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These are ‘the good old days’ your children will be asking you about

The General Aviation Manufacturers Association (GAMA) chose the AirVenture at Oshkosh as the site to announce its second quarter delivery numbers- and that venue turned out to be very appropriate since the results GAMA announced proved to be the highest billings for the first half of a year in the history of business aviation.

The billings GAMA announced totaled almost $8.8billion- an increase of 34.9 percent over the same period in 2005. That’s just incredible! Industry billings didn’t top $8billion for the entire year until 2000. Now- in just six years- the sales volume has more than doubled.

As recently as 1997- the total billings for the entire year (just under $4.6billion) were less than the $4.7billion we recorded in the second quarter of this year alone. That’s right. The second quarter billings for 2006 were higher than the total GAMA reported for the entire year just nine years ago. Clearly this is one amazing recovery.

Enjoy this. Revel in how it feels- and commit all this to your memory banks… because it won’t last forever. And for a long time people will be asking you what it was like during the hot years of 2005 and 2006… and hopefully 2007 and 2008. These are ‘the good old days’ your children will be asking you about.

The good news extends well beyond just record billings. Total shipments for the first half totaled 1-843 units- which is an increase of 19.1 percent over the 1-548 airplanes delivered in the first half of 2005- and sales in all categories continue to climb.

Piston airplane deliveries were up 17.4 percent- from 1-082 last year to 1-270 in 2006. That represents strong evidence that the recovery is still in full bloom. Turboprops were up 12.1 percent- from 141 units a year ago compared with 158 this year.

The business jet market showed the strongest growth- with a 27.7 percent jump over 2005. This year’s second quarter business jet total was 415 units- compared with 325 last year’s.

GAMA- however- continues to approach the current recovery with a measure of caution. Pete Bunce- GAMA’s president and CEO- announced the latest record breaking news- saying; 'We are very encouraged by this continued positive trend- but we are closely monitoring the potential impact that rising fuel prices and interest rates may have on our dynamic worldwide industry.'

GAMA is also worried about the impact that user fees might have if the U.S. Government should make a change in how the FAA is funded.

Last year at this time GAMA was also concerned about the impact that expiring tax incentives might have on the market. Accelerated depreciation provisions in the U.S. tax laws ended at the close of 2005- but the market appears to have absorbed this challenge without skipping a beat.

Bunce did express cautious optimism that the growth will continue throughout the final six months of this year. 'With our manufacturing current backlog- we are confident that this trend will continue throughout the remainder of 2006.'

GAMA can perhaps be forgiven for its careful approach to predicting the market. Throughout much of the 1970s and early ‘80s- GAMA aggressively predicted continued growth as the market worked through nine progressively better and better years. But when the market collapsed in the early 1980s- GAMA’s forecasters didn’t see it coming.

For several years thereafter- GAMA gamely predicted a recovery that stubbornly refused to develop. Finally in the mid-1980s- after a few years of embarrassingly inaccurate recovery forecasts- GAMA announced that it would no longer be in the business of trying to predict market trends. Instead- it would simply report the results – a policy it continues to follow even today.

In GAMA’s absence- the industry has come to count on the forecasts of Honeywell- Rolls Royce- Teal Group (see page 82) and others to predict market trends. Those forecasts call for a strong market throughout this decade- although the current recovery is outperforming the forecasters’ predictions.

Based on the forecasts published at last October’s National Business Aviation Association convention- the market for business jets wasn’t expected to be this strong until 2008. Honeywell and Rolls-Royce’s forecasts will be out in October- and it will be interesting to see what they have to say.

Looking at GAMA’s second quarter delivery statistics- it is possible to develop a fairly accurate picture of what we can expect to see for the remainder of this year. If the market performs to the same ratios it did a year ago- we are headed for a total delivery year of 4-260 units and total sales slightly above $20 billion.

This is comfortably within the range of the prediction we offered earlier this year after looking at the first quarter numbers- which was for total deliveries of 4-400 units and sales around $19 billion. If that turns out to be correct- 2006 will be the best year for deliveries since 1981- and the billings will far surpass any previous year in the history of business aviation.

