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Trends in the Overseas Marketplace

Anyone seeking greener pastures in overseas aviation markets will find that the forces that derailed the U.S. economy in 2007 – subprime loan defaults, the stock market meltdown and plummeting real estate values – sent financial shock waves throughout the world.

Both domestic and international utilization of aircraft has been depressed as the world continues to deal with one of the worst recessions since the Great Depression. However, the demand for certain kinds of aircraft, outsourcing of jobs from industrial nations and an emerging business aircraft economy in Asia mean that overseas markets are a bit healthier, even if not by much. The better news, say many financial and aircraft analysts, is that a recovery is in sight.

Activity among manufacturers, particularly those with facilities in Eastern Europe, has kept business aviators flying more than their U.S. counterparts, according to Richard Aboulafia, an aircraft analyst with the Teal Group, a company that follows the aerospace business.

“Globally there’s been a decentralization of manufacturing,” with many manufacturers outsourcing to areas where labor is less costly. Managing those satellite plants requires their owners to rely on business aircraft, he said.

In recent years, China, India, Russia and Europe have accounted for more than half the new aircraft orders in the world. While most of that overseas demand was centered in Europe, interest in aircraft was high in the emerging markets of China, India and Russia.

“In those emerging markets, ‘old’ is equated with ‘bad’ because maintenance experience is lacking,” noted Jay Mesinger, CEO and president of J. Mesinger Corporate Jet Sales. Those countries also lack much of the infrastructure needed to support business aviation, and in China most of the airspace is restricted and controlled by the military.

The “instability of oil prices,” Mesinger continued, has softened the Russian and Middle Eastern aircraft markets. Still, the numbers show significant aircraft sales potential in the emerging regions.

A December 2009 inventory by JetNet showed just 966 turbinepowered business aircraft in Asia, 156 in Australia and parts of the South Pacific, 411 in Africa and 842 in South America. Europe has significantly more at 2,733, while North America remains the leader with 12,147 business aircraft.

Overall, business flying in Europe was off about 15 percent in 2009, but aircraft prices and activity levels are beginning to stabilize, explained Brian Humphries, president and CEO of the European Business Aviation Association. “We’re not quite as bad [as the U.S.]. “We’re at about 2005 levels, but during the last two months of 2009, activity rose, with December showing a 3 percent increase compared with a year earlier,” he said.

As in the United States, the weakened banking community is offering fewer loans, forcing operators that need to finance their aircraft to cut back. Although charter business is down considerably, those with enough cash to weather the credit squeeze continue to fly, Humphries observed. Aircraft prices are starting to stabilize, and realistically priced aircraft are selling, he said.

Humphries also gauges economic stability by the big turnout (11,000 Attendees) at the 2009 European Business Aviation Convention & Exhibition – the third highest total since the event began in 2001.

Craig Sincock, president and CEO of Avfuel Corp., has experienced much of what Humphires reported.

During the first part of 2008, Sincock witnessed a decline in flight hours and fuel sales throughout the U.S., Europe and other international markets. “From our perspective, the international falloffs in aircraft operation and fuel consumption were by no means as deep as those in the U.S.,” which he estimates is down by 20 percent.

Sincock believes the market has bottomed out, or at least the spiral has slowed. Overseas, Avfuel forecasts a “slightly faster recovery” than in the United States.

“Overall, business flying in Europe was off about 15 percent in 2009, but aircraft prices and activity levels are beginning to stabilize.”

President and CEO, EBAA

Jobs are another way to measure market conditions and trends. John Peroyea, owner of FindAPilot, an Internet site that connects employers with aviators, noted that before the stock market decline, overseas flying jobs were growing faster than jobs at home. While pilot positions have dwindled both domestically and overseas, the decrease in international jobs was “not as pronounced.”

Peroyea says just over half of the employers posting jobs on his web site are U.S. based, while overseas visitors accounted for less than 15 percent of the site’s traffic. He is anticipating a recovery, however.

“Whenever I see more flight instructor and charter jobs listed, that’s an indicator the market is coming back.”

While stable prices are bringing overseas business aircraft sales back to life, the weak dollar has lured European buyers to American markets.

“This makes for some good deals,” says Brian Foley, president of Brian Foley Associates, which conducts general aviation analysis, forecasting and market research.

Lending policies have changed drastically, Foley explained, favoring larger aircraft, both here and in Europe, because banks believe these aircraft maintain their worth better than smaller aircraft. While lenders are now demanding 20 or even 30 percent down, they’re reluctant to finance older or smaller aircraft because of their drop in value.

“Before the downturn, you could get zero-percent-down financing,” said Foley. Now, lenders are making loans based on the financial strength of the buyer, not the value of the asset.

“Stock markets around the world have rebounded, and the value of the dollar is still low,” he added. “With their faster-healing economies, non-U.S. buyers will deplete the most desirable preowned inventory.”

Compared to the United States, Western Europe (particularly Germany) is experiencing greater business aviation activity, and Russia, China and India are expected to rebound significantly, according to a recent report from international financial services company Credit Suisse.

How long will that take? Foley predicts it could be six years.

“The recovery will be gradual and stealthy when compared to the abrupt drop that got us here,” he said.

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