What are the greatest challenges facing the future of the corporate aviation industry?

Middle East Corporate Aviation Summit (MECAS 2012) – GCAS / Al Bateen Executive Airport Abu Dhabi, UAE
0© 2012 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference MECAS 07.06.12
‘JOIN THE DEBATE’
CORPORATE AVIATION INDUSTRY
THE GREATEST CHALLENGES FACING THE INDUSTRY FUTURE
June 2012
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1BHG, the ‘idea factory’ thinking ahead strategies www.1bluehorizon.com

O Contraction in the business jet market during the economic
downturn was the worst since the Great Depression and I
think everybody is adapting to this environment and
moving ahead…
O Today the market for corporate jets isn't any worse than it was
a year ago, but it isn't appreciably better either…
O Delivery numbers aren't anywhere near the record levels of
2006 and 2007, but they're OK, enough to keep companies in
business…
O There is promising activity in Latin America and the Asia
Pacific region where the economies are stronger…
O Despite the challenges facing the industry, the aviation
community is a forward-thinking group. There are exciting
industry challenges and many innovations are already under
way to tackle them, what we understand under creating
(one…) 1BlueHorizon
Source: 1BlueHorizon Group Press | Review Feedback from EBACE Geneva 2012
FOREWORD

O Originally Business jet, Private jet or, colloquially, bizjet is a term describing a jet
aircraft, usually of smaller size, designed for transporting groups of up to 19
individuals.
O The more formal terms of Corporate jet, executive jet, VIP transport or Business
jet tend to be used by the firms that build, sell, buy and charter these aircraft.
O The business jet industry groups the jets into five loosely-defined classes:
1.The most expensive type of private jet is the Heavy jet type, which is designed for the ultimate in large
capacity luxury air travel (aircraft of this class include BBJ, ACJ, Lineage 1000);
2. The elite class of the business jet aircraft are the Super mid-size jets that feature wide body cabin
space, high altitude, speed, and ultra long range capabilities (G650, Bombardier Global Express,…);
3. The Mid-size jets are suitable for longer range travel such as transcontinental flights and for travel with
larger passenger capacity requirements. (Learjet 60 XR, Gulfstream 250 or Embraer Legacy 450 & 500);
4. The Light jets have been a staple of the business jet industry since the advent of the Learjet 23 in the early
1960s. The light jets provide access to small airports and the speed to be an effective air travel tool
(Learjet 70/75, Citation Bravo & Encore, coming Pilatus PC24 (ex Grob SPn) );
5. Finally the Very light jets, also known as Microjets or VLJs, are designed to provide air travel, for example,
to the more than 5,000 small community airports in the U.S.A. . VLJs have a maximum take off weight of
not more than 10,000 lb (Citation Mustang, Eclipse 500, Diamond D-Jet, …).
Overview of the industry wording for those who might not be familiar with
the topic
Source: 1BlueHorizon Group Research

At the beginning it appears important to highlight the Demographics of the
Corporate Aviation sector - The fleet
Source: 1BlueHorizon Group Research & Analysis 2011
 Range of sizes: small single engine to large airline aircraft
 Most prevalent: middle size corporate jet aircraft, but new growth includes VLJs and larger
intercontinental jet aircraft
A fleet of 30,000 turbine business aircraft globally
17,500 Jet
12,500 Turboprop
Approximately 17,000 operators worldwide

Corporate Aviation sector - The manufacturers
Corporate aviation is an essential industry, strengthening each nation‘s manufacturing
base, fostering economic development and serving as an indispensable tool for thousands
of companies trying to operate in a fiercely competitive global marketplace…
Aircraft Manufacturers
 Unlike airline aircraft, business aviation has a large number of manufacturers, with a wide variety
of types, including Boeing and Airbus, also builders of dedicated business aircraft.
 General aviation manufacturers around the world are collectively suffering through one of the worst
economic downturns the industry has ever experienced.
 According to a study by the US International Trade Commission (USITC), potential new entrants to
the business jet industry face formidable barriers, including access to capital, technical capacity to
design, certificate and produce the aircraft, and resources to provide after-sales service and
support of their global aircraft fleet…