You can see that our unit delivery forecast appears a little higher than current market performance and the billings estimate now looks a little conservative. That is occurring because the fastest growing segment of the market is high-end business jets. Fewer planes for more money. That’s been a trend in this industry for more than 25 years.

I still think we’ll top 4-400 units delivered this year- and billings just might get as high as $21 billion. It looks like the biggest thing holding us back right now is production capacity – the industry could sell more airplanes if it could just get them built.

A significant factor in the unit delivery total this year is likely to be how fast the Very Light Jet market spools up. Eclipse achieved provisional certification for the Eclipse 500 in July- and was forecasting that deliveries could begin before the end of the third quarter- but these things have a way of stretching out beyond the manufacturer’s expectations.

Delivery of the first Sino Swearingen SJ30- forecast for earlier this year- was still pending as of mid-August. It will be interesting to see which company actually delivers the first all-new jet to a customer.

Looking at the specifics of the market- we see a fully developed recovery- with all segments performing strongly. Deliveries for the quarter totaled 998 aircraft- comprising 226 business jets- 99 turboprops and 673 piston aircraft. With a few notable exceptions- everyone is either ahead of their previous year-to-date and/or ahead of their second quarter results.

BUSINESS JETS FOR SALE:
Continuing strongly

In the bizliner category- Regional/Airliner Boeing aircraft for sale and Airbus for sale are now competing strongly with each other for market leadership. As of the end of the second quarter- Boeing had pulled into the lead- with seven units delivered year-to-date.

This represents something of a market reversal- because for the past year Airbus has held a commanding lead- finishing 2005 with a margin of nine to four over Boeing. This year- however- Boeing took an early lead in the first quarter- with four units delivered compared with three for Airbus. Boeing held its lead in the second quarter- by a margin of three to two- although both companies each had one fewer delivery than in the first quarter.

Boeing also held the revenue lead in this category- with sales of $143.5 million for the quarter and $325.5 million year-to-date. Airbus totaled $100 million for the quarter and $250 million for the first half.

In the more traditional business jet for sale categories- Cessna retained its traditional leading roll in delivery volume- with 78 business jets delivered in the quarter.

In what is turning out to be the pattern for this recovery in this category- however- the billings leader is once again Bombardier- with sales slightly above $1.3 billion for the quarter. Contrast that total with 30 years ago when the whole industry’s billings for the entire year of 1976 were only $1.2 billion. And now just one company records greater billings in a single quarter. Amazing!

Bombardier’s deliveries for the second quarter totaled 58 units- up from 45 a year ago. That puts Bombardier in second place in the delivery category.

Cessna’s business jet billings for the quarter are not separated from its piston aircraft for sale and turboprop aircraft for sale totals in the GAMA report- but Cessna’s total for all categories was $783.6 million- so it is clear that its business jet billings do not challenge Bombardier’s total.

Second place for the quarter in the business jet billings category went to Gulfstream- with a total of $1.067 billion. Gulfstream for sale delivered 29 units for the quarter- up sharply from the 21 it delivered in the second quarter of 2005. Gulfstream’s total unit deliveries year-to-date are up nearly 32 percent over a year ago- with 54 to 41. Clearly Gulfstream for sale has upped its production capacity to meet the demands of this expanding market.

Next in the business jet delivery category is Raytheon- with 36 deliveries for the quarter- up only marginally from the second quarter of 2005- when it delivered 35. Year-to-date- however- Raytheon is up sharply- by more than 21 percent- with 58 units this year compared with 48 a year ago. Raytheon’s totals appear to have been somewhat affected by its transition from the 800XP version of its Hawker business jet to the new 850XP model.

Dassault joined with the other jet companies in recording nice gains from a year ago- with 24 jets delivered in 2006 compared with 19 by end of second quarter- 2005. Dassault’s billings were up around 33 percent year-to-date over last year as well- from $522.8 million to $698.75 million.

Production rates for Embraer regional jet for sale also appear to be increasing nicely- with nine units delivered year-to-date this year compared with six in 2005.

BUSINESS TURBOPROP AIRCRAFT FOR SALE:
The usual suspects

In the turboprop category deliveries were up almost 18 percent for the quarter- at 99 units- compared with 84 in the second quarter of 2005.

