POSITION & HOLD
Bizav continues on a diet with big cabin aircraft selling and smaller jets slipping
By Marvin Cetron
Pres, Forecasting Intl
With the recession of 2007 over, major world economies are growing again. This is good news for business aviation. Photo shows part of static display at PDK for NBAA 2010.
Almost a year after the recession of 2008–09 officially ended in Jun 2010, the American economy is looking stronger. US GDP was up 2.8% in 4Q2010 and another 1.8% in the following 3 months.
In Feb 2011 the national unemployment rate sank below 9% for the first time since Apr 2009. It has remained under 10% since then.
Even job creation seems finally to have turned the corner, with a net gain of 192,000 new jobs created in February and 216,000 more in March. The rest of the developed world is showing signs of life as well.
So what lies ahead for business aviation? For help in finding the answers, we consulted leading executives from several segments of the industry. We found them guardedly optimistic, both short-term and long-term, yet their outlooks varied significantly in the details.
Soaring or sliding?
NBAA Pres & CEO Ed Bolen sets the tone. "Last January, our members were experiencing some buffeting," he says. "By October, there was cautious optimism. In the months since then, there is a sense that our community is beginning to go forward. 2009 was free fall. 2010 was a year of stabilization. 2011 will bring more flight activity [and] it will be a year of growth."
Bolen points out that business aviation always follows the broad economic cycles but says, "When you look at the need for efficiency, the need to turn travel time into work time, the need to visit multiple locations in the same day, I think we can expect to see business aviation expand along with the economy."
Rockwell Collins VP & General Mgr Business and Regional Systems, Commercial Systems, Greg Irmen agrees. "The economy is growing slowly," he says. "Corporate profits are coming back. [And] corporate profits lead companies investing in future products and positioning for new business." That leads to more activity in working with customers and their supply base, which requires easy access to those customers and suppliers. Therefore companies use their aircraft at a higher rate.
"There is evidence that this trend has already begun. Utilization of aircraft is up by 5% since the start of our fiscal year [Oct 1]. Beyond that, we always expected the aftermarket to lead the recovery in the business jet market place, and our aftermarket business is up. We're seeing more activity in our MRO business, and we're also seeing quite a bit more activity and are used market upgrade business, especially in the enhancement of airplane performance."
However, Irmen remains guarded. "We are still waiting to see more activity in the buying of new aircraft," he explains. "The used inventory is still really throttling the market. It's still far in excess of what it was before the downturn. It has come down over the past year, but now it has stabilized and isn't coming down any further.
"The good news is that interest is up. People were out looking and getting quotes from our customers. We've actually had some OEMs begin to ask us about our readiness and our ability to ramp up. That's a good leading indication that they see signs things will turn.
"We think the remainder of our year is pretty well set.
We're not going to see any real good news, unfortunately. I'm hoping to start seeing actual orders this spring, and [hoping] that by fall the backlogs are starting to increase. That's when the OEMs will decide that it's time to start increasing activity."
It could be a long time before business aviation returns to the glory days of the pre-recession bubble. Irmen says, "I think this upturn is going to be slow due to all the funding that governments around the world pumped into the economy. That funding was good to prevent what could have been even a deeper recession. But now it has to be repaid, and it will throttle back growth.
"Therefore, I think the business aviation will see a less than historic recovery. By 2015–16, I believe we're going to see OEM production rates approach what they were prior to the downturn."
Universal Avionics CEO Paul DeHerrera reports, "We're seeing a gradual uptick in business going into 2011. The most recent NBAA was considerably more active than in 2009, and we expect our sales pipeline to reflect incremental business as a result of this activity.
"During the down years," he adds, "most of our business originated from governmental entities. We're seeing a gradual shift back to individual corporations and OEMs, indicating that the economy is getting healthier.
"Indications are that some corporations will not spend the dollars to make outright purchases of new aircraft yet. However, we are finding an increased willingness to complete some aircraft improvements, such as the implementation of WAAS/LPV, flat panel glass, and other updates. They appear to be limiting their spending on nonluxury items or items that have business value."
Traveler undergoes patdown during standard TSA security screening at SEA
Piaggio America Pres & CEO John Bingham anticipates a slow recovery, but expects the US aircraft market to lag behind Europe. This year will most likely be similar to 2010, he says, adding, "Corporate fleets will stay about the same in 2011 and show some small growth in 2012."
Avfuel Pres & CEO Craig Sincock also expects a later recovery, starting in mid to late-2012. He says, "It's worth noting that, even in the darkest days of the downturn, quite a bit of business aviation continued. That suggests to me that our market is resilient and ready to seize an upturn."
Five years ahead, Bob Poole, director of transportation policy at the Reason Foundation, sees a number of forces that should promote business aviation. "We're unlikely to see significant rollbacks in TSA airport 'security theater,' wasting huge amount of valuable business travelers' time," he points out. "In addition, with airline load factors often exceeding 85%, the reliability of airline travel is lower than it was a decade ago. There is no sign that this will improve over the next 5 years.
"Both factors are bullish for corporate aviation and fractional services. To be sure, there has been some shake-out in the fractional sector, but business models are being tweaked and the better ones will survive and grow, because they provide a better product than available from the airlines."