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GAMA First Quarter 2007 Shipment Analysis

All the signs pointing towards a $20bn year.

Last year was great – the best ever. But based on the first indication- this year is going to be even bigger. That’s right- the first quarter airplane shipment numbers from the General Aviation Manufacturers Association (GAMA) are in the record book- and the signs are pointing to a $20bn year- or maybe even a little better.

   In fact- $21bn is a distinct possibility. That would compare with $18.8bn last year – by far the strongest year in GAMA’s history.

   Total billings for the first quarter of 2007 came in at $4.5bn – up 11.3 percent from the $4bn reported a year ago. That’s a new record – the strongest first quarter in the history of business aviation. The previous best was last year’s first quarter.

   This outstanding performance was led by a 77-unit turboprop market that grew more than 30 percent from the 59 units delivered a year ago. Business jets were more numerous- with 211 deliveries- up from the 188 delivered in the first quarter of 2006. That’s a gain of more than 12 percent- also impressive. And as if to put an exclamation point on this exciting new year- we have an all-new aircraft company added to the GAMA list. Alpha Aviation- of Hamilton- New Zealand- made its debut with the delivery of two new piston singles.

   GAMA’s news release announcing this strong performance was somewhat subdued- as has been the group’s style in recent years. “Shipments and billings of general aviation airplanes achieved a solid first quarter for 2007 following last year’s strong numbers-” GAMA reported.

   “The first quarter shows that we are sustaining the delivery rates of last year and are maintaining announced production schedules-” said Pete Bunce- GAMA’s President and CEO. “Our industry is working hard to ensure that this momentum is maintained and that general aviation continues to shine as a bright spot of the manufacturing community.”

Concern?
GAMA’s reserved approach may reflect at least some concern about a piston market that was down slightly from a year ago. Piston deliveries totaled 554 units- down 7.7 percent from the 600 piston airplanes delivered in the first quarter of 2006. This marks the first time quarterly piston deliveries have failed to gain over the previous year’s total since the second quarter of 2004. On an annualized basis- piston deliveries have been up every year since 2002.

   Historically- slowdowns in business aviation tend to be heralded by trouble in the piston market. Sometimes the piston downturn can lead a falloff in turboprop and jets sales by as much as two years- but the pattern has been very consistent since the 1950s: When the piston market turns down- the rest of the industry can be expected to follow.

   For that reason I viewed the 7.7 percent decline in piston delivers this quarter with more than a little concern when I first looked at the new GAMA report. Everything has been going so well.

   A more careful analysis of the numbers- however- leads me to believe that this quarter’s piston downturn is an aberration – the result of two independent and unrelated situations that just happened to occur simultaneously at the two largest makers of piston airplanes- Cessna and Cirrus.

   As the piston overview (below) will demonstrate- the fundamentals of the piston powered airplane market in mid-2007 are very strong- with no signs of impending doom. All indications point to another record year in business aviation for all segments of the market.

   The lower piston delivery numbers did cause the total first quarter delivery figure (842 units) to be slightly below last year’s 847 unit total. Nonetheless- I’m betting that 2007’s total annual deliveries will exceed the 2006 total of 4-042 units- and in fact do so by a fairly wide margin. I look for unit deliveries to easily reach the 4-200 mark this year- and perhaps get close to 4-300. Deliveries will be up in every category – even the currently lagging piston market. The good times should continue for quite some time to come.

Business Jets for sale - further growth
Business jets were certainly off to a great start. If the current growth rate sustains itself throughout the year- the GAMA member-companies will deliver 893 business jets in 2007. I’m betting that we break the 900-unit mark- and if the Very Light Jet category starts to take off- we could approach 1-000 business jets for the year.

   The VLJs have yet to reach the pace predicted for them. There were just four of the little jets delivered in the first quarter – all of them Eclipse 500s. No Cessna Mustangs were delivered- and no Sino Swearingen SJ30s business jets for sale. (Admittedly- the SJ30 is not a VLJ- but it is one of the new breed of entry level jets so it seems fair to mention them here). Sino did have one delivery late last year- so one or two were expected- but none forthcoming.

   This really only demonstrates that it is not easy to get a new business jet into a regular production-and-delivery cycle. The VLJs are definitely coming- and coming soon. It’s just taking a little longer than planned. Before this year is over- there should be dozens of VLJs in owners’ hands.

   The large end of the business jet airplanes for sale market is doing predictably fine. Boeing and Airbus finished the quarter in a dead heat- with three deliveries each. Airbus sales were listed at $150 million- compared with $136.5 million for Boeing- leading to the conclusion that an Airbus costs a little more than a BBJ.

   The general pattern of the business jet industry looks much like last year. The dollar sales leader continues to be Bombardier- with nearly $1.3 billion in sales on a total of 56 units – which is exactly the same number it delivered in the first quarter of 2006.

