Podcast: Authors' Bizav Research Helps Form Lessons From The Past

Richard Aboulafia and Kevin Michaels, managing directors of AeroDynamic Advisory, discuss the business aviation industry and the surprises they discovered and lessons the industry can learn as they research their book, "Time Machines: A Modern History of Business Aviation," to be published in late 2025.

Why are there only a small number of brands and not duopolies? What role did two single customers have on the industry? What can today’s manufacturers learn from the past? 

Hosted by Molly McMillin, editor of business aviation for the Aviation Week Network.  

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Transcript:

Molly McMillin:

Hello and welcome to today's BCA podcast and thank you for joining us. I'm Molly McMillIn, managing editor for Business Aviation at Aviation Week, and I'm delighted to have with us today Richard Aboulafia and Kevin Michaels, managing directors of Aerodynamic Advisory, a consulting firm that specializes in defense and commercial aviation and business aviation. Richard and Kevin are regular contributors to columns in Aviation Week and Space Technology Magazine. Besides consulting ,in their spare time, they're working on a book on the business aircraft industry called Time Machines, a Modern History of Business Aviation to be published in late 2025. We've asked them to come on to discuss the research for the book and whether there are any surprises that they’ve found and maybe some lessons to be learned today. Kevin and Richard, thank you and welcome.

Kevin Michaels:

Thank you, Molly. Look forward to it.

Richard Aboulafia:

Yeah, really happy to be on. Thank you.

Molly McMillin:

Why don't you describe the book project? What is its focus and how will it differ from other books on the subject of business aviation?

Kevin Michaels:

That's a great question, Molly. So there have been a number of books written on the non-technical history of business aviation, but nearly every one of those books is one of two varieties. It either focuses on an individual company's history or the history of an individual, say someone like Bill Lear. What we're attempting to do in this book is to weave together the broader macro environment, political, economic, cultural, social, technological, how that in turn influenced the demand for business aviation and how that intersects with the business aircraft that were created and the colorful personalities that drove the development of the industry along the way. So in other words, it weaves together the history of the major companies and the major individuals IN the big picture. And we think that is unique. Focus of the book will be primarily on turbine powered jets and turboprops, which really started in 1958.

Molly McMillin:

Can you talk about a little bit of the highlights of your research and the main points that you've discovered?

Richard Aboulafia:

Well, sure. I think when you look at it all in the context of this history, the strands of the fabric that Kevin talks about, it's really fascinating to see how this market has performed since it was created circa 1960, the weird ups and downs, the bifurcations that have taken place, the wild growth spurts, it's quite a wild ride. And along the way you come across these fascinating gems and nuggets of forgotten aeronautical history that to me, you're utterly fascinating. One of the highlights is going through the Great American post-Soviet Supersonic business jet joint venture of the post-Cold war era. And you see all these people involved basically at the White House level, at the Kremlin level talking about, "Comrades, we are friends now. Let those build supersonic business jet." And this got a surprising amount of traction. So there were these moments that business aircraft really were at the center of world history.

Kevin Michaels:

I would add to that too, in terms of interesting things along the way, what makes business aviation so unique is that while in the other sectors of aerospace, air transport, where it's OEMs selling to airlines and military, where it's OEMs selling to governments. This is in between the world of business to business and business to consumer. So that makes it very different. And when you look at why do we still have 5, 6, 7 brands of aircraft today and not duopolies, I think a lot of that goes back to the loyalty to brands and the unique nature of this industry. And increasingly it's evolved quite a bit, who the customers are, and we can get into that, but these days, ultra-high net wealth individuals are having a big impact on the demand and where development takes place.

Richard Aboulafia:

That's right. It's that combination of a fragmented and rather wealthy customer base with particular ideas and a lot of legacy loyalty coupled with our product being sold not as a commodity the way jetliners usually are, but as a luxury good. That dynamic is fascinating.

Molly McMillin:

So talk about surprises, in your research. Were there any big surprises or something that you didn't expect?

