I Need IFF For My Business

            Shortly after announcing its need for possible bankruptcy protection, American aviation manufacturing firm Hawker Beechcraft announced that it had been sold to a Chinese firm. As the ink is drying from the Hawker Beechcraft sale, Cessna Aircraft Company leaders announce their own interest in collaborating with Chinese businesses. These announcements are actually the norm in the aviation industry today. The alignment of an economic depression, an emerging market, and major political changes in the east has led to what may be a defining moment in aviation and world history. How will partnering in China affect our aviation industry? Why the sudden growth in Chinese aviation? What will the future of global aviation look like?

            Economic hard times have had a net negative affect on nearly every industry in America for nearly the past decade. General Aviation has been, perhaps, one of the most smitten industries of all. According to the General Aviation Manufacturing Association, in 2011 shipments of general aviation airplanes worldwide declined 3.5%. This marked 4 consecutive years of decline in the industry, and 3.5% represented the smallest annual decline yet. The officials at GAMA are quite an optimistic bunch, this is quoted from the sentence following the announcement of declined sales; “Shipments in all three segments (business jets, turbo-prop, and pistons) declined from the previous year, but the declines reached single digits which indicate general aviation hitting the trough…” (General Aviation Manufacturers Association, 2012). Perhaps this optimism is not unfounded. Many aviation industry companies have been finding respite in the emerging market of China. American companies on this list include Cirrus (sold to a Chinese manufacturing firm), the aforementioned Hawker Beechcraft (sale to Chinese firm pending, Enstrom Helicopter (sold to a Chinese firm), GE (joint-venture production and development contract w/Chinese firm), Gulfstream (joint-venture production agreement w/Chinese firm), Net-Jets (upstart and development co-op with Chinese firm), and many more to come. These types of business relationships are being formed in masses by aerospace engineering companies the world-over as well. Bombardier and Embraer have also recently made formal relationships with Chinese firms. Almost all of these relationships have formed due to the need for capital funding, as well as the need to be a part of this emerging market. The firms that have been sold wholly to Chinese firms were nearly all in dire economic standing, much like Hawker Beechcraft. A simple visit to the homepage of forbesbusinessaviation.com will reveal article after article describing a newly found relationship with a Chinese firm (Forbes, 2013). If this cure-all has been available all-along, why have more companies not taken advantage of this opportunity sooner?

            China does not have the best track record at playing friendly with outsiders when it comes to business. There is a long and sordid history of companies partnering with Chinese firms only to find that the proprietary trade information that they had shared in confidence has been stolen and “new” Chinese competition has beat them to the sales “punch” (Negroni, 2012). In many of these instances, the Chinese government has protected the offending firm, even in the face of damning and obvious evidence of the misdeed. There are also the complications of an unsure and slowly evolving political ethos of the governing body of China. There is no promise that the Chinese government will follow through with the promised infrastructure and airspace developments that are necessary to breathe life into these start-up aviation firms. Major developments in recent years, including a comprehensive airspace management plan, have begun to make business prospect look up in China. An article in China Daily online magazine identified that were a total of about 500,000 flight hours of general aviation flight in China for 2011, the majority of which were of the business jet type. The same article states that projected general aviation flight hours will reach 2 million by 2020. Now, I understand that these numbers cannot always be trusted, but the fact that there is a plan in place is proving to be enough evidence for aerospace manufacturers (Wen, 2012). Incidentally, America’s annual general aviation flight time is about 24 million hours, so China has quite a way to go to catch up to our current capacity. Many people are worried that American aircraft manufacturing firms being sold to China could result in fewer American jobs, which could ultimately hurt the US in a big and long-term way.

            There may be reason for concern with regards to lost American jobs, but not right away. In the case of Cirrus, a Chinese firm bought the company as a means for understanding the general aviation industry and having a foundation to build off. The original Cirrus headquarters is still the company’s main place of operation, the original employees still have their jobs, and the Chinese firm injected $150 million dollars into the development of a new lightweight jet. In most cases, initially anyway, these Chinese firms will find keeping the American portion of their production operations open vital because this allows for the FAA to certify their newly produced aircraft. This will be a valuable certification if the jets are flown internationally (Manufacturing.net, 2012). As time goes on and the aviation industry in China is strengthened and has earned a “name” internationally, our certification may not be as much a difficulty or necessity. For the time being, it appears that Chinese business just might be the lifeline that general aviation needs. As far as graduating aviation professionals are concerned, it is probably just good that these companies continue to exist, and that the industry is showing signs of growth. Today’s graduates will have a whole-new host of competition issues and international relationships to develop as our careers go on.   

