Amidst Continued Economic Turbulence, Analysts See Long-Term Industry Recovery

July 15, 2011

Despite a still-turbulent U.S. economy, several leading business aviation analysts remain optimistic about the long-term prospects for the industry. They acknowledge that a variety of economic forces may stall the turn-around, or in the most unlikely extreme, derail it altogether.

However, looking solely at key market indicators, they are holding fast to their forecasts of earlier this year that say a lengthy, gradual period of market growth could start as early as the fourth quarter of this year, and should be well in place in 2012.

“We’re hoping 2010 was the delivery trough, although we’re kind of in the minority of folks who believe that,” said Brian Foley, president of Brian Foley Associates. “What we’re seeing now is a little summer lull that has been brought on by the Greek debt crisis, the Chinese banking system and other factors that are causing the stock market to correct and people to sit on the fence a little longer.”
He predicts the beginnings of a significant turn around could surface early as late in the current quarter.

“There is pent up demand,” he said. “We think a lot of the undercurrents that are going on right now…will be sorted out by then.”
Richard Aboulafia, vice president of analysis of Teal Group Corporation, said he remains upbeat about prospects for larger, long-range business aircraft. “Longer range jets, that’s such a global story at this point, that I don’t think there’s really anything at all to worry about,” he said, pointing to strong and growing economies in countries like China, India and Brazil, as well as regions such as the Middle East, where business aviation activity is increasing.

However, he remains more guarded about the small to mid-size segment.

“We still see a recovery in 2012 and all the numbers are in place for that recovery,” he said. “We’re just waiting to see what the impact is of this economic hiccup.”
Looking at some of the leading indicators for business aviation, Aboulafia said everything is in place for a market upturn. “So far in terms of all the metrics we watch, fleet-for-sale, corporate profits, things are pretty good,” he said.

Used aircraft availability, another important driver of business aviation growth, also is showing signs of improvement, Aboulafia said.

In fact, the aviation information service, Jetnet, released figures in mid-July showing that, although average asking prices for used business jets declined, actual sales increased by 19.7 percent in the first five months of 2011, compared with the same period in 2010, while the inventory of business jets for sale declined to 14.1 percent in May 2011 from 15.3 percent a year earlier.

Another important indicator of the health of the business aviation market – aircraft flight activity – showed a slight gain of 1.1 percent in June compared with a year earlier.

All this leads Foley and Aboulafia to believe that even with a slight lull during the summer, the long-term prospects for business aviation market growth is strong. “We remain bullish for the end of the year,” Foley said.

Adds Aboulafia: “In terms of the numbers that directly influence our forecasting, everything is fine for a 2012 recovery.”