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Analyst: Continued Economic Turbulence Won't Derail GA Recovery
August 22, 2011
The economy's third-quarter slowdown is not expected to scuttle what to date has been a slow, gradual recovery for general aviation, according to general aviation investment analyst Brian Foley, of Brian Foley Associates.
"With equity markets whipsawing, sovereign debt issues and overall economic uncertainty, some in the general aviation sector wonder if it's a precursor to another 2008-like industry free-fall," said Foley in a press release issued Aug. 15 entitled General Aviation Won't Repeat 2008 Rout. "Not so…I wasn't shy in publicly proclaiming the sky was falling back then, and I'm now categorically insisting that the same scenario just isn't plausible today."
Among the reasons for Foley's continued optimism regarding general aviation:
- Those buying aircraft today are not the speculators or marginal credit-worthy customers of several years ago. "Today's order books are of a much higher caliber, made up of those with the financial wherewithal to buy their own aircraft or by borrowers who have been heavily scrutinized by lenders and made meaningful down-payments," Foley said.
- Large-scale fleet order cancellations are much less likely today, since most of today's buyers are mainstream clients. "In the previous downturn, widespread fractional and start-up air taxi order cancellations exacerbated an already dire situation," he said.
Although the extreme stock market volatility and economic uncertainty seen through August and much of the current quarter may negatively impact sales for some manufacturers and aviation service providers in the short term, Foley said the worst is behind them.
"These companies haven't been sitting idly the last three years," he said. "They've made a lot of progress in right-sizing themselves to the current economic environment."
While general aviation aircraft deliveries declined in the first half of 2011, Foley called that a pause, and not the start of another industry decline.
"In any recovery it's never linear between point-A and point-B," he said. "You're always going to have some setbacks…that doesn't mean we're headed down the slippery slope again."
Overall corporate profits also remain strong, which Foley said is a huge positive for business aviation. However, he said two missing ingredients – the will and confidence to buy - are needed to drive business aircraft purchases going forward.
"That can only be earned through a little more stable economic situation, longer term equity market upturns and just a little more stability," he said. "Once that comes together, the profits and pent-up demand are there."