Completions and Refurbishment

 - June 30, 2009, 8:03 AM

What a difference a year makes. At this time last year, completion and refurbishment centers remained busy, despite ominous signs. The new aircraft backlog was valued at a record $58 billion and airplanes were being sold well into 2012, some as far out as 2015.

Indianapolis Jet Center, an independent completion and refurbishment facility, delivered nine Challengers in March 2008, and in May the shop was crowded with
a Boeing 737, a CRJ200 in for conversion to executive configuration and two Challengers in for interior refurbishment.

A year later, Indianapolis Jet Center is Comlux Completions USA and business is off as much as 30 percent. According to executive v-p Randy Keeker, while interest seems to have picked up slightly in the last month, “There just aren’t the airplanes trading hands to provide the business that traditionally comes to us from brokers.”

Capital Aviation in Bethany, Okla., was about to break ground on a 10,000-sq-ft hangar and implement a second shift and was getting interior project inquiries for work six months out. People were snapping up premium airplanes for premium dollars, said v-p of sales and marketing Larry Price, “and they’re bringing them here.” The company was also fielding inquiries from European, Russian and Latin American customers, some of whom were interested in bringing a used airplane to the U.S. for refurbishment to take advantage of the favorable exchange rate.

A year later, work on the new hangar has been put on hold and the eager buyers for premium airplanes have disappeared. “I’ve never seen so many wealthy people so confused about what to do with their money,” said Price. And while the Latin American business, from Mexico and Brazil in particular, has remained steady, the Russian business fell off a cliff as early as October last year. European business followed a couple of months later.

Duncan Aviation last May had “a lot of big ambitious [refurbishment] projects looking for slots,” said completion sales representative Brian Husa. He noted also that the company was “seriously” considering a West Coast location, “probably in the 2010/2011 time frame.”

Now, says Husa, things have taken “just about a 180-degree turn.” With regard to the expansion, the company had identified the location as Provo, Utah, but “things have been scaled back.” Duncan had planned to build from the ground up but has since decided to lease facilities and begin with a staff of 15 to 20, opening next year and doing airframe and avionics support. Eventually the facility is expected to reach the size of Duncan’s Battle Creek center and will provide “tip-to-tail” services, including major cabin refurbishment. But the speed with which Duncan West ramps up hinges on the economy and market demand, a spokeswoman said.

Jerry King, owner and president of King Aerospace, is glad his company is also invested in missile testing and information gathering, “a blessing that helps us weather the corporate aviation storm.”

King said business in the completion and refurbishment side is off about 60 percent. However, there have been no layoffs at the company’s Ardmore, Okla. center. “We have a good core group and hopefully we can land more contracts and add to it. We want to be here when business picks up again, no matter how long it takes.”

Judging by NetJets Europe’s recent decision to cut scheduled aircraft deliveries by about 60 percent, the recession has had considerable impact outside the U.S. as well. While the fractional provider has chosen to defer deliveries rather than cancel the orders, NetJets Europe nevertheless expects to take delivery of 10 aircraft this year, rather than the 27 originally anticipated, according to COO Graeme Weston.

The latest Eurocontrol statistics show an 8-percent year-over-year decline in European air traffic for the first quarter of 2009. According to Alex Hendriks, Eurocontrol network design deputy, the data indicated that business aviation “has declined by almost 20 percent compared with a year ago [and] traffic recovery is now expected only in spring 2010.”

The bad news stretches farther east, with the Russian market practically drying up. In the past year, Boeing Business Jets has received cancellations for five executive widebody variants–two 747-8s and three 787-8s. Three of them were cancelled by Russian customers.

Not All the News Is Bad, But It’s Bad Enough
The General Aviation Manufacturers Association (GAMA) results for the first quarter were sobering. Business jet deliveries dipped from 297 in the first quarter of last year to 191 in the same period this year, and billings were $4.34 billion, nearly a billion dollars less than for the same period last year.

GAMA president and CEO Pete Bunce described times as “extremely difficult.”
GAMA estimates that the industry has lost more than 15,000 high-paying jobs in just the first quarter of the year. Analysts estimate, however, that industry-wide the number of layoffs and furloughs is closer to 25,000. At the OEMs, job losses have affected almost every area, but in particular production and, by association, green completion work.

Among the independent completion and refurbishment centers, where business is down by anywhere from 25 to 70 percent, things are no better.

Nordam, a major supplier of aircraft interior components such as composite cabin shells and cabinetry, recently laid off 411 people in Tulsa and Wichita, about 23 percent of its total U.S. workforce.

Phazar, a Fort Worth, Texas-based center at Meacham International Airport, was reconfiguring an MD-87 to executive use when customer design changes brought the project to a stop. The result was a temporary halt in operations and layoffs pending finalization of a new design. “At that point, we’ll recall everyone and start up again,” said director of operations Kurt Cessac.

