Industry recover appears to be stumbling progress

 - May 24, 2011, 5:23 AM

If the business aviation industry is experiencing a recovery, it is by most indications a stumbling affair, with new markets leading the way.

In early May, JPMorgan described business aviation’s progress toward a recovery as “uneven.” In its May Business Jet Monthly report, the firm took note of a “post-recession low” in the inventory of used jets for sale, but also an overall drop in used aircraft prices.

“While the inventory trend is a leading indicator that has been pointing in the right direction for months, pricing [in the first quarter of this year] had only just begun to stabilize, and we view improvement here as a more near-term indicator of new-jet demand,” the report continued.

A more positive UBS Business Jet Monthly headline read, “Recovery in Progress,” and proceeded to point out used aircraft inventories that continue to fall and an increase in flight activity. Available for sale business jet inventories declined by 1 percent in April and are now 15 percent below the peak of May 2009, said the report, adding, “We estimated business jet cycles (takeoffs and landings) came in four percent higher from the prior year in March.” But the increase in cycles was slightly down from the 4-percent growth in the previous month of February.

Jetnet, a Utica, N.Y.-based provider of corporate aviation information, released its first-quarter 2011 results on May 2, saying that “All leading indicators in the pre-owned business jet market are showing early-stage recovery signs, except for continued softness in average asking price. The business jet average asking price, said Jetnet, is down by one-third in the first quarter 2011, compared with the first quarter 2010.

According to Jetnet, the used business jet inventory decreased to 2,603 in March this year from 2,696 in March last year. “We continued to witness stubbornly high levels of for-sale inventories as we remain in a buyer’s market,” the report concluded.

Avinode’s May report, timed to coincide with the European Business Aviation Convention & Exhibition in Geneva, tracks charter activity worldwide and took a look at consumer patterns.

“Despite a slight dip in popularity at the outset of the economic downturn, travel patterns amongst those in higher wealth brackets appear to have continued as normal,” said the analysis. However, according to most sources within the industry, it added, “consumers have become more price conscious over the past three years.

“We believe it is this change in consumption patterns that has been largely responsible for the increase in popularity amongst large-cabin super-midsize jets like the Embraer Legacy and Challenger 300, as well as entry-level jets like the Citation Mustang and Embraer Phenom 100.”

Argus TraqPak data released in May saw something of a reversal, indicating April 2011 business jet activity down 7.3 percent from March 2011. “Although April activity is historically lower than March, this was a bigger decline than expected,” said TraqPak’s analysts, assigning some blame to higher fuel prices and severe spring weather.

On the other hand, TraqPak numbers showed activity year-over-year decreasing only slightly, 0.4 percent. Part 91 and fractional markets both saw activity increase at 6.5 percent and 2.5 percent, respectively. It was offset by the Part 135 market, where a decline of 7.7 percent was posted.

Certainly the news from the General Aviation Manufacturers Association represented another blow to hopes of a recovery. Deliveries in the first three months of 2011 were down 4.6 percent, compared to the first quarter 2010, while billings declined nearly 20 percent to $3.7 billion, according to statistics released by the Washington, D.C.-based group. (See story on page XX.)

While GAMA president and CEO Pete Bunce admitted to “a difficult year to date,” he pulled a silver lining out from behind the dark market, saying that “Emerging market deliveries continue to help sustain the industry.”

JPMorgan singled out Bombardier Aerospace as “the best performer in our coverage group” to date in 2011, up 37 percent compared with 13 percent for the group, and six percent for the S&P 500. “The key earnings driver,” it declared, “is a business jet recovery, and we see Bombardier as the best play at this end market.”

Russia has shown signs of increased activity, the Middle East remains a strong market for large-cabin business jets and airliner executive/VIP reconfigurations. The market in India continues to expand, as does that in Brazil.

The business aviation industry continues to salivate over the potential of the market in China.

In its May 2011 report JPMorgan described China as helping drive new jet demand. “It has long been clear that China is an under-penetrated business jet market presenting an opportunity for outsized growth on a sustained basis, but the Chinese market is starting to demonstrate some of that potential at the high end of the market.

“China was a key driver in order activity for Gulfstream in the first quarter of 2011,” said the report. It noted, too, that Chinese interest was also a strong contributor to demand for Bombardier’s Globals and the Canadian OEM’s plans to increase production rates.

“OEMs across the board are stepping up their presence in China,” concluded JPMorgan, “and we will be on the lookout for data indicating how significantly demand is stepping up since we are already in uncharted territory.”

If it is uncharted territory, business aviation is all elbows to put itself on the map.

In March, Bombardier and China’s ICBC Financial Leasing signed a memorandum of understanding valued at nearly $8 billion. The agreement allows ICBC to provide Bombardier customers with advance payment financing, delivery financing and leasing solutions for its Learjet, Challenger and Global business jets as well as Bombardier’s airline products.

Bombardier has estimated the China market at some 600 business jet deliveries between 2010 and 2019. Brazilian OEM Embraer is slightly more conservative but nevertheless estimates the China market as good for about 950 aircraft deliveries over the next 20 years.

Firestone Management Group reports there are already 116 business jets in service in China–43 Gulfstreams, 25 Cessna Citations and 21 aircraft from the Bombardier line.

Dassault sold three Falcons in China last year and expects to sell eight more this year.

At this year’s Shanghai International Business Aviation Show, every business jet manufacturer had a presence. Hawker Beechcraft, which sold its first Hawker 4000 in China in 2010, was at the show with a Hawker 4000, a Hawker 900XP and a King Air 350i.

And the expansion continues elsewhere in the world, away from the traditional European and U.S. markets. In April, Bombardier announced an expansion of its sales team in Latin America. Embraer continues to expand its presence in the Middle East and most recently named Barbedos Group in Nigeria as its executive jets authorized sales representative for West Africa.

Groups other than the OEMs are expanding farther afield too. Jet Aviation plans to triple its hangar space in Singapore by adding a 65,000-sq-ft maintenance hangar capable of holding up to five single-aisle airliners converted to executive/VIP configuration.

The business aviation industry may be stumbling along the path to a recovery, but most analysts agree that it is a recovery. UBS Business Jet Monthly put it this way: “We believe the recent improvement in our survey and many of the other key indicators that we monitor, including increased flight activity and lower used inventories, are reflective of an early-stage recovery.”