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Disappointing- but not disastrous!


At first glance the news wasn’t very good as the General Aviation Manufacturer’s Association (GAMA) issued its annual State of the Industry and Year-End Shipment Report in Washington DC. Deliveries were down for the third year in a row. Shipments for the year totaled 2-015 aircraft- off 11.4 percent from 2009 when there were 2-274 deliveries. Billings- however- were actually up by 1.2 percent – totaling $19.7 billion- compared with $19.5 billion the year before.

The data shows deliveries down in all categories except multi-engine pistons. Business jet sales were off 12.3 percent from a year ago- totaling 763 units- compared to 870 in 2009. Turboprops were down even more – 17.7 percent lower at 363 units- down from 441 the previous year. Overall piston deliveries were down the least- at 7.7 percent. But with just 889 deliveries (single- and multiengine combined) reported last year- the piston market has been by far the hardest hit in this recession- and isn’t showing many signs of recovery. All told- the top-level numbers paint a grim picture.

As with most GAMA reports- however- a look at the details shows the market to be in a more complex state than just plain freefall. Despite all the negative numbers- there is some genuine evidence things might be starting to turn around.

• There was a fourth quarter surge in the jet market that caused it to finish much more strongly than some forecasters had predicted.

* The third quarter collapse that came as such a disappointment was not repeated in the fourth quarter. If fact- the fourth quarter results - in themselves - were quite encouraging.

• On a quarter-to-quarter basis jet sales were actually up by 7 percent over a year ago – the first increase in more than two years. The 18 unit gain – from 254 units in 2009 to 272 last year – does not represent a huge increase- but it’s a whole lot better than we’ve seen in quite a while.

GAMA expressed some cautious optimism in its press conference- with Chairman John Rosanvallon noting: “we are now seeing strong GDP growth on a global level- and corporate profits are up. This bodes well for general aviation’s future as shipments have traditionally lagged an economic recovery by one to two years.”

Rosanvallon also pointed to the passage of continued bonus depreciation and a research-and-development tax credit in recently approved new U.S. tax legislation as factors that could help stimulate recovery. He cited concerns- however- including a slow used aircraft market as well as “the lack of third-party financing- especially for the middle and light-end of the business jet segment- as well as turboprops and piston engine-powered airplanes-” (pretty much the whole market except high-end jets).

Most of the elements you would expect to find in a Business Aviation market recovery are in place- but with a single glaring exception: So far there really isn’t any sign of recovery in the piston market. An upturn in piston sales has signaled pending recovery in the higher-end markets during every major recovery this industry has experienced in the pas 50 years. Maybe that’s not going to happen this time… The highest end of the Business Aviation market has been the least heavily impacted in the current recession.

That trend has caused billings to remain relatively high- even as unit deliveries plummeted. The collective $19.7 billion GAMA reported for 2010 is the third highest in the industry’s history – surpassed only by the $24.76 billion recorded in 2008 and the $21.9 billion total in 2007. During those years- however- unit totals averaged twice what they are today.

Looking at the specifics of today’s jet market- we see a segment that experienced a well-above-normal sales surge in the fourth quarter. In fact- 35.6 percent of all the jets sold in 2010 were delivered in the last three months of the year. In my view- this is a very big deal.

In a normal year- during a healthy market- a typical year-end sales surge would see 30 percent of sales coming in the fourth quarter. For the entire jet market to be more than five percentage points above normal is nearly 20 percent above what you would expect to see in a typical year.

Again – that was the total market average. Some of the individual companies delivered more than 40 percent of their yearly total in the fourth quarter. For one – Hawker Beechcraft – the figure was 49 percent. Nor was that the only good news in the jet segment within this GAMA report…

THE JET MARKET

The 272 jets delivered in the last three months of 2010 represents the highest quarterly total for jet sales since the fourth quarter of 2008 – so even though last year wasn’t as strong in jet sales as 2009- by the end of the year jets were being delivered at a markedly faster rate than at any time during 2009.

Cessna continued to be the market leader in jet sales- with 178 units for the year- including 78 – nearly 44 percent of the total – delivered in the fourth quarter. It is small wonder that Cessna told me when I visited shortly after the first of the year that it believed the market might be starting to pick up.

Cessna’s fourth quarter surge allowed it to pull ahead of its competitors in total jet deliveries. (As recently as last quarter- it was still debatable as to which company would deliver the most business jets in 2010).

