GAMA First Quarter 2008 Shipment Analysis How much better can the market get? After recording the strongest year in the history of business aviation in 2007- we start off 2008 with a 16.1 percent increase in billings and the largest first-quarter increase in business jet deliveries in the history of the industry. We’re starting to run out of new ways to say “amazing!” The General Aviation Manufacturers Association released its results for the first quarter on May 8- and it’s obvious that we ...
GAMA First Quarter 2008 Shipment
Analysis How much better can the market get? After recording the strongest year in the history of business aviation in 2007- we start off 2008 with a 16.1 percent increase in billings and the largest first-quarter increase in business jet deliveries in the history of the industry. We’re starting to run out of new ways to say “amazing!” The General Aviation Manufacturers Association released its results for the first quarter on May 8- and it’s obvious that we are headed for another record year. Billings topped $5.3 billion. Business jet deliveries were up 40.8 percent over a year ago. Yes- you read that right – 40.8 percent. In the first quarter! Business turboprop aircraft for sale were up 7.5 percent.
But amid all the excitement there was some sobering news. The piston airplanes for sale market was off by 28 percent- or 155 units from a year ago- and this dragged the total shipment numbers down by 7.5 percent from the 2007 total.
Is this significant? Perhaps. Last year there were signs of weakness in the piston market- but it could easily be explained away. Cirrus was making model changes that temporarily affected production- while Cessna had a large fleet sale in 2006 that caused the appearance of a market reduction in 2007. Other than that- the market was generally pretty strong- and fourth quarter was actually slightly up over the previous year.
This is different. It appears more structural – more a case of the whole market turning down. Of 11 piston manufacturers reporting to GAMA- seven were down from their 2007 totals- while two were even and two were up only slightly. GAMA itself felt the piston market’s performance was sufficiently impressive to merit comment. In the news release accompanying the first quarter numbers- GAMA President and CEO Pete Bunce said “it is apparent that current uncertainty in the U.S. economy is having an affect on some of the offerings in the piston spectrum of aircraft.”
Bunce noted that last year 67 percent of the piston deliveries were to the North American market- which he said would make this segment the most susceptible to softness in the U.S. economy. “However- as worldwide markets continue to expand- we see more capability to insulate manufacturers form the economic dynamics of any one specific region-” he added. (Which is to say- just because the piston market is down- that doesn’t mean the turboprop and the jet markets necessarily have to follow.) He might have a point.
Over the past three or four years both the turboprop and jet markets have changed radically. Where once nearly 70 percent of the market was located in North America- today more than half the market is elsewhere in the world. So the fact that- historically- a downturn in the piston market has always foreshadowed hard times to come in the rest of the industry doesn’t mean it has to happen this time. The market has clearly evolved- and if the change is significant enough- maybe the market won’t behave the way it always has before. Maybe we are entering a new era in business aviation.
Or maybe we’re not. It’s really way too early to tell. In the past- the time span between downturn in the piston market and downturn in the business jet aircraft for sale market has been two years or more. The turboprop market could be counted on to falter somewhere in between… closer to the time of trouble in the jet market- but usually still six to nine months ahead. And the recovery has tended to follow the same schedule- with the pistons starting to recover a year or so before the turboprops- and a couple of years ahead of the jets.
Interestingly- if the historic pattern repeats- we can expect softness in the jet market sometime around 2010. That’s about the time when both the Honeywell and Rolls-Royce market forecasts have suggested there could be some cooling in the currently super-heated market. Coincidence? Perhaps… or maybe the market is going to behave in the coming years in pretty much the same patterns it has exhibited in the past. We can only wait and see.
Personally- I think Bunce may be on to something. The unparalleled growth we have seen in the jet market in the past three years may be a sign of a maturing market that is learning how to use business jets on a much wider scale than has previously existed.
If true- this will tend to separate the business jet market from the rest of general aviation- and cause it to behave differently than it has in the past. The turboprops will tend to follow the jet market- but acting as a smaller subset that appeals to niche customers with specialized needs and requirements. Both markets will become increasingly international in nature- and they will both tend to operate independently of the piston market.
A sign of this maturing market – which is really a reflection of a maturing and increasingly sophisticated customer base – is the proliferation of larger and more capable business jets being sold in the market today.
