German charter and air-ambulance operator FAI Aviation Group (Booth F70, with Avinode) continues to add aircraft to its fleet. FAI also says it wants to acquire one or two “no-asset” aircraft management companies to allow it to offer “turnkey packages” to owners. It has also completed a new hangar which will further expand its capabilities in MRO and provide more space for aircraft storage. Since 2011, FAI has established an impressive base at the Nuremberg’s Albrecht Dürer Airport, where it was founded by chairman Siegfried Axtmann.
During an AIN visit to Nuremberg in late April, Axtmann suggested that no-asset managers were struggling, with the fees they're able to command at rock-bottom. “$10,000 a month for a Global? You cannot make money with this management fee. The owners expect you to maintain a CAMO and AOC and [look after their aircraft] at cost. So you have to rely on fuel and handling kickbacks to make money. This is not a business model.” For FAI however, he noted, “We already have all this, so adding one or two more aircraft doesn’t matter, and we can put them into already empty slots for maintenance. We’re flexible.” However, he said most managers who were potential partners had “crazy, unrealistic expectations."
Axtmann showed journalists the company’s new hangarand explained that the company’s fleet is still growing. The latest additions consist of another Global Express XRS and a Challenger 604. Its fleet now comprises four Global Expresses, six Challenger 604s, 11 Learjet 60s, two Learjet 55s,and a Beechcraft Premier 1A and King Air 350. Axtmann said 20 are managed aircraft, and it owns the other five. The majority of its work consists of the air ambulance business. It flew a total of 13,000 hours last year (10,000 air ambulance hours, the equivalent of 117 times around the globe).
Axtmann expressed strong views on the used aircraft market and that corporates were best advised to buy a white tail and keep it, for 10 years say, because loss of value now far outstrips allowable depreciation. “Germany allows 9 percent depreciation in the first two years but the aircraft can lose 35 percent,” he said. Business aircraft values are now plummeting after purchase isimilarly to luxury cars and yachts, he added.
He also said OEMs' focus tends to be on the consistency of the percentage of used aircraft available in the market. He noted that because the overall fleet is growing, this means that there are more and more used aircraft available, thus depressing prices. “There is always 10-20 percent of the fleet for sale, but what affects the market is the total number of aircraft for sale. So the used aircraft market cannot recover, it’s a matter of supply and demand. And there is no demand, just supply.”
Axtmann suggested more and more corporations were turning their backs on replacing aircraft and preferring to keep and update them instead, and noted that even VistaJet has changed its strategy to operate aircraft now for 10-to-15 years. “The loss of value can’t be compensated for by chartering in the first five years anymore.” He pointed out that the first Global G6000 is now listed for an asking price of $25.8 million asking price, having sold new for $54 millionin 2012. Meanwhile “another used Global that is two years old has gone from $54 million to $34 million. That’s the best example of what’s hitting the market, just three words, ‘Loss of Value.’” And if interest rates were more like their historic levels, 5- to 7 percent rather than 2 percent, “the situation would be much worse.”
Why are people still buying new aircraft then? “Such big losses can only be justified by lifestyle, and they let you participate in the loss of money.” Axtmann said that if the loss of value wasn’t there, and could be covered by chartering the aircraft out, “We would buy 10 more aircraft.”
So what caused the problem in the market in the first place? In his view, “The OEMs caused the problem because they produced too few aircraft when the Eastern countries opened up. It was a time when you could sell on to another buyer for half a million to 1.5 million more.” This pre-financial crisis apparent boom was just due to lack of supply.
But he noted that many of those customers in Russia, China and elsewhere who bought new and lost a lot of money will now be doubly reluctant to buy new again. “First-time owners have been disappointed, and there was never anything said about loss of value [from the OEMs].” At the same time charter rates have been under a lot of pressure; “A Global Express costs €4,500 an hour to operate but there are players in the market selling [charter] at €5,000 an hour, because a desperate owner wants to bring in some revenue. It is not really a business model. In this case, storage would be a better solution. Make it a showcase for prospective buyers. Putting hours on the airframe causes greater loss of value, also. Most aircraft on the market now [come from] first time buyers who either have found that the model doesn’t work or they have found their needs are far less than they expected.”
Due to the depreciation regime that is 21 years, in Germany at least, Axtmann said it was better to have a 17-year-old aircraft, so the whole value could be depreciated in the last four years. He was keen to state, however, “We are not an aircraft broker. We are buying and selling inventory, that’s all. Our oldest aircraft is a Learjet 55, but we will phase it out in the next 18-to-24 months.” Its last Learjet 35A flew off to a new owner on March 6.
The only way FAI makes its air ambulance business profitable is by having a large enough fleet to be able to combine flights and minimize empty legs. “FAI has built up this market position over about 20 years,” said Axtmann, who believes it would be impossible for a start-up to be profitable in the market.
New Hangar
Confident that the MRO market is growing as people hang on to their aircraft, FAI recently completed a €7 million “carbon neutral” hangar (Hangar 8) which doubles the size of its footprint at its Nuremberg HQ. Its existing hangars, Hangar 6 and 7, are opposite the new building and together are equivalent in size, with Hangar 8’s floor space being 4,800 sq m. FAI’s maintenance division, FAI Technik, “will use the new space to provide maintenance work across a range of aircraft, including its own fleet…[and] the new hangar will also be used for aircraft storage to meet the growing demand for hangar space in Europe.” FAI Technik has also bolstered its 60-strong maintenance team.
Axtmann told AIN that Hangar 8 could accommodate three A320s or five Global Expresses. He added that FAI has a 30-year rolling contract on the land from the German state. Hangar 8 took just eight months to construct. Axtmann, a qualified civil engineer, designed it, himself, through the FAI Group company that specializes in property development. It has been doing very well in recent years, especially in the booming Spanish island of Ibiza, in the Mediterranean.
On May 4, Bahrain Mumtalakat Holding Co., the sovereign wealth fund of the Kingdom of Bahrain, announced it was acquiring a “significant” minority stake in Axtmann Aviation Holding, which operates FAI Aviation Group (FAI). The pending transaction is subject to the approval by Cypriot and German merger control authorities.
