Professional Pilot, October 2016

Forecast Were cautiously confident that things dont get worse Units delivered Market value in 2016 billions 1200 1000 800 400 Also while Cessna would acquire the composite airframe technology associated with the defunct Lear 85 program it isnt clear that a composite business jet is a good idea at all And Cessna learned all that it needed to know about the viability of that design approach from its acquisition of the dead Hawker 4000 program Still even if Cessna just acquired Lear for its aftermarket revenue they would at least get 1 competing small to midsized family of business jets off of the market That would leave more space for the 2 survivors Cessna and Embraer And of course thered me more room for any new players that might enter the space Its evident that a bizjet market recovery will be delayed With rationalization unlikely the best the industry can do is hunker down and wait for a solid market recovery something for which the industry has been waiting since the downturn began in 2009 But the arrival of this recovery may be somewhat later than expected Analysts including myself had hoped for a quicker V shaped recovery One reason was that the broader economic indicators clearly pointed to a lot of cash sitting around waiting to be put to use Since 2009 corporations have held record levels of their assets in liquid form over 7 has been held in cash and cash equivalents Capital spending and spending on worker compensation has stayed low by historic standards The theory was that business jet fleets were aging and that this cash would eventually be spent with more business aircraft being acquired But a closer examination of these macroeconomic indicators reveals a less happy reality Its true that US companies held a remarkable 17 trillion in cash as of the end of 2015 But almost 1 3rd of this was held by just 5 tech companies Alphabet Google Apple Cisco Microsoft and Oracle according to Moodys Looking just at cash 20 PROFESSIONAL PILOT October 2016 30 Excludes jetliners RJ turboprops half of total US reserves are now held by only 1 of the 2200 companies tracked by S P Global Ratings As for the all the other US companies they are increasingly at the other end of the cash spectrum Many are deeply in debt By one account the debt ratio for non financial companies in Q1 2016 was at 29 its highest level since early 2012 In short an aggregate view of business indicates plentiful liquid assets waiting to be spent But theres a highly unequal distribution pattern for this cash which implies that business jets wont benefit from company spending any time soon Bizjet travel for the wealthy hobbled by inequality in corporate profits Were faced with a rather ironic situation an industry predicated on inequality elite travel for the wealthy is being hobbled by inequality in corporate wealth A broader based business recovery will likely be necessary before we have any kind of sustained business jet market upturn Teal Group is not expecting any kind of business jet market recovery to start until 2019 We dont see a return to the 2008 peak until 2020 for dedicated business jets and we dont see a return to the total market peak for all business aircraft including turboprops and business versions of jetliners until after our 10 year forecast period ends 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 1400 600 200 0 25 20 15 10 5 0 06 07 10 11 08 09 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Value Units