Forget house flipping: billionaires flip their super jets

Robert FrankCNBC

9 hours ago

SeongJoon Cho / Bloomberg via Getty Images

 

A Gulfstream G650 business jet stands on display during the Cheongju International Airport Air Show in Cheongju, South Korea, on Oct. 25. Demand is so high for the jet that some billionaires are flipping them for a hefty profit.

 

The age of house flipping may have faded. But the super rich have found a new path to instant profits: flipping their megajets.

Demand for the biggest, most expensive Gulfstream jet — the G650 — is so strong that owners have started flipping them to other buyers. In some deals, the sellers are pulling in profits of between $5 million and $7 million per flip.

Billionaire Bernie Ecclestone, the Formula One tycoon, recently flipped his G650 to an Asian businessman for $72 million — at least $6 million more than his purchase price, according to people familiar with the deal. The transaction, first reported by BizjetBlogger, came just weeks after Ecclestone received the plane from Gulfstream. (Ecclestone couldn't be reached for comment, but BizjetBlogger said the plane was too large for some of Ecclestone's favorite airports).

Jet brokers and consultants said at least two other buyers have flipped their G650s recently for more than $70 million. At least two other deals are in the works, they said. One of these is an American billionaire negotiating with a buyer in Asia. The other deals involved billionaires in Russia, Latin America and the Middle East.
The flips highlight the strong demand for large-cabin planes — the biggest, most expensive private jets — at a time when the rest of the private jet market is still languishing. Business jet deliveries are still down more than 30 percent from their peak in 2008, and prices for some planes have fallen by more than half, brokers say.

But large-cabin planes are a hot commodity among billionaires and global companies. With their long range and ample cabins, they can carry more passengers over longer distances and in greater comfort. The G650, with a base price of $64.5 million, is the king of the large-cabin private jets, with a range of well over 7,000 miles and a maximum speed of Mach 0.925.

The G650 also is very scarce. Only around 30 to 35 have been delivered since its launch last year, according to brokers.

Still, the jet has become the must-have plane for the world's billionaires, with Ralph Lauren and Oprah Winfrey both lining up for one. Demand is so strong that a buyer signing a contract today won't get their G650 until the third quarter of 2017. That's why many buyers are willing to pay more than $70 million to get their planes today.

"These are billionaires who are willing to pay a premium to avoid the wait," said Philip Rushton, founder of Aviatrade, an aviation consulting and brokerage firm.
The deals are a double-edged sword for Gulfstream. While they highlight the strong demand and value of its aircraft, they also show that customers are now making millions off of its product. The company said that it is "not privy to the details" of any flips, "if customers are, in fact, getting a premium for the aircraft, it's a testament to the amazing capabilities of the G650."

The real problem for Gulfstream is clients trying to sell their planes before they are delivered. Gulfstream said that, "Customers cannot sell the aircraft before they've physically taken delivery of it. This prevents speculation, which isn't good for the market."

The company has a "non-assignability" clause in its contracts, meaning the ownership can't be reassigned after a contract is signed.

Some customers tried to get around the clause by buying the plane under the name of a newly created aviation company. They would then sell the company to a new buyer, essentially transferring ownership of the plane through the company sale. Brokers said Gulfstream caught on to the game and is now requiring the signer of the contract to be involved in the final delivery.
"They're really doing their best to deter this," said Jay Duckson of Central Business Jets.
—By CNBC's Robert Frank. Follow him on Twitter @robtfrank.