The usual suspects are in their traditional places in the aircraft for sale market- with Raytheon leading the turboprop segment with its ubiquitous King Air for sale series recording 33 deliveries for the quarter- up 22 percent from a year ago when 27 King Airs were reported to GAMA.

Pilatus captured second place in the turboprop race- with 25 of its PC-12 for sale models delivered- compared with 20 a year ago. That’s a 25-percent increase.

Cessna was next- with 17 of its Grand Caravan I for sale and IB models. Cessna turboprop sales were one of the few segments where sales were not ahead of last year’s totals- down from 23 units in second quarter 2005.

Socata recorded 13 sales of its new TBM 850 for the quarter. This contrasted with just six of the Socata TBM 700 models Socata was delivering last year at this time- for an aggregate increase of 113 percent.

Piper Meridian aircraft for sale's were also up sharply- from six in the second quarter a year ago to 10 this year. That’s an increase of 66 percent. Piper appears to have overcome the production problems that were related to damage at its plant from hurricanes last year.

Finally in the turboprop market- Piaggio Avanti for sale reported the sale of one Avanti II. Piaggio’s total turboprop deliveries for the year are down slightly from a year ago- from three units to two.

SINGLE ENGINE AIRCRAFT FOR SALE
Healthy growth- on balance

Turning to piston aircraft for sale- we see a continuing healthy and growing aircraft for sale market that bodes well for prospects that this recovery will continue to have good legs. A total of 673 piston aircraft were delivered in the quarter- up from 648 in the second quarter of 2005.

Interestingly- not all of the makers of piston-powered airplanes delivered more aircraft were this year than last. In fact- of the 14 active piston builders today- fully half did not record an increase in the quarter just past. Ordinarily- this fact might inspire some long-term concern for the overall health of the market. Upon examination- however- it is clear that in most cases there are explanations for the shortfalls that are unique to each company’s situation.

So- on balance- despite the fact that half of the piston manufacturers did not record gains this quarter- the market can still be pronounced very healthy.

Not surprisingly- the leader in the used piston for sale market was Cessna- with 231 piston singles delivered in the quarter. This was up 23 percent from the 187 piston singles it delivered in the first quarter- indicating that Cessna aircraft for sale is continuing to up its capacity to match market demand. It is capacity increases of this kind that will allow us to reach 4-400 airplane deliveries this year… assuming that we do.

Also showing a good capacity increase was Cirrus aircraft for sale- which delivered 182 airplanes in the second quarter – second best of all the piston manufacturers. Cirrus’ total was up 14 percent from the 159 airplanes the company delivered in the first quarter- and up 19 percent from the 152 units it delivered in the second quarter of 2005. That 152 total represented full production capacity for Cirrus last year- so clearly this year it’s significantly upped its capacity to build airplanes.

With its expanded capacity- Cirrus continues to hold a lock on the title of largest selling individual airplane model with its SR22. Cirrus turned out 139 SR22s in the past quarter- up from 120 last year.

Third place once again in the single piston category goes to Diamond- with 66 deliveries. Diamond is the first of the piston makers whose single-engine total did not match its 2005 results. Last year Diamond delivered 76 in the second quarter. A look at the numbers- however- reveals that Diamond upped its twin-engine production by 10 units- so its total Diamond single piston aircraft output was steady at 96 units- which appears to be about its production capacity. So no worries here.

Next in piston single deliveries was Piper- whose numbers were also down. Piper delivered 42 Piper single piston for sale this quarter- compared with 50 a year ago. Again- however- a look at the delivery history suggests that last year’s second quarter was unusually high for Piper. In fact- it was 17 percent higher that any other quarter last year- and also represented the first quarter where Piper had anything like normal deliveries after its hurricane problems.

So Piper’s numbers this year actually represent normal deliveries based on current production capacity in a pretty good market. The same situation applies to Piper’s piston twin numbers- which are discussed below.

Mooney is next in line- with 22 deliveries. This number is also down on second quarter numbers for 2005- but only by a single unit and this almost surely represents the vagaries of production scheduling and delivery timing. Mooney aircraft for sale has performed very consistently over the past three years and continues to do so.

