Weathering the storm
Business aviation has always been cyclical. What lessons to help manage the Covid-19 crisis can we learn from business leaders who have guided their firms through other down markets? Words: Alasdair Whyte
“I started with Dassault in France in 1975. I had just moved to the US in the fall of 1979. I was in my 20s and if I am honest, I did ask myself “Is this really an industry I want to build my career in,” says Jean Rosanvallon. He ended up spending 45 years at Dassault (including 30 years in the US – he is now a US citizen – and 23 years as President and CEO of Dassault Falcon Jet).
Rosanvallon, who is still special senior advisor to the chairman and CEO, is talking about the 1981 recession which hit business aviation hard. “The early 1980s were when we first heard about W-shaped recessions,” he says. “But then it led to really significant expansion of business aviation from 1983 to 1989.” It was one of four significant downturns faced before this one.
With many companies and individuals facing tough markets, Corporate Jet Investor spoke to five industry veterans – Joe Moeggenberg, founder of Executive Jet Management, former President of NetJets and founder of ARGUS International; Bryan Moss, former President of Gulfstream (and before that Bombardier); Rosanvallon; Lou Seno, CEO, JSSI and before a senior aircraft financier at Boeing Capital Corporation and GE Capital Solutions; and Wayne Starling, former head of PNC Aviation Finance. All have had very different careers. But all have led organisations through tough business jet markets. Here are their tips on surviving and getting through.
One of the big differences between this and past downturns (even the 2008 Global Financial Crisis) is the quantity of news, data and information available. But nothing beats hearing from your customers.
“OEMs have two key issues – managing demand from customers and managing their supply chain. Your salespeople – the people on the ground are key to this – you need them talking to every customer and potential customer and feeding it back to you daily,” says Moss.
All the major aircraft and engine OEMs have been having similar meetings for months – many of them have highlighted these on investor calls. Of course, this is not just good management during tough markets. “Correctly assessing the situation and requesting input from a variety of sources – customers, managers, staff, investors and others – is a top priority,” says ARGUS’s Moeggenberg. “I need input from a variety of stakeholders. Many times, I have been talked out of developing a product or direction. I’ve learned that many times I’m not the smartest guy in the room.”
Moeggenberg says you should never be ashamed to ask for advice: “I have always had and utilised the advice, guidance, and mentoring of advisory boards and/or board of directors. This is an irreplaceable way to bounce ideas and concepts. Even today, I have counsel through SGS and others.” (SGS is an inspection, testing and certification company that acquired ARGUS International in September 2019.)
After listening, you need to share this information. Communicating with your team becomes even more important during a crisis than in normal times.
“As well as keeping as close as you can to your customers, you also need to do the same thing with your suppliers. Your job is to feedback what your customers are saying. With 70% of an aircraft’s value coming from suppliers, this should also probably be on a daily basis,” says Moss. “The production rate will loom on everyone’s mind – and there are big costs associated with going up or down. So, you need to listen to your people and then communicate with your partners.”
Daily ‘stand-up meetings’ have been a popular trend at many companies for several years, but the idea is much older. “In the early 1980s there was a real crash in aircraft values that only a few of us remember,” says Seno. “I was working for a small leasing company in Detroit, Michigan. We ultimately survived but it wasn’t easy. There was no hiding our problems. Our entire team had strategy meetings almost every day. We got through it by looking at our problems straight in the eye and as a group, collectively deciding on a plan and then doing our best to execute the plan.”
Seno says the key thing is honesty with employees, investors and suppliers. “We got buy-in by just laying it out as realistically as we could,” he says. “We did not sugar coat a thing. We did not try and paint a better picture than existed.”
Moeggenberg agrees: “Success is based on having a strong plan to carry you through in a dire environment. In late January/early February of this year, our team started meeting as soon as we began hearing of health-related issues in Wuhan Province and Beijing. We outlined how we would recover our first quarter and feel good that we didn’t wait until too late.”
“As well as keeping as close as you can to your customers, you also need to do the same thing with your suppliers.”
Bryan Moss, former President of Gulfstream
Look for new opportunities
Back in the 2000 dot.com crash, Gulfstream received a G-IV as a trade-in. With many surplus aircraft available, Moss decided to do something different.
“The G-IV was a perfect plane for Hong Kong and we had been talking with Sir Michael Kadoorie about basing one in Hong Kong for a while as a way of penetrating mainland China,” he says.
