I thought that working in the media was a precarious career path until I started to learn more about the executive charter business. In the media these days we struggle to understand how our hard work will be paid for, with readers less and less willing to pay for our words and pictures and advertising budgets shrinking. Evidently, too many people out there think that a credible free press comes for free. Then there’s the daily threat of unscrupulous online rivals stealing our materials and presenting the fruits of our labors as their own. Go sue us, they sneer when challenged.

Charter operators face some similar challenges in what has become a decidedly shaky business plan now threatened by further financial meltdown. In the October and November monthly editions of AIN you’ll be able to read our latest special report on the charter and fractional ownership industries. We’ll be detailing the pressures these companies now face, but, for the time being, here’s a summary of why I’m still glad to be a wage-slave reporter rather than trying to scratch a living as a charter operator:

• There are still far too many aircraft available for charter chasing soft and inconsistent levels of demand.
Too many charter firms are selling themselves short, flying aircraft at loss-making rates in a vain bid to cover overheads. Part of the reason for this is that most aircraft offered for charter are owned by individuals or companies that farm them out under management in the hope of recouping some of their expenses. In bad times, this business model distorts the competitive balance. Making matters worse is the fact that owners who might otherwise sell their aircraft and remove them from the charter inventory do not feel they can do so due to the continuing weakness of pre-owned prices. It’s a bit like an airborne version of the Florida real estate market. And, guess what, it could be about to get worse because banks are in trouble again and another credit crisis cannot be ruled out (see below).

• The economies of what remain–for the time being–the world’s two leading charter markets, the U.S. and Europe, are basically stagnant.
That’s the good news. The bad news is they could be about to lurch back into another full-blown recession, less than two years after pulling out of the last recession. European states such as Spain, Italy, Ireland, Portugal and Greece are grade-A basket-cases, with their governments in various states of denial about their crippling public debts. France could be next and my own country, the UK, is hanging on like grim death. Germany is getting tired of paying the bills for neighbors who seem increasingly like spoiled-brat, trust-fund teenagers. Oh, and no one knows for sure just how badly banks (in Europe and beyond) could be exposed, if any of the above states default on their debts, because evidently they were too busy counting their ill-gotten bonuses to learn any of the lessons from the last financial crisis and our politicians were too spineless to make them learn these lessons. That’s what could result in the imminent release of the unwelcome Hollywood blockbuster sequel: “Credit Crunch II: The Return of the Pre-owned Aircraft Value Collapse.”

• Coming next to a theater near you: “Currency Crisis: Vengeance of the Swiss Franc.”
This week the government of Switzerland, where many major business aviation service companies are based and which boasts a massive private aircraft fleet for such a relatively small country, started pumping huge wads of cash into the international currency markets. Why? Because the Swiss Franc has become grotesquely over-valued against the euro and the U.S. dollar–so much so that the competitiveness of the Swiss economy is being undermined and this could lead to one of the world’s wealthiest countries descending into recession and deflation. The trouble is that the aforementioned European basket-case economies, and probably the U.S. too, aren’t going to be able to take the Swiss corrective action in stride. With the very few tools available to their governments to protect their worsening finances, they could resort to retaliatory action in currency markets, leading to the very real possibility of a ruinous currency exchange war. This could badly destabilize already precarious charter rates and the cost structure of embattled operators.

• But surely charter firms can simply shift their fleets to the emerging markets such as China and India to compensate for problems in more mature markets?
In theory, yes, and to some extent this is happening, but the fact remains that the new markets are not developing as well as many of us had hoped. There are still massive bureaucratic and political obstacles to opening up business aviation in these countries and, no matter what people tell you, they just don’t seem to be getting any easier. Earlier this year I discussed this with Kenn Ricci, executive chairman of U.S. fractional ownership and charter group Flight Options. I agree with him that there is a distinct political element to the development of international markets for private aviation. In his view, a lack of personal freedom and democracy in places like China could stunt growth by holding back the travel aspirations and possibilities of even the wealthy. Fundamentally, business aviation is about freedom. Equally fundamentally, the Chinese government appears to be at best ambivalent about freedom; in fact, it finds it rather inconvenient. Several leading economists, such as the UK’s Will Hutton, believe that this suppression of personal freedom and initiative will mean that China may not fulfill the potential for growth on which the charter business is counting. Then there’s India, where recent investigations into alleged endemic corruption have revealed that businesses are commonly having to pay as much as one-third of their revenues in bribes just to be able to keep trading. Is it any wonder that the long-awaited business aviation infrastructure isn’t getting built there?

• The charter sector is being further undermined by endemic illegality.
This takes two forms. First, aircraft that are authorized to fly only for private purposes are being offered for hire. Since they are not constrained by the same rules as commercial operators, operators of these aircraft can charter them at rates that AOC holders cannot match. Illegal operators are often invalidating the terms of their finance agreement and insurance. If they crash, the widows and orphans of their pilots and passengers will be left to fend for themselves because life insurance policies won’t pay out. Second, some charter operators are routinely flouting cabotage rules that prevent commercial flights within and between territories other than the one in which they are based. For the most part, the authorities–in Europe at least–are doing practically nothing to stop these illegal practices. Regulators who have endless energy and zeal to enforce other rules in the most pedantic, hair-splitting way possible are completely failing to prosecute operators who fly illegally.

Right, now that I’ve cheered you up, I need to get back to work. There are publishers out there in Russia, China, the Middle East and India (you know who you are) waiting to steal the next batch of AIN articles. They’ve got mouths to feed, you know.