Industry sees signs of slow recovery

 - February 17, 2010, 6:33 AM

There have been signs lately that the business aviation industry is experiencing a recovery. However, there have also been signs that a true recovery might fall more in the category of wishful thinking.

Early last month business aviation was buoyed by news that the Fiscal Year 2011 federal budget proposal did not include user fees that would have been a most unwelcome burden as the industry looks to a market turnaround. (See article on page 16.) Equally welcome was news that the bonus depreciation tax incentive, a proven buyer’s incentive, remained part of the bill.

Aviation research information specialist Amstat released some positive statistics last month. During the spring and summer of 2009, nearly 18 percent of the worldwide fleet of business jets was for sale. That figure now stands at 16.2 percent, “a promising sign,” said the Tinton Falls, N.J.-based firm. Amstat also pointed out quarterly resale retail transactions, as a percentage of the worldwide fleet, that were down to 1.5 percent for jets and 1.7 percent for turboprops in last year’s first quarter. By the fourth quarter, jet transactions represented 2.7 percent of the worldwide fleet and turboprops 2.3 percent. In fact, for jets, the last three quarters of last year marked consecutive improvement.

While last year’s last quarter was “very promising,” concluded the analysis, whether the industry sustains those gains in this year’s first quarter “will be a telling sign of how quickly we can expect to see a recovery to market conditions that we can refer to as ‘good.’”

JSfirm, an online employment agency in Fort Worth, Texas, offered its own positive take, based on a recent client survey regarding the hiring outlook for aviation companies this year.

According to JSfirm managing partner Sam Scanlon, “Eight percent of the companies surveyed expect to hire in 2010, with 72 percent of those positions being filled equally over the first three quarters.”

The survey, he continued, shows that “the greatest demand for talent will likely be in production (assembly/maintenance), and then flight crew. There will also be healthy growth in the areas of sales, engineering and management.”

Scanlon also noted that JSfirm reached an all-time high of 8.2 million hits in January. “We have experienced a 22-percent increase in job posting activity since October 2009, and our sales have doubled since this time last year.”

Conklin & de Decker also reported a swell in activity. The general aviation consultancy pointed out that a low U.S. dollar made U.S. goods more affordable for export and that flight hours are showing signs of increasing.

“Those who stopped chartering will start at low levels. Companies with aircraft will start flying as their business picks up [and we can] expect this slow growth in flight hours to continue.”

Other industry observers agreed. In its February Business Jet Monthly report, JPMorgan said, “January showed further evidence of the gradual bizjet recovery now under way for the past few months, with improving used market numbers and some positive signals from the new market as well, though we still expect new jet demand to recover only very slowly.” The report also took note of the continuing decrease in the used aircraft inventory over the last six months, and signs that prices in that segment are stabilizing.

Reports from the OEMs Mixed at Best
Among the OEMs, General Dynamics president and CEO Jay Johnson said sales climbed 9.2 percent over 2008 to nearly $32 billion, “driven entirely by our defense businesses.” On the other hand, this growth was offset in part by a 6.2-percent decline in aerospace revenue last year compared with the previous year. While orders at Gulfstream exceeded deliveries, “customer defaults declined significantly” as the backlog dipped from $22.5 billion at the end of 2008 to $19.3 billion at the end of last year. Johnson said large-cabin backlog is “durable,” pointing out that delivery slots are sold through this year, and three-quarters sold in 2011. The company expects to sell 77 large-cabin green aircraft and 14 midsize aircraft this year. Johnson noted, however, that midsize aircraft represented about 5 percent of Gulfstream sales last year and less than 5 percent of earnings.

At Cessna Aircraft, the good news was that certification of the new Citation CJ4 is close, which will subsequently bump up deliveries at the Wichita-based OEM later this year and into next. Also in the good news category is that Cessna has restarted– albeit at a “greatly reduced rate”–the Sovereign production line, which was shut down last summer. The company also delivered 14 of its white tails (aircraft built but not sold) in the fourth quarter, said Scott Donnelly, president and CEO of parent Textron.

The bad news is that production is expected to drop to 225 Citations this year, down considerably from the 289 produced in 2009 and 407 in 2008. Cessna chairman Jack Pelton noted this is nevertheless better than previously forecast.
Donnelly said Cessna’s production for this year is about 70 percent sold, and he added, “The business jet market environment remains difficult but stable. We believe we will begin to see improvement in order flow through the second half of the year.”

Blaming “the global economic crisis that began in 2008,” Bombardier Aerospace released less than glowing numbers for its Fiscal Year 2009/10 (ending January 31). Deliveries were down from 235 in 2008/9 to 176 in 2009/10, and the company expects deliveries for 2010/11 will be down 15 percent. There were 85 negative net orders in FY2009/10, compared with 251 orders in 2009/09.

In the helicopter industry, it appears military orders are compensating for drops in civil rotary-wing orders.

In Textron’s fourth-quarter and year-end report, the parent company noted that its Bell Helicopter division backlog value was up $1.3 billion, to $6.9 billion, for the fourth quarter compared with the same period in 2008. However, that increase was driven primarily by V-22 activity, according to Textron. Bell delivered 153 helicopters last year, and it expects to deliver 150 this year.

At Eurocopter, the story was similar. Deliveries remained stable, with 558 new civil and military helicopters turned over last year, almost matching the 2008 numbers. According to CEO Lutz Bertling, “The downturn in the corporate, tourism and EMS markets, which typically acquire smaller helicopters, has been countered by a stable oil and gas market due to new exploration activities, and by a strong military market.

“Our decision to focus in 2009 on governmental and services orders has proven to be right and allowed us to increase our backlog by more than one billion euros.” The company’s total order backlog at the end of last year amounted to 1,300 helicopters, valued at U15.1 billion, an increase of more than U1 billion compared with the end of 2008.

Perhaps the only unequivocal good news from among the OEMs came from Pilatus. The Swiss manufacturer reported a record-breaking year for its PC-12, with deliveries of 100 aircraft in 2009. This surpasses totals for any production year since the first PC-12 was shipped in 1994.

“Achieving 100 deliveries in a single year is a significant milestone for Pilatus and the PC-12 NG production program and reason to celebrate,” said v-p of general aviation Ignaz Gretener. “This would be true in any year, but the fact that we did it last year is simply outstanding.”