Professional Pilot, May 2017

14 PROFESSIONAL PILOT May 2017 The stock market seems to be hit by a correction falling by over 1 in the 2nd half of March with fears that this decline may continue And most of all there are exactly zero signs of renewed business aircraft market activity Average asking prices for used aircraft declined in the first few months of the year Flight operations continue to grow at the very sluggish pace that weve seen in recent years up only 1 2 in January and February The Trump Administration may bring an unwelcome new rules development too In March the administration unveiled a proposal to privatize air traffic control While this could help modernize an antiquated system it also brings the very real 5 2021 prospect of user fees which would disproportionately affect the private aviation industry This would produce yet another negative impact on demand Important consolation Even without growth the business aircraft industry remains large Our company Teal Group is not expecting any kind of business jet market recovery in the next 2 years When it does start hopefully in 2019 were expecting relatively muted growth numbers We dont see a return to the 2008 total business aircraft market peak for the duration of our forecast Given the myriad disappointments described above its too soon for any type of sustained optimism The good news is that business aviation is still a big industry It may have seen disappointments and a fair degree of pain over the past 10 years but consider that the lowest years of our forecast are no worse than any year before 2006 This matters because the 2003 2008 growth surge transformed this industry even more than the 1995 2000 growth surge Prior to 1997 the industry was never larger than 9 billion in annual deliveries in todays money Today its worth over twice that with few doubts that it will stay at that level Conclusion Given the pattern of the past 10 years its understandable that participants in the bizav industry are discouraged But the long term trend towards global wealth creation coupled with the clear if inconsistent link between this growth and business aircraft demand will likely result in eventual pleasant surprises rather than more disappointments owned by ONE Aviation may not survive Cessnas Mustang and Embraers Phenom 100 are at risk too As Cessnas Latitude continues to ramp up there are fears that its cousin the Sovereign may be eliminated from the product line due to low sales Perhaps worst of all Learjets future is very much in question Bombardier has announced another Learjet 70 75 production cut and output is now heading below 1 per month There are just 10 planes in the backlog Learjet 60 deliveries ended in 2014 and the all new Learjet 85 was canceled in 2015 reducing the company to just 1 product line Unless the market sees a sudden upturn the industry could lose another of its great legacy names and another jet family Disappointment 5 Political change or not One narrative put forth is that political considerations have held the market back over the past 10 years This view posits that President Obama was responsible for a somewhat antibusiness and antibizjet climate which helped keep potential buyers from signing for new jets People with this viewpoint point to November 2008 where executives from the big 3 auto companies flew to DC in private jets to ask for public financial support a spectacle that they think also helped put a chill on the market For believers in this view President Donald Trump is the perfect antidote to what they see as a difficult climate Trump famously has his own large business jet and his own helicopter As a businessman he has been seen as generally quite sympathetic to the private sector The US stock market rose by over 10 in the 4 months after Trumps election Business jet market participants and observers posited a Trump Bump that would unleash pent up demand finally triggering a long overdue broad based recovery From the standpoint of early April this looks somewhat oversold Upon examination economic growth looks almost exactly the same as it did during the Obama Administration or even weaker with Q1 2017 GDP growth coming in at just 1 well under Trumps promised 4 Richard Aboulafia is VP Analysis at Teal Group Corp an aviation and defense market intelligence and consulting company He has tracked the business aircraft market for over 25 years The bizav industry stays at altitude which beats the alternative 2000 1800 1600 1400 1200 1000 800 600 400 200 0 Units delivered Value Units Deliveries in 2017 billions 30 25 20 15 10 0 1964 1979 1994 1967 1982 1997 2009 1970 1985 2000 2012 1973 1988 2003 2015 1976 1991 2006 2018 2024