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Glimmers - mirages and ripples.

It’s time to look beyond the press releases- the sales numbers and the model shifts. “Things are warming up – they’re not yet percolating fully- but beginning to bubble-” one industry veteran outlined to World Aircraft Sales Magazine.

“If you’re looking for a story of surging sales and assembly line increases- you’re looking at the wrong business. You can’t confuse aviation with cell phones (or smart phones). That was the picture aviation painted in the late 1970s and again in the early 21st Century – but it’s not like that any more.”

Indeed. We all know how high the business flew- how far it fell and how hard that landing was for everyone - but perhaps it’s a reasonable conclusion to draw that the pieces are getting picked up- and things are starting to move again.

“Thanks to the patient survivors- we see glimmers…signs of life stirring- and mostly in positive directions. Only time will tell whether our current reversals are a turn back- or a turn for the better.”

Signs of life are registering in Business Aviation circles- from a return to utilization growth- order taking- a slight decline in the pre-owned inventory actively for sale- and a corresponding slight increase in pre-owned business-turbine sales.

With corporate profits (mostly) riding a wave- the stock market (mostly) up- and unemployment (finally) trending down- could better times for Business Aviation’s dealer brokers be arriving – more or less on schedule for a 2012 renewal? Several indicators make it look good.

According a report from JPMorgan North America Equity Research in early March- demand is starting to “improve more broadly-” a position based in part on NetJet’s firm order of 50 jets from Bombardier- and the OEM’s fourth-quarter bookings of 74 business aircraft.

Other OEMs are also quietly affirming increased interest and a return of buyers to the market. It’s a return more closely resembling the late 1990s than the middle of the last decade- however. Still- the 11 percent of current production aircraft currently ‘for sale’ remains well above the 8 percent 15-year running average- according to the report. But that number- is slowly dropping- with the number ‘for sale’ down just under a percentage point- depending on the source.

Overall- business aircraft flight activity continues to show small increases- though some subsets continue to struggle to come back. Traffic among private operators showed strong returns early in the year- up 5.8 percent in February; dragging down the overall number to below one-percent were Part 135 charter and FAR 91K operations by fractionals.

“People are beginning to feel more comfortable about spending money to make money-” said the chief pilot of a multi-jet charter company in the Midwest. “We’re not back to where we were in 2007 or 2008- before everyone got airplane-shy- but we’re up compared to last year- and seeing stronger advanced bookings for dates around business events key to many of our clients.

“I should note that individual bookings are showing signs of life- too. People are booking family trips- vacations- holidays- and are booking our (biggest jet) more frequently. They’ve tried airlines and ended up spending more- for more hassle.

“The airlines”- he noted- “remain our best advocates.”

THE GOOD NEWS IS LONG-TERM NEWS

“I don’t expect to see those kinds of (2007) levels for several years-” said general aviation analyst Brian Foley- founder and president of Brian Foley Associates. What he does expect to see is a steeper growth in the coming year before General Aviation sales settle into a shallower growth line.

It’s already well under way for the large-cabin jet makers- just starting for the mid-cabin segment- and trailing- still- for the lower end of the market. Regarding pre-owned aircraft- whatever declines in ‘for sale’ aircraft have occurred are- according to several brokers- largely due to frustrated sellers pulling back and a small measure of buyers interested in airplanes between 10 and 15 years old.

“If it’s older than 15 years – and especially if older than 20 – financing through normal means at favorable terms becomes next to impossible-” noted an East Coast broker. “It’s been this way for a while – now it’s even tougher.”

A West Coast counterpart noted- “We’re getting interest in older jets from people who recognize the bargain and have the finances to handle the purchase – or an oversized down payment. Larger down payments come with older airplanes- making it tough when finance firms already want larger-than-traditional down payments on new and almost-new.”

Unless - both dealers expressed - a prospective buyer has the financial depth to handle the larger up-front needs- or to pay cash outright- moving the older airplanes still remains problematic.

“Some of them are wonderful airplanes-” a Midwest dealer observed- “but between aging avionics- engines that are expensive to overhaul and mandatory airframe inspections and upgrades on some- it can be cheaper to part one out to a specialty firm and use the proceeds to make that bigger down payment on something newer.

“At least then you won’t see your operating budget effectively shrink your available hours because maintenance is eating up money faster than actual flying time.”

BRIGHT SPOTS?

New-model sales increases generally mean somewhere- an older airplane is being queued up for sale - so the visible increase in new-aircraft orders means yet more pre-owned inventory- but it also means people are comfortable buying.

According to information reported by JETNET- transactions in 2010 increased by 16 percent over 2009 – and showed improvement of nearly five percent over 2008. Further helping the picture was the whole-fleet percentage of pre-owned business aircraft for sale- dropping to 14.8 percent against 16.3 percent at the end of 2009.

Analysts generally agree that increased new jet sales generally trends to increased pre-owned sales thanks to the disposal of the old aircraft the buyer is replacing. As the West Coast broker explained- “For every buyer ready to sign for a new jet- there are a couple of others looking for the best spin-offs the trade-ins produce – the people who never buy new- but never buy anything very old- either.”

In other words- when a jet owner moves to replace a five- or six-year old airplane- a ready buyer for the older airplane likely awaits in the wings.

It’s good news for many of those would-be buyers of pre-owned business aircraft- as prices continued to trend downward for all but the large-cabin aircraft- according to a variety of reports. “The older inventory segment is getting less and less attractive to all but the purest bargain hunters-” the West Coast broker added. (That would be the type of buyer described by Conklin & de Decker’s Dave Wyndham in an interview last fall.

According to Wyndham- this buyer will pay cash for old business aircraft with a couple of years service left before it needs major work costing major money. He then sells the aircraft for parts and uses the proceeds toward another cash-purchase. “It works for him and for others-” Wyndham noted.)

But as the numbers of older jets viable for use shrinks- so shrinks the market for parts; in the end- most buyers prefer to buy something newer.

BEGINNING OF A LONG- SLOW CLIMB

Assemble the prognostications of the industry analysts- and a few details overlap:
• Improvements in business conditions seem to be bringing back prospects- even if economic growth itself remains sub-par;
• Finance money remains available – at “decent” terms for “well-qualified” borrowers. For those of lesser financial horsepower- money is out there- but expect to pay more up front and slightly more long-term;
• The true bargains on the market largely sold off in 2009 and- if any survived until 2010- they’ve also likely been sold – or withdrawn from the market;
• Advances in avionics and- to a lesser extent- powerplants- can make some popular older jets viable again.

“Avionics upgrades can bring new and better utility to an older aircraft-” the Midwest broker observed. “It won’t make it faster- climb better or carry any more than the weight-loss of a panel swap though.

“For the devoted owner- upgrading panel and powerplants can bring that older jet into parity with a newer version or replacement model – lower fuel use- reduced maintenance expenses- usually better speed and payload-” he concluded.

As for everybody else- ‘buying better by buying newer’ remains the preferred option – and if more people continue to use that option- 2012 could indeed win some ‘comeback- kudos’… but not until then - and even then- only if 2011 continues its upward ways.

Read more about: Dealer Broker Market Update

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