The General Aviation Manufacturer’s Association has issued its annual shipment report- and not surprisingly- the numbers show an airplane sales industry that is not as healthy as it was a year ago.
Billings fell by 14.4 percent- from $13.9 billion in 2001 to $11.9 billion in 2002. Shipments fell 15.2 percent- from 2-994 units in 2001 to 2-214 last year. In response to falling aircraft sales- the manufacturers collectively laid off 12.4 percent of their workforce.
None of this is really very surprising. The economy is soft all over the world- and airplane sales success has almost always been predicated on a strong economy. In fact- as GAMA Chairman Bill Boisture noted in the Association’s annual presentation of the industry’s results- new aircraft sales improvement normally trails the onset of a recovery by nine months to a year- so 2003 may look a lot like 2002.
But is there more here than just gloom and doom? In taking a closer look at the numbers- are there trends to be identified that may help us to understand the aircraft for sale market better- and perhaps help us see the direction the industry is going? Let’s take a look.
First- some historical perspective: We are emerging from a period of remarkable growth. Aircraft manufacturing has experienced nine years of continuous sales increases- beginning in 1992 and continuing through 2001. U.S.-built airplanes for sale rose from $1.839 billion to $8.641 billion- or total of 470 percent. (I cite U.S.-built units here to achieve an apples-to-apples comparison- because GAMA’s early data didn’t include non-U.S.-built aircraft).
How does that compare with the 'golden age' of aircraft sales and manufacturing in the 1970s and early 80s? Well- the 'golden age' began in 1972 and lasted until 1981- and sales rose from $557 million to $2.92 billion – an increase of 524 percent. Isn’t it interesting how closely both the time-span and the growth curve of the two periods parallel one another?
This comparison- of course- raises the question of whether we are on the verge of another extended downtown- such as the one that followed the last 'golden age.' It would be 15 years before GAMA billings would surpass the 1981 record – and that was without adjusting for inflation.
A concerning statistic in this year’s GAMA report is that the number of used aircraft for sale on the market is up sharply from a year ago. According to GAMA- 17 percent of the turbine business aircraft fleet is on the market today – up from an historic norm of about 12 percent. Moreover- used business jet prices have tumbled by as much as 20 percent in the past year.
Those of us who lived through the difficult years of the early 1980s can well recall when the toughest competition for new sales in the market was the huge fleet of used airplanes the industry built in the 1970s.
So are we in for another 15-year airplane sales drought? Not likely. A closer look at the numbers reveals the industry is fundamentally different than it was in 1981.
Much of the aircraft sales growth that fueled the 'golden age' from 1972 to 1981 was in piston-powered airplanes. The peak year of the 'golden age' was really 1978- when the industry delivered 17-811 airplanes - that’s right- 17-811 NEW airplanes! Of those 17-811 airplanes- 17-032 were piston powered. Just 779 were turbine-powered- and of those- just 231 were jets. The remaining 548 were turboprop sales.
What those numbers tell us is that the new aircraft sales market of the 1970s really consisted of two separate and quite distinct markets co-existing under the same roof – the piston market and the turbine market. And despite any apparent similarities- they were very different airplane sales markets- driven by different forces- and in most cases serving a different clientele.
That becomes evident as we look at what happened to the two aircraft sales markets.
Right in the middle of the 'golden age-' beginning in 1979 when everything was supposedly still going great- the piston market began to collapse. By 1981- piston airplane sales were down to 8-150 units – a drop of almost 55 percent. This drop-off was largely masked by the fact that turbine sales were continuing to rise.
Because the turbine airplanes being sold were increasingly expensive- factory billings also continued to rise- despite the loss of piston sales: Clearly the two markets were being driven by different forces in the economy.
By the time turbine sales began to be affected by the economy in 1982- the piston market had been in a free-fall mode for fully three years. This drop would continue until 1988- when the aircraft sales market hit rock bottom with just 695 units delivered. Over a 10-year period- the piston market contracted 96 percent.
Trouble in the turbine market was brought about by the combination of an economic downturn fueled by hyper-inflation- coupled with the elimination of critical tax incentives- and sharply rising prices to offset product liability costs.
A key factor was hard times in the petroleum industry- which- in a period of about 18 months- went from being the largest customer for new turbine aircraft to a net divestor of airplanes.
Another factor was speculation. By the end of 1981 the market had attracted large numbers of speculators- buying positions a year or two prior to delivery and hoping to cash in on rising prices driven by inflation as well as customers who didn’t want to wait for extended delivery dates and were willing to pay a premium to have their airplane now.
The competition from a lot of good used airplanes on the market was clearly an exacerbating factor to the downturn of 1982- but not the prime cause.
In looking at the factors that brought about the difficult market of the early 1980s- one fact becomes increasingly obvious: No comparable set of conditions exists in the market today.
Inflation is under control- and in fact- is almost non-existent. There may be a few speculators out there- but they are not rampant in the market. Better tax incentives might help us- but our industry has not become dependent on them. No segment of the airplane sales market is distressed- as the piston products were in 1982. In fact- at least one segment in business aviation – fractional ownership – continued to grow in 2002.
Most importantly- as Bill Boisture emphasized in his GAMA presentation- the fundamentals of our industry are strong. Well-capitalized companies are keeping their airplanes- and flying them regularly. Business jet usage was up last year and the global market continues to generate a need for international travel. All of the market forces that have made business jet sales successful for the past decade continue to exist today.
We may be in a weak economy and conditions may be tougher than they were two years ago- but when the economy recovers- our industry will surely follow. That’s the good news of GAMA’s annual report.