AIR GLOBAL ONE®

June 2010

Gulfstream ‘Poised for Double-digit Growth in 2011’
Gulfstream Aerospace and sister company Jet Aviation “will return to growth this year,” according to Jay Johnson, chairman and CEO of parent company General Dynamics. Speaking at the Sanford C. Bernstein Decision Conference on Friday, he predicted that his company’s aerospace division will begin an “attractive growth trajectory” this year and “is poised for double-digit growth” next year, the latter due to deliveries starting for the Gulfstream G250 and G650. The aerospace group backlog was $18.5 billion at the end of the first quarter and “orders have been outpacing defaults for four consecutive quarters,” Johnson said. “Demand is still strong for large-cabin Gulfstreams, and we’re on pace to deliver 77 of them in 2010.” He said there is a “healthy order intake” for the G450 and G550, with backlog for both in the 18- to 24-month range. According to Johnson, there has been “some improvement” in the midsize business jet market as pre-owned inventory declines, “and there could be upside to the 14 planned midsize deliveries” this year. Meanwhile, Jet Aviation is experiencing “solid” growth in maintenance and “extremely” strong demand for its FBO, aircraft management and aircraft charter services, he said.

Used Bizcraft Inventory Falling, but Still Too High
A report released by JetNet on Tuesday shows that the number of pre-owned business jets and turboprops on the market last month fell by more than 7 percent on a year-over-year basis. But inventory as a percentage of in-service aircraft still remains high for business jets at 15.3 percent (2,674 aircraft), and while down 2.1 percent from May 2009 this still indicates a buyer’s market for this category. Average asking prices for business jets were down by 32 percent last month versus a year ago, according to the JetNet data. Business jet transactions rose 12.7 percent from May 2009, but it seems that older inventory is languishing as average days on the market skyrocketed by 72 percent, to 363 days. Turboprops, meanwhile, continued their march toward more normal inventories, settling at 10.8 percent last month (1,366 aircraft), which was 1.2 percentage points lower than in the same month last year. Used turboprop transactions recorded by JetNet rose 12.3 percent year-over-year, though asking prices still slid steeply by 42.8 percent. Average number of days on the market for pre-owned turboprops during this period increased by 90 days, to 338.

JPMorgan: Pre-owned Bizjet Market ‘On Track’
Recovery in the pre-owned business jet market “remains on track,” but the pickup in the new aircraft market is still “elusive,” JPMorgan noted in its latest business jet monthly report, issued late last week. “Used inventories continued to move downward, consistent with their path over the past 10 months,” said Joseph Nadol III, the firm’s chief aerospace analyst. However, at 12 percent of the in-service fleet–down modestly from 12.3 percent in April–pre-owned business jet inventory remains above the 10-year average of 9 percent and is still higher than at any point during the 2001 to 2003 downturn. Pre-owned prices also fell again by 2.5 percent last month, “And while they are now at the lowest level since December 1997, we see further softness ahead given elevated inventory levels.” According to JPMorgan, “The abundance of used aircraft at low prices has been a major factor weighing on new jet demand, which has yet to see a real bounce…more inventory still needs to clear before demand for new aircraft can pick up.” Meanwhile, business jet flight operations climbed 19 percent year-over-year in April to 337,000, marking the fourth consecutive double-digit percent increase.

General Aviation Recovery Takes a Temporary Breather
Aviation market advisor Brian Foley said the current stagnant growth period for the general aviation industry isn’t cause for concern. “I see no cause for panic or even pessimism, certainly not at this point,” he said. “Most recoveries aren’t linear and the occasional pullback can be expected.” A year ago, Foley suggested that the recovery might be W-shaped, “And that appears to be what’s happening; the industry takes one step back before taking two more forward.” Economic troubles in Europe, the second-largest business aviation market in the world, likely explain the pause in recovery, he said. “Worldwide stock markets have responded with double-digit percentage drops. So how can any industry go unaffected, at least temporarily?” However, Foley doesn’t believe this will affect the industry’s long-term outlook. “Europe and the markets will adjust themselves–they always do–at which point the recovery can resume in synch,” he noted, adding that this slowdown “will be shorter lasting and less pronounced than the big recessionary downturn of 2008 to 2009.” But the timing couldn’t be worse, since many of the companies affected were just beginning to show improvement. This could possibly lead to more summer furloughs at aircraft manufacturers, he said, “but then the recovery should resume on a steadier, upward trend.”

