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2009 Year-End GAMA Shipment Analysis / Report
Grim on the surface- but a positive gentle undercurrent?

(Please see page 62 for Year-End Airplane Shipment Report 2009)

So it’s over. This ugly year that dashed our hopes and saw sales volumes plummet as the U.S. economy imploded into worldwide recession- has finally come to an end. We saw the business aviation market sink back to levels that- while they may have seemed pretty good three years ago- last year cost thousands of aircraft workers their jobs and left many of the manufacturing companies publishing their results in red ink.

Now that the year is finally over- and the numbers have been painfully tallied up- we can finally assess just what shape the market is really in. The news from the General Aviation Manufacturer’s Association is pretty grim: Worldwide shipments and billings of general aviation airplanes fell sharply in all categories for 2009. Industry billings for the year were $19.5 billion- down 21.4 percent from the record high of $24.8 billion set in 2008. That’s $5.3 billion in lost revenue for companies that had been projecting another record year.

Deliveries were also down big-time – a whopping 42.6 percent – finishing the year at 2-276 units- compared with 3-967 a year ago. GAMA Chairman Rob Wilson called it one of the toughest years ever for business aviation manufacturers as he reported the year-end numbers. As often happens- though- a closer look at the numbers reveals some reasons for optimism.

The jet market is down- but not as much as forecast- and it looks to me like this coming year could mark the beginning of a turn-around – not the bottom of the trough that some forecasters had predicted as recently as last fall.

The jet market finished the year at 870 units – almost exactly where we predicted it would land in this column nine months ago. The Honeywell Forecast issued at NBAA last fall expected the jet market to finish 2009 somewhat lower – in the 750 to 800-unit range. Under that scenario- the market was expected to continue to sag lower through much of this year- perhaps finishing as low as 700 units- and not begin to recover until 2011- when it was once again expected to struggle to reach 800 deliveries.

The market is clearly doing better than that. In fact- Honeywell and other forecasters were saying last fall that we would not reach the level we actually attained in 2009 until 2012. The objective here is not to denigrate Honeywell’s survey- but to point out that things are starting to get better more quickly than anyone had expected. And if it continues- that’s really good news.

Wilson himself- in GAMA’s annual state-of-the-industry presentation- said there are signs that the worst of the economic crisis may be over. “The inventory of used aircraft has peaked and is now declining-” he observed. “Flight hours are on the rise and inquiries for new orders are starting to grow again.”

He added “while these positive factors give us reason for optimism- we know that a full recovery will take time.” The question for everyone right now is- how much time? Business jets were not the only segment to finish somewhat ahead of expectations. Turboprops also topped most forecasts- with 441 units. Even the piston products - which had a dismal result of 965 units - were ahead of their predicted pace. The reason all three groups exceeded expectations was that a sales surge occurred in the fourth quarter- just as we had suggested it might.

Traditionally- the fourth quarter has always been the strongest period in the business aviation sales year. Historically- 30 to 35 percent of deliveries have occurred in the fourth quarter – a pattern that has held true since the 1960s in every year except 2008.

The fourth quarter surge occurs every year for solid reasons: In the United States- tax laws encourage fourth quarter buying of large assets like aircraft; and there is also a natural tendency to spend budgeted money before the end of the year to avoid losing it.

The big question for 2009 became: Would there be a surge- or would the sagging market suffer through another year like 2008- when fourth quarter results equaled only about 25 percent of the total market? If 2009 repeated the 2008 pattern- with no surge- the market would have been following the Honeywell scenario quite closely. With the benefit of hindsight- there was indeed a surge- causing 29 percent of all jet sales- 33.6 percent of all turboprop sales- and just under 30 percent of all piston sales to come in the fourth quarter.

The jet and piston markets surged at about the level we expected them to- and this caused the predictions we made last quarter to be uncannily accurate. We had forecast a final jet market in the 850 to 875 unit range. It finished at 870 units. Our piston prediction was 965 to 975. In fact- deliveries totaled 965.