A small interior shop with just five people went to a four-day work week, then to a three-day work week and, according to a client, “When they finish the job they’re working on now, they’ll go to a six-week shutdown.”

In fact, reports say many of the independent centers are now submitting bids priced merely to keep the doors open and retain their skilled worker core. It has become a buyer’s market in less than a year, said one source. According to another, the market is no longer merely competitive; “It’s gotten downright stupid competitive, [and] desperate people will do desperate things.” King Aerospace’s Jerry King echoes that sentiment, noting that some centers are pricing job bids on no more than what will cover costs and employee salaries. But he warned, “When shops get that hungry, you have to be careful of the quality coming out.”

The smaller independents seem to be the refurbishment centers most affected by the economic downturn. John Berizzi, business development manager for South Florida Jet Center in Fort Lauderdale, said much of the current activity came courtesy of the company’s charter division, primarily Learjets and Challengers. But refurbishment business is down more than 30 percent. The company downsized about eight months ago, something anticipated much earlier. “Our idea is to go about our work and quietly plan how best to hit the ground running when the economy turns around.”

George Kalogridis, president and founder of carpeting specialist Kalogridis International, estimates that business this year is down 20 to 25 percent compared with the same period last year, “and that’s a conservative estimate.” He added, “I know of one instance where an OEM cut its order by half.”

According to those in the completion and refurbishment industry, their vendors and suppliers are also being beaten down by the economy. One veneers specialist reported a drop in orders from both refurbishment centers and OEMs. If there is a single word to describe what’s going on, he said, “it would be confusion.”

He reported sales up in January, but down overall for the first three months
of the year, and down “significantly” in April. “Compared with this time last year, we are actually ahead in total sales, but I expect May and June are going to be down. We usually know what’s coming, and what’s coming now is less.”

Capital Aviation’s Price agrees. “I am truly amazed how much our industry has come to resemble the used-car industry. The guys with cash are shopping for the distress sales and the others are trying to improve credit ratings to borrow enough to buy an airplane.”

At the same time, he added, “since last November, refurbishment for dealers and brokers is not much more than an N-number change. And what used to be considered an asset is now an expense.”

A leather supplier reported business down about 25 percent from this time last year and recalled one job that was cancelled after shipment. “The airplanes get cancelled and suppliers feel it all the way down the line,” he said.

Richard Gaona, president and CEO of Comlux Aviation Group, is the realist. He has been in the business for more than 30 years and has seen multiple ups and downs. “We are in business for the long term, and that includes peaks and valleys. I remember what happened after 9/11. I never worked so hard, chasing every opportunity. This is the same.”

What’s the Good News?
So is there good news? Yes, if activity at the European Business Aviation Convention & Exhibition held in Geneva in May is any barometer. At 10,917, attendance was the third highest in the show’s nine-year history and surpassed the nervous forecasts of those who worried that EBACE would suffer from the recession.

More good news comes from the Middle East, where airshows are in growth mode. According to Dubai show organizer Fairs & Exhibitions in the United Arab Emirates, more than 100 business aviation firms have signed on as exhibitors for the 11th biennial event, to be held November 15 to 19. The organizers expect to sell more exhibit space than in 2007, prompting construction of an additional exhibit hall.
Fairs & Exhibitions, organizer of the biennial Middle East Business Aviation (MEBA) show, to be held December 7 to 9 next year in Dubai, said it has already attracted a record number of business aviation manufacturers and suppliers.

Elsewhere in the Middle East, organizers of the Bahrain International Air Show have been courting business aviation exhibitors and expect to have a maximum of 40 participating companies sign up. Among the companies committed to the event, to be held from January 21 to 23 next year, are Bell Helicopter, Cessna Aircraft, Gulfstream Aerospace and Tag Aeronautics.

Completion and Refurbishment Exhibitors Satisfied with EBACE
Carpet specialist Kalogridis noted a “slight” drop in numbers at EBACE, but he also pointed out that virtually everyone who visited the exhibit was a serious potential customer looking for information and quotes.

Other exhibitors at EBACE had similar experiences. Christine Hadley, manager of sales and marketing at Greenpoint Technologies, remarked that those visiting the exhibit were “on a mission,” rather than simply passing the time. “We had some great meetings [and] saw as many customers as we do at any show.”
Jeff Zacharius, president of Savannah Air Center, said business at the Savannah, Ga.-based center is “not off at all.”

Most of their work remains green aircraft under contract with Bombardier– Global 5000s, Global XRSs and Challenger 850s. “Our hangars are absolutely filled with these things,” said Zacharius. “We’ve got 10 to 15 airplanes in here at any one time and we’re full.”