Richard Aboulafia:

Well, that supersonic business jet thing was fascinating. What really hits you though, looking back late eighties or early nineties? We take it for granted these days that Gulfstream is the big gorilla with something like a 35, 40% market share, and of course this very impressive as blue chip as it gets, really. But you look back at that and just they could have gone the way of Learjet. It's like there was really not a lot of margin for error in their survival and eventually thriving, and it really hits you how much of that depended upon characters like Ted Forstmann, fascinating individuals determined to make a go of it. And you see these other stories about on the other way around, amazing people like Bill Lear and it just didn't work out after many decades of being led by a strong central driving force and a lot of baked in company culture. So, I guess it almost feels like the throw of the dice aspect of this business could have gone either way.

Kevin Michaels:

I was going to say unlike the air transport sector now where we think of North America, which was once the biggest market and now is somewhere between number two and number three, and Asia is the clear driver. This is a market where North America has led from the beginning in terms of where the concentration of activity is. And that really hasn't changed, right Richard? I mean it's still very similar

Richard Aboulafia:

Yeah, and part of that, and one of the surprises is these expected globalization impulses, drives the great China Bubble of 2014 at one point was just, I think they took delivery of 50 jets in the space of a year and then it went all horribly wrong and China's no longer a market of any... But people were racing to put production lines in China. That was the future. And at other points, Latin America was expected to outperform and we did the numbers and as Kevin says, it was 60% North America then and it's 60% North America now. That was unexpected because we've lived through all these perambulations of emerging markets and whatever else, and no, it's North America.

Kevin Michaels:

One other surprise from the research is the unique role that two American customers played to help the entry into the business jet market. The first, mostly forgotten today, is a very young entrepreneur by the name of Frederick Smith, who started a company called Federal Express, chose the Dassault FanJet Falcon to be its primary transport aircraft for the early launch of FedEx in Memphis. And it really helped Dassault get on its way, and it gave it volume well beyond anything and had experienced in their early years. But also forgotten is the role that the U.S. Coast Guard played when they also chose the Falcon to be the basis of their search and rescue aircraft. So while Dassault has been innovative and hugely successful and is expanding the upper end of the market now, but going back to its origins, two unlikely breaks, surprising breaks by U.S. customers really helped ease its way into the market.

Molly McMillin:

I just was in a conversation earlier today actually about OEMs trying to diversify, but yet it's still the market is North America focused. How should the industry think about that?

Kevin Michaels:

There's a combination of factors that make North America so unique and still the home of business and general aviation, if I could just expand that slightly. And it's not just the geography and it's not just the infrastructure with the 5,000 airports and so forth, many more than that even. It's the fact that there's something cultural here. It's something one feels if one goes to Oshkosh where it's almost like a constitutional right. For example, we tend not to have landing fees. We view airports as a vital part of the infrastructure. We view the freedom to fly as an essential part of Americana. And you feel that at Oshkosh, and not only that politically, we can't forget this.

We're so incredibly well-organized. We take it for granted, but the NBAA, the AOPA, the Experimental Aircraft Association and GAMA, those entities combined really showed the rest of the world how you work with political entities, how you avoid misinformation campaigns and communicate the benefits of business aviation to the economy and to the broader national good. While it's such an easy target and while other regions have tried to follow those footsteps like EBAA, it is just tough to put together these ingredients that go together. China has a geographic mass of the U.S. It can have a lot of airports someday, but yet everything doesn't come together to make this happen for political reasons.

Richard Aboulafia:

And talk about the origins of Jeffersonian versus Hamiltonian democracy and how much power should the agrarian states have relative to the urban Northeastern states. But we do have this unique North American system that Kevin talks about that does give a lot of political power to the lesser populated but much more dispersed states. And that is a fascinating dimension. But the supporting role, as Kevin says, played by these organizations, you really can't underestimate them. And of course the people behind them who work really hard to keep business aviation well with a positive name and a favorable series of outcomes.

Molly McMillin:

What would you say were a couple of the main turning points for the industry if you look back? I was talking to someone earlier about this is the 30th anniversary that GARA was passed, the General Aviation Revitalization Act, which revitalized the bottom end of the market to get people flying. What would you say were maybe some of the key points as you did your research?