     

Works Cited

Forbes. (2013, February 25). forbesbusinessaviation.com. Retrieved February 25, 2013, from homepage: http://www.forbesbusinessaviation.com/

General Aviation Manufacturers Association. (2012, January 1). Statistical Databook & Industry Outlook. Retrieved February 25, 2013, from erau.edu: http://libraryonline.erau.edu/online-full-text/books-online/GAMA-DATABOOK-2011.pdf

Manufacturing.net. (2012, July 16). U.S. Plane Makers Teaming With Chinese Firms. Retrieved February 25, 2013, from manufacturing.net: http://www.manufacturing.net/news/2012/07/us-plane-makers-teaming-with-chinese-firms

Negroni, C. (2012, May 14). China Market Challenges Plane Makers. Retrieved February 25, 2013, from nytimes.com: http://www.nytimes.com/2012/05/14/business/global/14iht-rav-china14.html?_r=0

Wen, W. (2012, November 13). General Aviation set for takeoff as more airspace is available. Retrieved February 25, 2013, from chinadaily.com: http://www.chinadaily.com.cn/cndy/2012-11/13/content_15920216.htm

MONOPOMERGER

   The recent announcement of the proposed merger of American Airlines and US Airways stands to mark a new evolution in American commercial aviation landscape, yet again. This big merger will undoubtedly raise many concerns from a variety of sources. The continual shrinking of the number of domestic carriers has begun to smell of monopolistic intent to some. Pilots, the industry over, are hoping that they have signed with the absorber and not the absorbed. Meanwhile, American airline consumers continue to watch ticket prices go up and quality of service go down. Does all of this discord spell doom and gloom for the airline industry, or is it just growing pains during a down economy?

   Monopoly seems a strong word to use when describing the effects of this airline merger, but should it? If American Airlines & US Airways are able to successfully merge, the resulting airline will be the largest in America. The combination of routes and hub airports that these airlines currently serve accounts for roughly 20% of the total domestic airline market. While having 20% of shares in a company does not win the majority vote, if two of your friends also hold 20% each, then the combination of your shares would. Currently, Southwest Airlines has about 18% of the market and United and Delta have about 17% each, the remainder is split-up amongst many minor carriers (Martin, 2012). If any combination of three of these industry players were to get together, the fix could be in. The Sherman Antitrust act of 1890 was instituted by President Theodore Roosevelt in an effort to prevent major railway companies from fixing prices by eliminating competition through acquisitions and mergers. The idea is that fair competition breeds better prices as well as industry development and innovation. The Department Of Justice’s Antitrust Division is tasked with investigating all mergers and acquisitions that could present competitive harm to a given industry. It is believed that the DOJ will not prevent the proposed merger. The reality of the situation is that American Airlines has been struggling, and the absorption of American by US Airways prevents the sunken ship and strengthens US’s standing. Therefore, for better or for worse, as far as the consumer is concerned, I guess this is really just the natural flow of the industry right now. As a soon to be graduate, it feels like the fewer would-be employers that there are the less competitive the job salaries will be when I am deciding on a place to invest my life’s work. At least I will not be dealing with the possibility of my life’s work being unfairly undervalued, as so many post-merger pilots have recently experienced.   

