Is economic instability the new normal for GA?
July 6, 2012, Sparta, N.J. - Since 2008 the general aviation industry has been reeling from a downturn that, to many, seems to be lasting an eternity.
So what’s really going on?
"That's probably the most important single question we're being asked these days," notes industry advisor Brian Foley. "We sympathize with those who worry because this has indeed been an epic correction. But historically, the general aviation industry has averaged five-year cycles, which would normally suggest another year of weakness, more or less. That's not exactly a predictor because these averages, by nature, are highly governed by extremes. This recession is concerning because it is both deep and prolonged, affecting certain companies and sectors more than others."
As an example, Foley cites the fact that large-cabin business jets have been relatively unscathed. But other segments are still a long way from recovery. The high-profile bankruptcy of Hawker Beechcraft, one of the "Big Six" manufacturers competing mainly in small and midsize jets, has caused concern throughout the industry. "This case generated a lot of media coverage," Foley says, "not only because of Hawker Beechcraft's prominence but also because of its public reporting requirements. Surely the industry must have other name-brand providers in the industry in similar difficulties that we don't know about, because they're not subject to the same reporting obligations. That's a spooky thought."
Some hail the recent business jet record breaking fleet orders from fractional provider NetJets, a Berkshire Hathaway company, as a sign that the market has finally returned. Foley is more cautious: “These deliveries are spaced out over the next decade so there’s no quick benefit, and they're principally intended to replace (as opposed to grow) existing fleet aircraft averaging some seven years in age. There’s perhaps a little bit of gaming going on here as well, with NetJets' ability strike a better bargain in low-market conditions and to have these new jets on line when the economy picks up (while still being able to defer and/or cancel orders if it does not)."
So what’s really going on? And how much longer must we sing the blues?
Foley believes that, for most general aviation companies, the safest mindset is to view the current situation as the "new normal" and adapt accordingly. "The pessimist in me says we'll be in something of a steady-state situation for the foreseeable future, with occasional setbacks balanced out by spots of growth. For example, while Europe's situation worsens and red-hot China moderates, North America may well begin to percolate and take up slack. And the optimist in me says that companies geared to live through these hard times will invariably have the edge when this recession's over. Generally speaking, they're the ones who can spot a welcome uptick as a gift (rather than a given) and profit from it."