I was reading recently a report that talked about the summer numbers and how we have been doing here in the United States in the business aviation market and the numbers don;t look as great as we would like them, but they are stabilizing a bit in this crushing economic downturn. The sales of some of the companies out there are non-existent and some are actually having a decent year overall considering what they are dealing with around them. The reports point to an ever increasing strength of the US Dollar. This does not necessarily translate into better news for the industry overall.
Part of the problem with the industry is not the fact that the dollar has been weak and that we are seeing difficulties here, the problem can also be attributed to the slide in the economy and tough market indicators in Europe. In certain market segments, the number of European-owned aircraft available
greatly exceeds the number of American-owned available aircraft. The slowing European economy has a bigger impact on the business jet
market than the strong dollar and this is a growing trend. We will have to see how they react to the economic slide and how that will change how we do business here in the United States.
It comes with the old saw of “buy low and sell high” as we have been taught from the beginning of business 101. In recent years the grim reaper seems to have gripped the economy and there seems to be a lot of gloom and doom in every corner of the business aviation industry. The good news for those that are looking to purchase a business jet is that this is a buyer’s market.
The industry is seeing good prices throughout each class of jet available. The used jet marketplace is seeing great pricing for those in the market and the charter business is still pretty solid which makes owning a decent option. This is not to say that all of the used jets on the market are a good buy. A buyers market can be a great time to purchase but when buying you must do your homework to make sure that what you are getting is truly a bargain.
Due to the increased inventory and the lower prices it can be a tough choice as to which jet may be the best to put into your asset column. With the economy may jets are being repossessed or have sat without being used for a while and their maintenance may not be up to date, costing the potential buyer a large fee to get it up to date. Paying attention to the jet you are buying is important. You should have someone that is an expert in assessing value based on the needs you have and the information provided by the seller to make your purchase the best possible it can be.
In the tougher economic times that we have today, there is bound to be some fallout with businesses and their employees. Cessna is apparently encountering that same problem now. AIN reports that there may be a possible strike looming in the future over at Cessna:
Cessna Aircraft made a new contract proposal on Monday that was immediately rejected by machinist union leadership, with the recommendation that its members follow suit in a vote set for Saturday. The seven-year contract offer by Cessna was described by president, chairman and CEO Jack Pelton as “very fair, given the extraordinary challenges we are facing in our economy and in our industry.” Union District 70 president Steve Rooney disagreed in no uncertain terms. He said rather than asking for a short-term sacrifice to help the company through bad economic times, Cessna was asking for permanent cuts over seven years. Rooney alleges that the Wichita-based aircraft manufacturer used the economic downturn as an opportunity “to gut the contract and saddle employees with extreme and punitive measures.” Union members are scheduled to vote on Saturday by simple majority whether to accept or reject the contract. If a majority reject the contract, union members will then be asked to vote a second time on whether to approve a strike, which will require a two-thirds majority. If the membership does not vote to approve a strike, the contract will be accepted by default. If they vote to strike, the work stoppage would begin at 12:01 a.m. on Monday, which could bring the Citation production lines to a standstill.
With few contracts being written for new business aircraft and even many of the orders now placed being canceled, manufacturers are beginning to scale back their operations and in that case part of where cuts are made will have an impact on workers. I hope that this can be avoided. We will see over the weekend if the work stoppage occurs.
I had a chance to catch up on some of my reading this week on what is happening in the market and I found an interesting snippet at AINOnline:
“Elevated used inventory, attractive used pricing and macro uncertainty continue to hold down demand for new business jets,” JPMorgan Equity Research noted in its latest business jet monthly report, issued this morning. “As a result, OEMs are eating further into their backlogs, and if these don’t stabilize in the coming quarters, further [production] rate cuts seem likely.
This is obviously not good news for those that are producing new jets, but those that have inventory in used jets it means now is a good opportunity to make a push for sales with those jets they have. The report goes on to state:
As for pre-owned jets, JPMorgan said used inventory of in-production models edged up to 11.8 percent in August versus 11.6 percent in July, with all categories showing increased inventories.
“We believe this increase is a bump in the road and expect that inventories…will continue to decline gradually,” it added. Meanwhile, average asking prices for pre-owned jets increased 1.3 percent in August, reaching $11.4 million.
It seems that used inventories will be reduced which is good news for all. When those inventories are reduced the new jets coming into production will also increase.
We are continuing to get reports from all of the sectors in the industry that the slide has slowed and the recovery has begun. It may be wishful thinking on the part of many of the manufacturers at this point but not for two separate business jet companies.
