The FAA’s Annual Aerospace Forecast always tries to paint the most optimistic picture of the industry that the agency’s statistics will support, and this year proved to be no exception. On the airline side of the house, the agency said that the number of passengers will return to pre-2001 levels this year.
For general aviation, which has suffered a slowdown in the demand for business jets over the past several years, the FAA said the business/corporate side of GA should continue to benefit from a growing market for new microjets.
Using figures supplied by the General Aviation Manufacturers Association, the FAA said that general aviation aircraft shipments during calendar year 2004 represent an increase of 10.2 percent over the same period in 2003 essentially ending three consecutive years of decline.
But in addition to escalating fuel prices, general aviation faces some other uncertainties. Three of the principal speakers at the FAA’s annual two-day forecast conference in Washington, D.C., last month made references to the need for a new funding method for the FAA.
FAA Administrator Marion Blakey said her agency needs “a revenue stream based both on our costs and on our actual units of production.” She explained that more regional jets spell less revenue for the Aviation Trust Fund from each flight and a greater workload for the FAA. The expansion of low-cost carriers and decreasing ticket prices compounds the problem further.
Blakey said she is “not at this point advocating user fees,” although AOPA noted that seemed to be a bit of a retreat from what she told attendees at its convention in October, when she said, “The FAA doesn’t support a fee-based system. I don’t know how to be any clearer than that.”
Later, Transportation Secretary Norman Mineta said that the Airport and Airway Trust Fund is being rapidly depleted because airline passengers are paying less in ticket taxes. The aviation trust fund now pays for most of the cost of the FAA’s operations.
Mineta warned that the nation will need sustained multiyear investments to support the activities of the FAA. “I am issuing the call to start discussing today the aviation system of tomorrow,” he said.
Sen. Ted Stevens (R-Alaska) added that it will cost tens of billions of dollars to upgrade the entire ATC system, and this is far more than any FAA budget could hope to provide in any one year. Further, the imminent arrival of small four-, six- and nine-passenger jets will enlarge the private jet fleet to a degree that is unheard of, the chairman of the Senate commerce, science and transportation committee told attendees.
Emphasizing that the very light jets are going to demand service from an ATC system that is already so burdened it cannot really stand much more of an increase, Stevens said that capital financing has been suggested as a way to kick-start the modernization process.
“Someone–the FAA or another entity created by Congress for the purpose under this plan– would issue bonds to raise the cash needed to purchase major equipment upgrades now and the bonds would be secured by future cash flow, such as a ticket tax or another revenue stream on an agreed basis that could not be changed,” he said.
As to the annual forecast– which covers 2005 through 2016– the FAA once again expressed cautious optimism that its current outlook for aviation demand and activity can be achieved. However, even though tighter security measures have restored the public’s confidence in the integrity of aviation security systems, terrorism remains the greatest risk to achieving the forecast projections.
The agency acknowledged that because of aviation’s high visibility and global reach, it is likely to continue to be a target for international terrorism. “Any terrorist incident aimed at aviation would have an immediate and significant effect on the demand for aviation services,” the forecast stated.
And FAA forecasters made particular note that some of the adverse effects from the events of 9/11, such as the restriction of general aviation aircraft at Ronald Reagan Washington National Airport, continue to hinder the general aviation segment of the industry.
Oil Prices Are Wild Card
In addition to terrorist concerns, the forecast is driven at least in the short term by the weakened financial health of the commercial aviation industry, which is “inextricably tied to what appears to be a permanent shift to considerably higher jet fuel prices.”
Economists and economic forecasting services no longer predict–as many did last year– that oil prices will decline to the $20 to $25 per barrel range. According to the FAA forecast, last year oil prices peaked at $55 a barrel in October and then fell to $41 a barrel in December. But in January prices rose to $48 a barrel and on the day of the conference they were $56 a barrel.
“Most economic projections now assume that oil prices will remain in the $35 to $45 per barrel range over the next several years, with $35 per barrel being touted as the new floor for future oil prices,” the FAA forecasters said. They added that if oil prices had stayed at $35 a barrel (as forecast) last year, most carriers, including several legacy carriers, would have been profitable.
The Market for Business Jets
Despite a slowdown in the demand for business jets over the past several years, the current forecast assumes that business use of general aviation aircraft will expand at a more rapid pace than that for personal/sport use. It said that the business/corporate side of general aviation should continue to benefit from a growing market for new microjets.