   The business jet unit volume leader continues to be Cessna- with 67 of its Citation aircraft for sale models going to customers in the first three months of 2007. That represents a modest gain of one unit over a year ago. As Mustang VLJ sales begin to hit stride in the months ahead- Cessna’s position as the largest business jet producer will probably become even more secure. The only potential threat to Cessna’s position could come from Eclipse- if that company begins to approach its predicted numbers. For the moment- however- Cessna’s leading position seems safe.

   The company with the biggest gain in business jet sales over a year ago was Raytheon- with 32 units delivered- up from 22 in the first quarter of 2006.

   Interestingly- the biggest seller of Raytheon’s jet offerings this quarter was the Raytheon Premier IA business  jet for sale- with 15 units delivered. This was the second best sales quarter in the Premier’s history- surpassed only by the 19 units delivered in the fourth quarter of 2005. Given that this 15-unit performance came in the first quarter- which is notoriously slow- this could mark a significant step-up in demand for Premier in particular and light jets in general. Raytheon had predicted early on that annual Premier sales would be in the 60-unit range. Perhaps that level could be attained this year.

   Cessna’s CJ-series sales were up 10 percent this year- too- at 31 units. As the current strong market has developed- the light jets in the Citation Jet business aircraft for sale and Premier class have been the slowest to recover. Perhaps this marks the ultimate blooming of the market- as the entry-level light jets begin to record gains similar to what the larger jets have enjoyed over the past 12 to 18 months.

   The larger business jet makers also enjoyed good gains this quarter. Gulfstream deliveries reached 30 units- up from 25 a year ago. Dassault delivered 11 airplanes- up from eight last year- and Embraer reported five Legacy sales- up 25 percent from the four it had in the first quarter of 2006. It’s clearly a good time to be in the business jet industry.

Business Turboprops for sale - 30% gain on 1Q 2006
With sales up more than 30 percent over the 2006 first quarter totals- it’s apparently not a bad time to be in the turboprop business- either. The gain came in spite of the fact that one manufacturer – Piaggio – elected not to report to GAMA this quarter- and instead will announce its deliveries at the six-month and year-end reporting points.

   Heading up the turboprop category was traditional market leader Raytheon- with 28 of its King Air models- up 33-percent from the 21 units delivered a year ago. This puts Raytheon on a pace to exceed its 2001 King Air business turboprops for sale delivery total of 130 units (assuming a traditionally strong fourth quarter)- and potentially within range of matching its 2000 King Air total of 151 units. That’s significant because the year 2000 was the best year for King Air – and total business turboprop – deliveries in more than 20 years.

   Both business jets and piston aircraft have recovered to well beyond their pre-9/11 market levels- and now the turboprop segment is also approaching that milestone. Clearly this recovery is beginning to exceed all expectations.

   Leading the turboprop market in percentage of growth over last year was Pilatus- with the delivery of 20 of its single-engine PC-12 business turboprops for sale models. That was an increase of more than 81 percent over the 11 units it delivered in the first three months of 2006.

   Other turboprop makers with strong percentage gains included Socata- with seven TBM 850s- up 75 percent from four units a year ago; and Cessna- with 14 Caravans- up 16 percent from the 12 units it delivered in the first quarter of 2006. Only Piper reported lower turboprop sales than a year ago- with eight Piper Meridian business turboprops for sale- down from 10 a year ago.

Piston Market - sales down…
The biggest news in the piston market is that sales were off among the two market leaders- Cessna and Cirrus- compared with a year ago. The net effect was that the whole piston market was down by 7.7 percent- from 600 units to 554. Ordinarily that would be a cause for some concern- but a discussion with both companies reveals that each had unique situations that brought about the current result.

   Last year Cessna had a large sale to China- which delivered almost entirely in the first quarter. The result was an artificially inflated delivery total for the first three months of the year- and because of that- this year’s total of 133 units appears to be way down from last year’s 187.

   Cessna is still planning to build and deliver 839 piston-powered airplanes this year- which compares favorably with the 865 it delivered a year ago. That’s still down a fraction because of the big fleet sale- but the basic market for single engine airplanes for sale is still obviously very strong.

   Cirrus’ situation was different- but the net effect was the same – a market anomaly caused its delivery numbers to appear down- despite the fact that the market for piston airplanes in general- and Cirrus airplanes for sale in particular- continues to be very strong.

   Cirrus has just announced the introduction of the new Generation 3 version of its airplanes- which includes an all new wing structure that carries more fuel. The first Generation three airplanes were produced for delivery this past quarter. Cirrus committed the first 16 Generation 3 airplanes to its demo fleet- and therefore didn’t count these airplanes as deliveries.

   Cirrus deliveries were off 15 units in the first quarter from a year ago. If the 16 demo airplanes had gone instead to retail customers- its delivery total would actually be one unit ahead of last year. Cirrus is expecting to deliver around 800 airplanes for sale this year- which will be an increase of more than 10 percent over the 721 it recorded in 2006. The company’s SR-22 model will continue to be the selling airplane in the world.

