How you feel the impact of our ongoing economic recovery probably reflects where you are in the economy. How you expect business jet sales to go in 2014, from the view of dealers and brokers, reflects at what level you're trying to sell...and to whom.
“We're not making the number of converts we used to,” lamented one Midwest-based broker in an operation affiliated with a full-service FBO and flight school. “The bulk of the transactions we're seeing come from repeat-customer churn. They're already members of the congregation, if you will, part of the choir, and an update was needed – not generally a step up, just an update.”
However, he continued, the sales concentration centers on operators flying mid-size and up jets and, increasingly, turboprops. “The smallest percentage of our business comes from the converts – the new members of the choir.”
He echoed others in the community, who observe they see fewer first-time buyers compared to even two years ago, let alone five. They all note; ‘new blood drives market expansion’.
“Market expansion in the light-end is what we're going to continue to miss. So how next year looks right now depends on at what level you're selling, and to whom.”
Governments remain viable customers; corporate operators continue to provide some movement. “The real gift to this market is the continuing strength of sales among High Net Worth Individuals – people whose wealth suffered little-to-none during the downturn, and for whom satisfying personal needs is merely a matter of deciding to spend the funds.”
But beyond these narrow market confines, this Mid-West executive (and others) offered little-to-no encouragement for the prospect of a noteworthy upswing in new jet sales – particularly within the light segment (new and pre-owned, alike). All that could change, most predict, if the economic recovery started to float more boats than those that stayed afloat during the downturn, explained an eastern-seaboard dealer who works across several southeastern states.
Noted the eastern seaboard dealer, “It's back to the consumer to bail us out – presuming the consumer can play without his own bailout.”
No Trouble with the Numbers
There are good numbers, great numbers, and on the opposite end of the scale, not-so-good numbers, and outright-lousy numbers. These aggregate to what many brokers and dealers expect to be another lackluster year for the sales of pre-owned business-turbine aircraft.
If you're investing in Wall Street equities these days your portfolio should be looking pretty good. The market edged into record territory in November 2013, and as of this writing in December no retreat was in sight. Your mutual funds should be doing fairly well, too, thanks to the juicy profits reported last year by most of the Fortune 500 and thousands of smaller concerns. Profits add to dividends which add to the holdings – or the bank account. Even the economy seems cooperative in the economic boost, albeit without much enthusiasm at the GDP level. Growth in 2013 was looking to come in at about 1.7 percent – short of the healthier 2.5 percent of a couple of years ago, and well short of the 4 percent needed to make investors reach for their bibs.
The only numbers not favoring businesses and their investors right now focus on employment, jobs growth and real-income changes. Two of these three aren't encouraging: Unemployment is still too high for comfort and jobs growth, steady though it is, isn't making an appreciable dent in the ranks of those who stopped looking for work months, even years ago.
Worst is the real-income figure – with real purchasing power hurting, despite the helpful declines in energy costs and the slowed growth of food and health-care costs. But job growth continues to occur, with ever-so-slightly stronger numbers – more than 220,000 new jobs alone in November 2013, above analysts' expectations, as unemployment fell to its lowest level in five years, at 7 percent.
Corporate profits have been solid, in some cases of certain industries at record, or near-record levels in the past year. Share prices are up; profits are up or steady; inflation is low to non-existent; and sales are up over the holiday season just ended. Today's Dow Jones industrial average of top stocks regularly closes above 16,000. That's up more than 20 percent from the 13,300 level at which the Dow Jones opened 2013.
“It's something of a minor miracle to us,” observed a West Coast broker who frequently works with finance houses to structure aircraft acquisitions. “All these signs of prosperity for some, widespread stagnation for others, and most businesses are booming. So why aren't pre-owned (business-turbine aircraft) selling better?
“The people already operating don't need to replace their aircraft just to get a nice interior on a 10-year-old (light jet); they're not candidates for bigger jets; and unless their businesses grow beyond their current aircraft needs, they're not likely to replace until it’s absolutely necessary. These are not like big companies or corporations, but small outfits in which the boss may still fly the airplane – but no doubt, the boss is still the boss.”
“Don't get me wrong,” contributed the eastern-seaboard dealer. “I want to see things better, even for my competitors. That would mean the whole market is growing again – but that's not what we're seeing.”
Indeed, in some terms General Aviation is showing signs of some serious shrinkage. New pilot starts are down according to FAA records; the population of pilots is down, too, as is the number of aircraft registered. And these are not wholly new issues. The pilot population has been declining for more than a 25 years and took one of its steepest drops in 2012. The number of aircraft registered is sliding.
Conversely, membership in the National Business Aviation Association achieved a new record in November, exceeding 10,000 for the first time; charter hours were up, as were business-flying hours. “The new people have long been how we get small and medium business owners into airplanes and airplanes into their companies,” exclaimed the West Coast broker. “New people offered us new customers for pre-owned jets for sale and, in turn, old customers for new jets.
“It's a problem down in the piston-single segment, the light-business aircraft operator, which makes it a downstream problem for selling light jets and, eventually, everything else upstream.”
Against all odds
Strong auto sales; a modest gain in holiday sales year-over-year; strong profits; a booming stock market… “It sounds like a prescription for better times, doesn’t it?” noted the eastern-seaboard dealer. “But there are still too many people out of work, too many people needing assistance, and too many large corporations sitting on large piles of cash. The two perspectives seem to almost cancel each other out.”
But as the West Coast Broker noted, the pool of available aircraft remains good, prices – particularly on light jets and everything older than 15 years – still make the market a buyer's-choice proposition for much of Business Aviation. “We still offer ‘killer-low’ interest rates, albeit those start disappearing for aircraft 15-years and older – save something rehabilitating.”
There's renewed competition for some pre-owned aircraft in the re-manufacturing movement (reference the 400XTi jet and King Air G90XTi projects of Nextant Aerospace, and a couple of other similar efforts in the pipeline).
“There's no shortage of viable, affordable options for anyone wanting to add private flying to their business-travel mix,” noted the eastern seaboard dealer. “There is, frustratingly, still a shortage of the new blood needed to propel real sales growth by buying some of these bargain opportunities, however.”
When will that happen? According to our Midwest-based broker, probably not until consumer business moves the economy into growth levels closer to traditional. “When we start to see solid 3-3.5 percent GDP growth or better, and new-hiring numbers consistently are above 350,000 a month there is not going to be the kind of confidence and cash flow to make private aviation look attractive again and start growing the community at all levels.”
For now, then, upgrades and replacement sales will continue to drive the market for new medium-and-larger business jets.
The consensus of our dealers’ and brokers’ opinions: Charter, Fractional and Commercial Aviation will all continue to absorb the travel needs Business Aviation needs to keep growing and driving aircraft sales, particularly at the lighter end of business-turbine ownership and flying. Until the economic tides rise higher, sales of new and pre-owned light jets look to be the segment that will continue to struggle – and with it, the overall growth of Business and General Aviation will remain anaemic.