Another month and another couple of major industry events have slipped by the wayside. For those who were planning to attend what would have been the biennial Farnborough International Airshow in the U.K. or the EAA AirVenture Oshkosh extravaganza in Wisconsin this week, it wouldn’t take too long to look left and look right before proclaiming that we somehow must have missed our connecting flight.
If you are like me, and happy to have your electronic calendar at hand to stay organized, do you also wonder how two such significant events on the aerospace calendar could somehow have been scheduled during the same week. While each show has a different focus, both Farnborough and Oshkosh are places where plane spotters and the occasional blue jeans-wearing high-net-worth individual can be seen with executives in Savile Row pin-stripes. Although we might come from different walks of life, we all seem to be able to converse quite well in the common language of aviation.
Looking back over the past several months, it is readily apparent that we are currently navigating through unknown skies. In January and February, preowned business jet transactions—a good bellwether for the health of the business and general aviation sector—were actually doing reasonably well. The volume of retail sales and leases to end-user customers was up about 4 percent globally in the first two months of 2020 over last year, according to JetNet databases. In the first-quarter JetNet iQ Survey, the sentiment of the business aircraft owner/operator community improved for the first time in seven quarters, up more than 9 percentage points from the fourth quarter. All was well.
On June 8, the U.S. National Bureau of Economic Research (NBER) announced what everyone already knew: that February 2020 was a peak in activity and the longest economic expansion in U.S. history going back to pre-U.S. Civil War days—a record 128 consecutive months—had come to a shattering halt. In an unprecedented development, NBER officials pronounced the arrival of the Covid-19 recession in the middle of the second quarter, not bothering to wait until all of the numbers came in to verify that two consecutive quarters of decline had in fact occurred. All was not so well.
There is nothing “usual” about the recession, nor the Covid-19 Black Swan. Workplace disruptions, work-from-home arrangements, employee furloughs, and involuntary reductions in force (IRIF) are today the norm, with immeasurable impacts on productivity, costs, and customer service levels. Within the aerospace community, the sudden double whammy of lower customer demand and disrupted supply chains has been wreaking havoc on company financials, the details of which are only now coming into the sharp light of day with the second-quarter earnings weeks upon us. All eyes and ears on earnings report-outs.
For those of us like myself who make our living analyzing markets and behaviors and forecasting likely future, we can take some heart in knowing that health recovery is already apparent in regions of the world where the pandemic first hit hard, as well as in countries where policy actions reflected a collective recognition of the seriousness of the coronavirus threat. In jurisdictions where efforts have been less nationally cohesive—the U.S., Brazil, India, and South Africa—Covid-19 continues to thrive, a mighty and invisible enemy of the state against which paramilitary troops and tracked armored vehicles are of little consequence compared with the lowly face mask, social distancing, and hand-washing.
For all sectors of civil aviation, from the commercial passenger and cargo carriers to business and general aviation (B&GA) aircraft, a healthy world economy and wide-open borders are vital to a return to growth.
Unfortunately, country forecasts where the vast majority of B&GA aircraft are based now suggest that GDP will shrink by 5 to 10 percent on average in 2020—a staggering development in stark contrast to the generally positive outlook just five months ago. This week, the chief economist of a major U.S. bank indicated that he expected it to be at least two years before the U.S. GDP would recover to pre-Covid levels.
With pervasive quarantining and other border restrictions, international flying has been especially curtailed since mid-March, placing large-cabin, long-range aircraft in the unusual position of being behind the industry’s flight operations recovery curve. This sector of the market famously declined to participate in the sharp industry downturn post-2008 global financial crisis, fueling a long, steady recovery that extended into early 2020.
While recovery in overall business aircraft utilization levels is indeed heartening, much of this flying is for personal/leisure purposes. A fuller recovery—with HNWIs and corporate executives traveling for the purposes of conducting business (i.e. business reasons)—so far seems to be about as elusive as The Holy Grail. This extends, of course, from people getting aboard a business aircraft to people boarding a commercial airliner.
With now-countless industry conferences, airshows, and face-to-face meetings relegated to the Zoom box on our desks, we suspect that it will be quite some time before many people will again feel comfortable getting into a commercial airport environment and aboard an aluminum tube with 150 or more people in tight proximity. We fully expect that the recovery of the commercial air carrier industry will take longer than business aviation, with intense pressures to downsize and consolidate affecting service levels and pricing for the foreseeable future.
With phones ringing and turbines twirling, many Part 135 operators of business aircraft are well positioned to grow their businesses and experiment with new business models to broaden their appeal to a wider community of customers, even if to serve only a portion of their overall travel needs.
The constant challenge is in managing customer expectations about pricing, and the number of family members (both human and canine) and associated paraphernalia that can be squeezed into a Learjet 35 for that flight from an old Long Island air base to the paradise of Palm Beach, Florida. But JetBlue, Delta, and others offering low New York-Florida fares and frequent flyer miles will be well positioned to ultimately win some of their loyalty back over time.
Good news is that U.S. consumers—and the business aircraft owner/operator community—were in relatively good shape at the beginning of the recession, with relatively low debt and good access to low-cost credit. The U.S. and other governments moved quickly and decisively to introduce safety-net and life-support measures to backstop their economies, and seem ready to do more as needed to kick-start recoveries.
Although some of the more traditional sectors like store-front retailers have suffered in the Covid-19 period, online shopping remains all the rage, accelerating a transition that had been already underway in the sector. As usual, business aviation customers like Jeff Bezos, Bill Gates, and Elon Musk were well ahead of this trend, positioning their businesses for unprecedented success in today’s and tomorrow’s markets.
While the economic slump might have already ended after the second quarter, the potential for a double-dip U.S. recession is real. While some might prefer to call such a recovery W-shaped, the semantics are unimportant in the face of a massive amount of uncertainty facing the U.S. economy in the second half of this year.
When the international borders to Europe, Canada, and now even the Bahamas are closed to U.S. travelers, you know that this is already a year to remember—or should we say forget?
