Several news outlets are indicating that activities in business aircraft operations as well as jet sales are increasing measurably. More flights are being flown and transactions are up. Inventory levels are flattening. All reports sound pitch-perfect. Are they real or not, that is the question. I am going way out on a limb and say, there’re real!
That said, I do want to step back slightly from the end of the limb and add a bit of caution as well as thoughts about the direction of the recovery.
We are living and working in a Global Industry. Balancing all the political and economic comings and goings that create the risky environment we all work and live in is daunting. The situation reminds me of the famous spinning-plate circus act. The entertainer runs up and down a long table with spinning plates on top of sharp sticks. He works diligently to keep them spinning at a velocity so they do not wobble, lose balance and fall to the floor and smash. Just as he gets the plates spinning at the right speed at one end of the table he looks down to the other end and notices a sharp reduction in plate speed, so he races across and spins the plate that is wobbling. Back and forth he goes—correcting, adjusting and balancing.
Now let’s leave the circus and talk about the Business Aviation recovery. While our citizens seek energy independence and lower fuel prices, I am reminded to be careful what you wish for. As a country we have never produced more oil. Combine that fact with our nation’s focus on using less petroleum products and we are on our way to energy independence.
The second goal is lower prices. This wish has also come true, but it also has rocked the global economy. Consequently, energy-producing countries and energy-producing companies are pulling back or stopping entirely the thought of capital expenditures during the slide. We all know that what goes down eventually comes up and that oil not being pumped and refined now is not going to disappear. But energy that remains to be harvested and refined is just not driving our economy like it was when oil was selling for significantly higher prices less than a year ago.
Russia, hit by record low oil prices as well as sanctions related to its Ukrainian incursion, has all but stopped buying aircraft. China, with its lower expectation of GDP has lost much of its appetite to buy aircraft. Western Europe is experiencing economic uncertainty, and the strong dollar and weaker Euro is slowing down aircraft sales dramatically. The Middle East is also reeling from energy’s low prices.
The burden of the recovery falls again on the shoulders of the US. Except for a few oil sectors and closely related industries, our economy is growing and continuing to show real improvement. This year should be very robust in the US for Business Aviation.
With respect to the jets for sale marketplace, I recall a few years ago when 20% of all aircraft registered in Europe were for sale. Even with an increased demand for business aircraft the US could not absorb all that available inventory. In spite of rapidly increasing transactions, pricing remained unstable due to the abundance of inventory globally.
I am afraid we are going to see that instability remain until global economies become more stabilized.
Because of their past success with international sales, I believe the Original Equipment Manufacturers (OEMs) are going to have the roughest time this year. Recently, the majority of OEM orders and deliveries have occurred internationally. As those orders diminish, inventories of new aircraft could grow, lead time for deliveries of popular models could shorten and pricing could soften slightly.
Although OEMs have adjusted manufacturing levels downward since 2008 to accommodate economic conditions, the fact remains that a high percentage of aircraft produced were earmarked for China, Russia and the Middle East and Europe. With these sectors slowing down dramatically, the impact will be felt quickly.
So here I am out on this limb. I know I’m not alone believing in the recovery for jet sales. I may have taken a small step back from the very end of the branch, but I remain out here in the recovery tree.
As prudent Board Members I hope you will continue to make good decisions for your company based on need, buying and selling opportunities, and timing of the perception and optics surrounding your specific business segment. Remember how critical global balance is to the market for business aircraft. There will never be a time in this global industry of ours where balance between economic conditions and geopolitical events and prices of oil and other critical commodities will not play a huge role in the equilibrium of our markets. Hold on and don’t be discouraged. We are recovering.