The leadership position Cessna holds is hardly secure- however. If Embraer’s Phenom 300 enjoys anything like the success the Phenom 100 has experienced- the Brazilian company could easily emerge as the leading builder of business jets in a year or two.

The leader for the year in business jet billings was perennial market billings champion Bombardier- which experienced a more typical year-end sales surge totaling 28.6 percent. Bombardier finished the year with total sales of $4.9 billion on 150 aircraft- which proved to be the second largest total in unit deliveries. Second place in billings was closely contested- with Gulfstream edging out Dassault on a total of $3.98 billion- compared with $3.92 billion. Gulfstream and Dassault were close in total deliveries too- with 99 units for the American firm and 95 for the French competitor.

Like Bombardier- Dassault experienced a very typical year-end sales surge- delivering 29.4 percent of its airplanes in the fourth quarter. Gulfstream- on the other hand- had a reverse experience - just 20 percent of its unit deliveries came in the last three months of the year.

That Gulfstream did not experience a year-end surge is not too surprising. Over the 10-year period from 2000 to 2009- Gulfstream’s fourth quarter sales have averaged 25.1 percent of its annual total- and ranged from a high of 28 percent in 2003 to a low of 20 percent in 2002 (a year when the market was also in disarray).

Financially- having balanced deliveries is highly desirable. It allows production to remain steady- and keeps unsold inventory levels low. In practice- however- that’s a hard balance to keep (although Gulfstream has probably been able to be more successful at it than most because of its unique position in the market).

For the companies that experienced a large surge this year- it could only have come because they had a lot of inventory available to sell. The company with the biggest percentage of jet sales in the fourth quarter was Hawker Beechcraft which reported 36 jet deliveries.

That amounted to 49 percent of the 73 jets Hawker Beechcraft delivered for the entire year. An important element for Hawker Beechcraft- beyond the joy that must have accompanied such a strong fourth quarter- was the fact that many of the sales were in the company’s lower-end products- including the Hawker 400 and the Premier IA.

Fully 67 percent of the 400XPs and 54.5 percent of the Premiers sold during the year were delivered in the fourth quarter. Cessna’s experience was similar- with 55 percent of the CJs sold coming in the last three months. The light end of the business jet market had been stagnant during 2010- so the news that this segment of the market may be loosening up is critically important to any serious hope of recovery.

All told- of eight active jet builders in Business Aviation today- only two (Gulfstream and Airbus) did not experience a significant fourth-quarter surge. For four of the eight- the surge was 40 percent or greater. This could be related to the tax-driven buying that typically occurs at year end- or it could be that some of the corporate profits that have been accumulating for some time are finally starting to get spent.

The recently approved bonus depreciation incentive applies to this year and next- so that wasn’t the cause. Maybe the market is finally starting to pick up!

THE BUSINESSLINER MARKET

At the very top of the jet market- we have the Businessliners – the airliner-based business jets that continue to operate in a market unique unto themselves.

2010 tied the record for the best Businessliner sales in history- with 23 units – matching a record set back in 2006. Before that- the high had been 21 recorded in 2001 although in some of the early years of this decade Airbus didn’t report- so the numbers are a little sketchy. For the previous two years – 2009 and 2008 – Businessliner sales have been stalled at 15 units each- so this year’s 53 percent increase in sales marks a significant milestone- potentially.

Interestingly- this year’s record was only set on the strength of the fourth quarter surge. Boeing recorded four deliveries in the fourth quarter- which was 40 percent of its year-end total of 10. Airbus saw no surge - in fact the fourth quarter saw just two units delivered. Even so- Airbus captured more than 56 percent of the market on sales totaling just over $1 billion. Boeing’s 10 deliveries accumulated billings of $579 million.

In summary - the close of 2010 finds the business jet market in a fascinating position. With the best sales quarter in two years- perhaps we are poised to begin the long-awaited recovery. The first quarter of 2011 should tell a lot.

THE TURBOPROP MARKET

In the turboprop market- the natural order of things was severely disrupted when a company other than Hawker Beechcraft emerged as the leading builder and seller of business turboprops in 2010.

Cessna- with 95 deliveries- claimed the turboprop championship for 2010- leaving Hawker Beechcraft in second position with 90 - and that hasn’t happened since 1964 when Hawker Beechcraft’s predecessor company- Beech Aircraft- delivered its first King Air business turboprop.