August 2009

Global business flying has declined significantly. Flight Aware flights indicate flight reductions by as much as 2,000 flights in any one hour of each day.

It appears at this writing business aviation will not see a bottom till 2nd or 3rd quarter 2010. With discussion of implementation of Carbon Tax or Cap and Trade I forecast the aviation economy will experience a slower recovery if Carbon Tax legislation does not exclude aviation.  U.S. business aviation contributes $150 billion annually to the U.S. economy.

The global aviation community encompasses millions of workers and provides to each country's GDP in masses amounts. Leaders in the business aviation community understand how we arrived at this point. My February request of aviation leadership at ATA, GAMA, NATA, NBAA, AOPA, MEBAA, ASBAA, EBAA, and all other aviation organizations should develop informational programs to inform government policy makers.  A unified global message of solidarity to resolve the aviation market issues and convey to government policy makers has not been observed as yet.  Although NBAA, GAMA and AOPA seem to have developed a message of solidarty.  A message indicating unity has developed within the United States aviation comunity.  Question: Does the U.S. Congress understand value aviation offers the american public and GNP. 

Earlier studies indicate first quarter 2009 part 91 flying down Y.T.D. 15.3%, charter down one-third and fractional down 32%. Decreased business travel crossed all lines of turbine travel with turboprops down 24.1%, small cabin jets down 22.1%, mid-size cabin jets down 19.9% and large cabin jet activity was down 26%. JP Morgan states "monthly takeoffs and landings in the U.S. appear to have stabilized” around the 280,000 range, “off a low of 264,000 in February.” The latest results, for the month of May, show year-to-year flight operations 27 percent lower, “the twelfth straight double-digit decline and the seventh decline of more than 20 percent. Flight ops are down 28 percent year-to-date.” Airlines announced major losses as of June 2009. Business and vacation travel is reduced causing airlines to have a loss of revenue the first six (6) months of 2009.

The aviation manufacturing and service industry has seen employee layoffs in the tens of thousands. Boeing expects layoffs to total 10,000 in 2009. The number includes 4,500 layoffs announced earlier this year by Boeing’s commercial plane unit. Cessna recently announced a 2,000 workforce reduction.

The 2009 U.S. House of Representatives economic stimulus package is suspect as to its proposed effectiveness this year. General discussions indicate large debt the U.S. society will incur this year and into 2020. see Tax-effects on aviation

East and west coast contract pilots are not receiving calls for contract work. East and west coast charters are negligible. Part 91 contract flying is reduced. Buyers of aircraft at current asking prices are few. Aircraft sales brokers are stating confidentially that offers are at 40 cents on the dollar of aircraft valuations from 2007.

JP Morgan - Bizjet market Report

August

J.P. Morgan: Bizjet Market Stabilized, but Stagnant.
Data from a J.P. Morgan business jet report released on August 4, 2009 indicates “evidence of stabilization” in the business jet market “but no improvement.” According to the report, pre-owned business jet inventories remain at record highs–staying at about 14.5 percent of the in-service fleet for the fifth consecutive month–but have not gotten much worse. Large-cabin and light jet inventories increased slightly, while midsize jets eased a bit. Of 23 business jet models J.P. Morgan tracks, 12 saw higher sequential inventories last month. Pre-owned aircraft prices have continued “a steady downward march toward supply-demand equilibrium,” noted J.P. Morgan aerospace/defense analyst Joseph Nadol III.  Prices fell 1.9 percent last month, with used large-cabin jets experiencing the most contraction at -2 percent.  Meanwhile, business jet flight activity continued to flatten sequentially, with 285,000 takeoffs and landings recorded in the U.S. in June a 21-percent decline over the same month last year. This is “the fourth consecutive month in the 280,000 to 285,000 range and [takeoffs and landings] appear to have stabilized at this depressed level off a low of 264,000 in February,” the investment firm said. “We still see few signs of moving off the bottom, however, and were not much encouraged by second-quarter earnings,” Nadol concluded. 

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LINKS

AIR CHARTER
CARGO AIRCRAFT
GULFSTREAM IV CONTRACT PILOT
AIRCRAFT LEASE SALES
CARBON TAX (effect on aviation)