   Pilot seniority disputes have become the industry standard over the past decade. When a company is absorbed by a better performing company, it seems that its pilots are not as valuable as the absorbers pilots are. This disparity has led to well publicized lawsuits, and many bitter people. Seniority, by definition, is determined by the measure of the length of time an individual has been with a company. However, as is pointed out by Susan Heathfield in her article “What Seniority Means at Work”, and I quote, “(seniority) should never be the only factor considered in employment decisions” (Heathfield, n/a). The merger of US Airways and America West Airlines is a prime example of contracts gone wrong. In this instance, US Airways pilots were the benefactors of the seniority based promotion contract, while America West pilots would not be getting raises due to their hire dates. Many America West pilots had more hours in the aircraft type and better service and performance records than the US Airways pilots who were being promoted before them. The ensuing battle has yet to be fully settled, and began in 2008 (Judicial View, 2010). These issues make an already challenging merger into a potentially dangerous one, as rifts are formed in cockpits and companies around the industry. Merger issues have been cited as contributory causes to many safety incidents and mishaps over the past decade in US commercial aviation. It may be wise for the FAA to develop a pilot seniority schedule for merged airlines that outlines exactly how to determine the value of flight hours in type model, performance records, and date of hire in creating the new seniority list. It has become obvious that, however disappointing it is, these battles can go on far too long, and the constructive conclusion will not likely be met unless it is forced.
   Though there are disruptive changes happening in American commercial aviation, has there ever been a time when there were not? Fortunately, most all of us in the aviation industry tend to be a smart bunch of dedicated nuts who enjoy solving problems and losing sleep. This bodes well for the future of the American aviation industry, no matter the demands and challenges we face.   

Works Cited

Bloomberg Business Week. (2004, December 5). Why Consumers Hate Mergers. Retrieved February 18, 2013, from businessweek.com: http://www.businessweek.com/stories/2004-12-05/why-consumers-hate-mergers

Heathfield, S. M. (n/a, n/a n/a). What Seniority Means At Work. Retrieved February 18, 2013, from about.com: http://humanresources.about.com/od/workplaces-organizations/g/what-is-seniority-in-the-workplace.htm

Judicial View. (2010, June 4). Pilot Seniority Dispute Follows Airline Merger. Retrieved February 18, 2013, from The Judicial View: http://judicialview.com/Court-Cases/Transportation/Pilot-Seniority-Dispute-Follows-Airline-Merger/45/12260

Martin, H. (2012, August 7). American-US Airways merger could hurt consumers, report says. Retrieved February 18, 2013, from latimes.com: http://articles.latimes.com/2012/aug/07/business/la-fi-airline-merger-20120808

US Department Of Justice. (n/a, n/a n/a). About US Department Of Justice. Retrieved February 18, 2013, from justice.gov: http://www.justice.gov/atr/about/index.html

Everything In Moderation

            Economic down times have recently been plaguing the business world for the better part of the past decade. Everyone the world over has felt the tightening of the purse strings in one way or another. Due to some unprecedented, and somewhat freakish, circumstances the business aviation world has taken a few more substantial “lumps” that most other industries. The arrival of the automotive industry CEOs to Congress to request a ridiculously large loan in individual corporate jets was the spark that ignited the wildfire. An image of over-indulgence and distasteful disregard for others has become the bull’s eye painted by the media on the side of America’s corporate jet. Even President Obama declared that “corporate jets” should not get tax breaks in one of his recent presidential debates. This negative fallout has led the business aviation industry to begin to build a new image, and could be an opportunity to generate a better public understanding of the value of corporate aircraft operation.

            The question “is corporate aviation really valuable?” can be difficult to answer. Recent analysis shows that roughly 300 of the current Fortune 500 own private aircraft. It is also safe to assume that nearly all of these companies have used private aircraft for business at one time or another. Yet, is aircraft ownership part of these companies’ success or a result thereof? In a recent article, Forbes writer Catherine Smith identifies the answers given by successful corporate jet owners. These benefits included efficiency, client relations, business opportunity, confidential environment, market access, and convenience (Smith, 2010). The ability to take-off and land at the convenience and necessity of the executive, as opposed to a scheduled flight, allows for less time wasted waiting for crowds and more time working directly on business matters, resulting in an actual reduction in travel expense. The confidentiality of the private cabin allows sensitive topics to be addressed while traveling. In addition, the ability to land in locations that larger passenger aircraft cannot affords more time, new business opportunities, and better client relations. When a company is able to operate its own aircraft for movement of products, it is also better able to determine where these products will be manufactured. This allows for a wider range of locations to set-up crucial and competitive essential operations. The benefits are obviously many and great. It would appear that President Obama agrees with this now too, as he recently extended the accelerated depreciation program for business jet purchasers (Trautvetter, 2013). The accelerated depreciation program allows companies to defer tax payments on large investment items, such as aircraft, in hopes of boosting business activity, and thus the economy. Apparently there are a number of direct advantages that companies can find in business aircraft ownership, but public does not seem to mirror these realities.