Like the business jets- the turboprop market also experienced a significant fourth quarter sales surge. On average- 34.7 percent of all the turboprops delivered in 2010 were handed over in the fourth quarter. Of eight turboprop manufacturers- five experienced a major year-end surge- ranging from 36.8 percent for Socata (14 of 38 deliveries) to almost 45.5 percent for Piaggio (five out of 11).

Interestingly- market leader Cessna did not see a sales surge in turboprops. The company delivered 24 Caravans in the fourth quarter- which was 25.2 percent of its total sales for the year.

Also missing out on the surge was Quest- which enjoyed better sales in the first two quarters of the year (four in the first; five in the second) than it did in either of the latter two (two in the third- three in the fourth). The third company with no discernable surge was Pacific Aerospace- which typically has very even delivery levels during good times and bad. This year Pacific delivered three airplanes in each of the last three quarters of the year and two in the first quarter.

Hawker Beechcraft had a definite surge- delivering 40 percent of its 90-unit annual total in the last three months of the year - but it wasn’t enough to catch Cessna in the commercial delivery category. Other turboprop makers with unusually large fourth quarter sales (compared with the rest of the year) were Piper with 41.6 percent (10 units out of 25) and Pilatus with 39.25 percent (31 of 79).

Despite the surge- this wasn’t a very good year for turboprop sales. With total deliveries of 363 units- it was also the worst year since 2004 when deliveries totaled 319. The yearend surge- however- gives us reason for optimism that 2010 may be the low-point from which we can begin to measure steady improvement in the years ahead.

THE PISTON MARKETS

Unlike the turboprop and jet markets- the piston segment experienced only a modest year-end surge- with 28.7 percent of deliveries coming in the fourth quarter. That wasn’t enough to even begin to salvage what has been a very disappointing year for piston deliveries.

With a final total of 889 (single and multiengine combined)- this was the worst year for piston sales since 1996 (801 units) – with the market continuing to sink below last year’s level of 963- which was the previous worst year since 1996.

Like the turboprop market- the piston world was off its normal axis. The piston leader for 2010 was Cirrus – a company that has been battling to displace Cessna from the top spot all this decade- and finally succeeded. Cirrus finished the year with 264 deliveries- including 76 in the fourth quarter- pulling away slightly from Cessna- which finished the year with 239- of which 70 came in the last three months.

Both companies experienced a slight fourth quarter surge – 28.7 percent for Cirrus and 29 percent for Cessna- which had the strongest surge of any piston manufacturer. Cirrus had led all year- jumping to an early lead when Cessna had a disastrous first quarter- delivering just 30 single engine airplanes. Cirrus finished the 2010 delivery race 25 units ahead.

Elsewhere the piston market was unremarkable. The piston twin market was actually in better shape than the singles. In fact- on a percentage basis- it’s in the middle of a huge recovery. Sales are up more than 54 percent from last year- although the raw numbers aren’t very large.

A total of 108 piston twins were delivered in 2010- up from 70 in 2009. The 2010 total was bolstered by the delivery of 47 units in the fourth quarter – a year-end surge of 43.5 percent. At the end of the third quarter last year- piston twin sales were up 17 percent- so you can see that the fourth quarter sales figures were significant.

In summary- then- while 2010 wasn’t a very good sales year- a lot of interesting things were beginning to happen in the fourth quarter and perhaps that will provide a base from which the industry can see a strong recovery.

The performance of the jet market was particularly encouraging to me. For a time it had begun to look like the dismal Honeywell forecast of a year ago – that the jet market would sag below 700 units annually last year – might come true. Instead- on the strength of the fourth quarter surge we finished fully nine percent better. That may not sound like much- but it represents the difference between a disappointing year and a really disastrous one.

My own forecast didn’t win any great prizes this year- largely because I didn’t foresee the strength of the fourth quarter surge – particularly on the heels of the miserable third quarter we witnessed.

I had expected jets to finish in the 725 range- so I was off by about five percent. With the turboprops I was closer in raw numbers- forecasting 340 units when we actually finished at 363 - that’s a 6.7 percent miss. In the piston market I was expecting a surge in the 30 percent range that just didn’t happen- so my forecast of 925 units was too high by four percent.

My best hope- and I think a reasonable expectation- is that the surge I didn’t foresee could signal the start of the recovery we’ve all been hoping for. If that happens- maybe next we can see jet deliveries back in the 850 unit range- with turboprops again comfortably above 400 units and piston sales back above 1-000. That would be a nice way to launch the new decade.

 

Read more about: GAMA

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