Kevin Michaels:

A couple that come to mind immediately is both positive and negative turning points. I would say something in the product category is as this industry began in the late fifties and sixties, it was all turbojets. And after all these are time machines where you have to fly people distances with a certain speed, being able to get in and out of airports and meeting noise regulations and things like that. And it was really striking how Cessna waited. Everyone was waiting for Cessna to get in the business jet arena in the sixties because after all, it was the leader in general aviation, but Cessna didn't have the right value proposition yet to get in the business with all these noisy, inefficient turbojets like the JT12.

It waited for the JT15 to come along from Pratt & Whitney Canada. And you put the two together and you bring turbofans into business aviation. And instantly it's as if the early decade of business jets had been obsoleted. And it was not just the JT15, it was the TFE731. The TFE731 is the CFM56 of business aviation. It is the ubiquitous efficient turbofan that instantly increased the range, dramatically improved the fuel efficiency of business jets and dramatically improved the value proposition and improved their popularity.

Richard Aboulafia:

Yeah, I'm one of those people who were the prisoner of the last thing they looked at, and I just finished the 1981 to early, mid-nineties years and it really hits you, we call it ready for takeoff because boy, there was so much going on in terms of new product development, new technologies introduced. And I mean, the thing is it was all done with the backdrop of a market that was effectively stagnant. There was no reason to believe that we would be at an upward angle the way the jetliner business, "Oh, we grow 5% per year, so we're going to develop new product. We're going to get paid off one day; it's going to work." Business jets were flat, have a nice day. They were flat, yet people introduced a new high end with the Challenger, the Falcon 900, and of course the Gulfstream IV.

All of this stuff, knowing the market might stay flat, we might have monster over capacity and investments that will never be repaid, ditto offer the new engines behind them, whether it's the FJ44 at the low end that I'm sure Kevin will talk about, or what have you, CF34. And it took until the mid-nineties before we enjoyed the kind of explosive growth that redefined this industry. So you had all these people bravely willing to step up to the bat and make those investments and prepare the way. And at that point, everything kicked in, a variety of things, including GARA. Absolutely, that generated growth. But until then people were just hoping for the best.

Kevin Michaels:

And there were some negative ones too. I mean, business aviation has always faced challenges and we think today with ESG and other potential headwinds as if this is it. But of course, 15 years ago was the infamous day that the big three automakers went to Washington DC that two of whom were asking for a bailout and we're asked, "How'd you get here?" And that was a turning point. I mean, I think we can get back to this, but I think in some ways that was a point where maybe Part 91 flight departments in some ways were hitting their apex. And since then we've really seen a big shift, especially in the post-COVID era to fractional flying and using aircraft management companies and the days of showing off that big large Part 91 flight department. Mine's bigger than yours, all that stuff.

But I think it's handled differently now. It's not to say that they aren't there and they don't make sense for some companies, but it's just handled very differently. But even before that, going back to the 70's energy crisis, they were talking about allocating aviation fuel to jets like are they really necessary? These bubble up every 10 to 15 years. You don't know where they're going to come from; they can't be predicted. But that's why it's so important to be well organized politically where you can convey these points that need to be brought back again and again and again to political leaders and to the broader public and institutions.

Molly McMillin:

I know you both were here in Wichita in early September, and in full disclosure, that's my hometown and where I live. And that's one of many trips that you've made to Wichita in part for research for your book. And I was looking the other day, over the years starting in the early 1900s, there were more than 90 aircraft companies based in Kansas, including a handful that they may have only built one aircraft before they went out of business, but many of them came and went. So are there any parallels to the history that you are researching to be made today between the companies that are involved in the birth of advanced air mobility? Some have said not all of them can survive, but are there any lessons to be learned from that or takeaways?

