Some interesting posts from all sides. We all love to analyse the market place and hazard a guess at the best route to take. For sure there are economies of scale, and there are diseconomies of scale. When the market is healthy, scaling up makes sense. When the market is down scaling up can be disastrous. The big oil tanker analogy.
But, the bottom line is, whether you like it or not, the bottom line. The biz jet market is basically about losing money. Someone somewhere loses a lot of money. There is no ROI on a new or even 10 year old biz jet. You can't even cover the asset depreciation, let alone achieve a return. So all operators of this genre of biz jet are reliant on wealthy owners taking a big hit financially on their asset and hoping they can squeeze enough margin from management fees and chartering to cover the overheads and hopefully make a small profit. In the meantime, the owners of the aircraft have taken a massive loss. Some owners are fine with that. The flip side is the owner who was told that his beloved aircraft wouldn't lose money if he gives to operator X and charters is out. That formed the basis for many owners over the last ten years or so making the decision to buy. It is no coincidence then that the amount of "newer" aircraft is subsiding by quite a bit. Is it because the financial forecast they were given by operator X was hopelessly optimistic and inaccurate, and on analysis of the numbers the owner has decided not to repeat the exercise? Not that many less than 5 year old aircraft available now on the charter market, certainly compared to the amount purchased pre 2008.
A 2009 XLS was $12m to buy. Having done 400 hours a year for 5 years is now worth $7m. So a hit of $1m pa. (£660k) So, to just cover depreciation you need £1650 per hour. Now add on the maintenance, engine overhaul fund, Nav fees and fuel and you have about £2700 per hour. Crew, about £300 an hour. So we are at £3000 an hour, but no management fee in there yet, and no operator margin on the charter. Add in those, and we would be at maybe £3'700 an hour.....cost. No ROI (Which a charter dedicated operator would need). The charter market commands rates of around £2300 an hour. So a loss of £1400 an hour. Over the 5 year period a loss of £2.8m for someone - probably the owner. It works out that the owners hourly rate, based on 100 hour a year personal use is £5600. The guy he rented it to paid £2300 an hour for the same aircraft. A 4 hour return trip would work out £13'200 more expensive than chartering. Why would anyone do that??
A lot of you biz jet drivers don't know when you're up. You get to fly these wonderful machines and get paid well for doing so. The operator has managed to pursued someone to spend all this money and in reality the pilots are the biggest benefactors. Operators make very small margins if they are lucky and owners make massive losses.
There has been a lot of criticism of Harburn as if somehow they control the market, but the reality is that this a decreasing industry because the model, what ever way you look at it is broken. Being reliant on an ever increasing supply of wealthy people coming through to door and willing to lose lots of money is simply not sustainable. There are now less of them, and those that are left are unlikely to make the same mistake again. Sure, there are owners who don't really care, but in general these are the same owners who don't want it chartered out. It will settle to a level that is sustainable which is well below where it is now. All Harburn has done, from what I read is to cash in the chips now as he/she can see the writing on the wall. I call that good business.
I would be interested to hear others opinions on the rationale of the finances involved with private jets.