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2011 Industry Forecasts Turn More Positive

January 14, 2011

Thanks largely to an improved outlook for U.S. economic growth, those watching the business aviation industry also are revising their forecasts, giving them a slightly more positive outlook. They say a turn-around already has started and will accelerate later this year and into 2012.

These perspectives are shared by NBAA President and CEO Ed Bolen, who said business aviation historically tracks with the national economy. "The economic news as we've entered 2011 seems to be gaining momentum, and I think that is reflected in the business aviation community," Bolen said. "Companies are reaching out to new customers, and I think that's reflected in our flight activity, and we're beginning to see it the sales data."

Sales Turn-Around Already Underway

Analyst Brian Foley, president of Brian Foley Associates, predicts new orders will drive growth through much of 2011. "There is a difference between what is happening now and deliveries down the road," Foley said, pointing to the lag time between sales and deliveries. "It's our position that things have started to improve already, but they haven't shown up in deliveries because of that one-year lag."

Richard Aboulafia, vice president of analysis for Teal Group Corporation, which also tracks the industry, agreed and predicts the business aviation industry will see slow, steady growth averaging around 10-percent per year for another six years starting next year. While that may sound significant when compared to the huge declines business aviation has just weathered, Aboulafia said it's far less than the 17.2 percent compounded annual growth the industry saw from 2003-08.

Looking at new aircraft sales, the biggest drag remains competition with the excessive inventory of pre-owned aircraft on the market, which still exceeds historic highs. "Hopefully, some reduction in the available fleet for sale and an increase in pricing for used aircraft ...will happen this year."

In fact, the used fleet of low-hour, late-model used aircraft, which were selling at as much as a 40-percent discount to similar new models, largely are gone, thanks to an influx of international buyers who capitalized on the weak dollar and bought these aircraft on the cheap, according to industry watchers.

International Still An Important Driver

Strong economies overseas, especially in Latin America and Asia, continue to drive aircraft sales in the U.S. In fact, Bolen said aircraft capable of making longer international flights did much better during the "Great Recession" due to international demand. "Those aircraft capable of flying from the U.S. to Brazil, Russia, India and China; the so called “BRIC” countries, have continued to stay strong, and I think that reflects the fact that those economies held up pretty well.

In fact, business aircraft deliveries to these regions already appear to be taking off. Cessna, for example, recently delivered three Citation Sovereign business jets to China's Flight Inspection Center, which is run by the country's civil aviation administration. The company also recently delivered a CJ3 light business jet to an unnamed customer in Hong Kong, according to published reports.

New Technologies Will Drive New Orders

While the huge inventory of used aircraft could remain a drag on new sales for a while, the industry watchers we spoke with all agree that new technology advances can shift the advantage back to new models.

"Manufacturers are smart and have learned that they have to update their product at least every three to five years to keep the market interested," said Foley, adding that those manufacturers who continued to invest in new designs and technologies will reap the rewards as the market rebounds.

"In contrast, there are a number of companies who either cancelled, or delayed new programs because of the economy," he said. "I think those strategies will backfire and allow their competitors, who stuck to their programs, to move ahead."

Among the more notable new aircraft introductions last year were Bombardier's Global 7000 and 8000 ultra-long range business jets and Cessna's revised Citation X. Embraer also delivered its first Legacy 650 in November, which was introduced in 2009.

Continued Aftermarket Growth

As is typically the case during market retrenchments, the business aviation aftermarket weathered the downturn much better, as aircraft owners continued to spend on necessary maintenance and repairs. However, they did cut back on discretionary improvements, which also negatively impacted the segment. "The aftermarket, while it was down, was not down proportionally as some of the newer models," said Bolen.

However, with the economy bouncing back, Bolen and others expect the aftermarket to also post gains as FBOs and MROs stock up. "In an upturn, everyone has to replenish inventories, maybe start doing discretionary maintenance again, and things pickup faster," said Aboulafia.