Throughout this current boom in the jet market- the mid-size and larger jets have dominated the field. The light jets- by comparison- represent a much smaller percentage of the total market than they did 10 to 15 years ago.
That’s not to say that this new jet market won’t experience downturns. It certainly will. But as the worldwide economy continues to expand- and the international market exhibits a growing need and desire to own and operate business jets- it may be some time before we see a leveling of demand. The growth trend could continue for quite a while yet.
Business Jets for Sale
Looking at the specifics of the market in the first quarter of 2008- the growth trend in business jets is obviously still continuing. In spite of the overall 43 percent increase in unit sales from a year ago- not all of the business jet segments grew- and not all of the manufacturers experienced gains.
The market for airliner-based business jets was only half what it was a year ago. Collectively- Boeing and Airbus reported three deliveries – compared with six a year ago. Airbus was the market leader with two units- while Boeing trailed with the delivery of a single BBJ. At this point last year- both Boeing and Airbus had reported three deliveries each in the first quarter.
The more traditional business jet makers fared much better- with Bombardier recording the highest sales – a staggering $1.636 billion for the quarter. In fact- Bombardier’s sales total was $233 million higher than any quarter last year and more than $300 million higher than the 2007 first quarter. Bombardier’s unit sales were up by almost 20 percent from a year ago- with 67 jets delivered compared with 56 in the same period last year.
Cessna far outstripped the other manufacturers in terms of unit sales- with 96 aircraft delivered in the first three months of the year. This represented a remarkable 43 percent increase in deliveries over a year ago- when Cessna led the market with 67 jets. Part of Cessna’s gain was attributable to the introduction of the Mustang- which accounted for 15 units this year compared with none a year ago- but the balance of the increase was spread throughout Cessna’s product line and reflects general market strength as opposed to just the introduction of a new model in a new category. In third place for jet unit sales was relative newcomer Eclipse- with 52 deliveries reported for the quarter. Because it was just getting started last year- Eclipse’s percentage of increase was off the chart – 1-200 percent over the four units it delivered in the first quarter of 2007.
Eclipse’s huge percentage of increase also played a major role in the overall market’s 40.8 percent increase over last year – 297 units compared with 211 in 2007. With the Eclipse numbers removed from the equation- the market still showed a very respectable 18.35 percent gain over last year (245 units- compared with 207 a year ago). This would probably represent a more accurate reflection of the market’s true strength this year.
Gulfstream was second in terms of sales dollar volume among the jet makers- with $1.279 billion on a total of 37 units. This was up from 30 units last year- representing an increase of more than 23 percent. Gulfstream’s sales- meantime- were 17 percent ahead of last year’s $1.094 billion total.
Looking at the numbers so far- it’s not hard to project that 2008 will be another record year for jet manufacturing and sales.
Elsewhere- Dassault’s 15 deliveries put the company’s results more than 36 percent ahead of last year’s First Quarter Report. With sales just above the half-billion-dollar mark- Dassault’s revenues were 44 percent above the $349 million it reported for the first quarter of 2007. Embraer’s results were also positive- with seven units delivered in the first three months of 2008 worth almost $173 million- compared with five a year ago on sales of $123.6 million.
On the other side of things- in spite of the market’s performance- Hawker Beechcraft’s 20-unit deliveries for the quarter trailed well behind the 32 units reported a year ago when the company was still called Raytheon Aircraft. And hapless Sino Swearingen- continuing to wait for investors to provide the capital needed to get the SJ30 into full production- delivered no airplanes in the first quarter of either 2008 or 2007.
The Turboprop Aircraft for Sale
The turboprop market’s gains in 2008 were more modest than in the jet segment. Unit deliveries were up 7.6 percent- from 79 units in 2007 to 85 in 2008- with all of the manufacturers showing results similar to last year. Of eight manufacturers reporting turboprop deliveries- four had gains over a year ago- two were even while just one lost ground. The market also featured a new entrant since the correlating quarter in 2007 - Quest Aircraft Company - which reported the delivery of one of its new single-engine Kodiak models.
The biggest seller of turboprops was perennial market leader- Hawker Beechcraft’s King Air- with 29 deliveries- up from 28 a year ago. Pilatus was next with 22- up from 20 a year ago- and Cessna followed with 17 shipments- three more than the 14 units it delivered in the first quarter- 2007.
