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GAMA Third Quarter 2006 Shipment Analysis

We’re bang on target for a record year in all categories.

The General Aviation Manufacturers’ Association (GAMA) has released its third quarter aircraft shipment numbers and we continue to be on pace for a record year in all categories.

This almost unbelievable year is continuing to produce numbers that are simply fantastic:
• Total billings of $13.2bn for the nine-month period- up 28.6 percent from a year ago. • Total deliveries of 2-842 airplanes for sale for the three quarters- up 18.9 percent from the 2005 total in the same period.

Deliveries for the year-to-date are up in every segment. Pistons gained 18.4 percent from a year ago- up from 1-685 to 1-957. Turboprops were up 12.3 percent- from 228 to 256. Business Jets for sale- however- gained the most- up 23.3 percent- from 510 to 629. Billings for the third quarter alone totaled an astounding $4.475bn. How good is that? It’s more than GAMA reported in any entire year before 1998. And yet that $4.475bn still wasn’t quite as much as GAMA reported just last quarter- when billings totaled almost $4.711bn.

Unit deliveries were up in the third quarter by the slimmest of margins – 999 compared with 998 in the second quarter. Basically- the second and third quarter of this year were about the same – two of the strongest quarters in the history of our industry.

In announcing these terrific results- Pete Bunce- GAMA’s president and CEO- noted that “our manufacturers have seen growth in all airplane segments- part of which we attribute to strengthening sales in Europe- and into Russia- China and India. Business people and government officials are recognizing the dynamic role that general aviation plays in building a vibrant economy- and as our manufacturers continue to bring new innovations to market- we expect to see this trend continue.”

Interestingly- Bunce’s comments parallel the forecasts just issued by Honeywell and Rolls-Royce (see related story- pg. 58) in which the expanding market is seen as being driven by expanding demand outside the traditional stronghold of North America- as well as by a host of new products in all segments of the market.

And yet amid all this good news- everything is not perfect in the business aviation world. GAMA officials- along with their counterparts at AOPA- NBAA and other groups representing various segments of the cost of private jets for sale world- are locked in a struggle with the major airlines over how the U.S. Federal Aviation Administration and the air traffic control system in the United States are going to be funded.

The airlines would like to move funding away from the current ticket and fuel tax system to a user fee based system similar to what exists throughout Europe and much of the rest of the world. Leaders of both political parties in the United States have looked favorably on user fees in the past- but business aviation interests have succeeded in preventing their implementation up to now.

But with the airlines pushing for user fees- it’s going to be harder than ever to maintain the status quo. GAMA is deeply worried that a pay-as-you-go airway system in the U.S. may curb the airplane market that has developed so nicely over the past three years. Will user fees spoil the party? It remains to be seen.

Could have been better?
As good as the GAMA numbers are this quarter- they could have been even better. Unfortunately- two of the industry’s piston manufacturers- Tiger and Mooney- are having difficulty in spite of the record sales environment.

Ownership problems at Tiger have brought production to a halt at that company’s factory in Martinsburg- West Virginia. Meanwhile- at Mooney- expanded production and delivery of airplanes at an annualized rate of 90 units a year still was not generating enough income to service a significant debt load- and the company is now undergoing a restructuring.

If these two fine companies had not experienced problems- this quarter’s GAMA deliveries would have been even higher.

Also acting to prevent the GAMA numbers from reaching yet greater heights was the failure of a number of start-up companies to deliver any airplanes in the third quarter. Eclipse- Sino Swearingen and Adam had all expected to have deliveries- but circumstances turned out otherwise.

This shouldn’t be too surprising given the regulatory environment in which aircraft companies have to operate and the complexities of getting production under way. I’m sure all of these companies will soon be turning out airplanes and contributing to even more remarkable GAMA delivery totals in the near future.

Based on all of these developments- we can begin to get a better idea of what the total deliveries and billings for the year 2006 will probably look like. If this year follows typical industry trends- deliveries should total about 4-250 units- with billings perhaps breaking the $20bn mark. That would be more than twice what the industry billed in 2003: Pretty good recovery- don’t you think?

The Business Jet aircraft for sale

Turning to the details of the GAMA report- we see a business jet category that is growing faster than any other segment. Moreover- the growth in business jets is disproportionately spread toward the higher end of the market. This reflects observations made in both the Honeywell and Rolls-Royce market studies that business aviation is becoming more and more relied on as a tool to generate profit and productivity for business and industry.