Most of Savannah Air’s quotes, he said, are for European, Asian, Russian and Australian clients. Meanwhile, he attributes the crowded green completion schedule to a major aircraft backlog, some of which were spec’d out nearly two years ago.

Midcoast Aviation in East Cahokia, Ill. is also busy, much of it completion work on green Bombardier Challenger 605s and 850s, Global 5000s and Global Express XRSs. The company has delivered nearly 40 Bombardier green completions in the past 12 months.

Comlux Aviation is an aviation services provider in Zurich and major shareholder with Airbus in the reopened Airbus Corporate Jet Centre completion and refurbish- ment facility in Toulouse, France. President and CEO Richard Gaona said the company sold two Airbus aircraft for executive configuration, helped arrange financing, did the interior design work through its Comlux Creatives division, found completion slots at Airbus Corporate Jet Centre, is managing the outfitting process, will see both projects through to delivery and will manage at least one of the aircraft through its charter arm.

Being able to offer such a comprehensive array of services is to the benefit of the Comlux partnership with Airbus Corporate Jet Centre. One A320 is already in outfitting at the Toulouse facility.

As the parent company of Comlux USA in Indianapolis, Comlux Aviation is now focused on promoting that center’s Challenger and Global completion capabilities.
At Duncan, hit earlier this year by major layoffs, Husa said things are changing, starting with “folks coming to the table who had buried their money in the back yard and have decided that aircraft prices aren’t going to drop any lower.”

In the past 60 days or so, the refurbishment schedule has been filling up again, he said.

Also on the positive side is AMAC Aerospace of Basel, where the completion and refurbishment center is now operating out of its new, 45,000-sq-ft hangar. Already undergoing completion is an Airbus A320 for a Middle East government. Completion of the project is scheduled for November, at which time an A319 for another Middle East customer is due to arrive. Negotiations are under way with a third customer from that region for an airliner reconfiguration.

Construction of an additional, 90,500-sq-ft hangar is to begin this summer. The new facility will be capable of accommodating an Airbus A380 and a Boeing 747 simultaneously. Altogether, the construction rep- resents a $45 million investment.
AMAC has obtained EASA Part 145 approval, and expects to receive FAA Part 145 certification next year.

Some vendors are having a decidedly different experience with the economy. Lou Martin of Lou Martin & Associates is having a relatively good year. “I’m up to 32 people and could use a couple more,” said Martin in May. “I’ve established a good rapport with the market and I’m building [cabin] shells and window shades for a good number of clients, including shells and shades for some CRJ conversion programs.”

Martin said it seems that the vendors who have been hit the hardest are those who deal primarily with the OEMs, “because the OEMs have cut back the most.”

An encouraging story coming out of EBACE was news that Avions de Transport Régional (ATR) has launched an executive version of the ATR 42 and larger ATR 72 turboprop regional airliners.

According to the Franco-Italian firm, there are already six ATR reconfigurations; one executive and five in a quick-change conversion guise to allow a swap from airline-passenger to business-aircraft layout. A combination of customer feedback and economic motivation on the part of the market was sufficient to encourage launch of the formal program.

ATR is currently expanding its supplier base to do the interior reconfiguration work. With sufficient demand, the company might later approve certain independent completion and refurbish- ment centers to do outfitting.

That decision should come as no surprise. Reconfigured regional jets have become increasingly popular in the past year as acquisition and operational costs have assumed larger importance.

Regional Jet Executive Conversions Remain Strong

Nearly a dozen independent completion and refurbishment centers are doing regional jet reconfigurations on behalf of brokers, about half of which are also brokering their own versions, and another half-dozen brokers are specializing in acquisition of regional jets on behalf of clients and management of the completion process.

The most popular aircraft types for this makeover are the Canadair CRJ200, Dornier’s 328Jet and the BAE 146 and Avro RJ from BAE Aerospace. The relatively low cost is one of the most attractive aspects of such fully reconfigured and outfitted aircraft, ranging from about $8 million to $12 million for the BAE 146 and Avro RJ and Dornier 328Jet, to $14 million to $19 million for an executive version of
the CRJ200.

In the past year, completion firms have delivered more than 20 regional redos. Another nine are in shops undergoing the reconfiguration process, and at least another dozen are under contract. They have gone to customers in Asia, Europe, Russia and the U.S.

According to BAE Aerospace, about 25 “Avro BJs” (converted Avro RJs and BAe 146s) are already in service around the world. Since the company started pushing hard into the market with the Avro RJ, five have been delivered, and others with access to the aircraft inventory have sold four, including one by AvMax of Calgary, Canada.

Another industry segment that continues to defy the global economic meltdown is that of bizliner completion and refurbishment.