The turboprop surge was somewhat stronger than we had expected- causing our prediction of 420 to 425 units to fall a little below the 441 turboprop sales actually recorded. The importance of this surge is significant. I believe it signals a developing recovery that will cause 2010 to equal or perhaps even slightly exceed the just-completed 2009 results. If true- that could mean the market potentially return to the record levels we saw in 2008 much more quickly than recent forecasts have predicted.

Last year’s Honeywell Forecast suggested we wouldn’t see jet sales at 2008 levels (1-300-plus units) until perhaps 2017. Other forecasts had a similar outlook. It would be nice if the recovery would continue to come faster than predicted- and perhaps be a little stronger than forecast besides.

A key to assessing the health of our current market will be the next quarter’s numbers. If they prove to be as strong as 2009’s first quarter results (or maybe even a little better)- we can expect a pretty good year in 2010. We’ll just have to wait and see- but I’m optimistic. I think the fourth quarter surge we saw in 2009 bodes well for the near-term fortunes of the business aircraft market.

THE JET MARKET
Looking at the specifics of the 2009 results- we see an overall jet market of 870 units that was down 33.7 percent from 2008’s total of 1-313. Interestingly- despite the steep decline- four of the nine jet manufacturers reporting to GAMA actually had better results last year than they did in 2008. The other five most definitely did not- however- and there really isn’t any disguising the fact that 2009 was a lousy year compared to 2008.

Bombardier retained what has become its traditional leading position in jet billings- at $4.87 billion and 173 units. Oddly- Bombardier’s results did not reflect a surge- and its fourth quarter results were actually lower than in any other three-month period during the year.

Cessna led in jet deliveries with 289 units- and definitely enjoyed a surge- with 30.9 percent of its total deliveries coming in the fourth quarter - although only 23.5 percent of Cessna’s jets were delivered during the period. Despite the down market- Cessna delivered more of its new Mustangs in 2009 (125 units) than it did in 2008- when it delivered 101.

Gulfstream was second in billings- at $3.97 billion on 94 unit deliveries- followed by Dassault which had just over $3 billion in sales and 77 deliveries for the year. Dassault was one of the four companies with improved sales- up five units and $0.5 billion over its 2008 results.

Embraer was third in deliveries with 122 units- putting it up fully 221 percent from last year. This startling increase resulted from the introduction of the Phenom 100- and put Embraer at the head of the list of companies that did better in 2009 than the year before.

Also up for 2009 was Emivest- but this case was altogether different from Embraer’s. Emivest recorded two deliveries during the year as it struggled to get its SJ30 jet into production. Emivest made zero deliveries in 2008. Elsewhere- Hawker Beechcraft had 98 deliveries- down from 160 last year.

In the airliner-based business jet category- Airbus rode a strong fourth quarter surge – six units- or about 55 percent of the entire year’s sales – to an 11-unit total that was 22 percent ahead of its 2008 results. Boeing- with four BBJ deliveries- was down from six a year ago. A footnote in the GAMA results points out that- in addition to its 737-based BBJs- Boeing also delivered a 767-400 VIP model and a 777-300ER VIP model during the year- so the company actually appears to have matched its 2008 delivery total in 2009- although these two aircraft are not in the GAMA totals.

In assessing the health of the business jet market- it’s useful to remember that 2008’s results included 161 airplanes from Eclipse. Many of those airplanes were aimed at a market only Eclipse seemed to see- and in my view they really represent a bubble that both distorted 2008’s results and make 2009’s market shift look worse than it actually is.

Without the Eclipse sales- the 2008 jet total is 1-152. That makes the reduction we experienced in 2009 a 24.5 percent drop – not good- but still not as ugly as the 33.7 percent reduction cited in the GAMA report. Moreover- it also makes the target for a return to prosperity – a 1-150-business-jet sales year – a little easier to achieve. Recovery could be coming faster than we realize!

THE TURBOPROPS
Turning to the turboprops- the news is better- but still not very good. A total of 441 turboprops were delivered by eight manufacturers. That was off 17.6 percent from 2008- when nine manufacturers had turned out 535 aircraft. The extra manufacturer was Maule- which added one turboprop airplane to the 2008 total but had none in 2009- although it continued to produce piston airplanes.

