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GAMA Third Quarter 2007 Shipment Analysis Game on: we’re shooting for several records. The General Aviation Manufacturers Association (GAMA) released its third quarter sales data on November 8- and the results were predictably great: The record year we are experiencing continues to unfold pretty much as expected- with business jet deliveries and the total business jets for sale volume reaching levels that could only be dreamed of just a few years ago. Sales for the first nine months of this ...

Mike Potts   |   1st December 2007
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Mike Potts Mike Potts

Mike Potts is a writer and consultant who has been involved in aviation for more than 30 years....
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GAMA Third Quarter 2007 Shipment Analysis
Game on: we’re shooting for several records.

The General Aviation Manufacturers Association (GAMA) released its third quarter sales data on November 8- and the results were predictably great: The record year we are experiencing continues to unfold pretty much as expected- with business jet deliveries and the total business jets for sale volume reaching levels that could only be dreamed of just a few years ago. Sales for the first nine months of this year reached $15.1 billion- up 14 percent over a year ago. That amount surpasses any full year’s aircraft sales in the history of business aviation before 2005.

A total of 759 business jets were delivered in the first three quarters of 2007. That’s more than in any full year before 2006- and it’s more than 20 percent ahead of last year’s pace.

Turboprop deliveries are up 14.5 percent over a year ago- at 293 units for the three quarter total- compared with 256 last year. While very strong- turboprops will have to experience an exceptional fourth quarter if we are to match the category’s historic high of recent years- which was 421 units in 2001. The ultimate turboprop delivery record – 918 units in 1981 – is in no danger of being broken- possibly ever.

Piston-powered airplane sales were six percent off their 2006 pace- providing the only sobering note to an otherwise ebullient market.

Clearly this is the golden age of the business jet- and we are living it. Only two serious questions seem to emerge from the GAMA numbers from the past quarter. First- exactly how big will this year turn out to be? And second- how seriously should we regard the softening in the piston aircraft for sale market that continues now for the third quarter in a row?

How big a year?
Looking at the first question- by applying the lessons of historic performance we can extrapolate what the year-end results might look like.

On average over the past two decades- about 33 percent of sales and deliveries occur in the fourth quarter. If that pattern were to continue- we could expect to see total sales reach $22.5 billion.

In the same scenario- business jet deliveries would finish in the 1-130-unit range – far and away the best ever. Turboprops would come in around 435 units- setting a new record for recent production and establishing the best record for deliveries since 1982- when 458 turboprops were reported- and Piston sales would likely reach the 2-770 range- which would actually put them over the 2-750 total they reached last year- and set a record for the best piston aircraft delivery total since 1982.

All of that would happen if the market delivers 33 percent of its airplanes for sale and 33 percent of its billings in the fourth quarter. I don’t believe- however- that we will actually see those results. Instead I expect the year’s totals to be a little more modest- although records are still going to be broken.

My belief is based on how the market has performed in the last couple of years. Compared with historical performance over the last three decades- the market has flattened out somewhat recently- and fourth quarter totals have only reached about 30 percent of the total year’s production.

Two factors appear to have brought about this reduction in fourth quarter sales. One is that many of the GAMA companies are still somewhat production limited. The spectacular growth in the market we’ve seen over the last three years caught many of the aircraft manufacturers by surprise. Nobody ever thought it was going to get this good this fast- and the result is that the GAMA companies can’t build airplanes as quickly as the market seems ready to absorb them. If delivery records aren’t set- it will be because the airplanes couldn’t be built in time.

The second factor has to do with how the U.S. Securities and Exchange Commission (SEC) allows US manufacturers to account for new airplanes for sale. In the past- airplanes that were not quite finished on the assembly line could still be counted as delivered if the customer would pay for them. The customer had incentive to complete the transaction because he could then take advantage of a year-end tax credit for the purchase. This created a win-win situation where the manufacturer sold a not-quite-completed airplane to a customer who got a big tax credit. Everyone was happy and fourth quarter sales volumes were very strong.

Over the years- however- this practice got a little out of hand. “Airplanes” that were little more than stacks of parts waiting to be put together on the assembly line began to be counted as deliveries – despite the fact they wouldn’t be capable of flying away from the factory for weeks- or perhaps even months. Looking at the situation- the SEC concluded that some companies were misleading investors by overstating their year-end sales results.

