Completions and refurbishment

 - October 1, 2008, 6:55 AM

If there are any tears being shed by those in the completion and refurbishment industry these days, they’re most likely tears of joy. And the reason is simple: a backlog for new business jets is stretching well into the next decade. And based on the latest delivery numbers from the General Aviation Manufacturers Association (GAMA), the trend isn’t expected to change dramatically anytime soon.

Business jet deliveries for the first half of this year were up nearly 40 percent compared with the same period last year. A record number of business aircraft were built, and even disregarding the 112 very light jets from Eclipse Aviation, the numbers are encouraging, to say the least.

Bombardier’s delivery numbers for the first half of the year went from 112 last year to 134 in this year, and Cessna saw a first-half jump from 163 airplanes in 2007 to 213 this year. Gulfstream deliveries grew from 66 to 76. Hawker Beechcraft, which has just begun deliveries of its fully certified Hawker 4000, saw an increase from 124 deliveries to 149. Dassault Falcon’s delivery increase was relatively modest, from 30 Falcon Jets in the first half of 2007 to 34 for the same period this year–but with completion work on the new Falcon 7X ramping up, there’s likely to be a substantial jump in the second half of this year and on into next year.

Much of this activity is not of U.S. origin, where the economy is flirting with a recession, but the result of booming economies elsewhere, in particular Brazil, Russia, India and China. Europe, on the back of a strong euro, is a particularly strong market as well.

As might be expected, the OEM completion and refurbishment centers benefit directly, and they are scrambling to keep up with production and meet delivery dates.

A Little Help from Outside

Bombardier has had a workable solution, contracting out cabin completion work on its more highly customized interiors for the Challenger 605, Challenger 850, Global 5000 and Global Express XRS to independents Savannah Air Center and Midcoast Aviation. How much longer that will last was a subject of some speculation when it was announced in August that Gulfstream’s parent company, General Dynamics, would buy Jet Aviation, the parent company of both Savannah Air and Midcoast.
Observers point out that when Gulfstream bought KC Aviation in 1998, it took only about six months to end the completion of Bombardier Challengers.

A spokesman for Bombardier recalled that series of events, but pointed out that this acquisition was by General Dynamics, not Gulfstream, and noted the General Dynamics Aviation Services division plans to be a leader in aviation services. “We have some guarantees, and [General Dynamics] made it clear to us and to our customers that they will continue to do business as usual,” he added.

In a conference call on August 19, General Dynamics chairman and CEO Nick Chabraja made it equally clear in stating the company’s position. “We are obviously intending to pursue customers other than Gulfstream for completions. Gulfstream has all of the required completion capability that it needs, including the 650.”

While attention was focused on whether Savannah Air and Midcoast would continue to do green Bombardier interiors, there was no mention of the fact that Jet Aviation, at its facilities in Basel, Switzerland, handles green completion work for Gulfstream competitor Dassault Falcon, doing Falcon business jet interiors under contract to Dassault. Jet Aviation expects to deliver 12 airplanes this year and is ramping up to complete 20 in 2009.

Dassault Falcon struggled early on and fell behind in the Falcon 7X delivery schedule. Despite building a dedicated facility at its Little Rock Completion Center specifically for the Falcon 7X, production has outstripped the French OEM’s ability to deliver aircraft on schedule. To accelerate the rate of interior completions, Dassault has begun sending a limited number of 7Xs to Duncan Aviation to be finished at its Lincoln, Neb. facilities.

Used Jet Market Softens but Business Is Still Brisk

The used aircraft market may be losing a little steam, but it’s a downhill run and the economic locomotive doesn’t seem to have lost much speed. While the used aircraft inventory is up to slightly more than 2,300 aircraft, there remains a ready market for low-time, large-cabin airplanes.

The used aircraft market is a little softer, said Bryan Comstock, president of corporate jet sales, marketing and acquisition specialist Jeteffect of Long Beach, Calif. “But on the other hand, July and August are traditionally a little soft, so maybe it’s normal and just seems soft by comparison to the past two years.”

As for refurbishment, he added, “There’s still a lot of used aircraft business activity and the centers will have plenty of work in the near term just working off their own backlog.”

Based on the latest reports by the manufacturers, any softening of the North American market for new business jets is more than made up for by demand elsewhere, in places where the economies are in a strong growth period. And the unprecedented manufacturers’ new-aircraft backlogs continue to fuel the desire for interior refurbishments as owners opt for a facelift on a used airplane while they wait for delivery of a new bird that may be five or six years in the gestation process.

A Big Cabin at a Reasonable Price

With the backlog for new airplanes, and a demand for big-cabin birds growing, buyers are discovering what has been referred to as the poor man’s Global Express. They are referring to conversions of the CRJ200 regional airline for executive/VIP use. The cabin size is the same as that of a new Global 5000 or Global Express XRS.

The cost of a finished executive/VIP makeover of a CRJ200 depends on a number of factors, including the total flight hours and condition of the CRJ200 at the time of acquisition, whether the new owner wants an avionics upgrade and auxiliary fuel tanks, and the sophistication of the new interior.

A relatively low-time (15,000 hours or less) CRJ200 fresh out of an airline fleet would go for $7.5 to $9 million, according to Bill McLendon, president of JetCorp of St. Louis. The auxiliary fuel tank system that will extend the range to about a little more than 3,000 nm adds about $1.2 million to $1.3 million to the price tag. The interior, depending on the buyer’s taste and willingness to spend money, may range from $3 million to $4.5 million. Altogether, said McLendon, whose company has just delivered its first CRJ Renaissance executive/VIP conversion, the total cost, including a

C-check and exterior paint will probably come in on the heavy side of $15 million.
McLendon said the demand for an avionics upgrade is rare, as most of the CRJ200s already have a fairly well equipped cockpit.

