Happy Y2K12: Business Aviation Faces Dreary 2012
There hasn’t been a good year for business aviation since 2008, and despite hopes of an industry recovery, it appears 2012 won’t be the next one.
Not that there haven’t been some bright spots since early 2011: slowly climbing charter and fractional flight hours, an increase in trade-show activity (notably at EBACE, LABACE and NBAA), the introduction of new aircraft by Cessna and Dassault. In the “Who knows?” category are the possible extension of the bonus depreciation (not yet enacted as we go to press), and the implementation of user fees, which remain in limbo as Congress grapples with a new budget and FAA reauthorization.
While business aircraft deliveries overall have been anemic at best this year (with possibly as few as 600 jets, compared to 763 last year and 1,313 in 2008), Bombardier Aerospace was the exception. The Canadian OEM reported a 16-percent backlog increase for its third quarter and a jump in revenue from $1.8 billion in the third quarter 2010 to $2.3 billion in last year’s third quarter. And Bombardier delivered 43 business jets, compared with 31 in the same quarter last year.
Outlook Remains Gloomy
In spite of the hopeful signs that the business aviation industry is at least holding its own, there are few indications that 2012 will be the breakout year en route to a recovery, not with all the signals that a worldwide recession may be on the horizon.
From the start of the recession in the U.S. into early 2011, Europe and a strong euro kept many business aviation companies at work, from MRO specialists to completion and refurbishment centers to aircraft manufacturers.
Some maintenance and completion facilities were reporting as much as 60 percent of their business at various times coming from Europe. At the same time the market demographic was shifting. Where 60 percent or better of new aircraft sales came from North America, that number dropped to about 40 percent as orders from abroad increased.
All that may be shifting yet again as the European Union attempts to shore up failing economies in member states, notably Greece and Italy. Evidence of the strain is apparent in the rate of exchange. In mid-2008, €1.00 would buy $1.58 U.S. By late 2011, that had dropped around $1.34.
In the past several years, yet another market shift saw the so-called BRIC nations (Brazil, Russia, India and China) assume more importance as emerging markets. More recently, demand in India has stalled, and the economy in China, where the industry has been anticipating the greatest demand, shows signs of slowing. Some analysts believe that the economy there is overheating and the government will have to put on the brakes, with the question being whether air can be slowly released from the bubble, or whether it will burst.
So where does all this leave the business aviation industry in 2012, and the following years, as more U.S. companies look at emerging markets abroad to sell their wares, as well as for sources of cheap labor?
In the short term, claimed analyst Brian Foley of Brian Foley Associates in Sparta, N.J., the outlook may be not so good. But it will get better, he said, pointing out that the business aircraft market typically follows a five-year cycle–“five years of down, followed by five years of recovery.”
In the meantime, Foley said the industry can expect slow but steady growth in 2012 by MROs, completion centers and large-cabin aircraft sales, while the midsize and small jet markets are likely to remain mired at least through this year’s first quarter. “I can’t envision all of 2012 being a bust,” he said.
Foley did sound a note of caution for the longer term, however. “Negatives like Europe are meaningful now, but in another six years or so, there will be something else. It’s always something.”