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GAMA 2004 First Quarter Aircraft Sales

High tide and green grass! The business aviation recovery that began to germinate a year ago with turnaround in the single-engine airplane for sale market has now entered the first stages of full bloom. In its quarterly report issued April 30 for the first three months of 2004- the General Aviation Manufacturers Association recorded gains in every category – billings and shipments- as well as in all three aircraft categories: piston- turboprop and business jets.

Mike Potts   |   1st June 2004
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High tide and green grass! The business aviation recovery that began to germinate a year ago with turnaround in the single-engine airplane for sale market has now entered the first stages of full bloom. In its quarterly report issued April 30 for the first three months of 2004- the General Aviation Manufacturers Association recorded gains in every category – billings and shipments- as well as in all three aircraft categories: piston- turboprop and business jets.

In terms of raw numbers- billings were up 21.1 percent- from $1.97 billion to $2.3 billion- and shipments up 9.7 percent- from 493 units to 541.

Piston aircraft sales and deliveries were up 9.1 percent- from 361 units in the first quarter of 2003 to 394 this year. Turboprop airplane sales and deliveries were up slightly- from 31 units a year ago to 32 in 2004- and jet aircraft sales climbed 13.9 percent- from 101 in ’03 to 115 in the quarter just past. Indeed- it was the upturn in jet aircraft deliveries that drove the significant increase in total billings- since business jets cost so much more than piston products.

In terms of total deliveries- the first quarter of 2004 was even somewhat better than 2002- when 531 units were delivered and billings approached $11.9 billion. The mix of airplanes- however- was quite different from 2002 to 2004. Two years ago- business jet deliveries accounted for 169 units in the first quarter and turboprops 46. Therefore- unless there is a significant serge in business jet and turboprop deliveries in the next three quarters- it seems unlikely that we’ll see a $12 billion aircraft sales year in 2004.

An $11 billion airplane for sales year might not be out of the question- however. The first quarter is historically slow because many aircraft buyers acted in the just-past fourth quarter to best enhance their tax position. As a result- the first quarter typically may only account for about 20 percent of an annual aircraft sales year- both in terms of unit airplane sales and total dollar volume. Therefore- it would not be surprising to see deliveries top 2-500 units in 2004- with total aircraft for sales in the $11 billion range.

The wildcard in trying to predict deliveries and billings over the next two years lies in uncertainty over what will happen with the U.S. tax code this year. In May of 2003- the U.S. Congress enacted what has come to be known as 'bonus depreciation' – a provision that allows a U.S. business aircraft operator to depreciate nearly half the value of an aircraft in the tax year when it is first placed in service. Bonus depreciation covers a broad range of capital equipment besides aircraft- and was intended to help stimulate the U.S. manufacturing economy.

GAMA credits bonus depreciation with generating $2 billion aircraft sales in 2003- or about 20 percent of the total $9.9 billion in aircraft sales. If that’s true- 2003 would have been a sorry year for airplane sales without it. Bonus depreciation is scheduled to expire at the end of 2004. Understandably- then- GAMA has made getting an extension for bonus depreciation a center piece of its legislative agenda for this year.

If the effort to extend bonus depreciation is successful- the recovery in business aviation aircraft sales can be expected to evolve fairly smoothly- with deliveries growing as this year progresses- and continuing to improve steadily through 2005 and 2006. In fact- the highly respected Honeywell and Rolls-Royce forecasts for business aviation over the next 10 years both predicted steady growth throughout this decade.

If bonus depreciation should expire as scheduled- the affect could be somewhat different. There would be substantial incentive for anyone planning the purchase of a business aircraft in the next two years to take delivery before the end of 2004. (To take advantage of bonus deprecation- the asset would have to be put in service in this calendar year.)

This would potentially create demand that could easily exceed supply. Long lead times for critical components such as engines make it virtually certain that manufacturers can’t significantly change their production rates in time to deliver many more airplanes this year than they have already planned to build.

In the short term- this could allow manufacturers to solidify prices and order books- and 2004 could exceed everyone’s expectations. What happens next- however- wouldn’t be pretty. At the end of the year- when bonus depreciation expires- so will much of the airplane for sale market – since most buyers will have pushed their buying decision into 2004 if at all possible. The first half of 2005 could look pretty grim. (To learn more about bonus depreciation and GAMA’s effort to preserve it- see the GAMA website at www.GAMA.aero)

Looking beyond…

Looking beyond the broad numbers in this quarter’s GAMA report- one finds some interesting aircraft sales trends. The market is evolving with the development of new products and- as a result- some very old and established market conditions have begun to change.

Single Engine Airplanes for Sale: For most of the past 50 years the undisputed leading manufacturer of single-engine airplanes has been Cessna. The only exception was a period from the mid-1980s to the early-1990s when Cessna discontinued single-engine production in response to product liability issues. However- whenever Cessna was building singles- they were the leader.

The undisputed airplane sales champion among single-engine airplanes has been the Cessna 172 single piston aircraft sales. Last year- however- the 172 lost its best-selling title to Cirrus Design’s SR22 by a narrow margin (355 to 349). This year Cirrus seems eager to prove that last year’s result was no fluke.

