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May 17, 2011
Charter demand still soft

by Charles Alcock

If you want to assess the state of the European executive charter market at any given time, the LA Financial Times newspaper is not a bad place to start. During the boom years of stock market flotations during 1990s, chartered business jets routinely flew stockbrokers, bankers and financial analysts throughout the continent and into emerging markets such as the former Soviet Union. But with the advent of the bear market, demand from this important sector collapsed and, according to leading charter brokers, is still showing no immediate signs of returning.

“The executive charter market is generally weak and the financial sector has been especially weak for well over a year, largely due to the decrease in IPOs [initial public offerings] which had been so dominant [in driving demand],” said Jamie Martin, corporate development director of London-based broker Hunt Y Palmer.
David Macdonald, marketing manager at the rival Air Partner International group, shared this view, telling EBACE Convention News that charter demand from the financial sector has essentially “gone.” Overall, he said, demand for executive charter is static.

The disappearance of the financial community has pushed charter brokers and operators alike to diversify. For instance, Hunt Y Palmer has found that many high-net-worth individuals still have sufficient slack in their budgets to hire airplanes and that, in these troubled times, more and more companies feel compelled to develop plans to evacuate employees from world hotspots when war or other emergencies strike.

To meet demand for emergency evacuation, Hunt Y Palmer recently forged a partnership with the Control Risk Group, a corporate security specialist. The broker helps the firm to develop evacuation plans for its clients and then oversees every step of the process. Air Partner has also seen increased demand for the emergency evacuation packages.

According to Hunt Y Palmer partner Jeremy Palmer, demand for SMALL - and medium-size business jets has generally held up better than that for larger aircraft. The exception to this has been the growing Russian market, where larger transports are increasingly required. He claimed cabotage rules are now being widely waived in Russia, allowing Western operators to provide domestic flights.
While customers do not feel obliged to pay higher charter rates in current conditions, they are becoming more discerning about the aircraft they fly. Along with recent new technical requirements and pressure from fractional ownership programs, this trend has led to a significant modernization of the European fleet over the last few years. Newer models such as Cessna’s Citation Excel and Bombardier’s Learjet 45 are replacing older models such as Citation IIs and British Aerospace Hawkers, which have been the industry’s workhorses. Similarly, newer types, such as Dassault’s Falcon 2012 and Bombardier’s Challengers, have carved a niche in charter demand, and brokers expect Embraer’s Legacy to have a significant impact, too.

Chris Chapman, a partner in the Chapman-Freeborn flight brokerage, said the number of new business jets ordered by European charter operators exceeds current level of demand and has resulted in an oversupply that has suppressed rates. “There are still more new aircraft coming into the fleet at a time when owners are struggling to dispose of existing aircraft,” he commented.

The bottom line for charter customers, according to Air Partner’s Macdonald, is that, while prices may not drop any lower, this is most definitely a buyer’s market in terms of aircraft choice and availability. “The number of aircraft in the European charter fleet has grown considerably, to around 700 jets, and there is now a good selection of high quality operators, even at the last minute,” said Macdonald.

He believes the value and quality that the European executive charter market now offers has undermined the case for joining fractional ownership and block charter programs such as NetJets Europe and Bombardier’s Flexjet Europe.

The Air Partner broker maintained that business aircraft owners–whether whole or FRACTIONAL - have “got their fingers burned” during the current downturn, largely because of the burden of recurring costs and declining aircraft values. He said this is driving people back to the charter market. Similarly, he said, the high-profile collapse of FlightTime in the U.S. has raised a caution flag about signing up for block charter programs. “If you are doing a deal like this, be careful who you are giving your money to and whether you can be assured of getting it back if things go wrong,” he cautioned.

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