“In addition, corporate safety/security concerns for its corporate staff, combined with increased processing times at some U.S. airports, have made fractional, corporate and on-demand charter flights viable alternatives to travel on commercial flights,” the report continued. “The extension of the bonus depreciation provision to December 31 should also help stimulate business jet sales.”
The active general aviation fleet is projected to increase at an average annual rate of 1.1 percent (0.5 percent excluding the new light sport aircraft) over the 12-year forecast period, growing from an estimated 211,295 last year to 240,070 aircraft in 2016.
The more expensive and sophisticated turbine-powered fleet (including rotorcraft) is projected to grow at an average annual rate of 3.2 percent over the 12-year forecast period. However, the jet fleet, projected to increase from 8,425 last year to 15,900 in 2016, an annual average increase of 5.4 percent, is responsible for most of this growth. This year’s forecast assumes that microjets will begin to enter the active fleet in 2006 (100 aircraft) and grow by between 400 to 500 aircraft a year thereafter, reaching a total of 4,500 aircraft by 2016.
The number of general aviation hours flown is projected to increase by 1.6 percent (1.4 percent excluding the new light sport aircraft) annually during the forecast period. Much of this increase reflects increased flying by business and corporate aircraft as well as increased utilization rates on most general aviation aircraft.
Hours flown by turbine aircraft (including rotorcraft) are forecast to increase 4.1 percent yearly during the forecast period, compared with only 0.3 percent for piston-powered aircraft. Jet aircraft are expected to account for the majority of the increase, expanding at an average annual rate of 6.7 percent over the 12 years.
The FAA said the large increases in jet hours are due to expected increases in the fractional ownership fleet and its activity levels. Fractional ownership aircraft average approximately 1,200 hours annually, compared with 360 hours for all business jets. In addition, the introduction of the new microjets will increase the number of flights and hours flown by on-demand air taxis.
Helicopter Sales Soar
Preliminary data for calendar year 2004 reported by the Aerospace Industries Association indicates that shipments of new U.S. civil helicopters will total 781 units, a 51.1-percent increase over the 517 units shipped in 2003 and by far the highest number of shipments since 1991.
Meanwhile, the value of helicopter shipments totaled $509 million last year, an increase of 39.1 percent from billings of $366 million in 2003. Last year the average value per helicopter shipped was $651,729, compared with a seven-year high of $707,930 in 2003 and a low of $413,158 in 2002.
The FAA attributed the increase in the number of shipments primarily to the Robinson R44 and the increase in value to the Sikorsky S-76.
Meanwhile, the rotorcraft industry faces a number of issues that include availability of infrastructure, improved safety image, price-to-performance ratio, the maturing of the offshore oil and air medical markets and environmental impact.
“Expanding infrastructure faces both public and local government resistance because of safety and environment concerns,” the forecast report said. “Security restrictions imposed on general aviation and rotorcraft, in particular, have had an impact on the use of helicopters for news gathering and traffic reporting.”
And while helicopters are seen as one option for transporting passengers or cargo from airports into the city or urban sites, operators often find themselves unable to convince communities that a heliport can be a good neighbor.
The FAA said the U.S. and world economic growth appears stable and positive at this time, and the recessionary period of the early years of the decade appears to be over. Although the agency acknowledges that “important economic and terrorist-related events remain” potential risks, the number of airline passengers is expected to top one billion by 2015. Last year, 688.5 million people flew on U.S. airlines.
Brisk Regional Growth
Despite economic difficulties facing many of the nation’s major airlines, the strength of regional airlines and international travel play a large role in keeping demand for aviation services on a continued path for growth, according to the report.
The regional/commuter airlines are projected to experience the greatest increase in passenger volume among airlines, up 15.4 percent from last year. The FAA defines regionals/commuters as airlines that generally operate aircraft of 70 or fewer seats, with a main mission to link passengers to a larger affiliate or code-share airline. The regional fleet is expected to undergo the largest increase, from 1,630 aircraft last year to 2,960 by 2016.
Last year, total landings and takeoffs at combined FAA and contract towers increased 0.5 percent, the first increase in activity since 2000. Of the users in the aviation community, commuters/ air taxis increased their operations by 7 percent and 0.8 percent, respectively. General aviation and military flights each declined in activity last year. Commercial aircraft operations are now at 1999 levels, while non-commercial operations are where they stood in 1996.