Why Europeans Put Bigger Planes on Trans-Atlantic Flights

By Justin Bachman

November 11, 2013

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The days when flying over the Atlantic automatically meant a seat on a two-aisle jumbo jet are over. U.S. carriers have switched many ocean-crossing flights to slender Boeing 757s, a smaller airplane than the typical wide-body giants favored by European airlines headed to North American destinations. The strategic split in airplane size is the result of differences in fare-pricing software, reliance on hub airports, and passenger preferences in the two markets. Here’s why Europeans fly larger than Americans:

1. U.S. airlines manage fares more tightly. Revenue management software is widely used across the U.S. industry to oversee how many seats are sold at specific prices—a strategy that can maximize profitability when tweaked just so. Deploying sophisticated algorithms to determine pricing was a direct result of the industry’s deregulation in 1978—a process that occurred nearly 20 years earlier than in Europe, airline analyst Robert Mann notes. The software does best when managing an airplane without that many seats. “Too much capacity (larger gauge with more seats) puts those tools outside their sweet spot and unable to deliver improvements in unit revenue,” Mann wrote in an e-mail. “This is why half of U.S. domestic frequencies are on regional partners’ smaller jets.”

2. Hubs play a huge role in aircraft size. The legacy U.S. airlines all have multiple hubs to feed, whereas British Airways (IAG:LN) and Air France (AF:FP) each has essentially one. United (UAL), for example, flies to London Heathrow from six of its eight U.S. hubs, seeing those multiple frequencies as a competitive weapon to lure corporate travelers who fly to the U.K. British Airways, however, feeds nearly all its North American traffic through Heathrow, which it says makes larger airplanes more logical.

3. The 757 rocks (financially) on the North Atlantic. Several years ago, fleet planners at Continental decided to use the 757 from the airline’s Newark hub to cities in Europe where larger planes didn’t make financial sense. Continental equipped its international 757s with 169 seats, 13 fewer than the version flown domestically, and deployed them on routes to such smaller cities as Edinburgh, Scotland; Hamburg and Stuttgart, Germany; Shannon, Ireland; and Manchester, England. Today, nearly one-third of the airline’s trans-Atlantic departures are on 757s.

 

“The B757 allows us to serve certain cities that we may not be able to serve profitably with a larger aircraft—this fact makes the service possible in the first place,” US Airways (LCC) spokesman Todd Lehmacher says, citing the summer service to Shannon. That route was successful and will return in 2014. Delta (DAL) also has found niche uses in Europe for the 757, as has American with a daily flight from New York to Madrid. (The main downside is flying west in winter, when high winds can boost fuel burn and necessitate expensive diversions for refueling.)

4. Europeans pay for cabin comforts. The traditional European flag carriers have a relatively robust business for first and business-class seats, compared with their American counterparts. Lufthansa (LHA:GR) is the largest provider of premium-cabin seating across the Atlantic and needs at least 60 business-class seats on most of its flights to North America to meet demand, spokesman Nils Haupt says. So while United can make do with 16 business-class seats on a 757, Lufthansa will not (usually) struggle too mightily to sell the 98 biz-class seats in its massive 526-seat A380s—nor the eight in first class.

(There is one exception to the European jumbo-jet rule: British Airways flies a small Airbus A318 to New York from London’s City Airport with only 32 seats, all in business class. Return fares start at more than $5,000.)

Too fat to fly: French family stranded in US

19 hours ago

 

A British Airways aircraft takes off from Heathrow Airport in west London (AFP Photo/Ben Stansall)

 

Chicago (AFP) - A French family who came to the United States for medical treatment said they were stranded in Chicago after British Airways determined their son was too fat to fly.

 

Kevin Chenais, 22, spent a year and a half at the Mayo Clinic for treatment of a hormone disorder which led him to weigh 500 pounds.

His mother was near tears as she described the family’s problems to the local CBS affiliate.
"We blame British Airways because now they just leave us, and they brought us here,” Christina Chenais told the station.

"If they could bring him here with that problem in economy, there was a way to take him back by economy but just get him back home for his medical treatments to continue."

The family spent a week in an airport hotel trying to resolve the matter and, running out of money, has decided their only option is to take a train to New York and cross the Atlantic on the Queen Mary cruise ship.

Kevin Chenais requires round-the-clock oxygen and medical attention.

"I’m sure a lot of big people like me or bigger cannot travel because they have the same problem,” he told the station, head hanging down as he sat up in bed.