The Cirrus SR22 single piston engine aircraft sales jumped out to an early lead over the C-172- by a margin of 66 aircraft sales to 61 in the first quarter of 2004. Significantly- at this time last year the C-172 was easily leading the aircraft sales race by 29 units- 83 to 54. So the 172’s longstanding dominance in the single-engine airplane sales market is clearly facing a serious challenge.

Also being challenged by Cirrus is Cessna’s position as the premier producer of single-engine piston-powered aircraft. Cessna finished in its usual front-running position last year with a total of 588 piston singles. Cirrus was a distant second with 469- and Piper held the third position with 161. Solid production numbers in the larger Cessna 182 Skylane and Cessna 206 Stationair for sale models kept it comfortably in the lead.

This year Cessna’s single-engine aircraft sales are starting out more slowly than last year- while Cirrus is ahead of its 2003 pace and is mounting a serious challenge for market leadership. At the end of the first quarter- Cessna leads the single-engine piston-powered aircraft sales race by just one unit – 106 to 105. This will be an interesting trend to watch as the year unfolds. Will Cirrus displace Cessna as the single-engine production leader? If so- will Cirrus become the dominant single-engine builder in the years ahead- or is this just a temporary aberration in the aviation market? Only time will tell- but we will follow this trend.

Business Turboprop Aircraft for Sale: Similarly- Raytheon Aircraft’s historic leadership in the business turboprop arena also appears to be threatened. Built on its enormously successful King Air series- Raytheon business jet aircraft for sales market share in turboprops was seldom below 50 percent in the 1970s- and climbed to 100 percent in the late 1980s when the makers of other turboprop twins dropped out of a sharply declining market.

The development of single-engine turboprops such as the Cessna Caravan and Pilatus PC-12 business turboprops for sale altered the dynamics of the business turboprop airplane sales market somewhat- but throughout the 1990s the King Air continued to be a dominant player. In the new century- however- the King Air’s position in the market has taken a turn for the worse.

Last year in the first quarter Raytheon delivered just four King Airs in the commercial market- plus an additional four units to the U.S. military. To put this number in perspective- consider that at its peak production in 1981- Raytheon (then Beech Aircraft) built and sold more than eight King Airs in a single week. The tough first quarter for King Air sales in 2003 was temporary. Aircraft sales improved considerably as the year progressed- and by the end of the year Raytheon had delivered 86 of them- including six to the military.

This year King Air airplane sales are off to a weak start again- with just four going to commercial customers and none to the U.S. military – although the military did buy one Beech 1900. (No commercial customers bought 1900s in the past quarter.) Raytheon’s four commercial King Air aircraft sales give it less than a 13-percent share of the total commercial turboprop market- which includes both singles and twins.

Notwithstanding this quarter’s results- don’t expect to see Raytheon surrender its historic dominance in the turboprop market without a struggle. Again- we will be tracking this as it unfolds.

Business Jets for Sale: In the business jet aircraft sales arena- the first quarter GAMA numbers also produced some interesting results. Bombardier narrowly squeezed Cessna out of its typical aircraft sales leadership by two units- with the Canadian company delivering 35 business jets to the American company’s 33.

The largest selling single business jet model was apparently Cessna’s Citation Excel business jets for sale- with 13 units. Gulfstream reported delivering 13 units among its G300- G400- G500 and G550- but it doesn’t break down airplanes for sale totals among the models- so unless Gulfstream delivered 13 of just one model and none of the others- Cessna was the single-model aircraft sales winner. Otherwise- it was a tie.

Gulfstream’s policy of not breaking out deliveries by models in its larger series aircraft also makes it impossible to tell from the GAMA numbers how the airplane sales race is going between Gulfstream and Bombardier for the intercontinental market. Bombardier delivered nine of its Global Express models in the first quarter of 2004- compared with six a year ago- so the high-dollar market is clearly improving.

Boeing delivered two BBJs – a 200% improvement over a year ago in the first quarter when it didn’t deliver any. On the other hand- Boeing delivered BBJs at a steady rate of two or three per quarter through the balance of 2003- so aircraft sales could also be regarded as stable- depending on the point you are trying to make.

If there is a trend indicated in business jet sales in the current GAMA numbers- it is that the high end of the market is recovering faster than the low end. Entry-level jet sales are at or below their 2003 performance while mid-size jet aircraft sales are generally improving.

Raytheon’s Premier I airplane for sale were equal with last year at three units while its Hawker series was up by 10 percent- from 10 units to 11. Even here- the more expensive units did better- with Hawker 800 aircraft sales up from six to eight units while Hawker 400 deliveries were down from four to three.

Cessna’s entry-level CJ1 and CJ2 models were collectively down from 19 units to 13- although CJ1 deliveries were up from two to five over last year. In the mid-size category- the new Bombardier Learjet 40 model debuted with six units- and both its 45 and 60 series Learjets showed airplane sales gains over last year. Dassault saw a 37 percent increase in total deliveries- with most of its aircraft sales concentrated in the high-end 900-series airplanes.

Overall- this was a very good GAMA report – the most positive in a very long time. While performance is still uneven in some areas- the market appears to be turning around nicely and 2004 should be a very good year for all categories of business aircraft for sale.
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