Corporate Aviation sector - Distribution by region
Corporate jet distribution by region and forecast growth
Promising activity in Latin America and the Asia Pacific region where the economies are
stronger - What about the Middle East remaining growth potential?
2002 2011
US/Canada
Europe
S/C America
Rest of the World

The first challenge is probably the four primary sub‐sectors, with different
operations characteristics and aircraft user profiles
1. Commercial on‐demand charter
2. Corporate
3. Owner Operated
4. Fractional Ownership
 Point‐to‐point, specific purpose routes
(without inefficient hub‐and‐spoke)
 Departure times based on specific
requirement
 Short takeoff distance, short time to
altitude, high cruise altitude, fast
descent/landing
 Use of large number of airports (local &
regional airports relieving traffic impact on
high density areas)
 Priority is on time management, efficiency
and flexibility
 79% of operators have only one aircraft
 Executives and high worth passengers, but
78% of passengers middle management
and lower (e.g. engineering & audit teams
etc)

Without any doubt, the on‐demand charter providers are more concerned
about challenges facing the sector (competitive market)
The Corporate jet industry (sector) in the Middle East is expected to remain strong on rising demand
as the region continues to recover from the 2008 downturn…
This is the only one sub-sector where costs really matter….
The service excellence in the Middle East's Corporate aviation sector strengthen the importance of
hiring highly-trained professionals who consistently put the customer at the core in the delivery of its
products and services in order to make business aviation safe, efficient and reliable.

As example, the commercial Corporate Jet Operators are calling for more
efficiency where the other three sub-sectors are not concerned
Source: 1BlueHorizon Group | Survey 2011
O A recent survey of Corporate jet charter operators highlights the major opportunities for the private
jet industry as it begins to recover from the economic downturn. Almost half (45%) of operators who
responded agreed that the global recession has been their single biggest challenge to date.
O But ironically, for an industry that delivers business efficiency for its customers, the Corporate Jet
charter market as a whole is remarkably inefficient:
FLYING EMPTY
Three quarters (75%) of operators say that over a third (30-40%) of their flights are empty as they reposition for
the next flight.
COST CONSCIOUSNESS
Three quarters (75%) of operators believe price competitiveness is the single biggest factor in winning charter
business - above speed of returning a quote (15%) and their safety record (10%).
SALES CONVERSION
Nearly two-thirds of operators (60%) prepare 20 or more quotes for every charter sale with almost a quarter,
(20%) saying that they prepare 40+ quotes per booking.
MARKETING MIX
Recommendation is unsurprisingly top of the list, with 85% relying on word of mouth. But 50% of operators now
use search engine optimization as part of their marketing efforts, while social media sites are used by 25%. Over
half of operators (60%) agreed that showing 360 degree imagery of aircraft on their websites would improve sales.
MALE DOMINATION
On average, operators said that 70% of corporate jet passengers were male, with a slightly lower male majority
making the bookings (60%).

The Climate change targets are less challenging than rest of the aviation
sector based on the emission realities (only 2% of total aviation)
 Business Aviation contributes only 2% of total aviation CO2 and 0.04% man‐made CO2.
 40% fuel efficiency improvement achieved over the past 40 years.
 Typical operator flies 500 hrs per year, producing small amounts of CO2 (approx 1,200‐1,500
tones per year).
 All business aviation equivalent to one fossil fuel powered electrical plant.
The Corporate aviation industry targets are the following:
 Carbon neutral growth by 2020
 An improvement in fuel efficiency averaging 2% per year from today until 2020
 A reduction in total CO2 emissions of 50% by 2050 relative to 2005
The challenges (improvement areas) are on improving education related to the low
impact of business aircraft on the environment, enhancing best practices for
operators (including fuel efficiency) and accelerating research and development …

The New Taxes (1) (EU-ETS)
Slot Reallocation
The European Union now taxes carbon emissions
by aviation operators, both general aviation and
commercial. The EU offers tax credits on emissions,
which are bought and sold on the open market and
presents several problems for European business
aircraft operators. While airlines are given generous
credits, paying only approximately 15 percent of
their emission fees, business operators must pay
up to 96 percent of the tax on their emissions.
As per the European Commission’s decision, the
future allocation of slots will be based solely on the
number of passengers carried. Operators that use
their slot less than 85 percent of the time will be in
danger of losing their slot altogether. This use-it-or-
lose-it slot allocation plan will favor scheduled
carriers and costing jobs and isolating remote
regions of Europe.
Note: (1) EU-ETS stands for European Union Emissions Trading Scheme
In Europe especially, the addition of operating costs to the Corporate
aviation industry is very challenging…