As a result- businesses around the world are acquiring larger and more capable business jets to take care of their travel requirements. This trend is no doubt being accelerated by the increase in difficulty and inconvenience associated with airline travel today.

The effect on the GAMA numbers is that the billings rise faster than the unit volume because- in the business jet segment particularly- customers are buying larger and more expensive airplanes for sale. This trend has been true since the late 1970s- but it is the cost of private jets for sale which is becoming even more pronounced today. The latest GAMA report shows this clearly: In the bizliner category- sales are up 88 percent from a year ago.

Boeing is leading in this category- with three BBJs delivered in the quarter and a total of 10 for the year. Airbus had two for the quarter and seven deliveries in the first nine months. Billings for these 17 airplanes for sale exceeded $800m. Neither Boeing nor Airbus scored very high in the race for the company with the most business jet billings however.

The leader in bizjet sales dollars for the quarter was Gulfstream business jets for sale- with billings of $1.087bn. This represented something of a reversal- because for the past couple of years Bombardier has had the highest billings totals.

For Gulfstream- though- this is a return to familiar territory. Throughout the decades of the 80s and 90s- Gulfstream was unchallenged as the billings leader. In this decade- however- Bombardier has surpassed Gulfstream in billings as its business jet segment has grown with new and more expensive models.

Year-to-date Bombardier is still ahead of Gulfstream- with $3.604bn in sales compared with $3.08bn for the Savannah- Georgia-based jetmaker. Bombardier’s unit deliveries were off somewhat compared with last quarter- which accounted for the Canadian firm’s slide into the second position in billings. Bombardier delivered 46 business jets in the third quarter- compared with 58 in the second. Year to date- Bombardier has delivered 160 jets Gulfstream deliveries totaled 29 airplanes for the quarter and 83 for the first nine months. Indeed- Gulfstream deliveries experienced no reduction from the second quarter to the third.

Third place in business jet billings was Cessna- although the exact sales number is impossible to determine from the GAMA figures because Cessna’s business jet sales totals are blended with its business turboprops for sale and piston engine airplanes for sale. At total sales of just under $800m for the quarter and $2.22bn year-to-date- however- it’s clear that Cessna is in third place in this category.

Next is Dassault with $368m for the quarter and $1.07bn for the year-to-date- probably followed by Raytheon in the number five position for business jet billings. Raytheon’s totals- like Cessna’s- are merged with turboprop and piston engine products and therefore hard to judge precisely- but with total billings of nearly $498m for the quarter and $1.23bn year-to-date- a rough estimate based on retail product values makes it pretty clear where the company ranks in this category.

Boeing is in sixth place with $459m in billings for the year to date- followed by Embraer in seventh place just over $401m and Airbus in eighth with $350m. In unit sales Cessna is the leader by quite a wide margin- with 74 jets delivered in the quarter and 218 for the first nine months. Second is Bombardier- with 160 year-to-date and 46 for the quarter.

Raytheon is third- with 97 for the year and 39 for the quarter- followed by Gulfstream with 83 and 29; Dassault with 37 and 13; Embraer with 17 and eight; Boeing with 10 and three; and Airbus with seven for the year so far and two for the quarter. Collectively that makes 629 business jets for sale delivered year-to-date and 214 for the quarter. A rough estimate places the value of these 629 business jets somewhere between $11-11.5bn- so roughly 25 percent of the unit deliveries account for about 85 percent of the billings (give or take a couple of percentage points).

Interestingly- this trend of an ever-increasing percentage of sales dollars going to buy an ever-smaller number of total airplanes for sale is probably going to reverse itself over the next few years. That’s because we are about to see an influx of a large number of comparatively inexpensive business jets. Eclipse- Sino Swearingen Aircraft Corporation- and Cessna will all begin delivering new- low-cost jets in the next few months. Adam is likely to follow. Not too long after that we could also see new jets from Aviation Technology Group- Cirrus- Diamond- Embraer- Excel-Jet- Grob- Honda- Piaggio- Piper- Spectrum and others.