Tied for the next position in piston deliveries are Raytheon and Columbia- both with 21 deliveries in the past quarter. Raytheon’s numbers are up by about 10 percent from a year ago- as its Bonanza model is about to complete its 60th year in continuous production. Columbia’s numbers- meanwhile- are below the second quarter performance of a year ago- but are actually ahead of last year if you look at the first and second quarters together. Again- the answer probably lies in production scheduling and vagaries of the market.

American Champion for sale is the only company with numbers significantly below last year’s levels- both on a quarter-to-quarter and a year-to-date basis. It delivered 15 airplanes in the 2006 second quarter- down from 27 a year ago. Year-to-date the company is off from 46 units to 28.

Maule single piston for sale and Liberty are tied for the next position in piston single deliveries with eight units each. If you haven’t been following the piston market lately- the Liberty name may be unfamiliar. That’s because it’s a brand new company- only in its third quarter of deliveries.

Liberty Aerospace is building a nice record of sales gains- too- delivering two airplanes in the fourth quarter of 2005- four airplanes in the first quarter of 2006- and now eight airplanes in the quarter just past. Liberty is off to an excellent start- and we wish it well. Maule- one of the older but smaller traditional piston aircraft builders- appears to be prospering in the current market. This quarter Maule is up 14 percent from the same period last year (that’s a total of one unit- from seven to eight) but based on year-to-date deliveries Maule’s up 61 percent- from 13 units to 21.

Gippsland is next with five deliveries of its GA8 Airvan – a number it has achieved very consistently for some time now.

Symphony reported two deliveries of its SA 160 trainer. This is the lowest quarterly total for Symphony since it emerged from bankruptcy last year- but since it is only one unit below its first quarter deliveries- the total hardly seems to be cause for alarm.

Tiger Aircraft reported a single delivery of its AG-5B model- down from two last quarter and from four this time last year.

TWIN ENGINE AIRPLANES FOR SALE:
Historic proportions
The piston twin market continues with its remarkable performance and is still on track to reach production levels that haven’t been seen in 20 years. Led by Diamond Aircraft and its remarkable diesel powered DA42 Twin Star- the market reached a 90-unit year-to-date milestone at the end of the second quarter.

The best year for piston twin production in the past two decades actually occurred quite recently – in 2001- when there were 147 multi-engine piston airplanes delivered. To find higher production than that- you have to go back to 1985- when there were 193 piston twins delivered. The following year – 1986 – the piston twin market sank to 138 units- and with the exception of 2001- hasn’t been any higher since.

The bottom of the market was in 1993- when used piston twin aircraft deliveries totaled just 39 units. There have been only four years since 1986 when piston twin production reached triple digits. So the fact that we are at 90 units for the first half of this year takes on historic proportions.

What’s perhaps more interesting is that the number of piston twin manufacturers is continuing to rise. Today there are four entrants in this market: Diamond- Raytheon- Piper- and the newest builder- Adam Aircraft Business Jet for sale. Adam made its delivery debut in the fourth quarter of last year with two of its A500 centerline twins. During the quarter just passed- Adam delivered another.

As mentioned above- Diamond has been the leader of the revitalized twin market- delivering 57 of its DA42 Twin Stars in the first half of 2006- including 30 in the past quarter.

Raytheon- meantime- has delivered 18 new piston twins this year- nine in each of the two quarters. That’s eight more than it had delivered in the first half of 2005.

Piper- however- has delivered 14 twins this year - somewhat off the pace of 23 units it delivered in the first six months of last year.

So the stage is set for a run at a 22-year-old record. With 90 units in the first half- it seems almost certain that we’ll beat the 2001 total of 147. The question thus becomes; 'can we beat the 1985 total of 193?'

Last year- despite a slow start- Piper delivered 41 twins- including 12 of its Seneca V models and 29 Piper Seminole for sale. Raytheon delivered 28 Beech Barons for sale in 2005. Diamond seems aimed at a pace that will yield between 115 and 120 Twin Stars this year. Adam deliveries might reach five to seven units. That leaves 72 units or so that would have to come from the combined inventories of Raytheon and Piper. Will we get there?

I expect we’ll be close- but I look for the 1985 record to stand for another year. Of course this hot market of 2006 could easily prove me wrong…

 


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