Back to the future—a reassessment

Forecasts change constantly as conditions evolve.

By Marvin Cetron
Pres, Forecasting Intl

A European experimental long-range solar-powered airplane, the Solar Impulse S10 flew for the first time on Jul 7, 2010 from the Swiss Air Force base of Payerne.

Only a few months have passed since we last looked at the technical, economic and social trends that will shape the future of corporate aviation. (See “Trends 2010,” Pro Pilot, May 2010, p 12.)

So why return to this subject so soon? As it turns out, lately we have seen a surprising number of new developments that will affect the professional pilot’s working life. Global economic prospects have changed in this brief span. As the US economy seems to have grown stronger—though without producing nearly enough new jobs to heal the battered employment market—others have shown signs of weakness.

Observers have begun to speculate that the world could be headed for a second round of severe recession. For now, aviation seems healthy. “I believe and notice a significant increase in international business aircraft transactions, especially new and later aftermarket large-cabin business aircraft,” observes Ken Elliott, VP of Avionics Systems at Jetcraft Avionics.

“The ‘middle class’ in many second world nations is growing fast,” he adds, “so feeder airlines between hubs are expanding to take care of the new demand migrated from driving cars to taking an aircraft. Transport infrastructures internationally are not as good as the US, so flying becomes a favorable option once it is affordable. Airlines like Air Azul in Brazil are booming and adding new routes fast.

In fact, second world nations are fast becoming first world!” And yet Teal Group VP Analysis Richard Aboulafia points out that government stimulus packages are beginning to wind down. “What if normal business demand doesn’t pick up the slack?” he asks.

“Both the US and Europe seem to be increasingly wary of running large deficits, and a wave of austerity budgets might put a damper on growth. That might be understandable—the deficits are scary, and fears of inflation run deep—but it might nip the recovery in the bud.”

These concerns have clear implications for the future of companies that operate business aircraft. It is already time for another look ahead. There are other issues as well. The space program as we have known it for more than 2 generations is about to die.

Globalization helps Air Azul keep this Embraer 190 flying.

The National Aeronautics and Space Adminis­tration (NASA) will leave the business of shipping human beings to orbit as soon as the last shuttle has flown, some time in mid-November. American astronauts are no longer slated to return to the Moon, even at one of the speculative dates proposed by former US presidents.

What this will mean for NASA’s 1-takeoff/at-least-1-landing programs is well worth considering. At the nation’s other aviation-critical agency, Tony Tether, the longest running director of the Defense Advanced Research Projects Agency (DARPA), is out and Regina Dugan is in. (See “DARPA’s new chief pilot changes course,” Pro Pilot, Jul 2010, p 10.)

Again, there are implications for the future of flight. New technologies have continued to appear. Some promise greater efficiencies in flight, while others may provide cheaper, more effective alternatives to business travel.

These developments inevitably will affect corporate aviation. Defense Secretary Robert Gates has even selected US Marine Corps (USMC) Gen James Amos to become the next USMC commandant. This is a break from historical practice, for Amos is the first career aviator ever nominated for the post.

If this will affect corporate flying, the implications are not obvious. Yet it seems at least a sign that the significance of aviation is being recognized in even the most tradition-minded quarters. And, of course, crude oil has been flooding into the Gulf of Mexico for weeks. What this means for the future price of aircraft fuel, and for attempts to find a substitute for petroleum, is—well, it’s not anyone’s guess. It’s ours. And it’s below.

Money troubles

Oil spreading northeast from the leaking Deepwater Horizon well in the Gulf of Mexico could inhibit ocean-floor drilling for years to come. This could leave the US dependent on foreign oil for its energy supply and raise the cost of aviation fuel.

When we looked at the world economy in May, we concluded that the worst of the global recession had passed and the renewed growth would put air under the wings of corporate aviation. Since then, the evidence has been mixed.

Greek government debt of about 300 billion euros ($400 billion), with much of it due to be paid last May, triggered fears of a meltdown that could have spread to other euro zone economies. These concerns helped trigger a 15% decline in global stock prices over just 6 weeks beginning in mid-April.

After much negotiation, the European Union (EU) and the Intl Monetary Fund agreed to give Greece 110 billion euros ($146.2 billion) over 3 years, but only if the country cut public spending and raised taxes. However, this kind of austerity program almost surely means even slower growth in the Greek economy, making it still harder for the country to repay its debt.

And that’s the good option. Strong opposition to the plan from labor unions and the general public still makes it uncertain that the debt reduction scheme will ever take effect. This instability has been hard on European economic prospects, as fear that the credit crisis could spread to other countries has widened credit spreads and raised intrabank lending costs.

Nonetheless, the Conference Board’s leading economic index (LEI) for the euro area climbed steadily from Oct 2009 until hitting an April high that brought it nearly back to its pre-recession peak, before dipping slightly in May. This is a solid forecast of better times ahead.

Elsewhere, the news is generally optimistic. The World Bank estimates that global trade volume will grow by 11.2% this year, 6.8% in 2011 and 7.2% in 2012. World GDP growth, the bank says, will grow by 3.3–3.5% per year over the period.

Predictably, China, Japan and India will lead the way, with GDP growth of 9.5%, 8.2% and 7.4%, respectively, in 2010. In contrast, the Organization for Economic Cooper­ation and Development (OECD) is almost giddy, with 2010 growth estimates of 11.1% for China and 4.0% for the world. It expects global trade to grow by 10.6% in 2010 and 8.4% in 2011.

For the US, the World Bank predicts growth of 3.3% in 2010 and around 3.0% in later years, roughly in line with US forecasts. And most indicators suggest the US economic recovery already is well under way.

Sales of existing homes were up 7.6% in April, to an annualized pace of 5.77 million homes per year, while new home sales bounded no less than 14.8% to 504,000 for the month. The Conference Board’s LEI has gone without a down month since Mar 2009. Its May high of 109.7 is a solid forecast of new growth ahead.


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