That means the number of business jet makers will almost certainly grow by 50 percent or more in the next two years- from eight market entrants to 12 or more- and could easily double within the next five years to 16 or more- and perhaps as many as 20 if all the new pending programs come to fruition. History suggests that not all of them will make it- but clearly we are at the dawn of a whole new era in business jet transportation. And that’s how it is in the business jet world.

The Business Turboprops for sale

Turning to the turboprops- we see a market that is up 12.3 percent over a year ago- from 228 units for the first nine months of 2005 to 256 this year. This is obviously good- but it is clearly less good than the other market segments.

Unlike the jet market- in the turboprop aircraft for sale market not all of the manufacturers are doing better than they did last year. Of the six companies that delivered turboprops this year- two did not match their 2005 totals- either in the immediately past quarter or for the year to date. There has been speculation in the market that turboprops could see a resurgence based on the increasing cost of fuel- but with the cost coming back down now- that effect may be limited.

Leading the turboprop market- as it has for the past 40 years (with one or two odd exceptions) is Raytheon. The company’s ever-popular King Air series accounted for 35 units in the past quarter and 89 for the first three quarters of the year. This represents an increase of approximately 30 percent over the same period for 2005- and marks the strongest turboprop sales that Raytheon has seen in this decade.

Second place in the turboprop sales race goes to Pilatus- which delivered 25 of its PC-12 single engine turboprops in the third quarter and a total of 61 for the year to date. That makes the PC-12 the world’s largest selling turboprop model this year- by a fairly wide margin.

Cessna is in third place in turboprop sales with its Caravan series- and deliveries of 15 aircraft for the quarter and 44 year-to-date. Both of these totals are below what Cessna delivered in 2005- when it had 19 and 64 during the comparable periods – totals that would have put it in second place if it had matched them this year.

Piper experienced 33-percent gains over its 2005 year-to-date totals with its single-engine Meridian- up from 24 units to 32. That was enough to put Piper in fourth place in turboprop deliveries- ahead of its rival Socata- which delivered 27 of its TBM 850 models for the year to date and 10 for the quarter. Socata’s year-to-date deliveries are up 42 percent.

Piaggio delivered one P-180 in the past quarter and three for the nine-month period. This was down from a year ago when it recorded two and five respectively.

The Piston Market
The twin piston engine market continues to perform strongly- with a gain of 18.4 percent over 2005. This is a strong indicator that the recovery is still in full bloom- as forecast by Honeywell and Rolls-Royce.

Like the turboprop market- the piston market was characterized by a few companies whose results did not match their 2005 totals. Besides Mooney and Tiger- whose situations were discussed previously- these included American Champion- Symphony and Gippsland. Pretty much everybody else in the piston market was way ahead of their 2005 results though.

Single Engine Airplanes for sale

Leading the piston engine market was (who else?) Cessna- with deliveries of 604 piston engine in the first nine months of this year – up more than 100 units or 21 percent from the 499 airplanes it recorded in the same period in 2005. Interestingly- Cessna’s total piston engine deliveries for the quarter were off slightly from the 2005 total- 186 units compared with 198 last year.

Cirrus continued to build the largest selling piston single engine model- delivering 403 of its SR22 in the first nine months of the year- compared with 350 in the same period last year. That’s a gain of 15 percent. Cirrus’ total deliveries so far this year reached 529 units- up from 447 last year - a gain of 18 percent- which marks a significant step-up in production capacity for the company. Last year’s total represented all Cirrus could build at that time.

Interestingly- Cirrus’ total production of 529 units this year would have put it ahead of Cessna’s last year total- so clearly both companies are raising their production capacity to meet growing market demand.

Running a distant third in single-engine piston production is Diamond Aircraft- with 193-units year-to-date and 72 in the past quarter. Comparing quarter to quarter- Diamond is 14 percent ahead of its 2005 third quarter total of 63 airplanes- but it is still behind its nine-month 2005 record of 201 airplanes for sale. This is largely because Diamond shifted some of its production capacity from single-engine aircraft for sale to twins late last year.

Like Cessna and Cirrus- Diamond has upped its production capacity in the past year and is now able to build more singles than it did last year. It’s done this while increasing its twin production capacity as well- so the folks at Diamond have clearly been working hard and achieving results.