Facility for luxury business travel
Access to the infrastructure
In the region, it is a need for developing hangar
facilities to provide some needed infrastructure in
Corporate aviation. There are about 85 UAE
registered Corporate jets and many high
demanding visitors and the main very crowded
International airports are most probably not the
best place to arrive. In that perspective Al Bateen
Executive Airport is for sure the way to follow.
One of the main problems facing Corporate jet
passengers is really access… As illustrative
example, Dubai remains the most active hub for
business travel in the UAE, with its Executive
Flight Centre handling 6,060 arrivals and
departures and 19,797 customers in 2011. Dubai
airport's overall success with business jets,
commercial aircraft and air cargo has come at a
cost as its airspace becomes congested in peak
periods, causing some delays for Corporate jet
passengers…
… whereas in the Middle East the corporate aviation infrastructure is very
challenging - Al Bateen Executive as the way to follow

The ongoing sibling rivalry between airliners and Corporate aviation is not to
underestimate and for sure one of the challenge
O Every passenger in a Corporate jet has to be viewed by the
airlines as one more unsold business-class ticket or even one
more unsold First-class ticket –and that high-margin ‘fare-
market value’ represents the butter and jam on the bread of
the airlines…
O So the airline trade groups lobby to promote the logic that
anyone not subject to the ticket tax is not only clogging up the
airways but also not paying a fair share. They maintain that
each airplane exacts the same "cost" in air-traffic services
and that Corporate aviation gets off easy with the fuel tax as
opposed to the airlines' per-passenger ticket tax.
O But practical – and affordable – navigation technology now
exists for small aircraft to be able to use small airports in what
used to be impossible weather, increasing their utility. Maybe
we are a few steps closer to the day when ‘airliners’ will be like
ocean liners or wagon trains…

Anybody remembers about American aerospace engineer Burt Rutan crazy
speculation: ‘What if there were no airliners’?
Note: Elbert Leander "Burt" Rutan (born June 17, 1943) is an American aerospace engineer noted for his originality in designing light, strong, unusual-looking, energy-efficient aircraft. He is
famous for his design of the record-breaking Voyager, which was the first plane to fly around the world without stopping or refueling, and the sub-orbital spaceplane SpaceShipOne.
Burt Rutan once speculated that, someday, people might look back and say:
"For a short period in history, people traveled en masse in giant airplanes
called 'airliners.' They only used a very few crowded runways, and traveling to
and from the airports often took longer than the flight itself."
In Rutan's version of the future, we would further develop the general aviation
infrastructure such that people could fly on light airplanes to and from the
thousands of small airports near their homes and destinations.
So what would an air-transportation system look like without big airliners? And
could it be more cost effective?
How different would our airport and air-traffic infrastructure be if airliners
disappeared? Would it really cost less? And if so, how much less?
Less ambitious, ‘What if there were no airliners with First-class‘?

Is the Corporate aviation able to take over the First-class of the airliners,
especially considering the high end Business-class trend?
O Some airliners already focus on 2 class aircraft, for the entire fleet or for some destination only.
Following recent impressive offering improvement for the high-margin Business-class, some
airliners are considering to move toward this 2 class offering using the usual First-class space
to offer more Business-class seats.
O Some other airliners are continuously improving their 3 class offering to attract more
passengers in a very challenging market and in parallel launched premium travel service
portfolio with a Corporate jet provider to further enhance the airline’s premium services offering
to its guests (as example Etihad Airways ‘Premium Connect` with Royal Jet).
Purely marketing or testing the First-class market? That’s the question…

Business aviation is a proven productivity tool used by corporations
worldwide and airliners are not able to compete with their First-class
 Flexibility and immediate response
 Travel time savings for executives and staff
 Efficient use of time for high net worth individuals and high
salaried staff
 Total cost savings in many examples
 Face to face business deals
 Corporate security
 Business aircraft are symbolic of successful corporations;
business where aircraft go, jobs and prosperity will follow.
 Business aviation provides an effective air transport option and
not in direct competition with airliners.
 Business aircraft fly to where business is conducted. They
operate to the closest airport, where no scheduled service exists,
usually a local or dedicated business aviation airport.
 New business means jobs and economic stimulus.

