Industry on course for real recovery in 2012

 - November 29, 2010, 10:22 AM

If you consider the recent 63rd NBAA Convention and Exhibition as a bellwether, the business aviation industry appears to be turning the corner. Or is it?
This year’s show, held from October 19 to 21 in Atlanta, was as upbeat as last year’s event was glum. Attendee registrations came in at 24,206, 1,286 more than last year. The hall held 1,083 exhibitors, 12 more than last year, and only the limited ramp space at DeKalb-Peachtree airport kept the number of aircraft on the static display line to 93, seven less than last year.

A sense of optimism underscored the show, said NBAA president and CEO Ed Bolen, pointing out that “in spite of the challenges confronting business aviation in the past two years, people and companies are optimistic and forward-looking.”
On the heels of what Bolen described as a successful NBAA Convention, the General Aviation Manufacturers Association (GAMA) delivered mixed news.

While revenue at the OEMs held relatively steady, business jet shipments in the first nine months totaled 491 units, a 20.3-percent decrease over the 616 units delivered for the same period last year. GAMA president and CEO Pete Bunce attributed the decline to an “instability or flatness” in the recovery. “We follow the general trends of the economy,” he said. “And if the economy is flat and the recovery is not as strong as it was in the latter half of last year, obviously that is going to have an impact on our sales.”

Looking for that elusive silver lining, Bunce took note of a bill boosting small business that included a bonus depreciation provision. The bill was signed into law on September 27. “I think that can help,” said Bunce.

It might help, but not in the short term. According to Boston Jet Search executive v-p Jeff Wieand, it won’t have much effect this year, primarily because the buyer must take delivery by December 31, and the “white-tail” inventory has dwindled to the point that finding the right airplane that quickly is unlikely. While it might make a difference next year, buyers may unintentionally disqualify themselves, for example, by allowing the aircraft to be used for charter beyond a certain amount of time.

While GAMA’s shipment numbers left little to cheer, third-quarter reports by the OEMs were mixed; some of them were down, but others up and encouraging.

Among the OEMs, perhaps the most encouraging reports are from the bizliner segment. Airbus has forecast record deliveries of 16 aircraft–a mix of A318 Elites, ACJs and A320 Prestige single-aisle twinjets and A330 and A340 widebodies.
Both Airbus and Boeing are watching order books for private versions of their new widebody aircraft grow. Airbus has sold an A380 and eight A350s and Boeing has orders for eight 747-8s and thirteen 787s. Deliveries of these airplanes will begin shortly after certification of the 747-8 in 2011 and they will provide work for modification and completion centers well into the next decade.

Real Rebound Might Be a Year Away
The number on the lips of many OEM sales executives is 2012–the year they expect to see a real recovery. Honeywell’s annual forecast foresees at least one more down year in 2011 before the start of a real rebound cycle. The report, released in late October, forecasts deliveries of between 675 and 700 new business jets this year.

Neither Cessna nor Hawker appears to be entertaining thoughts of a resurgent 2011. Cessna plans a series of furloughs for production line workers throughout the remainder of this year, and Hawker recently announced another 350 layoffs in addition to the 800 previously announced for next year.

Assuming those forecasting a 2012 recovery are correct, the industry should already be seeing a gradual improvement in used aircraft sales and in flight hours.

JPMorgan’s business jet monthly report, released in mid-October, showed the pre-owned market stalled, but analysts expect activity to return and inventory to be removed from the market.

Later in October, the JetNet pre-owned business jet report noted that while the NBAA Convention was launched with optimism and the economic outlook is on the upswing, “questions about the recovery still linger. With nine months of 2010 behind us, a common feeling is that we are not there yet.” On a positive note, the report showed the inventory of business jets for sale down from 17.1 percent to 15.1 percent. Business jet transactions also led other categories (turboprop and turbine and piston helicopters) with a 22.8-percent change for the better compared with last year.

JetNet’s research also showed a rapid increase in business jet flight operations, continuing a trend of several months.TraqPak data from Argus in November showed aircraft activity rebounding for the previous month, but only barely, at 0.6 percent. Fractional flying led with a 1.8-percent increase year-over-year, while Part 91 corporate and Part 135 charter rose 0.5 percent and 0.1 percent, respectively.

International Markets Remain Promising
Among the more encouraging forecasts is the predicted outlook for the so-called BRIC nations of Brazil, Russia, India and China, all of which are experiencing considerable economic growth–with sales of business jets in all four countries flourishing accordingly.

Oliver Stone, executive director for Business Air International and author of its private jet market updates, believes the growth is sustainable. “In fact, most of our business now is from outside the U.S. Such factors as high import duties and an aviation infrastructure that is growing too slowly are currently limiting factors,” he explained. “But that will change. We’re talking about some big players, and China in particular will become a monster player when it comes of age.”

As far as Bombardier is concerned, China is already coming of age. The Canadian OEM recently announced the sale of five Challenger 300s to Donghai Jet, based in Southern China. The total value of the order is approximately $121 million. Donghai will operate the first Challenger 300 and first Challenger 605 based in China.

Hawker Beechcraft is sufficiently interested in China that it had its Hawker 900XP and King Air 350i on display at the eighth annual Airshow China 2010, held from November 16 to 24 in Zhuhai, Guangdong. The OEM and its regional distributor, Avion Pacific, were also hosting guests at a chalet adjacent to the Zhuhai Airport static display.     

ExecuJet Aviation and Tianjin Haite recently announced a joint-venture agreement to launch a maintenance and management company to be based at Tianjin Binhai Airport. Completion of the 64,500-sq-ft facility is expected in August.

Aviation analyst Brian Foley of Brian Foley Associates in Sparta, N.J., took note of the China buzz circulating through the industry. “This is true in part, but is not quite realistic yet,” he said last month.

He pointed out that of some 18,000 business jets registered worldwide, China and Hong Kong are home to only 126, which is fewer airplanes than might be based at a single airport in some other parts of the world. Obstacles to growth in China include infrastructure in a country with slightly fewer than 200 airports open to civil use and airspace that is controlled by the military and severely restricted. On the other hand, he said, the tax rate on new aircraft has been lowered and the time required to obtain flight approvals has been shortened.

Looking at forecasts for an industry recovery, Foley pointed out that maintenance and overhaul, service, FBO activity and charter and fractional use are all slowly on the rise. “These types of companies were the first affected by the downturn and are now the first out.” He expects industry growth to average 2.7 percent a year over the next decade.

Those who still view past peaks as historic norms, he said “are exhibiting illusory hopes. It’s more realistic that activity will eventually return to 2005/2006 levels. These levels were not peak, but were healthy, and at the time were regarded as prosperous periods.”

In fact, maintenance and service appear to be showing relatively healthy growth in recent months.

In Hawker Beechcraft’s third-quarter earnings conference call, chairman and CEO Bill Boisture listed among the bright spots revenue from customer support. In fact, said Boisture, sales for the third quarter totaled $125 million, up from $100 million for the same period last year. In the third-quarter earnings statement from Gulfstream Aerospace parent company General Dynamics, GD chairman and CEO Jay Johnson noted a $171 million Gulfstream earnings increase.

Increases in fuel sales are also being reported. According to Avfuel, sales of both foreign and domestic Avfuel contract fuel have risen “significantly this year.” In addition, said a spokesman, even though increases have been spotty and only a few FBOs have demonstrated consistent improvement, “For the most part, we are certainly seeing an end to the decline of fuel sales at FBOs, a pattern that pervaded most of 2010.”