The second quarter 2003 GAMA numbers are out- and at first blush the news is lousy. To quote GAMA: 'Shipments of general aviation airplanes for the first half of 2003 totaled 1-031 units- a drop of 13.8 percent from the same period last year… Industry billings for the first six months were $4.05 billion- down 32.3 percent from 2002.' At least they didn’t try to sugarcoat it. But hold on. Is the news really all that bad?
Maybe it’s not all that bad. In fact- a careful perusal of the numbers- analyzed against the known historic performance of the aircraft sales market- suggests we might be seeing the first fleeting signs of a recovery. Maybe – just maybe – things are starting to turn up a little bit.
The evidence that this might be true can be found in the third paragraph of GAMA’s announcement of the second quarter results. There- sandwiched between the news that multi-engine airplane sales fell in the first half of 2003 and the fact that turboprop airplane sales declined 10.8 percent from a year ago- is this bright spot: Shipments of single-engine piston airplanes for sale were up 1.4 percent over the same period last year.
'Big deal-' you say. 'Pistons- which represent just a tiny fraction of the overall market- are up a measly 1.4 percent? How can that be good news? Particularly when the rest of the market is clearly in free fall?'
Well- it is good news- and here’s why. Historically- whenever the business aviation market has recovered from major slumps- the single-engine pistons have led the way. If it’s at all reasonable to assume the market will behave as it always has in the past – and I believe it is – then this sales trend in the single-engine piston sales segment is potentially significant.
Moreover- this is the second consecutive quarter that the single-engine piston market has significantly outperformed the rest of the industry and the second consecutive quarter when the piston segment actually gained a little over the previous year.
Admittedly the gain was small – in fact- the pessimistic among you could argue that the increase was statistically insignificant- but the important thing is that the piston segment is performing counter to the trend in the rest of the industry. It is clearly demonstrating signs of recovery.
If the industry is going to recover along the same lines that it always has in the past- this is the step that has to occur first – and the GAMA numbers of the past two quarters suggest that it is beginning to happen.
The performance of the piston segment in the next few quarters will be critical in predicting whether recovery really is imminent. By this time next year- we should be seeing not just stability- but some actual aircraft sales growth - maybe not a lot- but some. Moreover- the other segments should begin first to stabilize- and then to start following the piston segment in some modest growth.
If previous trends are to be repeated- the turboprop sales will start to follow the pistons upward- lagging by three to six quarters. Then- finally- the fanjets will surge forward to complete the recovery. Somewhere in between- the used aircraft sales market will pick up as the economy gains steam.
Whether the turboprop will- in fact- lead the jet segment into the recovery this time remains to be seen. The dynamic between the turboprop market and the jet sales market has changed significantly over the past 20 years. Where once the turboprop sales dominated the market by a ratio of more than 2 to 1- now the jets are clearly in the majority and are closing in on a 2 to 1 advantage over the turboprops.
Two factors have contributed to this huge swing in market share by the jets over the turboprops. One is the proliferation of inexpensive small jets for sale that have come on the market in recent years- such as the Citation CJ series and the Raytheon Premier I jet - that have provided jet performance in a price range that previously only bought a turboprop.
The other is the ever-increasing number of jets at the high end of the market- combined with the increasing number of segments occupied by jet aircraft in the high end. As jets evolved beyond the light jet sales category and into the mid-size- super-mid-size and beyond- there were no comparable turboprops to compete for the market. The result was that- year after year- a proportionately larger number of jets than turboprops are being sold.
Where this will be important in forecasting the coming recovery will be in the lighter end of the aircraft for sale market. The reason the piston products have always recovered first- is because the impression of prosperity and an ensuing willingness to spend money tends to develop in the entrepreneurial classes before it comes to corporate boardrooms. Recovery is usually well established before corporations are willing to accept the good news.
As a result- in the past- the light end of the new airplane sales market recovered first- followed by the turboprop sales market- then the jets. It will be interesting this time to see whether the changes in the dynamics between the turboprops and the light jets might cause the light jets to recover at the same time or perhaps even ahead of the turboprops.
On the other hand- the growth in the single-engine turboprops segment has created a new niche for the turboprop. Perhaps this new segment will balance the changes in the dynamics between the traditional twin turboprops and the new light jets- and cause the turboprops to lead the jets into the recovery- as they always have in the past.
In the meantime- keep you eyes on the GAMA numbers as they unfold over the last two quarters of this year. If the single engine airplanes segment continues to make gains- it will be an ever-increasing sign that the long awaited recovery may- in fact- be upon us. Wouldn’t that be good news!