nbaa.org