Associated Air Center, BaySys Technologies, Gore Design Completions, Greenpoint Technologies, Jet Aviation and Lufthansa Technik all specialize in bizliner completion and refurbishment, and all report they are at or near capacity, with backlogs into 2012.

“We had jobs that were pending six months ago and they’re still pending,” said Bill Hubbard of BaySys Technologies. Currently in the shop is an A340, due out in late summer, and a Boeing 777 is to arrive by year-end. Under construction is a new hangar, scheduled for completion by this time next year.

According to Greenpoint’s Hadley, the Boeing single-aisle interiors specialist has deliveries scheduled through 2012, and while there is slot availability, “it’s limited.”
While busy, it isn’t unusual for bizav outfitters to have gaps of as much as three or four months between major projects, and they are careful not to over-schedule. “We’re not going to take on more than we can handle,” said Hadley.

At Gore Design Completions, president and co-owner Kathy Gore-Waters said things were “a little quiet, with people holding back to see just how bad things would get.” But she added, “In the last month, we’re starting to see more activity in both narrow- and widebody bids, especially widebodies.”

She said Gore Design recently delivered an A340 and a Boeing Business Jet and has another A340 in the hangar. “We’re pretty much fully booked,” she said. “And if some of our negotiations come to fruition, we’ll go ahead with construction of our new [100,000-sq-ft] hangar.”

Based on reports from the major manufacturers of aircraft in the narrow- and widebody categories–that would be Airbus and Boeing–business in that area of completion and refurbishment will continue to be busy for some time to come.

At EBACE, Airbus v-p of executive and business aircraft François Chazelle offered up for consideration a healthy backlog of 40 aircraft.

While the total number of orders in 2008 was for 25 aircraft, less by 11 than in 2007, orders in 2007 represented the best year ever for Airbus Corporate Jet-liners. And thanks to orders in 2008 for 10 widebodies, the total value was $3.6 billion, only slightly less than the value of orders in 2007.

Chazelle said the company is on track to deliver 12 corporate jets this year, two more than last year. Also, long-term good news for completion and refurbishment centers are Airbus orders for eight executive variants of the new A350, which is on schedule for certification in 2013.

In his first press conference following the inauguration, President Obama said, “If we get things right, then starting next year we can start seeing some significant improvement.” Though open to dispute for now, it may be that they have gotten it right.

Economists and business analysts appear to agree that there are signs of an improving economy–a strengthening stock market, a stabilization of prices, a slowing rate of unemployment and, perhaps most important, slowly growing consumer confidence.

Business correspondent and blogger Rick Newman put it succinctly when he wrote recently, “The first sign of an improvement will be…a corporate silence.” By that, he meant a drop in news of closings, cutbacks, layoffs and other portents of disaster.
Rodger Renaud of Midcoast voiced virtually the same opinion, saying, “I guess the good news will be when there’s no news.”

“It will be June or July before we get a real clear picture,” said the CEO of one of business aviation’s major vendors. “A lot of it hinges on financing.”

At EBACE in May, Toennies von Limburg, director of international sales with Bank of America Corporate Aircraft Finance, noted, “The market dynamics have turned in a very short time from a strong sellers’ market to a strong buyers’ market.

“Now is a good time to invest in corporate aircraft,” he explained, pointing out that “the costs of the aircraft and the cost of financing the aircraft have significantly improved when compared to the situation two years ago.”

Bank of America, he said, continues to offer a full product range, including pre-delivery financing, loan financing, tax leases, operating leases and residual value guarantees. The bank is also offering sale-leaseback and refinancing to monetize existing aircraft more effectively.

Dassault Aviation chairman Charles Edelstenne, speaking at EBACE, also offered a relatively bright forecast, saying, “We are starting to see some sign of change.” One of those signs is that the pre-owned market is stabilizing in terms of aircraft sales and prices.

Renaud told AIN, “I think we’ve hit bottom. When people realize they have to get back to doing business, they’re going to get back in their airplanes to do that business.”

He opined that business aviation will lag at the back end of the improving economy, just as it lagged going into the downturn. “It was six or eight months before we felt the downturn, and the recovery will be no different.”

The most recent forecast by the Fairfax, Va.-based Teal Group suggests that a recovery is not likely to begin before late next year. “It will take some time to reduce record inventories of available jets,” said v-p of analysis Richard Aboulafia. “This means new business jet deliveries won’t start to recover until 2012. The trough year of our forecast–2011–will see business jet deliveries reduced by 40 percent relative to 2008. Our forecast then calls for a five-year recovery period with 10-percent growth per year starting in 2012.”

Asked when we would know when the economy is truly on the road to recovery, Zacharius of Savannah Air replied, “When they start asking me to do more airplanes than I have room for.”

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