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GAMA 2Q 2009 SHIPMENT ANALYSIS
Shipments continue to decline


The grim news continues for another quarter: the General Aviation Manufacturers Association (GAMA) released its second quarter delivery report on August 4 and the headline summed it up - “Shipments continue to decline.”

Overall- unit deliveries were down 45.9 percent for the first half of 2009 compared with 2008 – a sobering statistic - and billings were down 22.7 percent. In raw numbers- deliveries fell from 1-918 to 1-037- while billings dropped from $12.31 billion to $9.26 billion. But as is often the case with the GAMA report- a closer look at the details reveals a much more complex market situation than the summary numbers initially suggest. In some instances the news is not nearly as bad as it first appears. In other cases- it is actually worse.

GAMA believes there is some cause for optimism. President and CEO Pete Bunce said “we are encouraged that the overall economic picture is showing some signs of improvement- which is a crucial condition for recovery in the general aviation market. Flight hours are stabilizing- used inventories are beginning to shrink- and our manufacturers are seeing signs of renewed interest in airplane purchases-” he said.

“We are also encouraged-” Bunce continued- “by reports that accelerated depreciation- passed by (the U.S.) Congress earlier this year- is stimulating some new orders. Even though it is too early to distinguish these indications as a trend- we are hopeful that this momentum will continue through the second half of the year.”

Nonetheless- Bunce noted- 'these are extremely challenging times for all general aviation manufacturers and suppliers. Layoffs continue and our industry has been forced to slow- and in some cases temporarily halt- production lines.”

Not everyone’s production line is halted. In fact- despite the generally lousy condition of the economy and the business aviation market- a few manufacturers are actually delivering airplanes as fast- or even faster- than they did a year ago. The good news exists mostly in the turboprop market- where fully half the manufacturers reporting to GAMA are equal to- or ahead of last year’s pace.

In the jet market- one manufacturer is ahead and another level with last year’s deliveries. Even some of the companies with reduced delivery totals have model lines with better delivery numbers than last year. There are definite bright spots to be observed.

On the piston side- however- the news is simply bad –very bad- in fact. That’s not too surprising when you consider the disparity between the drop in total market deliveries – 45.9 percent – and the reduction in billings – 22.7 percent- or a little less than half. That immediately tells you the lower end of the market is taking a much harder hit than the upper end.

Market Specifics
Looking at the specifics of the market- we see what appears to be an increasing differential in how the various market segments are operating. The jet market is down by 37.9 percent for the first half of 2009. Jet builders delivered 412 airplanes this year compared with 663 during the first six months of 2008. In considering these numbers- however- it is important to remember that the 2008 total includes 112 units delivered by Eclipse Aviation- a company no longer in business.
The Eclipse 500 model- which comprised all 112 deliveries- occupied a special niche in the jet market- which other manufacturers are not readily positioned to fill. It is therefore reasonable to discount those 112 Eclipse deliveries when considering the overall performance of the jet market this year. Eliminating the Eclipse deliveries brings the 2008 first half jet market to 551 units. Against this revised 2008 total- the 2009 market is down only 25 percent – not good- but a somewhat prettier picture than the reduction of almost 38 percent initially indicated by the raw numbers.

In analyzing the market for 2009- it is also important to remember that 2008 was a record year – the most incredible year in the history of business jets. And it was preceded by two record years before that- with an average market growth of more than 20 percent for the three-year period. Any significant fall-off from the 2008 total is going to look like a significant drop – but even the alarming drop we are seeing this year is still only taking us into a range that we’d have thought pretty sensational as recently as three years ago.

In fact- the jet market in 2009 is performing at just about the same rate it did in 2006 – the third best year for business jet deliveries ever. At the half-way point of 2006 the industry had delivered 415 business jets- and was on the way to an 885-unit year. Today we are at 412 jet deliveries and probably headed toward a comparable total for the year – probably in the 875 to 900 unit range. Eclipse- incidentally- did not make a significant contribution to the 2006 GAMA results- delivering just one airplane that year- so there is no need to adjust 2009 expectations to account for Eclipse results that won’t be duplicated this year.