Rather than selling it at a discount, Gulfstream instead leased the jet to Metrojet which used it for charter and also for Gulfstream demo flights (Metrojet also became an Authorized Gulfstream Line Service Facility at the time). “Sir Michael was a risk taker who felt the same about the potential for the market as we did and he was right,” says Moss. Metrojet acted as a shop-window for business aviation in Asia, now a key market for all OEMs.
Starling’s PNC was one of the few aviation banks to grow its aircraft lending business. “During the 2008 crisis, we hit the pause button and looked back at where we had successes. We were seeing the finance lending segment of the business aviation industry coming to a complete standstill. Every bank was pulling back, tightening and/or shutting down lending on aircraft. The question we were faced with was no different than any other lender was facing – stay the course or go into lockdown and play it safe.”
He chose the first option. “I fully believed that we had a product and team that could deliver value given the environment we were in – but thinking that and convincing the management team of a major bank, was a different story,” says Starling. “The only lending taking place was for the very best clients and even then, on a very conservative basis. It was clear that the average business entrepreneur was left with limited options. We saw this as a real opportunity to bring value to this segment of the industry.”
Starling says this was only possible with the buy-in of the bank’s senior management team. “We compiled data from the past five years [when the bank first decided to enter the aviation finance business], where we had been offering asset-based loans requiring no financial disclosure and limited or no-personal-recourse. Armed with this data, we were able to get our senior management to allow us to continue offering this product to non-banking clients with no significant changes to the guidelines,” says Starling. “Thanks to everyone’s confidence and trust, we were given the green light to move forward and we helped hundreds of business owners purchase aircraft and we did with minimum losses during those challenging times.”
Not everyone will be in a position to think long-term like this. Sometimes it is about being pragmatic and finding a short-term solution to get you through the downturn. “Back in the 1980s there was a real crash in aircraft values that only a few of us remember. We were getting aircraft back off-lease with no real market to sell them. Rather than take huge write-downs immediately, we decided to lease them out for whatever we could get – we had some leased to charter companies whereby we were only paid if they in fact generated revenue,” says Seno. “We did that because they would at least pick up the fixed costs associated with having control of the aircraft. Hangar fees, maintenance bills and insurance payments were killing us.”
“Hangar fees, maintenance bills and insurance payments were killing us.”
Lou Seno, CEO, JSSI
There is no shame in changing your business plan completely. Moeggenberg has pivoted twice. “At the beginning of the dot.com boom in the late 1990s, I spent three years and a ton of money, creating an online offering. I wanted an online service that provided one-stop-shopping for aviation data, market news, and analysis similar to what Bloomberg does for the financial industry,” says Moeggenberg. “I developed a solid business plan and had investors lined-up. Then in 2000 it all fell apart. I had to start over.”
He was faced with a different set of problems in the Global Financial Crisis.
“The second time was in November of 2009. ARGUS developed a business model that dealt primarily with Fortune 100 flight departments. Then the economic downturn occurred,” he says. “The big three automakers’ senior executives flew to Washington DC, in their corporate jets to request a federal bailout. The notion of them flying on private jets to ask the public for money from taxpayers devastated many corporate flight departments. Because of the negative public perception/reaction, flight departments simply parked their airplanes. Again, through no fault of our own, the financial situation changed dramatically for ARGUS.”
He adds: “As an entrepreneur, you always have doubts. I knew that I wanted to be in aviation and, if ARGUS didn’t succeed, I would move on to another segment of the industry. I would just need to find the best service or product to offer.”
“I have always had and utilised the advice, guidance and mentoring of advisory boards and/or board of directors.”
Joe Moeggenberg – founder of Executive Jet Management and ARGUS International
“OEMs have two key issues – managing demand from customers and managing their supply chain.”
Bryan Moss – former President of Gulfstream
“I am convinced we will see a long-term period of growth with new users under-standing the value of business aviation.”
Jean Rosanvallon – former President and CEO of Dassault Falcon Jet
“We got through it by looking at our problems straight in the eye as a group and collectively deciding on a plan.”
Lou Seno – CEO, JSSI and formerly with Boeing Capital
“We helped hundreds of business owners buy aircraft and we did it with minimum losses during those challenging times.”
Wayne Starling – Executive director, IADA and former head of PNC Aviation Finance
Stocks shock. “The early 1980s were when we first heard about W-shaped recessions,” says Jean Rosanvallon. “But then it led to really significant expansion of busines aviation from 1983 to 1989.”
