Cautious, Not Necessarily Optimistic

PHIL ROSE’s observations on the US market and how we got here

By now there can’t be anyone who isn’t aware that the aviation industry—and particularly the business aviation sector—is in trouble. Exactly how much trouble depends on who you listen to. The one thing that most people can agree on for more than five minutes is that this particular downturn in fortunes—and aircraft orders and deliveries—has its origins here in the United States. Last year the world economy was rocked by extensive fallout from the US mortgage crisis and the collapse of numerous banks and financial institutions that, despite their indignant protestations that they knew what they were doing, didn’t. They lost contact with the real world years ago and were free from any responsible oversight or regulation.

In November 2008, as the US and the rest of the world reeled and floundered about in search of ways of achieving financial sanity, three auto industry executives famously flew to Washington on company aircraft to beg Washington for bailout money, drawing exactly the kind of governmental and public condemnation that senior auto industry executives might be expected to have foreseen.

Next, one of the first pronouncements from a new US President committed to a different way of doing things was a condemnation of the use of business aircraft as essentially frivolous. Congress and the mainstream media were quick to latch on to President Obama’s populist message—and neither the business aircraft industry nor the associations representing that industry realized what had hit them. Meanwhile, companies across the country reacted to the hullabaloo by diving for cover, and cancelling or deferring aircraft orders—and an industry that had for years basked in the secure warmth of backlogs measured in years woke up feeling very chilly and not at all secure.

Months after all this had started and the damage was done, business aircraft manufacturers would admit that they had been taken completely off guard. After all, why would a well established manufacturing industry that employs hundreds of thousands of people and helps generate billions of dollars in sales each year expect to be vilified by its own government and pilloried by the mass media? Only the fact that the situation was unprecedented in almost every respect can explain why business aviation took so long to defend its image while controlling damage by means of furloughs, layoffs, and cutbacks in production.

And, now that we’ve arrived at what looks like the bottom of the trough, analysts and forecasters are looking for any sign that looks like recovery. This summer, many were predicting, albeit cautiously, that sales would start returning to normal by 2011, after another rough year in 2010.

Even that forecast may be optimistic. For manufacturers of smaller (or lower-priced) business aircraft—and those with limited product portfolios—the prospects are still uncertain, in part because of the large number of unit sales required to achieve steady profitability. Evidence suggests that builders of larger corporate aircraft may fare better—likewise those with military products whose sales are almost guaranteed given current global security fears, even as civil sales remain uncertain.

Right now, we can be fairly sure of at least a few things. Sales and deliveries of new aircraft will likely remain sluggish by comparison with 2007; the presence of large numbers of used aircraft on the market will continue to have an adverse effect on prices, including those of brand-new aircraft; and job losses forced on manufacturers in the past year may lead to a permanently downsized industry—maybe even one with fewer players. If this happens and the industry becomes leaner and more efficient, it may be one of very few positive developments to come out of 2009—at least as far as business aviation is concerned. And even this would have to be measured carefully against the associated loss of professional skill, talent, and potential.