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Floor Fodder
NBAA vibrated with questions: Is this a rebound- or end to the decline?


The headcount for October’s 62nd gathering of the National Business Aviation Association may have been lighter on delegates than in years past- but it was no less than usual filled with chatter about a prospective rebound.

Of course- the reality of those audible reverberations reaching fruition may take something more than the small bounce that provoked so much of the Convention-floor conversation. But even against the muted mood inside the Orange County Convention Center- the guarded retreat from outright pessimism stood out as a sign that the weary workers of this battered industry seem ready to battle back- whatever it takes.

Signs of operating hours clawing their way back up emerged in the months prior to- and including- October and other indicators like fuel sold and aircraft transactions also seemed to have bottomed-out in August – starting to edge up again- albeit slightly- in September.

Against this backdrop the NBAA served as a sounding board for the 22-000-plus who attended. Businesses exhibiting experienced different levels of activity- with most- it seemed- expressing satisfaction both at the quality of the people visiting their stands and the level of business they found there.

With this as a backdrop- news that interest in- and activity of pre-owned aircraft seems headed up- albeit slightly- came as welcome news.

CRUISING ALONG A LOW PLATEAU
The word during and after NBAA seems to create an image of an industry- and an activity at the low ebb of this downturn. “We’re just cruising along a low plateau-” said one broker.

Do you mean the industry decline finally hit bottom- we asked? “That sounds too negative-” the broker replied. “Too much like a candidate for a substance-abuse rehab stay… Perhaps we should say- ‘We’ve plateaued at the bottom-’ or ‘We’ve leveled out at the bottom’- instead.”

Amid that color view- some rays of decent news emerged. But- said Brian Foley of Brian Foley Associates the good news is “spotty.”

“Talking to charter operators- the first ones into the slowdown- they are starting to percolate a little – and the same for brokers. Their lines literally went dead for months and now they’re ringing… some-” Foley observed. In addition- Foley and others report- the Fixed Base Operators are “slowly clawing back. But some of the FBOs are going to be falling by the wayside-” he predicted- “particularly some of the smaller- Mom-and-Pop level FBOs.

“We expect business aviation operations to trickle back up slightly through the end of the year…”

Indeed- evidence exists to back up Foley’s observation.

FLIGHT HOURS ARE GROWING
Depending on the source- business turbine flight hours started edging back up a few months ago- slightly- incrementally- but discernibly and steadily. For example- UBS Investment Research figures for the past six months show that business jet operations increased in five of those months.

Other sources’ yardsticks show gains too- with some touting gains of more than 15 percent to 18 percent – gains that ramped up gradually starting back in about April. FBO staff polled during a five-day swing across the U.S. bridging late October into early November generally agreed that their traffic was not dramatically up- but- as one in Tucson- Arizona- noted- “We seem to be pumping more fuel – because people are flying longer trips rather than more frequently.”

Charter operators quick enough to see the fall-off as Foley noted- are benefiting from some of the increased travel demand- but much of it seems to be originating with company- owned aircraft flying both longer and more-frequent trips. And there seems to be some life stirring in the moribund pre-owned market for business turbine aircraft.

SHRINKING INVENTORY
Various voices put the percentage of business-turbine aircraft for sale at the lowest point for months during October- with some showing the inventory down below 16 percent of the total fleet – that was down from a high that approached 19 percent (or more than one in six) earlier in the year.

Some of the inventory contraction stems from opportunistic buying- brokers claim- with investment-minded buyers snapping up repossessed and foreclosed aircraft financial institutions want to move simply to close the books.

Older- well-depressed models are selling- and inventory under age 10 – particularly in larger aircraft (Dassault Falcons- Bombardier Globals and Gulfstreams)- are faring better in market demand. However- the market remains price sensitive and a buyer’s heaven. Attempts to edge up asking prices seem to enjoy little- to no success; prices above current market offers get virtually no attention.

A broker working in the southeast States observed- “One of my clients could get out from ‘under’ if he’d budge another hundred grand- but he’ll spend that much more on owning – owning- not flying- mind you – to avoid the psychological block he’s got about not letting the price drop below his principal value.”

Deals remain and financing access reportedly also improved over the past few months – but not so dramatically that transactions are clearing as quickly as they were a year to 18 months ago.

THE WORST IS PAST
With incremental gains in important indicators on the books- no observer expects the market to rebound dramatically until well into 2010 or even 2011. “On new stuff- new planes- we won’t see any up-tick there until well into next year-” said Foley. “They won’t even answer the phones because they won’t have many calls until some of the white tails go away- and the used inventory starts to drop off even more.”

New-plane makers do seem to expect 2009 to become their bottom mark- though- with 2010 being flat - and incremental gains showing up in 2011.

Based on the recent report from the General Aviation Manufacturers Association- the slump in new-plane sales isn’t quite over. GAMA’s third-quarter numbers show shipments off a massive 46.8 percent and billings down a more-moderate 23.5 percent compared to the first nine months of 2008.

Planemakers delivered 1-587 aircraft in the first nine months- off from the 2-982 shipped during the first three quarters of last year. Of course- the financials reflect the higher value of the business turbine aircraft shipped- with billings down to $13.771 billion this year from $17.995 billion in the first nine months of 2008- according to GAMA.

If new-aircraft business flattens its decline in 2010 as some expect- it will be a harbinger that the overall economy is- itself- recovering. Business aircraft sales growth and decline generally track closely with the ups and downs of the economy- a major contributor to this downturn for the aviation economy. And efforts to help sweeten the appeal of new aircraft are underway in Congress.

THE EXTENDED BONUS DEPRECIATION
In early November Kansas’ two Republican Senators- Sam Brownback and Pat Roberts introduced into the chamber the General Aviation Depreciation Act- a piece of legislation designed to extend accelerated depreciation allowance for aircraft purchase already in effect through year’s end.

The senators’ efforts follow by about two weeks a similar bill’s introduction in the House of Representatives by Rep. Todd Tiarht (R-KS)- whose Fourth District includes Wichita.

The so-called bonus depreciation allows purchasers of new aircraft- or those who upgrade their aircraft- to gain an additional 50 percent in tax-deductible depreciation in the first year.

New-aircraft sales people observe that the availability of bonus depreciation has helped in a few deals but that the buyers were in a position to make the deals- in general- anyway. “A couple actually said they didn’t plan to use the accelerated depreciation-” one new plane marketer noted. “They wanted the greater tax benefits of the later years available from not using the bonus depreciation in the first year… something their accountant probably advised them to do.”

Nonetheless- the attitude in general is “every little bit helps” – so if Congress and the President agree to extend this financial incentive another couple of years- it can’t hurt. NBAA president and CEO Ed Bolen certainly offers that sentiment.

“We thank Senators Brownback and Roberts for introducing this legislation to bolster the industry's role in supporting over a million jobs-” he said. “It can’t hurt-” he told World Aircraft Sales Magazine.

'SKIDDING’ ACROSS THE BOTTOM
“Compared to eight or nine months ago- getting two or three phone calls a day is cause for an end-of-week celebration-” said our southeastern-U.S. broker. “From last year’s NBAA until after Memorial Day- our phones weren’t ringing two or three times a week – so- yes- we’re seeing some movement.

“Is it going to get us rich quick and retired early? No. But skidding along the bottom is progress compared to skidding down the hill…and we’ll take whatever we can get. “It’s better now than six months ago. Hopefully- another six months will let me give you that answer again.”

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