Socata was among the companies with gains- recording eight deliveries this year compared with seven a year ago. Piper- with six turboprop deliveries- was two units off its 2007 pace. Australia-based Pacific Aerospace Ltd. reported two sales of its 750XL model – the same number as last year.
Finally- as has become its practice- Piaggio did not report first quarter results to GAMA. The Italian company’s sales are to be announced at the end of the second and fourth quarters only.
The Piston Aircraft for Sale Market
By comparison with the jet and turboprop markets- piston sales were a disappointment- falling 28 percent from the 2007 first quarter totals. In raw numbers the market was off 155 units- from 554 deliveries a year ago to 399 this year. Sharply rising fuel prices and a well-developed recession in the U.S. market along with a credit crunch that could make it hard to get financing were all likely factors that probably contributed to the shortfall. Some help could be on the way though. GAMA Chairman Alan Klapmeier- who also happens to be Chairman and CEO of Cirrus Design- one of the leading makers of piston aircraft in today’s market- said a bonus depreciation clause in the U.S. government’s economic stimulus package is already helping to drive new sales in the piston segment.
While bonus depreciation is also applicable to turbine airplanes- Klapmeier said he expected it to have the greatest impact on the piston market. This is because bonus depreciation applies to purchases made in 2008 on products delivered in either 2008 or 2009. With the current state of backlogs in the jet market- which most manufacturers report stretching out two or three years- it will be difficult to take delivery in time to qualify for bonus depreciation. In the piston market- Klapmeier said- aircraft available for delivery in 2009 are more readily to hand.
Based on first quarter deliveries- any help will be welcome. Of 11 piston manufacturers reporting to GAMA this quarter- seven reported results down from a year ago. Moreover- two manufacturers listed with GAMA last year – Adam Aircraft and Columbia Aircraft- are no longer in business. The largest aircraft manufacturers of piston airplanes - Cessna and Cirrus - were both down.
Single Engine Airplanes for Sale
Cessna retained its position as the piston market leader- with a total of 113 deliveries. These included 97 of Cessna’s traditional models- plus 16 model 350 and 400s that were previously built by Columbia- which Cessna acquired at the end of last year. These totals were down from a year ago when Cessna delivered 133 units and Columbia delivered 47.
Cirrus- which led this market segment a year ago with 144 units reported just 76 deliveries in the first quarter of 2008. And Diamond- which continued to occupy the third place position it has held much of this decade- was also off for the quarter- but not by as big a percentage - Diamond reported delivery of 68 single-engine piston aircraft- down from 73 last year.
Piston aircraft builders that sold more airplanes this year than last included American Champion- with 11 sales so far this year compared with 10 last year- and Gippsland with five G8A Airvans- up from three a year ago.
Piper- with 30 deliveries- matched its 2007 total. Piper continued to successfully pursue its stated goal of delivering fewer but more expensive aircraft. Interestingly- though- the 30 piston singles the company delivered this year featured more high performance and higher-priced models than a year ago. And Hawker Beechcraft also held its own- with 15 Bonanzas – the same number Raytheon Aircraft reported last year.
Other companies with reduced totals included Mooney- with 13 - down five from last year; Liberty- with 10 - down six from last year; Maule- with nine - down from 12 in 2007; and Alpha- with one - down from two a year ago.
Twin Engine Airplanes for Sale
The twin engine piston market was also off somewhat. The decrease came entirely at the expense of Diamond- which delivered 33 of its diesel-powered Twin Stars- down from 42 last year. The other two piston aircraft manufacturers of piston twins- Hawker Beechcraft and Piper- actually had gains for the quarter. Hawker Beechcraft reported delivery of eight Barons- up from four a year ago- while Piper reported collective delivery of seven Senecas and Seminoles- up from five a year ago.
While it is disappointing to see this weakness in the piston market- we can be encouraged by the prospect for improvement driven by bonus depreciation and a U.S. economy that is expected to improve as the year progresses. It is also encouraging to think that the maturing jet market is continuing to grow strongly- and that weakness in the piston market may not have to be mirrored in the turboprop and jet markets in the years ahead. Just how all of that will turn out- of course- remains to be seen.
To view a full reproduction of GAMA’s First Quarter 2008 shipment report- see PDF.