Wealth Blog

Private jets - an explosive chaotic gold rush

PUBLISHED : Tuesday, 05 November, 2013, 9:55am
UPDATED : Tuesday, 05 November, 2013, 9:57am

There’s an explosive chaotic gold rush about business aviation at the moment. Manufacturers and management firms are looking at Asia and saying: “Wow this is the market where the action is happening,” says Bjorn Naf, CEO of Metrojet, which manages about a third of Hong Kong’s110 private jets. “I am saying hang on guys, be realistic, you might see the gold nuggets, but there is so much complexity, it is so challenging, that only a few survive.” They are the ones who understand how to navigate the minefield of regulations, limitations, complexity, cultures, countries and know how to get the doors opened to fly. “There are limitations with airspace, parking, hangars. skills- a huge lack of talents – nobody around who knows how to fly, maintain and manage business jets. That’s why I say the growth will happen, but it is not as explosive as people are saying.”


The China Challenge

A big fly in the private jet ointment is China. He sighs. It’s challenging. You need to have your people there and know the lead times. But, he searches for the right tactful words:  “business and private aviation is not as flexible in China as the rest of the world. Some of the beauty of owning a private jet will disappear in Asia. There’s a lot of complexity of running the operation which you don’t have in the US or Europe.” At least a day’s lead time is needed for China, you can’t just say I want to fly to Shanghai, have my aircraft ready to go in two hours.

And there’s no sign of China’s air traffic and other complexities changing any time soon. “It takes years,” says Naf. Hong Kong currently hosts 110 private jets, of which 70 are permanent and the rest transit in and out Aircraft manufacturers forecast market demand for 1,700 new business jets for Asia in the next 10 years –  a new one every three days, US$49billion (HK$380 billion) worth of assets. For all these planes 14,000 professionals – pilots, maintenance crews and flight attendants would be needed.


Critical lack of talent

“But where are these people? It’s not going to happen,” says Naf. “Or it’s happening by bringing international people from the US, Europe and Australia and you have to pay them a fortune.”  You’d have to pay a pilot US$350,000 (HK$2.7 million) to come here. These guys are not queuing up to take their family to a third tier city in China for US$100,000 (HK$775,000) “That pushes the prices up, making our industry very very exclusive and expensive.”

Patience needed

The answer is long term investors who view it as a marathon, not a sprint. “Kadoorie is perfect,” says Naf. Well he is his boss. You also need to grow your own staff, from source. That means working with universities and engineering schools to overcome the critical talent shortage. And then you must be the employer of choice to retain them. “It’s not easy, if it was, someone else would be doing it. It’s a challenge, but the demand is there – big time.”

So it’s not just as simple as buying a jet, fuelling up and away you go. “You can bring it anywhere you want, but then you need a management company which is able to attract and keep good people,” stresses Naf.

So who else has jumped on the private aviation management bandwagon? “There are a few local companies, who thought: sexy, let’s start managing aircraft, that must be making us a lot of money,” says Naf. Newcomers include Hongkong Jet, Sino Jet and Lily Jet. “Then there are the international brands which see Asia as the exotic chaotic gold rush,” he says. These include Jet Aviation, originally Swiss but now American owned, and Tag Aviation. Naf rates these as professionals who know their stuff, with the right values and right mindset. These are the real competition, he says, not the local mom and pop shop guys.


Enough for everyone

He’s confident. The market is big enough for the professional players, with 1,700 jets coming.

Each will be managing 25 to 30 aircraft. “The pie is growing for all of us. It’s not a problem of cut throat or a fight for market share. We’re not selling aircraft; we’re selling relationships and lifestyle enabling journeys.”

But China is still caveat emptor. Air traffic restrictions around Shanghai, Beijing and even Hong Kong arise from congestion as commercial, cargo, low cost airlines and business jets fight for space. “In China the military is big time the issue, they control the airspace and that takes years until that changes,” explains Naf. “China airspace will not just open up overnight for you to fly around in your private jet.

Slot restrictions for Shanghai have recently tightened to only two departures per hour for private jets. “And that is inconvenient. You can say as an owner what the heck; this is not what I bought a private jet for.” Indeed. Frankly, you might as well fly scheduled to Shanghai except, oh dear, first class cabins are scarce on flights from Hong Kong, because it’s a short trip. That means poor private jet owners slumming it with the great unwashed in business class if they leave the PJ at home. 

So what’s really going on with the air traffic hassles in China? “The restriction is not on airspace or capacity but on readiness of the controllers to accept the private jet flying in,” Naf reckons. Much of the problem is a ground staff level. “They don’t have enough skilled bodies on the ground, nobody knows how to manage, maintain and dispatch a private jet – it’s not the same as a 747.”

The private jet market in China grew 40 per cent last year, Metrojet grew 15 per cent. Naf’s happy with that: five or six new aircraft a year means about three extra pilots per plane: achievable. He’s aiming for controlled growth.” He sees only one threat: “Cheap fly by night local companies which think they can copy us - and create an accident. That would be bad for our industry.”