Manufacturers see evidence of recovery

 - August 26, 2010, 12:27 PM
Although the recession has been slow to release its hold on the industry, the mood at last month’s Labace in São Paulo, Brazil, was optimistic, with a record 14,000 visitors, 56 aircraft on the static display line and 150 exhibitors.

From his perspective as v-p of market intelligence for Embraer Executive Jets, Claudio Camelier says “The economy is getting better this year.”

While the growing strength of the Brazilian real in relation to other currencies has done nothing to help, his employer’s backlog, said Camelier, is growing again and the Brazilian OEM expects to deliver a total of 120 Phenom 100s and Phenom 300s this year, along with a mix of 17 Legacy 600s and Lineage 1000s.

At the same time, Embraer has announced plans to open five more European service centers in support of its expanding fleet. Also in the works are additional call center personnel and immediate customer access to flight operations and AOG support.

Boeing Business Jets president Steve Taylor is also optimistic, saying North America “is beginning to rebound.” Boeing Business Jets, he added, had a 45-aircraft backlog made up of 21 twin-aisle and 24 single-aisle bizliners as of mid-July. The company plans to deliver its first 747-8 twin-aisle earmarked for an executive interior next year. The first 787 to be configured for executive use is scheduled for delivery in the second quarter of 2012.

Bombardier, despite a down first quarter, came away from the Farnborough airshow with a fat log of orders for a mix of 14 Global Express XRSs and Global 5000s, along with two Challenger 605s. And at the Latin American Business Aviation Conference & Exhibition (Labace) a month later, the Canadian OEM reported it is scheduled to deliver its 10th Challenger 300 in Brazil this month. And for the first time at the São Paulo show, it introduced its Challenger 850.

At Cessna, deliveries of the recently certified Citation CJ4 have begun and the company’s latest jet was on display at last month’s Labace. Cessna plans to ship 15 of the $9 million CJ4s this year, and claims orders for 150. Some analysts predict that as the economy recovers, Cessna will revive its Citation Columbus program.

Bullish on Brazil

Dassault Falcon is bullish on Brazil, and at Labace Dassault president and CEO John Rosanvallon said he expects the French OEM’s 60-percent market share there to grow as 13 new Falcons are delivered over the next five years. He added that his sales goal in Brazil is $150 million for this year.

Gulfstream, according to parent company General Dynamics CEO Jay Johnson, is ready for growth as it reported flight activity of its in-service fleet is up and it is seeing a 16-percent increase in aircraft service sales. Nevertheless, its $1.38 billion in revenues for the second quarter was “down modestly” from $1.41 billion for that same period last year. And the backlog–valued at $17.4 billion as of June 20–was down $700 million from March 31. However, Johnson said Gulfstream will ship 76 large-cabin jets this year, and he upped the forecast for midsize deliveries from 14 to 21. “Steady growth” in revenues is anticipated next year as deliveries of the G250 and G650 begin.

Hawker Beechcraft’s backlog, valued at $3.1 billion in March, shrank to $2.4 billion in June.    

Alex Badran, managing director and head of sales for Banc of America’s International Corporate Aircraft Finance, said he believes “the market is now bottoming out, with aircraft values [remaining] fairly steady.” He pointed out that in early summer there was an improvement in pricing for larger-cabin aircraft. He predicts that “2011 and 2012 will show a return to a growth cycle.”

Across the industry, charter activity continues to increase. Swiss operator VistaJet reported a 20-percent jump in revenues for 2009 and expects to accept delivery of two more aircraft this year.

Geneva-based PrivatAir, recently purchased by private investors, has restructured and established a facility in Bahrain.

According to charter consolidator Avinode, charter demand is continuing a recovery trend. Its data indicate that charter prices have been holding firm. In July, according to the company, average hourly rates were rising by 3 to 4 percent.

Fractional ownership operator NetJets reported revenues for the first half were up 17 percent from a year ago. The company attributed the gain primarily to a worldwide increase in flight revenue hours.

While the used business jet market is improving, demand for new jets remains “elusive,” according to a monthly business jet report released last month by J.P. Morgan. Pre-owned inventory of in-production business jets declined from 11.9 percent in July to 11.6 percent last month, driven mostly by the midsize and large-cabin aircraft segments. “With a large supply of used jets at attractive prices and elevated macro uncertainty, renewed demand for new aircraft could be some time off,” said J.P. Morgan aerospace analyst Joseph Nadol III.

“It should be only a matter of time before demand picks up, but some OEMs may have to revisit production rates if the bounce does not come by year-end,” he said.
Finally, there is the matter of credit. According to Paul Fowkes, director of corporate jets and super-yachts at Barclays Bank in the UK, in terms of a new business aviation cycle, “We are still waiting for the dust to settle.” Fowkes said the last two quarters of this year will be telling, with such indicators as gross domestic product, corporate profitability and charter hours flown all being critical.

He added that while money is there for loans, terms are far tighter than they were two years ago. Barclays–like other lenders–has been offering shorter-term instruments, or asking for additional security against the aircraft. Lenders, he said, are no longer willing to accept the aircraft itself as collateral.