Professional Pilot, January 2016

5 fl eet is slowing dramatically Mind you a projected 10 growth rate is stout when compared to for example the single digit growth rates projected for the automotive industry However as it relates to pricing our industry had geared up for rates exceeding 20 As a result there is more capacity than demand which leads to lower prices It is also worth noting here that though the trend line is the same the percentage of growth for the US fl eet is lower than the worldwide numbers from the chart In the out years of 2016 2025 projected growth averages 75 per 5 year period This is signifi cant because the US represents some 60 of the world market and will continue to do so throughout my lifetime no jokes about this being a short term forecast please Given that we are talking about growth rates here this is to be expected As the size of the fl eet grows it is a given that growth rates will become lower But again as an industry we had the privilege of a very rapidly rising tide lifting our boats for more than 40 years The strength of this tide was reduced rather dramatically beginning in 2008 and the industry is still adjusting Since there isnt a huge amount of differentiation between product offerings by different manufacturers within given market segments price is what suffers fi rst Why has the growth rate changed We can look to statistics covering the number of billionaires in the world for one indicator To start with this number grew from 400 to 1125 between 2000 and 2008 But in 2009 it shrunk 30 to 793 If you think of the number of billionaires as making up a signifi cant portion private aircraft buyers this is huge Take a look at Fig 3 But I think that theres another billionaire statistic even more pertinent More wealth is accumulating in fewer hands Its estimated that from 2000 to 2014 the number of billionaires grew from 400 to 1600 During this same period the money these same folks controlled grew from about 875 billion to about 6600 billion So in 2000 each billionaire controlled about 22 billion In 2014 this was about 41 billion If we returned to the ratios we had in 2000 we would now have about 3000 billionaires giving us an additional 1400 corporate aircraft prospects I would certainly like to have an additional 1400 prospects Wouldnt you 68 PROFESSIONAL PILOT January 2016 Fig 3 Change in the number of billionaires worldwide The Forbes 2000 provides anecdotal evidence that this concentration of wealth is also occurring within the worlds largest corporations In 2004 these multinational companies generated revenues estimated at 19 trillion In 2015 this number is reported to be 39 trillion The companies and countries containing them from this list of 2000 has changed but the total number of companies included has not So over 15 years the amount of money generated and controlled by the identical number of companies has increased by some 205 How does this affect demand for business aircraft Suppose Ben and Jerrys Ice Cream has a corporate jet They are purchased by Unilever who has a fl eet of jets Unilevers CFO says Hey we arent maxing out the use of our jets so lets sell the one Ben and Jerrys owned and service them from our fl eet So even though Ben and Jerrys is now more profi table as a result of being bought by Unilever demand for a business aircraft has just been reduced There are other factors reducing demand One is overcapacity of lift based on historical numbers Another is the number of alternatives to ownership that allow for the sharing of equipment Yet another is the escalating cost of ownership due to higher MRO costs result of consolidation and cost to modify older planes to meet current requirements And there is more but well discuss that in future articles What we know and are re learning is that being able to raise prices to a minimal degree is a healthy thing for the economy The same is true for our industry If nothing else the threat of higher future prices drives the decisions we make today I have no doubt that the industry will re size itself over time to reduce capacities to a level that allows some upward re pricing But for the near term I believe that what we have is what we have Bob Rockwood has been in the aircraft brokerage business since 1978 During his tenure at Omni Intl Jet Trading Floor he began writing The Rockwood Report which discusses the corporate aircraft market In 1986 he joined Bristol Associates as a managing partner 1200 1000 800 600 400 200 0 2000 2008 2009 Year Number of billionaires worldwide Fig 2 Turbine powered business aircraft fl eet worldwide 1996 2000 2001 2005 2006 2010 2011 2015 2016 2020 2021 2025 Range of years growth Percentage of growth 35 30 25 20 15 10 0