AINsight: State of the Bizav Industry

 - February 21, 2020, 8:10 AM

On Wednesday, the General Aviation Manufacturers Association (GAMA) held its much anticipated year-end industry shipments press conference in Washington, D.C. The National Press Club venue this year was apropos as GAMA leadership unveiled its annual state of the industry results.

New business jet deliveries reached 809 units in 2019, up an impressive 15 percent year-over-year and the industry’s highest collective output since 2009, the first full year after the financial crisis. Pacing the pack was, not surprisingly, the Cirrus Vision Jet, with 81 deliveries last year.

Cirrus Aircraft, a company that has led the fixed-wing piston market for many years with the popular SR20/SR22 family of high-performance fixed-gear composite models, is having considerable success convincing its loyal owner base to upgrade to what for many is their first turbine aircraft. Despite the considerable gap in price points—a new equipped SR22 at about $750,000 and a comparable Vision Jet closer to $2.5 million—Cirrus has done a very respectable job finding owners flying its more than 6,000 in-service aircraft who are willing to step up into a jet.

While some might claim that this market stimulation has inadvertently done harm to demand for preowned Citation Mustangs offering a more commodious cabin in a twin-engine design, so far there seems to be plenty of demand to go around, at least for the time being.

Other high achievers in the GAMA 2019 business jet shipments report include some seemingly perennial crowd-pleasers: the Bombardier Challenger 350, Embraer Phenom 300E, Cessna Citation Latitude, and Gulfstream 650/650ER, each with more than 50 shipments to customers in 2019. Based on feedback on next purchase intentions in the 2019 JetNet iQ Surveys, demand for these models is expected to remain robust over the next year.

Other models with the equivalent of three or more deliveries per month in 2019 were the Pilatus PC-24 (40 shipments), Citation CJ3+ (37 shipments), and HondaJet (36 shipments). Fully two-thirds of 2019 business jet shipments were to customers based in North America (U.S. and Canada), buoyed by the relatively robust regional economy.

Many GAMA leaders are taking the high road on issues that either are directly confronting the industry today or soon will be. Among the most pervasive of these include talent recruitment, workforce diversity, and inclusion. Shamelessly borrowing wherever possible from lessons learned and successes achieved in other industries and on other continents, GAMA member companies and the trade organization itself are innovating their ways to success through internships, STEM investments, scholarships, co-op programs, job fairs, talent road shows, learn-to-fly and learn-to-build initiatives, and community and educational outreach efforts.

Whether aimed at building awareness of opportunities for interesting and lucrative careers or encouraging existing employees seeking a more viable work/life balance through job sharing and work-from-home options, a number of GAMA companies are demonstrating refreshing leadership outside their traditional technology-centric core competencies.

While “flight shaming” has for the most part yet to reach the shores of North America except in the news headlines and commentary emanating mostly from Northern Europe, industry leaders appear to be very aware of the potential challenge looming on the horizon. Although one person’s tip of the iceberg may be another’s harmless ice cube, the “flygskam” flight-shaming movement is best seen in context of the larger questions about our industry’s environmental impact.

While some deny the onset of climate change while others question whether men and women are at all even responsible, others are asking more important questions about sustainability. Near-term solutions to reduce our industry’s small but growing carbon footprint include smarter ground operations, more direct air routings and air traffic control procedures, accelerated retirements of aging aircraft, and the more widespread adoption of sustainable aviation fuels (SAF), which are simultaneously becoming more available, visible, and affordable.

While educating the aircraft owner/operator community is a continuous priority, it is encouraging to note that interest in SAF is accelerating. Fully 43 percent of decided respondents to the fourth-quarter 2019 JetNet iQ Survey of fixed-wing turbine aircraft owners and operators indicated that they will “seriously consider” flying with SAF in the next 12 months—a remarkable increase in a short time span.

While I am a firm believer in the logic of a multifaceted approach to address business aviation’s environmental impact, the day cannot come soon enough for technological breakthroughs in propulsion and energy storage that our children and grandchildren will one day adopt. The solutions, no doubt, are right in front of us—and are there to discover if we ask the right questions. While I am a big fan of continuous improvement, I am a really big fan of initiatives that bring both incremental improvement and discoveries of a more fundamental nature.

Urban air mobility (UAM) investments are all the rage today, and GAMA’s membership has swelled over the past several years with new entrants seeking to seize the high ground—and the airspace above it—for themselves and their key investors. While some might fondly remember George and Jane Jetson and their hassle-free air mobility lifestyle, we should openly admit to our new friends in Silicon Valley that the barriers to success—whether regulatory or not—are high indeed, and anything but comical.

On the path to this hoped-for brighter operational tomorrow, about the last thing the innovators need is a distrustful regulator and any retraction of OEM organization designation authorization (ODA), despite the absolutely tragic and apparently avoidable losses of life and reverberating economic impacts of the “black swan” otherwise known as the Boeing 737 Max.

Although aircraft do not typically take kindly to 800-pound elephants on-board, one of the unspoken topics of interest at the GAMA gathering was surely the dramatic portfolio shaping underway at Bombardier. With more than 4,800 business jets in the worldwide fleet, Bombardier’s Learjet, Challenger, and Global brands account for more than one in five of all in-service business jets worldwide.

Efforts to reduce Bombardier’s heavy debt loads are succeeding like a surgeon’s scalpel in removing limb after limb from a once-formidable aerospace and rail transportation equipment manufacturer. While the company struggled to achieve cross-synergies in operating an aircraft and train OEM business, it could be argued that fundamental differences in engineering, design for manufacturing, supply chain, talent, market competitors, customers, and customer requirements between the aircraft and train manufacturing businesses were too much to overcome.

Twenty years ago, Bombardier was a company active in aircraft and train manufacturing and recreational vehicles. This portfolio mix brought inherent advantages to the overall corporate entity, including the ability to cross-subsidize weaker divisions throughout their normal business cycles. This “advantage by design” inherent in a multi-industry company is certainly not a guarantee of success, but can be a competitive advantage when times get tough.

A good example of strength through portfolio diversity is achieved by investing in talent, technology, tooling, facilities, and supplier relationships that synergistically transcend business units across a corporation. Within aerospace, that synergy has typically been realized through a mix of commercial and defense businesses. While Bombardier did find synergies—many of them—in its commercial and business aircraft investments, these have now been lost with the rapid exit of the company’s commercial aircraft portfolio.

Remarkably, a company that literally defined the 50-seat regional jet market and succeeded to develop a broad family of regional turboprops and airliners is suddenly out of these businesses. The now renamed C Series was a major undertaking and part of a trifecta of simultaneous Bombardier aircraft programs—including the Learjet 85 and the Global 7500—that almost brought the company to its knees.

It remains to be seen how the new, more-focused Bombardier Aviation will fare in the inevitable up-and-down business cycles, although the company is an aggressive competitor. My guess is that, once all the dust and embers have settled on the various deals to sell off the commercial aircraft and train businesses, Bombardier Aviation will limit further capital expenditure for some time to demonstrate to investors that it can generate consistent free cash flow and reasonable returns on investment.

Once investor confidence is rebuilt, credit ratings are improved, and access to low-cost capital is reestablished, Bombardier Aviation should be in a much better position to embark upon its next strategic growth trajectory. Whether this involves acquisitions of companies that are active in the defense or even commercial aerospace sectors, or divestitures that lure Bombardier and its primary shareholders into selling part or all of their remaining BBD holdings, remains to be seen.

Never one to sit idly on the sidelines, Bombardier has proven again and again that it is strategic, opportunistic, and anything but shy in carving out its own path into the future. Watch this space.