            Perhaps the public relations managers within the business aviation field feel that time will heal all wounds better than a public imaging campaign. Though there have not been any noticeable marketing efforts on behalf of the corporate aviation industry related to imaging, there are some interesting image-related items out there. After a Google search, I found an instructional document developed by the National Business Aviation Association for high-level managers designed to help them field questions concerning why his/her company utilizes private aviation (National Business Aviation Association, 2013). I find it rather comical to think that a high-level manager may need coaching on how to explain a business investment, but the document exists. The fact that I found this so easily makes me wonder if this document might do more harm than good. Author John Madslien of the BBC interviewed a London based private jet company, Harrod’s Aviation, where the executives assured him that jet leasing is about utility as opposed to luxury. A difficult idea to accept, he points out, with Rolls Royce cars parked out front and champagne filling the aircraft’s fridge, a point that the industry might do well to address (Madslien, 2012). This non-approach could be working out just fine for business aviation as a whole, however, as recent sales numbers have shown a steady increase. In Bombardier’s business aircraft market forecast the number of business jet orders have doubled every year since the fallout of the auto executive brain lapse. These numbers, however, are from the zero orders mark, which was reached in 2009, actually less than one third of the sales made in 2007 (Bombardier, 2012). It seems to me that a few commercials, perhaps sponsored by the NBAA, illustrating the benefits of the corporate aviation industry could possibly gain some public credibility maybe even a few more sales.

            Overall, it seems that business aviation has a real place in the world today. Private aircraft ownership affords business advantages that make it a profitable venture. As is so often the case, the actions of an irresponsible few have affected the group as a whole. It makes sense that we all might do best to temper our judgments, lest we respond to something irrationally. Three months ago, the President said that business jets should not get tax breaks, and three weeks ago, he signed tax breaks for business jets. It will be interesting to see if the business aviation elite might begin to administer some public image CPR, or just let the wound go without addressing it.

References

Bombardier. (2012, n/a n/a). Business Aircraft Market Forecast 2012-2013. Retrieved February 10, 2013, from Bombardier.com: http://www2.bombardier.com/en/3_0/3_8/market_forecast_BA/BBA_2012_Market_Forecast.pdf

Madslien, J. (2012, July 1). Private jet sector rejects image of opulence. Retrieved February 10, 2013, from BBC.com: http://www.bbc.co.uk/news/business-18610418

National Business Aviation Association. (2013, N/A N/A). Explaining Why Your Company Relies on Business Aviation: Questions and Answers. Retrieved February 10, 2013, from NBAA.com: http://www.nbaa.org/admin/policies/why/

Smith, C. (2010, July 7). Advantages of Flying On Private Aircraft. Retrieved February 10, 2013, from Forbes.com: http://www.forbes.com/sites/wheelsup/2010/07/20/advantages-of-flying-on-private-aircraft/

Trautvetter, C. (2013, January 8). U.S. Extends Bonus Depreciation For Business Aircraft. Retrieved February 10, 2013, from AIN.com: http://www.ainonline.com/aviation-news/ainalerts/2013-01-08/us-extends-bonus-depreciation-business-aircraft

UAVs Capable Of Commercial Boom?

The United States military has had great success in the operation of unmanned aerial vehicles (UAVs) in recent wartime skirmishes globally. UAVs offer many advantages over piloted aircraft in a wide range of missions. From reconnaissance to weapon systems delivery, it is quickly becoming apparent that UAVs may be capable of nearly any mission one can imagine. Removing the human body from the aircraft results in cost savings in nearly every aspect of aircraft operation. A small UAV burns less fuel, does not require heavy and expensive life support equipment, have a considerably lower upfront purchase cost, has a greater flight range, and will undoubtedly be less expensive to insure. It is no surprise that many public and private organizations are eager to begin to utilize this proven resource to improve overall operational capabilities and costs. As with any new technology in aviation regulatory and safety measures must be designed and implemented before use can begin. The two key components of regulating the adoption of UAV use in America will certainly be airspace integration and pilot training and certification.