Fourth position in single-engine piston deliveries goes either to Piper or to Columbia- depending on how you choose to measure. Piper has the most airplanes year-to-date- with 128- compared with Columbia’s 121. For the quarter- however- Columbia is well ahead- 63 to 44. So it’s pretty much a dead heat right now- but the quarterly results suggest that Columbia will be ahead in both categories when the year-end totals are tallied. For Columbia- which is a comparatively new company- the prospect of out-producing and out-selling Piper has got to be pretty heady stuff.

Columbia and Piper are both ahead of last year’s totals - Columbia 21 percent ahead of the 100 units it had in the first nine months of 2005- while Piper is nine percent ahead of the 117 aircraft it delivered in the nine-month period a year ago. Moving further down the list we find three more companies tightly grouped for the next position. In the year-to-date measurement- Mooney leads this pack with 56- followed by American Champion at 50 and Raytheon at 49 deliveries. Raytheon is 53 percent ahead of its comparable 2005 total of 32 airplanes- while Mooney and American Champion are both behind – Mooney down from 63 units- and American Champion down as much as 29 percent from the 71 units it delivered in the first nine months of 2005.

Next in the piston race is Maule- with 32 units year-to-date- up by 39 percent over the 23 airplanes it had delivered last year at this time. Liberty is next- at 23 units- and worthy of special mention because as a start-up it has smoothly entered production and expanded its rate each of the three quarters it’s been delivering airplanes. Liberty had no deliveries until this year- then began with four units in the first quarter- eight in the second- and now 11 in the third. Good show- Liberty!

Filling out the rest of the single-engine piston lineup are Gippsland- with 15 aircraft- divided evenly with five units in each of the three past quarters; Symphony with five units for the year so far- and none in the past quarter- and Tiger- with three for the year and none in the current quarter.

Gippsland’s numbers are off slightly from a year ago- but this is probably just an aberration. For several years now- Gippsland has very consistently been delivering five airplanes per quarter- until the third quarter of 2005- when- for some reason- it delivered seven. The next quarter Gippsland was back to five- and has remained there ever since. Gippsland appears to be cruising along and doing just fine- thank you very much.

The Twin Engine Airplanes for sale

Finally- turning to piston twins- we see a revitalizing market that is becoming increasingly interesting as the year progresses. In fact- we set a record in the piston twin category during the past quarter. Total piston engine twin deliveries for the year to date in 2006 now total 148 units. That eclipses the 147 units that were delivered throughout the entire year of 2001 – which previously held the record for the most piston twin deliveries since the year 1985- when 193 piston twins were delivered.

The 148 units delivered was comprised 94 units from Diamond- up 135 percent from a year ago; 28 units from Piper- down slightly from the 31 it had a year ago; 25 from Raytheon- up 78 percent from 14 units a year ago; and one from Adam Aircraft- up 100 percent from last year when Adam had not yet begun to deliver airplanes.

In the September issue of World Aircraft Sales Magazine I speculated whether we might break the 1985 record. I concluded that the answer was “probably not.” Now I’ve changed my mind. I believe we will break the record. I hadn’t counted on Diamond upping its production rate above the 30 airplanes for sale it delivered in the second quarter of this year. Diamond had already accelerated deliveries steadily through the year 2005- going from two airplanes in the first quarter to 28 in the fourth.

This year- when Diamond delivered 27 in the first quarter and 30 in the second- it looked like it had reached a stabilized rate- which is important when you are trying to earn money by building airplanes for sale. The secret to profitable production is a stabilized production rate. So it was a real surprise to see that Diamond had delivered 37 airplanes in the third quarter.

If Diamond can match this quarter’s sales in the next three months- that changes everything. With Adam coming on line and likely to deliver a few airplanes- Raytheon and Piper need only to match their current delivery rates and we will break the 1985 piston engine twin aircraft for sale delivery record.

In fact- we just might surpass the 200-unit milestone. That’s pretty good when you consider that the industry has only delivered more than 100 piston twins four times in the past 20 years. The last two decades have not been very good ones for piston twins. So here we are- poised to finish a record year. We’ll see the highest billings in the history of business aviation. The most business jets delivered in a single year. The most piston twin engine deliveries in the past 22 years. And all signs indicate the good times are only going to continue. What a remarkable time to be in business aviation. GAMA’s full third quarter shipment report appears overleaf.

 


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