"This time before leaving I knew something would go wrong."

A British Airways spokesperson told AFP that its customer service team "worked diligently to find a solution."

"We will always try to accommodate someone if it's possible and safe to do so," Caroline Titmuss wrote in an e-mail.

"Unfortunately, it is not possible to safely accommodate the customer on any of our aircraft and the family has been offered a full refund."

The airline said it provided hotel accommodation for the family along with "guidance and support" to help explore other travel options.

A spokeswoman for the French consulate told AFP it "attempted a mediation with British Airways, but the position of the airline is firm on the security issue."

It has provided the family with the names of two lawyers who may be able to help.
The Chenais family did not immediately return requests for comment.

Which airlines now allow electronic devices?

Amy Langfield CNBC

2 hours ago

 

One by one, airlines have begun allowing passengers to expand the use of personal electronic devices since the Federal Aviation Administration said it would start approving applications. So far, only a handful of airlines have the all-clear, and some have more exceptions than others.

US Airways and United are the latest to secure approval from the FAA.

US Airways on Nov. 7 said "customers on US Airways domestic mainline flights will now be permitted to use small PEDs during all phases of flight." Its US Airways Express flights do not have FAA approval.

United Airlines on Nov. 6 adopted the new rules on all domestic mainline flights arriving or departing within the 50 states. The new rules do not apply to United Express flights, but United said it is working with its with its regional partners to make that happen by the end of the year.

American Airlines on Nov. 4 said the new rules apply to "American's entire mainline fleet as well as regional aircraft operated by American Eagle Airlines." However, it does not yet apply to American Eagle flights operated by SkyWest Airlines, ExpressJet Airlines, Republic Airline or Chautauqua Airlines, American spokesman Matt Miller told CNBC.

Delta Air Lines as of Nov. 1 allows "portable electronic devices below 10,000 feet on mainline U.S. domestic flights," according to its website. However, "Delta Connection's more than 550 regional aircraft will be ready by the end of the year."

JetBlue on Nov. 1 "adopted the new rule completely, all JetBlue flights," company spokesman Mike Miller told CNBC.

The FAA has received a handful of other plans and hopes to approve them quickly, agency spokeswoman Kristie Greco said.

Some are still preparing the paperwork. Alaska Airlines "will apply to the FAA for approval very soon," Paul McElroy said in an email to CNBC.

The new rules generally add the ability for passengers to use their smartphones, e-readers, electronic games and tablets during taxi, takeoff and landing as long as they have the device in airplane mode with cellular service disabled. Voice calls will still be prohibited and laptops will still need to be stowed for taxi, takeoff and landing.

The FAA, in its announcement Oct. 31, said there would be only limited exceptions to the new rules. "In rare instances of low-visibility, the crew will instruct passengers to turn off their devices during landing."

The new rules, the FAA made clear, do not yet apply to all fliers.

"Due to differences among fleets and operations, the implementation will vary among airlines, but the agency expects many carriers will prove to the FAA that their planes allow passengers to safely use their devices in airplane mode, gate-to-gate, by the end of the year," the FAA said in its Oct. 31 announcement.

The American Eagle rollout is one early example of how the new system may be confusing. Since some American Eagle regional flights are operated by other airlines, those flights will be certified by the FAA. Those approvals are expected by the end of the year, Matt Miller said. (Passengers can find out by checking the "operated by" line on their flight status notification on AA.com, he said.)
The same goes for Delta's nine carries operating under the Delta Connection banner, according to Delta Air Lines spokesman Paul Skrbec.

But where the new rules are in place, there is happiness in the land.
"Customer feedback has been terrific. We've had more than one instance of customers cheering on planes," Skrbec said.

"It has gone swimmingly as far as I'm aware," American's Miller said a day after the new rules were adopted. The airline will have to change its safety videos, but in the meantime the flight crew is providing guidance to passengers about the new rules.
—By CNBC's Amy Langfield. Follow her on Twitter at @AmyLangfield.