   Similarly- Cessna will continue to be the world’s leading builder of piston-powered airplanes in 2007- but by a narrower margin than a year ago. And if Cirrus manages to increase production in 2008 by the same percentage it is planning this year- and if Cessna’s production doesn’t grow more than it has this year- Cirrus will become the leading builder of piston-powered airplanes in 2008. It will be interesting to see if that will occur.

   Elsewhere in the piston market- results were generally positive- although somewhat mixed from company to company- as has been the case throughout much of the current recovery. Not counting Cessna and Cirrus- four of the piston manufacturers were up over last year- five were down slightly- and two were even.

   Companies in the plus column included Diamond- Liberty- Columbia- and newcomer Alpha Aviation. Diamond had the biggest gain in total units- with 73 deliveries in the first quarter- up 18 from the 55 units it had a year ago. That’s a net gain of just under 33 percent- which is all the more remarkable because Diamond’s twin engine production is also up significantly.

   Liberty Aerospace- which made its market debut in the fourth quarter of 2005 with two units- followed by four in the first quarter of 2006- continued its steady production and delivery trend increase with 16 units in the past three months. That’s a 400-percent increase over a year ago. Go- Liberty!

   With 47 units delivered- Columbia’s increase was more modest- being a gain of one unit from the 46 airplanes it delivered in 2006. Alpha Aviation made its market debut this past quarter- and simultaneously brought New Zealand into the ranks of countries producing business aircraft for sale. Alpha has put the Robin 2120 and 2160 low-wing single-engine airplanes for sale series back in production- renaming them the Alpha 120T and 160A. There is also a fuel injected model- the 160Ai. Alpha’s first deliveries consisted of two 160A models. Alpha says it is aiming for the flight school- aero club and individual markets.

   Breaking even between this past quarter and a year ago were Raytheon and Adam Aircraft. Raytheon delivered 15 of its venerable Bonanza models in the first quarter- matching the 15 Bonanzas it delivered in the same time-period last year. This marks the start of the 61st year of continuous production for the Beechcraft Bonanza- a most remarkable record that shows no sign of coming to a close.

   Adam’s situation is less glorious. It had forecast deliveries for this quarter- but production issues prevented any airplanes for sale from reaching customers’ hands in the first 90 days of the year. This unfortunate result still counts as a draw- however- because Adam didn’t deliver any airplanes in the first quarter of 2006 either. Look for Adam’s delivery record to improve markedly as the year continues- as it overcomes initial teething problems and moves into full production with its A500 model.

   Companies with deliveries lower than last year included American Champion- Gippsland- Maule- Mooney and Piper. With the exception of Piper- none of these companies were very far off their previous year’s pace. American Champion delivered 10 airplanes- down from 13 a year ago. Its sales tend to be somewhat seasonal. Look for it to pick up as the year goes along.

   Gippsland- with three deliveries of its GA8 Airvan- was down two units. Maule- with 12 units- was down one. Mooney- at 18- was down two- although the company’s fortunes actually appear to be on the upswing from a production slowdown and management change in the middle of last year.

   Piper was well off its previous year’s pace- with 21 single-engine piston deliveries compared with 34 in 2006. This reflects an increasing emphasis by Piper on its higher end products. Interestingly- its sales dollar total was up- despite delivering six fewer total airplanes for the quarter.

Twin Engines airplanes for sale are up - thanks to Diamond.
The twin engine piston market was up almost 16 percent- thanks entirely to Diamond- which delivered 42 of its DA42 Twin Star models- compared with 30 a year ago. Piper’s total of five twin deliveries exactly matched its 2006 total- while Raytheon was off five units in its Baron series- down from nine a year ago to four this year. This was probably the result of Raytheon introducing a new model of the Baron last year- the G58- which would have produced a brief market surge.

   In summary- then- we are off to a great start in the business jet airplanes for sale- business turboprop aircraft for sale and piston twin engine airplanes for sale segments- while the single-engine pistons are off a little bit- but have good prospects of finishing 2007 ahead of last year’s totals. Things are shaping up for another record year.

   It should be noted that this was the last quarter that the name Raytheon will appear in the GAMA report. Raytheon has sold its aircraft operation to GS Capital Partners- an affiliate of Goldman Sachs and the Onex Partners. The new company will be called Hawker Beechcraft Corporation- or HBC.

   This marks the end of a 27-year foray into business aviation on the part of Raytheon Company- which bought the Beech Aircraft Corporation from its stockholders and the Beech family in 1980. Beech was renamed Raytheon Aircraft in the fall of 1994. So- farewell- Raytheon- and welcome Hawker Beechcraft Corporation.

To view a full reproduction of GAMA’s First Quarter 2007 shipment report- see PDF.


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