Aviation industry: Which way is up?

October 21, 2009
Written by Pete Trabucco
Oct. 21, 2009 – Over the past year, the business jet as well as the commercial general aviation and leisure flying industry in North America has taken a turn for the worse with many charter, flight departments and fractional ownership companies reporting up to 40 per cent less business (and flying) than the year before. In the light of recent general aviation accidents and a record number of corporate flight department closings, the industry had indeed seen better days. 
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For those around the industry, we have all seen significant slowdowns occurring in many areas of our industry. If that wasn’t bad enough, layoffs at general aviation manufacturing  companies such as General Dynamics ,Cessna,  Hawker, Beechcraft, and others have topped over 12,000 jobs lost in recent months. It has also been reported that pilots and mechanics, who also make their living with these planes, have lost their jobs in record numbers as well.

To make matters even worse, fuel prices in the general aviation industry have increased 30 percent within the last year. So what has caused all this and where does the industry stand right now?

Many other factors contributed to why all this happened. I am sure we can all agree that the simple reason and answer to the question is that the economy itself had been so dismal. Another contributing factor to the situation this industry finds itself in comes from the concept that executive travel in corporate jets (especially during recessions) is generally been looked upon as symbols of boardroom extravagance.

Now anyone in this business knows how much a cost savings it is for a CEO or high-level executive in using private aircraft to get the job done quickly.  The very idea of trying to work effectively using the standard commercial airlines is short sighted and ill conceived. It’s all about availability and commercial airlines simply don’t always go where the average corporate executive needs to be.

The reality here and what the general public doesn’t know is that this industry is a pretty big one and extremely vital to our national transportation system.  The truth be told general aviation accounts for more than $150 billion a year in economic activity and employs over 1.2 million jobs. This comes from the 5,200+ public-use airports around the country.  Of this number only 10 percent of these airports have scheduled airline service. 

These airports employ thousands of people and breathe life in to the local communities that they serve. These airports are also utilized as reliever airports and are vital to many Fortune 500 and 1000 businesses in the area.  They are also used exclusively by disaster relief, medical care organizations and private pilots like myself as well. 

For the most part these airports also grant much better access to urban areas around the country. A fact that your average politician doesn’t know.  Unfortunately, the air transportation message has been slow to get out to these mis-informed politicians (as well as the media itself) and this has left us all in a quandary.  Our industry as a whole has failed to get this message out and this failure is both the both the problem and the answer to our current demise. We need to continue to educate the community in how important general aviation is and keep sending that message to our elected officials.

Light at the end of the tunnel:
There are about 16, 800 used aircraft in the worldwide inventory. Of those, a little over 3,100 business jets were for sale in mid-July of 2009. In August, that number has gone down a tad but if the trend continues, and it has for the next few months, this can be a good sign for the industry.  Just from visiting several dozen flight departments myself, I can tell you that many operations managers and maintenance directors are breathing a little easier today then they had been six months ago.  Recently our U.S. stock market has seen a steady six-month growth period and there have also been slight improvements in new home construction. 

The U.S. dollar seems to be picking up momentum as well.  As your economics 101 professor would say, “As our economy improves, and it seems to be improving slowly. so will the aviation industry.” The foreign market (Europe, Middle East and Asia) have also seen business boom and overall have not been affected by what I call “the media scare” that we have experienced here in the United States.  Many charter companies have actually picked up lost business over seas and have succeeded in keeping their businesses going forward.

Also, some good news comes from the September report by J.P. Morgan’s “Aerospace and Defense: Business Jet Monthly,” It is quoted as saying “In a sign that conditions are improving modestly in the market for used jets, inventories fell in August which has been the first material decline of this cycle.”  It is true that many of the business jet manufactures have reported losses in the last quarter but they are also quick to point out that these losses have slowed down significantly and this indicates early signs of stabilization.

New aircraft sales will also increase in that the backlog of planes that were scheduled to be delivered this year will now be added to those that will be made in 2010 and that again is a good sign for market recovery.

Finally, another report from the Aviation Research Group/U.S. (ARG/US) states in its July report that business aircraft flight activity, which had been in a major nose dive in demand, was now showing “tentative signs of recovery” and that “in recent weeks the trend suggests activity could meet 2008 levels in the near term.”

So has the industry bottomed out and is recovery on its way?  The answer to this question depends on who you talk to.  Some say the worst is over while others feel we might have to wait just a little bit longer to see the light at the end of the tunnel. While waiting for this change however, many piston and business jet manufacturers have been looking outside the box for answers and going after new worldwide markets in order to survive. 

In the end, some innovative ideas (like Day Jet and the Eclipse demise) will ultimately fail while others will become stronger and reap more market share of the business than ever before.  Some have told me that the best thing to say about business aviation right now is that the future looks less grim than it has in the past. Again, in the end it’s all in how you look at it. Are you a “glass full” or “glass empty” type of person?

As for me, I believe that the worst is indeed behind us. Most economic indicators point to the economy that is getting better and that’s very good for everyone.

Many business jet flight departments jet charter and fractional ownership jet companies have told me that they are flying more now than six months ago. Sure, we are still not out of the woods but I am confident that the industry we all know and love (like flying itself) has reached its rotation speed and will be achieving lift from the tarmac very soon.

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