State of the Industry: Business aviation is prepared to duck

 - July 28, 2011, 5:50 AM

Just when the business aviation industry appears to be weathering the economic storm comes another series of blows.

At the European Business Aviation Convention & Exhibition in May, the industry saw definite signs of a recovery, and cautious optimism was the rule. “We now see a stronger recovery really starting only in 2012 and 2013 if economic conditions [between now and then] prove stable,” said Claudio Camelier, marketing v-p for Brazilian OEM Embraer’s executive aircraft division, days before the show opened.

Key in that statement was the phrase “if economic conditions prove stable.” But economic stability depends on many factors, and it is rare these days that those factors can be predicted with any reliability.

In the fall of 2008, Congress and the media piled on in criticism of business aviation, in essence tossing an anchor to an industry already up to its neck in the rising flood of a recession.

This June it was, in the words of Yogi Berra, “déjà vu all over again.” As business aviation finally seemed to be emerging from hard times, President Obama, speaking at a press conference, decried “tax breaks for oil companies and hedge fund managers and corporate jet owners.” And then he added that before cuts in entitlements and services are made, “It’s only fair to ask an oil company or corporate jet owner that has done so well to give up that tax break that no other business enjoys.”

To describe industry response in private as angry would be an understatement. But publicly, it was measured and emphatic. NBAA president and CEO Ed Bolen expressed dismay at “the disparaging remarks about business aviation made by the president.

“The U.S. has long been the world leader in all aspects of business aviation, but other countries are working hard to displace us,” he explained. “Yet, rather than extolling this great American industry, you have chosen to denigrate it,” Bolen added.

A joint letter from the General Aviation Manufacturers Association and the International Association of Machinists and Aerospace Workers noted: “During the severe economic downturn in 2008, ill-informed criticism of corporate jets and business aviation exacerbated the challenges facing our industry, which led to depressed new-aircraft sales and jeopardized very good, high-playing jobs throughout the United States.” As a result, the letter continued, “More than 20,000 highly skilled IAM members were laid off in this industry.”

In a subsequent press release, GAMA concluded, “Words have consequences, and in this industry, a few misguided words can put at risk even the ever-so-modest recovery we have experienced.”

[See for AIN editors’ opinions on the issue. –Ed.]

More Pessimism

Analyst Brian Foley of Brian Foley Associates opined in May that the industry could expect only “moderated growth for general aviation in the current European climate.”

Based on the recent economic turmoil in certain parts of the European Union, Foley’s conservative outlook might be justified. Public riots have erupted in some EU countries–most notably in Britain, France and Greece–in response to the government’s plans to cut spending. When economically plagued Portugal, Ireland, Greece and Spain are smugly referred to as the PIGS, it prompts headlines in major newspapers such as, “The Euro Zone Must Change…or Die,” and “Does Germany Or Greece Leave the Euro First?” In The Daily Beast, hedge fund manager Andy Kessler compared European countries to U.S. banks.

At a time when the majority of business aircraft sales have shifted to customers outside the U.S., bad economic news from Europe is hardly welcome. In fact, Foley pointed out that projections are that over the next decade Europe alone will account for approximately 20 percent of all worldwide deliveries, “down slightly from the historical average of 25 percent.”

Good News Amidst the Bad

Despite the political and economic challenges, business aviation continues to exhibit signs of a recovery.

In July, business aviation researcher JetNet of Utica, N.Y., reported that the first five months of 2011 reflected continuing signs of recovery and noted business jet sale transactions increased 19.7 percent in that period compared with the same period in 2010. And data from Argus indicates that in May business aircraft activity was up a relatively healthy 3.6 percent over the previous month. At the same time, JPMorgan reported in its Business Jet Monthly for June that used inventory of in-production models decreased to 10.6 percent. And online charter portal Avinode said the industry was looking forward to a busy summer period in the northern hemisphere.

Operators and manufacturers also offered good news. Fractional provider Flight Options announced in {{May? Will check with KJH}} it was adding aircraft and hiring pilots, and the next month revealed it had secured $167 million in backing from Brazil’s Banco Nacional do Desenvolvimento Econômico e Social to finance an order for up to 150 Phenom 300 lights from Embraer.

Canadian OEM Bombardier announced higher-than-expected business jet sales, and in the U.S. Gulfstream resumed testing of its G650 and continued to forecast certification of that and the G280 (née G250) before year-end.

At the Paris Air Show in June, Sukhoi Civil Aircraft and Alenia Aeronautica launched an executive version of the Superjet 100 regional jet. In July, Honda Aircraft hosted a media event at its Greensboro, N.C. facility to provide an update on its HondaJet program and confirm the start of deliveries in next year’s third quarter.

So what is the business aviation industry to make of all this? Perhaps the answer lies in Bette Davis’s famous remark in her 1950 film, All About Eve: “Fasten your seatbelts, it’s going to be a bumpy night.”