From roll-in to roll-out, said McLendon, takes about seven months, which should pique the interest of buyers who are facing a three-year wait for a new Global Express XRS at $50 million or Gulfstream G550 at $47-million-plus. It won’t have the 6,000-nm range of the Global or Gulfstream, he added, but for a mission-specific, big-cabin aircraft with 3,000-nm range, the CRJ is “well worth the price.”

Big, Bigger and Biggest

These days, it’s a rare independent completion and refurbishment center that isn’t working at capacity. And if its specialty is narrow- and widebody interior finish work, customers are probably waiting in line for a slot to open.

Jet Aviation officially opened a new 100,000-sq-ft hangar in Basel on May 16, capable of accommodating an Airbus A380 and a Boeing 747 simultaneously.
According to v-p of completion and modification Eugene Hartl, Jet Aviation’s narrow- and widebody completion schedule has a backlog well into 2015. “I’ve been with this company 12 years and I’ve never seen this kind of activity,” he told NBAA Convention News. “Last year was a record year in terms of man-hours and net sales, and 2008 will be bigger.”

Demand is such that Jet Aviation is now planning to do narrowbody completion work at subsidiary Midcoast Aviation. The new 145,000-sq-ft hangar at Midcoast’s St. Louis Downtown Airport is capable of holding as many as six Airbus ACJs. Jet Aviation hopes to bring ACJ completion capabilities on line at Midcoast by mid-2009.

Associated Air Center, now part of StandardAero, which is in turn part of Dubai Aerospace Enterprise, doubled its cabinetry output earlier this year and is expanding its soft-goods shop for upholstery and panel covering. And the Dallas Love Field-based center has been outsourcing “more than we’d really like to,” said senior v-p Michael Moore.

Lufthansa Technik, based in Hamburg, Germany, has been expanding its facilities for the past several years and now has hangar space capable of holding an A380. And by mid-2010, said Walter Herdt, senior v-p of sales and marketing, “some restructuring and hangar modifications” will allow Lufthansa Technik to accommodate the new, larger Boeing 747-8.

This past summer, the company was working on a Boeing 747 and an Airbus A330 on a parallel line, and awaiting arrival of a second A330 to be spotted nose-to-tail behind the first A330.

If there is any doubt with regard to the widebody completion market, one need only look at the $1.5-billion order for six A350s placed by Saudi-based MAZ Aviation. The company expects to take delivery of one A350-800 and five A350-900s between 2015 and 2019. MAZ Aviation founder and chairman Mohammed Al-Zeer, said all six airplanes will have executive interiors and are already spoken for by individual owners.

At the European Business Aviation Convention and Exhibition this past spring, Boeing reported orders in the previous year for 33 airplanes valued at $4.2 billion. The value of the current backlog is more than $7.6 billion. “How long this can continue is anybody’s guess,” said Boeing Business Jets president Steven Hill.

Nothing but the Best

Whether it’s a midsize Hawker 800XP or a giant Airbus A380, completion centers are reporting that everybody wants the best of the best in the cabin.

High-speed Internet connections are usually number one on the “gotta have” list.
And connections to accommodate carry-on entertainment devices, from iPods and BlackBerries to mp3 players are almost a given. In-flight satellite-direct television is the expectation of virtually any customer with anything from a Falcon 2000 and up, and the latest technology allows a seamless transition from one region of the world to another. Full high-definition entertainment is close to reality, although customers are warned if the original isn’t done in high-definition, and the signal isn’t high-definition, you aren’t going to get high-definition on the screen. No less important are cabin management systems that are becoming more and more user friendly and adaptable to new technology. Avionics Innovations of Ramona, Calif., for example, is showing off its integrated cabin entertainment package.

Taking Up the Slack in the Market

Analysts generally agree that the U.S. market for new and used business jets is softening. On the other hand, it is being made up for and more by demand in booming economies elsewhere. And why not? Business jets are sold in U.S. dollars, and with the comparative strength of the Euro, this means European customers are, in reality, taking advantage of a 30-percent discount.

As proof, OEMs are anticipating that 70 percent or more of business jet sales this year will come from customers outside the U.S.  Just five years ago, that number was closer to 40 percent.

The expansion of business aviation in Europe is an example. A Eurocontrol analysis released in May said, “The growth of business aviation . . . looks set to continue for the foreseeable future, with the number of jets rising from 1,900 today to around 4,000 by 2017.”    

The weaker dollar is also creating a growing demand on independent completion and refurbishment centers in the U.S. Savannah Air Center president Jeff Zacharias said his Savannah, Ga.-based center is currently full, and including maintenance and overhaul work, fully 70 percent of his customers are from outside the U.S. At Midcoast Aviation, company president Kurt Suterer said 60 percent of his work is from customers whose aircraft are based outside the U.S.

Pick the most extravagant example of a thriving industry and it is probably the A380 purchased last year by Prince Alwaleed bin Aalal bin Abdulaziz Alsaud, chairman of Saudi Arabia’s Kingdom Holding. The green airplane is not likely to be delivered before 2010, but the completion center selected to do the interior will be looking at a job that will take about 24 months and cost the customer at least $150 million.

If you’re in the completion and refurbishment business these days, there’s no need to look for the silver lining, said one completion and refurbishment center executive. “At this point, there aren’t any clouds.”