Kevin Michaels:

To me, I'm in the Detroit area, which is another company town, and knowing a little bit about my automotive history, I'm reminded of the fact that back in the 1890s, there were hundreds of automotive manufacturers around the world and a lot of people tinkering in their garages. It wasn't clear who was going to win. It wasn't even clear back then if you would've electric cars or internal combustion engines or steam powered in some cases. And there were no traffic lights, there were no licensing system, there wasn't the infrastructure, there weren't driver's licenses. And 20 years later, it started to settle out when there was a big breakthrough in reducing the cost. And that spurned some of the necessary investments in societal changes through Henry Ford and other innovators that came along after that.

And in some ways advanced their mobility today. And by the way, most of those hundreds of companies failed and are long since forgotten, but some of them made it to the other side and some new companies were created by taking the pieces of the initial wave of companies that had failed and piecing them together in a way. But at a later time when society had caught up and the economics had caught up. And to me that's one parallel. And [Kansas] had all those companies, as you mentioned, Molly and everyone was pursuing the dream, but Travel Air spawned was the birthplace of a lot of the business aviation that we had today. A Wichita company that happened to have Clyde Cessna and Walter Beech and Lloyd Stearman all in the same company and ended up leaving and doing their own things. Richard.

Richard Aboulafia:

Yeah, it is fascinating. Just as an anecdote, I walked over to the former Travel Air business, HQ, which is now occupied by a place where you can throw axes for fun. So just goes to show. It is fascinating to read about. There are many differences with AAM, but broadly speaking, you can differentiate between a good bubble and a bad bubble. And what's the difference? Well, a bad bubble is where everything is lost like, "That was a bad idea. Okay, things fall apart." A good bubble is when there are multiple bankruptcies, just what Kevin described, but there's enough salvageable stuff left over businesses, infrastructure, technologies, concepts, whatever.

Classic railroads in the 1900s rather, the 1800s e-retailing in the aftermath of the first Dotcom crash 20 years ago, all this other stuff. I tend to think it's going to be that. I think there'll be something left over to salvage. Will there be something about Wichita that lends itself to being that, I don't know, because a lot of AAM companies aspire to cater to fairly high-dense areas, urban air mobility and whatever else that doesn't appear to play to Wichita strengths. But having said that, I think it's also good that you're not part of it because it's going to be years, if not decades of carnage before we learn what can be salvaged from a lot of this.

Molly McMillin:

So on a broader question, what are maybe some of the lessons learned that today's business aviation providers might learn from the past?

Kevin Michaels:

Well, I'll start out some of the lessons learned from the past, I think that customer support and services is absolutely critical. And I would highlight the fact that in the research Grumman, which came out with a Gulfstream 1 or G159 Gulfstream 1 from the very beginning, and this was 1958, and they chose a turboprop because they didn't think jets were ready to do the job. And they thought that customers wanted range, and that was more important, than getting a little bit more speed. But they saw the importance of customer support from the very beginning as did Cessna. And when Cessna launched with the CitationJet, they had three service centers in place. They had 24/7 customer support and parts support and really understood from the very outset that this is essential.

These are time machines and time machines cannot afford to have these maintenance issues and delays. They defeat their purpose, especially as most people have one or maybe two aircraft. It's not a fleet. And that is one lesson learned today. And if you look at what's happening today, I think most business aircraft OEMs get it. Most of them earn over 30% of their revenue today from services. And they have gone out and built out global networks, one of the last ones to the party was Dassault. And they made three acquisitions in 2019 that built out their global network.

Gulfstream as a global network, and bought Jet Aviation over 15 years ago and has continued to add to that through Hawker Pacific and others. Cessna has done it in its own way for its own demographic. And look at Bombardier today. Bombardier, the company that a lot of people thought wouldn't make it has made it and is paying down debt and as part of that, has a goal of $2 billion of services revenue, which I think they're going to hit this year if all goes to plan. And they're earning double-digit margins. And I think they paid down 45% of their long-term debt. So going back in time, there were some pioneers that saw this and they've embraced it. And I think today, I think everyone understands the importance of that.