If the jet market is mimicking 2006- the turboprop market is acting more like 2007. Turboprop deliveries totaled 191 units for the first six months of 2009- down 13.6 percent from the 221 GAMA reported in 2008. This year’s total to date is 11 units ahead of the 182 turboprops that were delivered in 2007- suggesting that we are headed for a total turboprop market in the 460 to 475 unit range for 2009. If that’s how things unfold- this will be the second best year for turboprop deliveries since the early 1980s – not too bad for a market mired in a worldwide recession.

If it is 2007 for turboprops and 2006 for jets- the piston market is performing more like the market in the mid-1990s. Piston deliveries are off 58 percent from a year ago. Unit deliveries reached just 434 for the first six months of 2009- compared with 1-034 for the same period in 2008.

Unlike the turboprop and jet segments- which posted record performances in 2008- the piston market was already in serious decline last year. Piston deliveries peaked in 2006- with 2-755 units- including 2-513 single-engine models and 242 twins (year end). The piston twin market continued to climb in 2007- reaching 258 units (year end) – the best result for the category in the past quarter century – but piston singles were off slightly at 2-417.

The overall piston market last year totaled 2-119 aircraft- off 23 percent compared with its 2006 high. This year the piston segment will be doing well to reach 1-000 units for the year- based on the first half results. This would put the year’s performance somewhere between the 801 units delivered in 1996 and the 1-123 recorded in 1997.

Taken together then- we are probably looking at a 2-300 to 2-400 aircraft year- including 850 to 900 business jets- 450 to 500 turboprops and about 1-000 piston aircraft- and total billings a bit under $20 billion. That would be a nice place to begin a recovery- but before that happens we will probably need to find a bottom in the piston market. Right now we’re not there yet.

The Jet Market:
Looking at the specifics of the jet market- we see one company- Embraer- delivering ahead of its 2008 pace and another- Boeing- matching its 2008 levels.

Embraer’s success is based on its introduction of new models into the market- which is expanding the company’s footprint in business aviation. The company delivered 29 aircraft in the first half of 2009- compared with 16 a year ago. This year’s total included 21 of the company’s new Phenom 100 entry level jets- as well as one of its new airliner-sized Lineage 1000s. Neither of these two models was in production at this time last year- so Embraer’s appearance of market gain is perhaps misleading. Based on the model it were delivering last year (the Legacy 600)- Embraer’s total for the first half of the year was down- from 16 to seven. Nonetheless- the fact remains Embraer did deliver more airplanes in the first half of 2009 than it did in 2008.

Boeing- in the airliner-business jet segment- matched its 2008 total so far this year- delivering one aircraft in each of the first two quarters. Its chief competitor- Airbus- didn’t fare so well- delivering two airplanes in the first half of this year compared with six a year ago.

Bombardier continued to be the market leader in business jet billings with a total of $2.93 billion recorded on a total of 104 business jets. Bombardier’s numbers were off from a year ago- by 14 percent in billings and 22 percent in unit deliveries.

Cessna continued to lead in unit deliveries with 153 aircraft delivered in the first half of 2009. This was down 28 percent from their 2008 total of 213 business jets delivered. In spite of this reduction- Cessna delivered its Mustang light jet at a rate well ahead of its 2008 pace. A total of 67 Mustangs were delivered in the first half of 2009- an increase of 97 percent over the 34 Mustangs Cessna reported to GAMA for the first six months of 2008.

Gulfstream maintained its traditional position as number two in billings ($2.286 billion) and number three in unit deliveries (57 units) in the business jet segment. Both numbers were down from Gulfstream’s 2008 total of $2.61 billion and 76 units.

Making up the remainder of the jet market were Hawker Beechcraft- with 39 deliveries- down from 70 last year- and Dassault- with 26- down from 34 in 2008. Emivest struggled through yet another quarter without a delivery- matching its 2008 performance. The company is expected to deliver one or more airplanes at the end of 2009.