Business Jet Traveler reports that Bombardier CEO and President Pierre Beaudoin opines that he feels that the economic recovery is shown through the idea that less cancellations are occurring from customers. He specifically states that Bombardier is “starting to see signs of recovery as shown by the significant reduction in business aircraft order cancellations”, and this is backed by the statistics that during the second quarter this year they only had 26 cancellations of ordered aircraft while the same time period last year showed 80 cancellations. It appears that their orders may also be on the rise.
It is also reported that Gulfstream is seeing the market begin to get better and that it is not where it needs to be in the big picture but it is on the rise and headed in the right direction.
With these two companies showing signs of improvement and other manufacturers beginning to report the same numbers and forecasts, we can begin to see that the economic problems for companies in this industry may soon be able to recover from some of the worst conditions seem in a recent memory.
Operation Skyshield will have its 50th anniversary tomorrow on September 10, 2010. Only the World Trade Center attacks has resulted in the entire North American continent being shut down to all aircraft since the tests that were run by the U.S. and Canadian governments in Operation Skyshield. In an attempt to test the effectiveness of air defense systems, all aircraft were first grounded on September 10, 1960. The governments did this as merely a test and those results have never been shared. The operation was one of the largest air drills in aviation history and has not been done but three other times in the 60’s. Today’s air traffic is much more exponential than it was in the 60’s which would cause much more difficulties as a result. No other drills have been conducted in modern times.
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After reading about Avtrak in some aviation news I had a look at there operation. They are here close to me in my area and I wanted to get familiar with their operation. AIN reports that Avtrak is expanding its operations in Mexico and is soon growing beyond its capacity at its current location and will be moving its headquarters to Centennial Airport in Colorado. This is good news for companies in the aviation industry and it shows that this company is working hard to get ahead during down times. Their VP of marketing, Dennis Steinbeck, echos that sentiment in his statement to AIN, “We are one of the fortunate companies that have been expanding during one of the worst times in our industry.”
Avtrak is a maintenance tracking company and from their site they state:
Avtrak’s easy to use, web based services are recognized as the preferred maintenance tracking service by maintenance professionals worldwide. Avtrak’s services are considered the perfect blend of technology and highly qualified support people.
It is good to see that there are companies still expanding and growing and taking advantage of their hard work during this time of difficulty in the economy. If they can do it, I am positive we can all benefit from some hard work and some hustle.
I wanted to highlight the fact that we take for granted the “no frills” flights of commercial airlines and many people only dream of being able to have the best possible experience with first class flights, if they can afford what that ticket will cost them. I get a chance to see first hand some of the interiors of corporate jets and they are far above anything that even first class commercial flights can provide. I was reading recently at AirlineTrends.com that Virgin America is stepping up its game with in flight entertainment or “IFE”. The article states:
Virgin America has upgraded its ‘Red’ in-flight entertainment system with a number of innovative features, including the first ever seatback digital shopping platform, an open tab service, and Google Maps with terrain view. Already on Virgin America, passengers can use the IFE system to watch live satellite television, chat with other passengers, play 3D games such as Doom, and offset carbon emissions for their flight. Passengers can also purchase snacks, meals, and alcoholic beverages from their seats via Red. Flight attendants receive the orders via a tablet PC and bring the ordered items to the seat.
I love that commercial airlines are trying to make the experience of flying that much better for those that don’t have the use of their corporate private jets. I wonder when we will have headsets with a virtual screen where we can wear a helmet and get the feel of flying in a Gulstream or a or that Dassault Falcon while sitting in the back of the plane listening to soft music while the child behinds us screams because their ears hurt. Until that time, I will let companies like Virgin America try to keep up with the world of luxury flights.
It sounds like the people at Gulfstream are in for a better 2010 than they had in 2009. Jay Johnson the CEO and chairman of General Dynamics which is the parent company of Gulfstream stated, “We’re seeing a gradual improvement in the business jet market.” This was stated during the company’s second-quarter financial conference held yesterday. Johnson went on to state, “Gulfstream flying activity is up and we’re seeing a 16-percent increase in aircraft service sales…The industry has turned the corner.”
Gulfstream often seen as the leader in the business aviation space and one of the stronger markets in the industry is a good indicator of where the business of jet aviation is headed. Most of the numbers for Gulfstream are up in most of its orders in all categories. It was stated that Johnson expects sales to rise by “low to mid single digits” this year, with “steady growth” in revenues next year as G250 and G650 deliveries start in the second half.
Gulfstream numbers are not reflective on the entire industry but it is good to hear that corporate jets and jet aviation is beginning to “turn the corner”. We at Corporate Jet Insider believe it to be about time.