            America is known to operate one of the most congested airspaces in the world. Recent numbers put the daily count in US airspace somewhere close to 90,000 commercial, military, and private flights. Many of these flights operate safely on what is referred to as “see-and-avoid” collision avoidance concept. This is simply a methodology for pilots to visually-scan their surroundings to avoid colliding with other aircraft. Obviously, UAV operators will not be able to rely on this method to avoid other craft. This issue led President Obama and Congress to require the development of six national test bases for testing and developing UAV “sense-and-avoid” anti-collision technology that can be integrated into the US airspace plan in the FAA Re-authorization Act of 2012. It is currently possible for both public and private organizations to get an FAA certification/waiver to operate UAVs on an individual basis. Current approved operators include military operators/bases and some border patrol outfits. These current certificates apparently include very specific limitations and are not exactly held by “private” organizations, only military and government contractors and organizations (Whittle, 2012). Obviously, the integration of UAVs to the airspace would be greatly benefited by the implementation of the fabled “NexGen” air traffic control program, but as we know this technology is painfully slow to get-going. It is entirely possible that if/when UAVs are permitted to operate in the US airspace for commercial purposes there will be an extremely large number of these craft flown due to the relatively low operational costs. Designing the appropriate air infrastructure will be critical to ensuring that UAVs can be safely operated in the US. Comprehensive pilot training and certification will be necessary for safety as well.

           The obvious advantages of UAV technology has led to the development of pilot training programs before commercial uses have even been approved. Embry-Riddle Aeronautical University (ERAU) has been on the cutting-edge of the UAV pilot training, opening a program that began in 2009. In a recent interview Alex Mirot, program coordinator of the Unmanned Aircraft Systems at ERAU, identified some of the skills that UAV pilots will have to have that are different from traditional pilots. The skills he identified included data transmission systems, electronic circuit design, robotic technologies, and specific human factors training (Avionics Magazine, 2012). The course list for ERAU’s BS in unmanned aerial systems is certainly highly technical in nature including many science technology based-courses. Critics of unmanned aircraft point to the lack of personal stakes that a pilot has when remotely operating the aircraft. The fear is that there could be more risky decision-making on behalf of pilots because a crash would not have the same consequences for him/her. There would be, however, real consequences for those on the ground who could encounter the crashing UAV. Other concerns include a distinct lack of actually “feeling” the characteristics of flight, something a traditional pilot would know to be a critical factor in safely operating aircraft. All of the UAV piloting programs offered by ERAU require private pilot, commercial pilot, single engine, and multi-engine certificates, but a good amount of the environmental feedback that a traditional pilot relies on will not be available to UAV pilots (i.e. wind characteristics, flight control feedback, etc.). There is no doubt that the obstacles to successful operation of UAVs have not fully been identified yet, and that the development of pilot training programs is surely in its infancy at best.  

             Unmanned Aerial Vehicles present a great opportunity to business in America. Lowering the cost of aerial operations could have a boom-effect on the American business economy. There are many hurdles and learning experiences that will have to be overcome before the true commercial value and effect of UAV technology can be realized.

Sources

Avionics Magazine. (2012, May 1). Q&A: Embry-Riddle's Alex Mirot. Retrieved from aviationtoday.com: http://www.aviationtoday.com/av/issue/feature/Q-and-A-Embry-Riddles-Alex-Mirot_76213.html#.UQ5ncR3AfZ4

Federal Aviation Administration. (2009, December 8). Unmanned Aircraft Systems (UAS) Certifications and Authorizations. Retrieved from faa.gov: http://www.faa.gov/about/initiatives/uas/cert/

United States Congress. (2011, April 4). FAA Reauthorization Act of 2012. Retrieved from gpo.gov: http://www.gpo.gov/fdsys/pkg/BILLS-112hr658rds/pdf/BILLS-112hr658rds.pdf

Whittle, R. (2012, March 8). FAA Takes First Steps To Allow UAVs To Fly In U.S. Retrieved from defense.aol.com: http://defense.aol.com/2012/03/08/faa-takes-first-step-to-allow-uavs-to-fly-in-u-s/