Living with the new normal. Covid-19 has changed the landscape for business aviation and prioritised enhanced cabin hygiene measures.
“We saw this as a real opportunity to bring value to this segment of the industry.”
Wayne Starling, Executive director, IADA
Every downturn is different
While looking back is useful, each downturn is unique. It is often said that bad generals fight the last battle. The same is true with managers. Each downturn requires new ideas.
Memories of the 2008 Global Financial Crisis are still fresh. But the challenges facing the industry are different than 12 years ago. Manufacturers have smaller backlogs, production levels are lower and utilisation had only just recovered.
“During the previous downturn, many aircraft operators simply went away,” says Moeggenberg. “The last recession was primarily due to an economic downturn brought on by financial mismanagement. Today, the flight departments and charter operations are much more resilient. Even with the current furloughs and reduced salaries, everyone believes that once Covid-19 is behind us the business aviation industry will soar again.”
While everyone remembers 2009, the 1982-1989 downtown was the harshest so far. Deliveries fell by 61% from the 1981 peak (compared with 42% after the Global Financial Crisis). Rosanvallon notes that Dassault had a big advantage in the early 1980s as it was starting to deliver the first of the 41 Falcon 20s to the US Coast Guard.
The early 1980s recession was technically two separate ones. The first lasted from January 1980 to July 1980. The US economy saw some growth before contracting again in July 1981. Inflation was already high due to the 1979 oil crisis. “It was a very different downturn to other recessions,” says Rosanvallon. “There was high unemployment, high interest rates – the prime interest rate hit 21.5% in June 1982, 14% inflation and selling new aircraft was very hard.”
Seno agrees. “During the 1970s the business jet market was artificially fuelled by speculators,” says Seno. “Contracts [position orders] were changing hands two to three times before delivery. Many people who stepped in line had absolutely no intention or the real means to take delivery of the aircraft. All they had hoped to do was make some easy money on the ‘flip’. Then the US prime interest rate was in the high teens further exasperating the situation.
“This downturn is being driven by an outside force not related to the economy. We were in a position of all-time strength before we entered the pandemic. I believe things like historically low interest rates, historically low unemployment and other strong indices will help us recover much quicker than we have previously,” says Seno. “Nonetheless, every company needs to take steps to minimise expenses as much as possible and maximise productivity where possible. JSSI, for instance, cannot control flight hours – which is where we derive the lion’s share of our revenues. But we are, however, focusing on other areas of the company that can do business during this crisis, even on a limited basis.”
Rosanvallon highlights how manufacturers were in a very different situation in January 2020. “We lived through a tsunami of cancellations in 2009, the same thing is not going to happen now – even if it is tough. The quality of backlogs now is much better – even if they are smaller than before. In the short-term things are going to be tough but people will go back to using business jets and I am convinced we will see a long-term period of growth with new users understanding the value of business aviation.”
This is your moment
Although he enjoyed many highs, Seno says that looking back over his career, he is by far the proudest of how his teams have coped with tough markets. “I took over as President of JSSI on January 1st of 2009 – without a doubt the worst month we ever had during most of our 22-year old history,” says Seno. “I got through 2009 by returning a small profit to our shareholders! The operative word here is small – but I do remember how proud I was we were actually able to write black ink – not red!”
Starling agrees. “I have always been a believer in the adage: ‘There is little skill required when sailing if skies are blue above. The real skill is how you handle the storms.’ Real leaders and success come from the storms that we face. As I look back, my proudest time was the calm after the storms had passed and how we handled ourselves during those times.
“This is a storm and a mighty one! It is a time that everyone becomes a leader. Step up and be a leader in your home, your business, and your community. This storm will pass, and when it does, you want to be able to look back and take pride in the leadership you provided. This is the time to try and not worry about what you might lose but be thankful and appreciative for what we have,” adds Starling.
Moeggenberg agrees. “I have been in the business aviation industry for more than 40 years. Surviving through tough times and thriving when the market was great. I’m most proud that we, as a company, have always been able to come through stronger on the other end.”
At the end of the day there is no substitute for hard work. Moss adds: “I have never felt that the industry has been in a dire threat of being eliminated – and I don’t feel this now,” he says. “This will pass and if you work for a company in a tough market the secret is to get into work early and don’t complain about compensation. Just go out and sell.”
And 40 years later, Rosanvallon has no regrets about staying in business aviation either. ■