Bizliner business not yet feeling the pinch

 - March 27, 2009, 9:42 AM

Is the bizliner immune to the current economic and financial crisis, or have slumping demand and order cancellations simply not yet caught up with that segment of the industry? Some among the narrow- and wide-body manufacturers say that executive segment of the industry remains relatively healthy and take a somewhat optimistic stance. Others are less optimistic, and posit that the market has not yet begun to feel the recession and financial crisis.

According to Airbus and Boeing, the largest manufacturers of airliners for conversion to an executive role, even as the rest of the business aviation industry has gone over a cliff, narrow- and wide-body executive business jets sales have remained relatively healthy–so far.

Boeing Business Jets president Steven Hill said there have been no order cancellations or deferrals of delivery dates for its Boeing Business Jet (BBJs, BBJ2s and BBJ3s) line. The company has, however, been renegotiating advance payment terms with some buyers.

One order for an executive 787 and another for a 747-8 have been cancelled, but Hill said the economy was not a factor in either case.

Boeing Business Jets does expect to take orders for fewer airplanes this year. The company sold 14 last year and anticipates that it may sell six to 10 this year. On the other hand, said Hill, total backlog remains at about 60 aircraft. “We’re optimistic that the backlog will remain intact,” he added.

Airbus declined to discuss backlog numbers, but David Velupillai, product marketing director for executive and private aviation, did say, “At the top of the market [narrow- and wide-body bizliners] we’re perhaps not feeling the pain that manufacturers of smaller business jets are experiencing.”

The fact that the company sold 25 Airbus Corporate Jetliners (narrow- and wide-body variants) last year, down from 38 in 2007, would seem to belie that statement. But the drop in sales in 2008, he pointed out, is not so dramatic when viewed against the backdrop of a record year for Airbus and the industry as a whole in 2007. “Last year was still a very good year,” he explained.

Velupillai stopped short of expressing enthusiasm for 2009. “I don’t want to say that everything is rosy,” he said. “There is a lot of uncertainty at this point.”

According to an Embraer spokesman, the Brazilian OEM’s order book for its Lineage 1000 executive version of the E190 airliner is now at “more than 25 aircraft” and the backlog stretches into 2012, with no cancellations or deferrals as of mid-March. But he added that the company has no illusions that all is well, saying, “We foresee very conservative growth in new orders for the Lineage 1000 within the next two years.”

While the bizliner segment of the industry has perhaps been less affected by the global economic and credit crisis than the rest of the business aviation industry, there are indications that it is not altogether immune.

Boeing is staring at a growing inventory of used BBJs being offered at prices that threaten the sale of new BBJs. Hill said a year ago there might have been three or four in that inventory. “Now there are ten on that list.”

A recent listing of BBJs for sale would seem to justify Hill’s unease. A broker listing of BBJs for sale early last month showed nine BBJs for sale, one of them a 2012 delivery position (with a slot available at Lufthansa Technik for cabin outfitting) at $55 million for the green airplane. A 1999 BBJ was listed for $53.5 million, and the owner of a 1993 BBJ was asking $30 million. Boeing currently lists the airplane for $57 million (green).

Independent completion and refurbishment centers that are tasked with outfitting the cabins on the big bizjets are among those who suggest that the recession has not yet affected the market.

A year ago, two of the largest centers had aircraft waiting in the wings for an open slot. There were even credible reports of OEM sales falling through here and there when buyers discovered there wasn’t a cabin completion slot available anywhere before 2011. “Outfitting slots were a potentially limiting factor on sales,” said Velupillai. That was one of the reasons the company reopened the Airbus Corporate Jet Centre. The facility began taking on work in 2007, delivered its first completion job last year, turned over its second earlier in February and anticipates finishing two more this year.

Jet Aviation of Basel and Lufthansa Technik of Hamburg, competitors in the narrow- and wide-body completion business in Europe, are at best cautiously optimistic.

According to Heinz Aebi, senior v-p of marketing and communication for Jet Aviation, the company is looking at a backlog of firm orders that extends into 2012, with no cancellations and no delivery date deferrals.

“This industry segment seems to be more resistant to economic vagaries,” he said. At the same time, he added, orders for executive narrow- and wide-body airplanes are not coming in at the same pace as in the past three or four years.

He said the completion facility at Basel has had no layoffs to date. In fact, he pointed out, noting the frantic pace at which interior outfitting was working over the past several years, “We would first consider cutting hours to get back to a normal schedule.”

Aebi said even so, the pace of work has slowed sufficiently that it has made some room for customers who bought an airplane and had been waiting for vacant cabin completion slots.

“We’re not feeling the pain that those building and completing the smaller business jets are feeling,” said Wolfgang Reinert, director of international communications at Lufthansa Technik. “It’s a pleasant surprise for us and we can’t complain.”

While the giant Lufthansa Technik completion and refurbishment complex “had quite a successful year in 2008 [and is] still doing rather well in 2009, there are some shadows being cast,” he added.

Patrick Altuna, executive v-p of sales and marketing for The Associated Air Center, said work at the big facility at Love Field in Dallas is “pretty much nose-to-tail.”
He attributes part of that to a decision the company made some time ago to focus on the narrow-body BBJ and ACJ markets. Associated is currently at work on three BBJs and three ACJs, and according to Altuna, “We’re booked through 2009 and for much of 2010.”

Nevertheless, he said, some customers have asked for a delivery deferral, “or we would be booked well into 2011.”

Gore Design Completions in San Antonio had one of the more interesting stories to tell regarding the narrow- and wide-body business. In February, the company delivered its first aircraft of 2009, a Boeing 737-700 that was one of two on order by the same customer; but it wasn’t the original customer who accepted the finished airplane.

“He decided he didn’t want the airplane and put it up for sale halfway through the cabin completion cycle,” said a spokeswoman. But she noted that the decision was not the result of a financial reversal on the part of the buyer. “He’d decided he wanted a bigger airplane.”

The spokeswoman added that there was no problem finding a buyer, even with the airplane well into the completion process. “Part of the agreement with the new buyer was that we would find a slot for him to come back later for some interior modifications.”

She added that this was the closest Gore Design has come to cancellation or deferral of a completion project. “We have as many aircraft as we can handle at any one time, and we’re busy well into 2011.”

Boeing’s Hill has some encouraging news for the narrow- and wide-body completion industry. “In North America,” he said, “we’re seeing value-drivers coming out of the weeds–people who have wanted a BBJ and have been waiting for prices to come down.”

On the down side, he said, “demand in Russia is taking a huge time out and a lot of airplanes showing up on the used inventory are from that region.”

On the other hand, however, Boeing is seeing “strong activity” for both narrow- and wide-body products in the Middle East, and an interesting amount of new business in Asia, including China and Korea.

Despite the cancellations mentioned earlier (one 787 and one 747-8), orders for the 787 extend well into the latter part of the next decade and into 2014 for the 747-8, so any impact of the cancellations on the current situation “is minimal.”

Hill sees the economic and financing crunch easing “in the latter part of 2010, and the climb-out starting soon after.”