AIN Staff

Discussing the recession and predictions of a <a href="?q=node/25878">business aviation industry recovery</a>, Hawker Beechcraft chairman and CEO Bill Boisture recently told AIN there have been some positive signals, including an increase in flight hours and revenue from service and parts sales. But he also sounded a note of caution.
“It’s important to remember the inertia of 2008, and to understand that what we’re seeing in 2010 is the full effect of the economic reset and its effect on business and general aviation.” As for a quick recovery, Boisture said, “We see [things] staying about the same. We think 2011 will be a difficult year, and we don’t see the pickup before 2012.”
Other industry analysts share Boisture’s opinion; his is just one of the guardedly optimistic forecasts scattered among signs of recovery.
JPM/Nadol’s Aerospace/Defense Business Jet Monthly released last month noted that the trend of gradually declining used aircraft inventories had stalled. “Used prices have fallen to 1997 levels, and high inventories could generate incremental pressure, regardless of where the prices go.”
The Nadol analysis also said third-quarter earnings are “unlikely to show new market rebound,” noting that Cessna had plans for another production cut. Later, on September 21, the airframer announced the <a href="?q=node/26535">layoff of an additional 700 workers</a>.
Cessna, which only recently resolved issues with the machinists union, has revised Mustang delivery estimates down to 70 aircraft this year. Cessna had originally projected total business jet deliveries of 225 aircraft in 2010 but that number is expected to be revised down. In a letter to employees, CEO Jack Pelton wrote that while order cancellations have slowed, “the recovery and growth we expected to see throughout the year have not materialized, and the timing of any recovery remains uncertain.”
Hawker Beechcraft was in negotiations with the same machinists union as of the middle of last month. Despite recent news from the Kansas governor’s office that the company has accepted an incentive package that would retain the “vast majority” of jobs in Wichita, union officials were not yet convinced. (See As We Go To Press, page 3)
Research &amp; Development Meanwhile, analysts such as Moody’s Investors Service are questioning Hawker’s survival in its present form and saying that it “might still opt to move some of its operations elsewhere, even if a new [union] agreement is reached.”
While the outlook is grim at some OEMs, others continue to invest in research and development with the express intention of being ready when the recovery begins in earnest.
On September 30, Bombardier Aerospace announced it would <a href="?q=node/26619">expand its Global serie</a>s. “The time is right,” said president and CEO Guy Hachey. The Montreal-based OEM revealed details about the airplane at last month’s NBAA Convention. (See article on page one.)
The move is a direct challenge to competitor Gulfstream Aerospace as it nears certification of its <a href="?q=node/24433">new ultra-long-range, near-transonic G650</a>. Gulfstream expects to begin deliveries of the Mach 0.925 twinjet in 2012. The Savannah, Ga.-based OEM says it has orders for more than 200 aircraft at $65 million each, making for a substantial order book valued at about $13 billion.
At Dassault Falcon Jet, the news is mixed. According to president and CEO John Rosanvallon, the New Jersey-based company expects to deliver more than 85 aircraft this year. “That will be another record for the Falcon family,” he told AIN, adding, “We have cleaned up most of the backlog in terms of cancelled orders, and some of the Fortune 500 companies are coming back to the table to discuss new airplanes.”
But on the other hand, said Rosanvallon, the book-to-build ratio is not particularly encouraging. “We delivered all these airplanes [45 of them] in the first half of 2010, but the replenishment rate is disappointing. Going into 2010, we were hoping to turn the corner a little faster.”
Moody’s took a cautiously optimistic near-term look at business aviation, saying, “We anticipate production of general aviation aircraft could start increasing in 2012,” and concluding, “Companies that successfully cut costs would be better prepared to participate more profitably in the upturn.”
At the same time, Moody’s warned that Wichita might well lose its status as the Air Capital of the World as resident OEMs look at ways to cut costs. “Consolidation within the industry is also a possibility. And we expect several aviation companies could consider relocating and/or opening new facilities or further expand into Mexico or across the southern U.S.
“Although Wichita may continue as a nexus for a skilled workforce and final assembly because of its proximity to suppliers, we expect lower-value processes to transition to more cost-effective locales.”
Some good news came from the Obama Administration. In late September President Obama signed the Small Business Jobs Act of 2010, which included the <a href="?q=node/26456">bonus depreciation provision</a> that can be applied to purchases of general aviation aircraft and components such as engines and avionics.
“Now that the President has signed the measure into law,” said NBAA president and CEO Ed Bolen, “companies will be able to take advantage of the provision right away, giving them access to the benefits of business aviation.”
“We are optimistic that the small business law will help to re-energize America’s general aviation production lines and bring back lost jobs,” said GAMA president and CEO Pete Bunce.
On the other hand, the business jet market index from UBS Investment Research, released just a few days earlier, shows an 8-percent dip, the second consecutive decrease. The straight-up measure of absolute business conditions held steady “at a depressed level,” with inventory of young pre-owned aircraft decreasing slightly while available financing took a slight turn for the worst.
Mike Riegel, a veteran observer of business aviation’s cyclical ups and downs, predicts that more Chinese investors will appear in business aviation, as well as “potential threats” from India, Japan and Russia.
He also expects a continued shift in demand from North American to international markets, where non-North American manufacturers will have a stronger hand than they have during ­previous business cycles.
Richard Aboulafia, v-p of analysis at The Teal Group in Fairfax, Va., pointed out that corporate profits are normally the closest thing to a direct driver in a business aviation recovery, and corporate profits are up. However, ­Aboulafia added, “People are making cash, but they’re not spending it. 
“Our clock,” he added, “is set for a 2012 recovery for business aviation.”
The annual Honeywell Business Aviation Outlook, released at the NBAA Convention (see article on page 6), agrees closely with Aboulafia’s assessment. The company’s forecast suggests business jet deliveries and revenues will remain flat or slightly down through next year, with a clear recovery to begin in early 2012.

Industry OEMs continue to stare down recession

Discussing the recession and predictions of a <link news/single-news-page/article/crystal-ball-208b-in-sales-by-2019-25878/ _blank>business aviation indust

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