NBAA Convention News

Recovery has moved to the right a 'few quarters'

 - June 30, 2008, 8:24 AM

Peter Edwards, president of Bombardier Business Aircraft, joined the company in 1995 as vice president of marketing and international sales. In 2000, he was named executive vice president of sales and was appointed president in November of last year.

He entered the aerospace industry in 1979 at Volpar, as manager for aircraft modification programs for export. From 1981 to 1986, he held several key positions at AlliedSignal’s AiResearch, and in 1986, when AiResearch merged with Gulfstream Aerospace, he became responsible for sales in Europe and Africa. In 1994, he was named vice president of sales and marketing for the Gulfstream V.

A graduate of the University of Southern California, he holds bachelor’s degrees in international relations and business administration. He has also studied in France, Tunisia and Egypt.

How do you see the business aircraft market developing in the near future?

This is certainly a very difficult environment to forecast accurately, but we’re taking a fairly cautious view of the back half of the year. We were guardedly optimistic in the first quarter, but we’ve taken a much more conservative view coming out of the second quarter. Activity levels in the first quarter–by that I mean proposals, demonstrations, customer inquiries and normal bread-and-butter activities for an OEM– were up sharply. There was every indication that we were coming out of the recession. But after a positive first quarter, the key indicators of business aircraft demand fell off sharply in the second quarter.

It now appears that the recovery has moved to the right by a few quarters. Overall industry demand, which fell off sharply last year, is going to continue to be relatively flat, and we won’t see an increase in business aircraft order levels until we get into next year’s marketplace. By comparison, from 1998 to 2000, the new order average was between 700 and 800 units, which was a historic high. Last year it was well below 400 units industrywide, and this year, by my assessment, it will be essentially flat. But in the five-year average going forward, we’ll see some of that return. We can expect to see something in the range of 600 aircraft order levels over the next five years. I think we’ll climb out of it next year and then resume a normal path.

What has happened coming out of the very robust period over the past number of years is that industry production levels had risen. For the first time last year, the relationship between the order levels and production levels inverted. The industry began working off its accumulated backlogs. That has led to a deceleration of production levels pretty much across the board. And we’ve done the same, as we try to align our business to what we perceive the market to be.

Are the changes in the airline market having positive or negative effects on business aviation?

There’s clearly a lot of distress in the airline industry today. Capacity is being reduced and service levels are falling. The airport and airline experience, even for first- and business-class passengers, is less enjoyable. Therefore, people who can have sought alternatives, which has been good for the charter business and the fractional business. When you look at core demand in our traditional markets, however, the effect is less pronounced. Our core market comprises flight departments that have established travel needs and these are not affected as much by reduced service by the airlines. In addition, current economic conditions have the effect of pushing demand for new aircraft by flight departments to the right. So the net effect has been negative.

Is Bombardier interested in acquiring other aircraft manufacturers or their product lines?

Our strategy for some period of time has been organic growth. We’ve invested heavily in new platforms. Now we’re enjoying the opportunity to evolve derivative products from those platforms to expand our product lines. That’s much more cost effective, and organizationally, a much more seamless way to fill in gaps in our product line. A perfect example is the Global 5000, derived from the Global Express. The same holds true for the Lear 40, which was derived from the Lear 45. So we don’t see the need now to go out through acquisition to enhance the product line.

Despite the current conditions, we’re very bullish on the business aviation industry. Look at what we’re bringing to the market next year alone: deliveries of the first Challenger 300 [nee Continental], Global 5000 and Lear 40. We’ve not slowed down. I think next year will be one of our busiest ever as we bring products to the market.

Is Bombardier considering longer range for the Global Express?

Certainly the Global Express will continue to evolve. It’s a young platform and we’re continuing to look at other opportunities. We’ve made our first move off the Global with the 5000. We have had discussions with customers about range enhancements, but we don’t see a driving need right now for greater range, because the current range is meeting the needs of most operators. The average stage length is actually less than 3,000 nautical miles. There are also challenges in extending the range farther from the perspective of passenger comfort and crew fatigue. And when we look at the primary set of city pairs, there’s not a lot more to add. So, although we continue to look at it, we seem to be meeting most operators needs for range already.

Does Bombardier have any interest in a supersonic business jet?

We’ve looked at it from time to time over the years and we’ve observed that it would be very difficult to make a business case around a supersonic business aircraft. First of all, development costs would be very high. There are questions of materials and propulsion that need to be resolved, as well as flying it at altitudes that skirt the ozone layer and flying it over populated land masses at supersonic speeds. There are also regulatory challenges. At the end of the day you need to deliver a reliable product that meets its mission at a price point that’s acceptable to the marketplace. I think the price point of a supersonic business jet would be very high, the market very narrow and the risks extraordinarily high. So while I think it is interesting and technically could be done, we’ve not been encouraged by the business opportunity.

Is Bombardier interested in the very light jets?

I’m asked this question a lot. Our business model is built around professionally flown, high-performance aircraft. The entry-level jet segment represents a regime of cost and operational parameters that simply do not fit inside our model. We have a rigorous design and development process that would make it difficult for us to build an airplane in the class profitably, if we were to maintain the same level of quality. Also the owner-flown buyer for the very light airplane is not usually the kind of buyer who would typically make the big step to even our least expensive Learjet. Learjets 31A and 40 currently defines where we think the entry level is for Bombardier.

What current or proposed security regulations are you most concerned about?

There’s a TSA [Transportation Safety Administration] ruling that charter operations in airplanes weighing 95,000 pounds or more be subject to the same airport security requirements that the airlines must adhere to. There was also a suggestion that the rule should apply to all aircraft down to 12,500 pounds as well, which would have effectively eliminated thousands of general aviation airports from being accessible to charter aircraft. It appears now that the restrictions will not be brought down to the 12,500-pound level. And we also have seen some positive indications that the 95,000-pound rule, which would have affected the Global Express, will be waived for the Global, but we have to wait for the final version of the rule to come through.

The lack of access by business aircraft to Ronald Reagan Washington National, as well as the inconvenience, has great symbolic weight. The industry continues to lobby energetically to gain access again. We’re trying to engage an open dialogue with members of TSA and others in Washington. We’ve taken pains to differentiate between the known passengers on business aircraft and the unknown passengers on airline flights.

What do you think would be reasonable security rules for charter operations?

The charter community is not flying a lot of anonymous customers around. We appreciate the conservatism and the caution at the front end of the dialogue, but we think over the course of time we’ll have a chance to talk through the issues and come to reasonable solutions for general aviation.

At a minimum, charter operators must do reasonable due diligence of who their client is and who the passengers are. No walk-ons should be allowed. If someone comes along whom you haven’t flown previously, you ask a few extra questions. In doing the normal things, such as determining the billing procedure, you establish a relationship. I think that would take care of all the appropriate circumstances. And that’s been the norm in charter operations for a long time.

Where do you see Bombardier in the next five years?

It’s important, as you’re coming out of a difficult market, to look beyond the peaks and downturns and take a five- to 10-year view of the market. You need to understand what the drivers are in each segment and strive to have the best possible product for each segment at the right time. There’s a strong bias toward new technology, and the markets therefore tend to favor a fresh product line. I think we’re well positioned through the recovery as the industry returns to growth over the next few years.