Industry exhibits signs of recovery at Ebace 2010

 - May 26, 2010, 12:28 PM

Is the business aviation industry out of the bog, or is it still slogging through the mire toward higher economic ground? Judging by the European Business Aviation Convention & Exhibition (Ebace) last month (see report on page 28), a recovery is already on firmer terrain.

How much of that interest will translate into money changing hands? Many at the show were hopeful, and in a few cases the bottom line was being fed.

If it appears the business aviation industry in Europe is recovering ahead of that in the U.S., one reason might be that the industry as a whole in Europe escaped the public flogging administered by the media and politicians. According to Gil Roy, founder of the popular French Web site aerobuzz.fr, business jets largely escaped the public and media glare that burned American owners and operators. “In fact,” said Roy at Ebace, “business aviation [in Europe] barely exists in the public’s eyes.”

More Financing Options

It hasn’t hurt the industry that, after some 18 months of hiding their heads in the sand, lending institutions are now shaking off the dust and beginning to make loans available to business aircraft buyers again.

Two years ago, prospective business jet buyers, in both Europe and the U.S., were among the most sought-after clients for a banking institution attracted both to the high rates of growth in the business aviation industry and the exceptional strength of asset values, driven primarily by soaring demand and long delivery backlogs. The wheels came off this gravy train in late 2008 and are only now back on the axles.

According to Paul Fowkes, head of corporate aircraft finance at Barclays Capital, in terms of a new business aviation up-cycle, “We are still waiting for the dust to settle.” The next two quarters will be telling, with indicators of growth or shrinkage in areas such as the GDP, corporate profitability and charter hours flown. He noted that charter hours flown are already on the rise in Europe.

Nevertheless, while there is money available for loans, the terms are far tighter than they were two years ago. UK-based Barclays’ more prudent approach to business aircraft loans has been to offer shorter-term agreements and/or ask for additional security against the aircraft. Alex Badran, managing director and head of sales of the international corporate aircraft finance division, said he believes “the market is now bottoming out, with aircraft values fairly steady.” He added, “In the last few months, there has been improvement [in prices] for larger-cabin aircraft, and 2011 and 2012 will show a return to a growth cycle.”

As far as Lufthansa Technik is concerned, the growth cycle has begun. At Ebace, the Hamburg, Germany-based independent completion and refurbishment and MRO specialist reported “a successful selling in 2009.” So far this year the company has delivered an A319 to the German Defense Ministry Special Air Mission Wing and a second is due in this month.

At Ebace, AgustaWestland reported orders for three AW109 Grand New light twin helicopters and options for two more by Intermountain Healthcare. The aircraft was unveiled at this year’s Heli-Expo, and the manufacturer reports orders for more than 50 copies, with deliveries to start this summer with Portugal’s Vinair.

Developing Markets

The Middle East continues to remain a strong market for business aviation aircraft and services. At Al Bateen Executive, the Gulf region’s first dedicated private aviation airport, a 30-percent increase in aircraft movements was reported in this year’s first quarter.

According to Jahid Fazal-Karim, co-owner of Jetcraft, Asia and Africa are propelling the recovery, at least at this point. “The Asian market in general is pretty good, especially for aircraft on the higher end of the market,” he explained. “They need the range.”

In the Indian market, he said, sales increases are in the double digits, and the Middle East remains steady, despite the financial crisis in Dubai. Fazal-Karim also pointed out that oil production in African countries such as Nigeria is generating interest in business aviation. “No one should ignore Africa; it’s going to be the next El Dorado.”

He predicts the U.S. is likely to remain the best market for small and medium business jets, but at the moment, he said, the used market remains flooded and has not yet begun to recover.

But he warns of potential problems with the European economy as the financial woes of Greece and Spain and over-spending among other EU countries such as Italy and Portugal threaten the stability of the euro. Unlike some with a positive outlook on the European market, Fazal-Karim expects a much slower recovery if the euro continues to decline. “There is a real possibility of another recession in Europe, and if [those countries] go down, it’s going to have a serious [economic] effect.”

The focus at Ebace was on European economic conditions, but there were also indications of a continued slow recovery in the U.S.

Cessna certified its Citation CJ4 and has already begun deliveries in the U.S., and it expects to begin delivering airplanes to European customers next year.

Boeing Business Jets president Steve Taylor says North America is “beginning to rebound,” while the Middle East and Asia are experiencing “strong growth.”

Eclipse Aerospace is busy performing major upgrades on the existing fleet of some 250 Eclipse VLJs. More important, the restructured and streamlined production line is expected to be operational by year-end.

The market forecasters are also on board with predictions of growth, albeit slow. They predict a rosy future, with a slow recovery from 2011 through 2019. Europe is expected to account for 27 percent of the demand. The 1,700-aircraft European business aviation fleet will have expanded to some 4,500 aircraft by 2018, according to Bombardier’s current forecast.

If things look brighter, not only in Europe but in the rest of the world as well over
the next decade, those on the front line are taking a cautious approach. Embraer v-p of marketing Claudio Camelier said simply, “The economy is getting better this year.”