Are OEM consolidations in the future?

NBAA Convention News » 2009
October 19, 2009, 2:51 PM

Business aviation forecaster Brian Foley sees a flat decade for the business jet
market with the prospect for OEM consolidations and big changes for fractional providers. “This is basically the lost business jet decade,” he said.

“The OEMs have been down on their luck since the last NBAA,” Foley said.  “New sales aren’t going to gain steam until the middle of next year because of the extraordinary inventory of late-model, new-production airplanes. You have white tails that are still parked out there and delivery positions for sale. That puts manufacturers in the position of having some pretty heavy cash outflows without inflows.

“Some OEMs are leveraged today. Can they hang out until the middle of this year and keep taking hits like this? We suspect there will be some news with regard to [company] sales and mergers. There are six OEMs for business jets now and once the dust settles there will be fewer than that.” 

Foley also forecast additional changes for the fractional industry following the retooling of Citation Shares into CitationAir by Cessna. 

“Fractionals are not a growth market going forward like they used to be. It is just a replacement market and unfortunately we see that the fractional fleet is going to contract over the next five years. The fractional model is in need of some resuscitation. The current model is broken because it is geared toward growth and now it has just flattened out,” Foley said.

“The fractional folks made their money by selling [shares of ] a new airplane at list price. Now they have to make money in other ways, by the hour or by the month or find some new way of doing it. The CitationAir people have taken the first step to see if a new model will work and we suspect that the other folks won’t be too far behind,” he added.

Foley thinks the large-cabin jets and turboprops will be the most insulated from the current market. “The big-cabin guys fare the best during a downturn like this because the people who buy them are those who have the resources,” he said. 

As for the turboprop market, Foley views the type’s enduring value and the amortized costs of established models as boding well for the segment. “There is just no other aircraft today that has the utility of a turboprop, where you can fill it up with people and bags and fuel and take off from an unprepared field. The price difference [from jets] is significant. And the market has made it clear that it prefers a larger cabin turboprop to a tiny VLJ,” he said.

Foley sees modest growth for very light jets from established manufacturers, such as Cessna and Embraer, but thinks the VLJ start-ups are in for trouble. “The investor well has been poisoned by some previous VLJ failures, so it will be a long time before these [VLJ] contenders can get the dollars,” Foley said. He also said he sees the new VLJ OEMs, particularly those developing single-engine jets, as having almost insurmountable odds against them. “First you need the support network, then a sales network and a spare parts network,” he said. “And generally you need a family of airplanes. You can’t just say, ‘Here is my single-engine VLJ.’ Anyone out there with a one-trick pony will have a tough go.”

Share this...

Please Register

In order to leave comments you will now need to be a registered user. This change in policy is to protect our site from an increased number of spam comments. Additionally, in the near future you will be able to better manage your AIN subscriptions via this registration system. If you already have an account, click here to log in. Otherwise, click here to register.

 
X