Last but not least, the corporate Aviation Industry is an important contributor
to society, its Corporate Social Responsibility (CSR)
 Emergency medical services, medical transfers and humanitarian aid in efforts to provide relief for
the people everywhere around the globe...
 General and Business aviation provides closely tailored, flexible, door‐to‐door transportation for
individuals, enterprises, and local communities, increasing mobility of people, productivity of
businesses and regional cohesion…

Summarized, six main challenges facing the future of the corporate aviation
industry in 2012
 With four primary sub‐sectors, not the same challenges
 The additional costs (for the on‐demand charter providers)
 Importance of hiring highly-trained professionals
 Improvement areas on climate change
 The access to the infrastructure (airports, facilities, etc.)
 The ongoing sibling rivalry with the airliners
Exciting industry challenges with free space to create ‘One B l u e H o r i z o n‘…
Source: 1BlueHorizon Group Analysis

On top of the challenges previously discussed, we might mention the
supersonic business jet (SSBJ)(1) : ‘Dream or Reality’, that’s the question!
Note: (1)A supersonic business jet (SSBJ) would be a small business jet, intended to travel at speeds above Mach 1.0.
Source: 1BlueHorizon Group Research & Analysis
 Several manufacturers believe that many of the old concerns like
relatively high costs, high noise, low range and some environmental
concerns can be dealt with at a smaller scale.
 In addition, it is believed that small groups of high-value passengers
(such as executives or heads of state) will find value in higher speed
transport.
Richard Branson looks for an alternative with the Virgin
Galactic that will offer Space Cruise through Aurora Borealis…

LEONARD FAVRE, 1BlueHorizon Group Managing Director
Leonard Favre is an experienced senior management advisor with over 10 years experience in
the aviation industry, having started his involvement in this particular field of business when the
Swiss National carrier Swissair collapse as one of the Swiss ministry of Economy adviser.
He is based in Abu Dhabi (U.A.E.) and Bern (Switzerland). He holds Political Sciences &
Economics degree from Lausanne University in Switzerland and two MBA, in Public Sector from
IDHEAP Lausanne and in management from INSEAD Fontainebleau (close to Paris, France). He
participated recently in postgraduate programs from the prestigious Harvard Business School
(Boston, MA) in the field of Leadership and competitiveness.
Leo combines hands-on experience with strategy management abilities, strong people
management skills and motivational leadership qualities to archive results (ex Booz & co). While
working for two prestigious management consulting boutiques, the last one as Principal Regional
Head of aviation - transportation for the Middle East and South East Asia, he has worked on a
wide range of issues at clients with significant experience in Europe and the Middle
East, including several successful Low Cost Airlines (LCC) set-up or air carriers (passengers and
cargo) restructuring and enterprise improvement, due diligence screenings, strategic
sourcing negotiations, cost reduction mandates, mergers & acquisitions advisory, financial
advisory, program office management, and strategic reviews. Until recently, he was vice-
president Business development & Strategy for an all cargo company in the UAE and was
involved in the lease (ACMI) of dedicated freighters with sound achievements and customer
satisfaction.
Leo is a regular contributor to conferences and forums and his vision of airline industry is always
a valuable and knowledgeable input to create Blue Horizon.
Leo is fluent in English, French and German with good command of Italian.
SHOUKRAN - THANK YOU
leo@1bluehorizon.com

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Partners Network – Aviation Sector

LEONARD FAVRE
Partner, Group Managing Director
1BlueHorizon Group
P.O. Box 34154 M +971 50 6164007 (U.A.E.)
Abu Dhabi M +41 79 2080256 (Switzerland)
United Arab Emirates leof007
leo@1bluehorizon.com
www.1bluehorizon.com
Abu Dhabi | Bern | Montreal | Moscow | Paris
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