Richard Aboulafia:

And similarly falling onto that Bombardier story they never forgot, especially recently, the importance of government and military markets. Every so often that market really comes through. I think the bigger thing to remember is, as Kevin says, this is a B2C market that's hugely important, and therefore the importance of stimulating it with new technology, new products, that's absolutely essential. It's not just that massive run-up in your product development that helped lead to the mid-nineties growth spurt. It's just the importance of keeping that pipeline going, not just in terms of new aircraft and new models and whatever else, but also in terms of new enabling technologies, cockpits, engines, everything like that. They all do amazing work in stimulating demand.

Kevin Michaels:

Yeah. And along with that, to Richard's point, growing the lower end of the market, that's been an ongoing battle. And if you go back to the Citation, the original Citation, which was a breakthrough in the same way that King Air was a breakthrough, but 20 years later when a super-efficient fan jet came along from a very unlikely company, Williams International, in full disclosure, that's where I began my career. I was there five years as a project engineer and got to work with Sam Williams, but the CitationJet came along that basically bettered the Citation in every way possible where it flew farther, it used less fuel, it was quieter, it was faster, and it was less expensive, and it really obsoleted it.

But it grew that lower end of the market. And if you fast-forward to the VLJ era of 15, 20 years ago, many of those companies are gone. Eclipse is long gone. But that left us the Phenom that stimulated demand with the Phenom and arguably with the M2 today at Cessna. And now we have the single engine Cirrus Vision. And so it's continually making that accessible to a broader group of people through the aircraft. And another way to see that, Molly of course, is just that. It's the fractional ownership and it's the cards and it's finding ways to reduce the intra barriers and making it more accessible. And that has been an ongoing change.

I bet 40 years ago, 90% of the flying was done by Part 91 flight departments, and there was a little bit of charter, a little bit of aircraft management and a little bit of governments flying things around. And I think if you fast-forward to today and you look at the hours and what's happened, you'll see that fractionals and aircrafts that are leased out by aircraft management companies in essence, charters have been the fastest growing recently over the last five years. And that's where a lot of the growth is. But a lot of it is about making things more accessible to people.

Molly McMillin:

It looks like we're winding down on time. Do you want to leave us with any final thoughts, Richard and Kevin?

Richard Aboulafia:

Well, I think the most important thing is that despite the ups and downs of the last 15 years since the Great Recession, since of course that rather lamentable moment, and with the Detroit car makers in Washington, whatever else. You look at it, this market stabilized at a pretty impressive level, about 20 to 25 billion in today's money. There's ups and downs, obviously pricing goes up and down too, profitability goes up and down. But the massive expansion we saw of the business jet industry is here to stay. We're just talking about the models and of course the composition of the industry in terms of players. It's a rather rich and bright future. And again, it's five times the size it was in today's money relative to when Kevin and I started our professional careers.

Kevin Michaels:

I think there's been a lot of discipline, uncharacteristic discipline by the aircraft manufacturers, and they have not chased demand into the wild peaks and valleys of the past. Demand levels have been relatively stable. And while to some that could be a little frustrating. On the other hand, it's given them pricing power. And it is probably ensuring that we're not going to have these dramatic drop-offs like we did in 2008, which no one in the industry will forget in the near to medium future. And that's certainly a welcome development. And while Boeing and Airbus have been beating each other's brains out for market share and not thinking about this concept called pricing, it looks like the business jet manufacturers have figured that out. And especially given the, as we talked about earlier, the fact that this is increasingly a B2C market where brands matter and where individuals are becoming more important customers.

Molly McMillin:

That’s great. Fascinating. Well, I'm sorry we don't have more time, but thank you so much Richard and Kevin both for joining us, and we will look forward to your book coming out in late 2025. Thank you all for joining us and for listening, and have a great rest of your day.

Jeremy Kariuki:

Thanks for listening to the BCA podcast by Aviation Week Network. This week's episode was produced by Jeremy Kariuki and Andrea Copley-Smith. If you enjoyed the show, don't forget to or follow us on your podcast app of choice. If you'd like to support us, please leave a rating wherever you listen. Thanks again, and we'll see you next time.