The Turboprop Market:
Turning to the turboprop segment- the news is comparatively good. Of eight manufacturers reporting turboprop deliveries to GAMA in the first half of 2009- two reported an increase over their 2008 results and two matched last year’s delivery numbers.

The biggest gain came for Pilatus- which recorded 44 deliveries of its PC-12 this year- compared with 35 a year ago. That’s an increase of 25.7 percent. There is an old adage in the business aircraft industry that turboprops do better than business jets during a recession. If you are ever trying to prove that point- Pilatus’ performance this year would be a good example to use.

The other turboprop manufacturer with better results than last year was Quest- which reported delivery of nine of its Kodiak 100 models. Last year was the first full year in the market for the Kodiak. While its 300 percent increase in sales for the first half of this year could be argues to be something of a statistical anomaly- it’s worth keeping in mind that many new products introduced into the teeth of a recession are unable to survive at all- so Quest’s achievement with the Kodiak should not be underestimated.

The companies matching last year’s performance in the turboprop segment during the first half of 2009 were Cessna and Pacific Aerospace. Cessna delivered 41 Caravans in each year while Pacific Aerospace recorded delivery of six of its PAC 750XL models.

Hawker Beechcraft continued to lead the turboprop market with delivery of 51 of its King Air models- although their lead was narrower than it has been in the past. Hawker Beechcraft’s total was down by 35.4 percent from the 79 King Air models it delivered at the same point last year.

Elsewhere in the turboprop market- Piaggio nearly matched its 2008 performance- delivering 11 of its P180 Avanti II models- compared with 13 in the same period a year ago. Socata was somewhat off its 2008 pace- with 15 units this year compared to 24 last year. Piper’s turboprop deliveries were also down- from 24 last year to 15 so far this year.

In this current recession-ravaged market- turboprops are performing better than the other market segments- although the category does appear to be evolving. Where once the majority of turboprops sold were classical twin-engine business aircraft- today the segment is increasingly becoming dominated by single-engine specialty designs.

The Piston Market:
Singles
What’s happening in the piston market today is not pretty to watch. The segment is down 58 percent from a year ago and off 66 percent from its market high in 2006- when 1-280 piston aircraft were delivered in the first half of the year. If this trend continues- it would not be surprising to see some old and well established names begin to disappear from the scene. This is particularly distressing because the market seemed to be doing so well just a couple of years ago.

As recently as this time last year it was possible to conclude that things were going okay in the piston market. Second quarter sales in 2008 were comparatively strong after a shaky start in the first quarter. Now things are looking bleak.

Cessna continues to be the market leader in single engine piston products- with 127 deliveries- but that number is off more than 60 percent from the 324 it delivered in the first half of last year.

Cirrus is close in second place with 121 deliveries- but again far off the 239 it recorded in the same period last year. If you’re looking for bright spots- it’s worth noting that Cirrus’ second quarter delivery total of 82 units this year was up significantly over the 39 it reported in the first quarter. Cirrus is bullish about its prospects in the market- and that’s also got to be good news.

Diamond is in third place in the single-engine piston category- as it has been throughout most of the past decade - and like the rest of the players in the piston market- Diamond’s totals were well below its 2008 results. Diamond delivered 71 airplanes in the first half of 2009- compared with 149 delivered in the same period last year.

Elsewhere in the single-engine piston market the news is similarly grim: Piper down; Hawker Beechcraft- down; American Champion down; Mooney down; Liberty down; Gippsland down; and Maule down.

Twins
The piston twin market- which was showing such promise as recently as a year ago- is down even more. Piston twins are off 72 percent- from 107 in the first half of last year to 29 this year. Diamond continues to lead the segment with 17- down from 62 last year. Hawker Beechcraft delivered eight piston twins- down from 21; and Piper recorded 14- down from 24.

In the U.S.- there are some signs the recession may be bottoming out. The stock market is up significantly and second quarter corporate profit reports were generally positive- although unemployment remains high. As the economy improves- the jet and turboprop markets can be expected to recover with them- as they historically have in the past.

We can only hope the economy picks up in time to help rescue the piston market before too much structural damage occurs.

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