Despite the reduced sales- it was still the third best year for turboprop deliveries since 1982- exceeded only by 2007- when there were 459- and- of course- last year. Two turboprop makers- Pilatus and Quest- had a better year in 2009 than 2008. Hawker Beechcraft- meantime- continued to be the leader in the turboprop market- but not by anywhere near the margin it has previously enjoyed. With 119 commercial deliveries- Hawker-Beechcraft was down 30.8 percent from the 172 turboprops it delivered in 2008. The company’s performance was boosted- however- by the delivery of an additional 36 twin-engine and 100 single-engine turboprops to the U.S. military.

Second place in turboprops was hotly contested- with Pilatus’ 100 deliveries edging out Cessna- which had 97. Pilatus’ total was up slightly from 2008- when it had 97- while Cessna was down slightly from the 101 units it had the previous year. Both Pilatus and Cessna benefited from the fourth quarter surge- with 36 percent of Pilatus’ deliveries and 29.9 percent of Cessna’s turboprop sales coming in the fourth quarter. In addition- Cessna made one turboprop delivery to the U.S. military.

Elsewhere in the turboprop market- Socata made 36 deliveries- down from 60 a year ago; Piper reported 29- compared with 52 in 2008; and both Piaggio and Quest reported 24. Quest’s numbers were up from seven in 2008- when it first began delivering aircraft- while Piaggio’s were down from the 30 it reported that year. New Zealand-based Pacific Aerospace delivered 12- down from 15 a year ago.

An interesting trend that has been going on for the last 20 years in the turboprop market continued in 2009 – the percentage of twin-engine aircraft in the product mix continued to drop. Last year- just 32.5 percent of the turboprops were twins- down from 37.75 percent in 2008. As recently as 2001- traditional twin-engine business turboprops had totaled 47.7 percent of the total market.

THE PISTONS
It’s not easy to find anything good to say about the piston market. With a total of 965 deliveries- it was the worst year for piston-powered aircraft sales since 1996- when the market totaled 801. Ten piston manufacturers reported sales to GAMA in 2009. Every one of them had lower numbers than a year ago.

The piston market did experience a surge- so that 29.95 percent of all piston sales came in the fourth quarter. It will be very revealing to see what the piston sales numbers look like in the first quarter of 2010.

SINGLES
Cessna continued to dominate the piston singles market with 355 deliveries- down from 733 the previous year. Cirrus was next at 268- down from 549- followed by Diamond at 112- down from 223.

Piper made just 49 deliveries- off 70 percent from the 165 it reported a year ago. Hawker Beechcraft had 36- compared to 63 in 2008. Mooney- with production shut down and delivering from previously unsold inventory- reported 19 sales. Liberty had 13- Gippsland 11 and Maule 7.

TWINS
The piston twin market- which a couple of years ago seemed to be having a significant revival- was also battered. Total piston twin deliveries totaled just 70 units- down 60 percent from 2008. This puts the piston twin market back to where it was in 2005- when 71 units were reported.

Diamond continued to be the leader in piston twins- but recorded just 38 deliveries compared with 85 in 2008. The good news is that Diamond seems to have resolved the engine problems that crippled deliveries of its DA42 Twin Star- and may now be in a position to lead another revival in piston twins. Hawker Beech- meanwhile- delivered 20 twins- exactly half the number it had in 2008- while Piper had just 12- down 76 percent from the 51 it delivered the previous year.

FINAL REFLECTIONS ON 2009
Considering all these numbers- and the huge reductions that took place between 2008 and 2009- it’s not hard to see why companies had to lay off thousands of workers last year. With long lead times for components like engines and avionics- as well as the need to stock raw materials such as aluminum and hardware to support anticipated production- all the companies must have built up huge quantities of work-in-process that will have to be worked down before production and employment can increase again.

Some of the delivery totals have sunk so low- particularly among certain of the piston manufacturers- that we can only hope most of the companies will be able to survive until the market recovers. With a little luck- recovery may be starting to develop. The next quarter’s numbers should tell us a lot…

 


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