Fines were levied and the practice was largely halted. The net effect was to reduce the percentage of fourth quarter sales compared with the rest of the year. As a result- some of the industry’s historic fourth quarter performance trends are no longer valid. So what I expect we’ll see this year will be a repeat of the pattern that finished out the year in 2006. Under that scenario- about 30 percent of total sales will come in the fourth quarter- and the industry will finish the year looking something like the following:

Total sales will exceed $21.5 billion- but won’t reach $22 billion. My prediction is $21.6 billion for the year. Business jet deliveries will total right around 1-100 units. Turboprops will reach 425 units- narrowly passing the previous recent record of 421 set in 2001. And pistons will reach 2-650 units- a very healthy market but still somewhat below the 2-750 recorded last year.

That’s my forecast for 2007 – a year that will certainly be remembered as one of the finest years for business aircraft manufacturing in the history of our industry.

Piston Aircraft for Sale concerns?
So how concerned should we be about what’s happening in the piston market? Is this a leading indicator of a general downturn coming in the whole market- or is it merely an aberration. GAMA was sufficiently concerned to cite the issue in its press release announcing the third quarter delivery totals.

“This is the third consecutive quarter where growth in the piston market has wavered-” observed GAMA President and CEO Pete Bunce. But he went on to add- “We are encouraged- however- by the industry’s commitment to strengthening this segment with the introduction of products that will bring new pilots and new customers in to this market. The good news is that our manufacturers in this segment have not reported a noticeable decline in interest in the piston market-” Bunce concluded.

Historically- when the market has entered a recession- the piston market has been the first to fall. But is that what’s happening here? A close look at the numbers suggests to me that the answer is NO.

If the piston market were really in trouble- the evidence would be distributed throughout the market. By the third quarter of a downturn- all – or at least almost all – of the manufacturers should be starting to show the affects- but that’s not what’s happening. Normally in this column I analyze the market from the top down- starting with the jet segment. This quarter- however- because of the situation in the piston market and potential it has to signal the market’s overall direction in the coming years- I will look at the piston deliveries first.

For the first nine months of 2007- the GAMA companies delivered 1-857 piston-powered airplanes for sale. That’s 118 fewer than the 1-975 delivered in the same period last year- or a reduction of around six percent.

Single engine airplanes for sale – the historical leading indicator for market performance – were off even more. Of the 1-857 piston deliveries so far this year- 1-669 were singles and 188 were twins. That compares with 1-823 singles and 152 twins a year ago. So twin engines airplanes for sale were actually up more than 23 percent over last year- while the single-engine models were off by 154 units or nearly 8.5 percent.

But despite this sobering news- further analysis shows the market still looks very healthy. And the bad news- in fact- can be more or less explained away. The market leader in singles for the past quarter was Cirrus- with 193 deliveries. That’s the most deliveries Cirrus has ever reported to GAMA in a single quarter- and it represents an increase of 69 units over the previous quarter- or a gain of 55 percent. Nothing wrong with that part of the market.

Cirrus’ deliveries in the first two quarters have been off their normal pace because the company was in the process of introducing upgraded models with a revised wing. As a result its deliveries this year have been below last year’s totals by as much as 70 units. Obviously this helped create the false impression of a slowing market- when what was really going on was quite different.

Cessna is in the number two position in single-engine piston sales this quarter with 155 units delivered – a number that is also misleadingly low when we are looking to assess the overall health of the market.

An avionics glitch earlier this year caused Cessna to have to delay single-engine piston aircraft for sale deliveries for a time- with the result that the company’s overall total in this category for the first three quarters of 2007 is only 507 airplanes. The company’s plan is to build and deliver 800 piston singles both this year and next- so you can see it is currently running about 100 units behind its intended pace right now- but Cessna fully intends to catch up before the end of the year.

Also affecting the appearance of the market’s condition is the fact that Cessna actually delivered 865 piston singles in 2006 – fully 65 more than it plans for this year. A large one-time order from the People’s Republic of China caused Cessna to boost its 2006 production. In addition- Cessna scaled back its single engine production somewhat this year to accommodate the start-up of the new Cessna Mustang jet- which is built in the same Independence- Kansas- plant where all of the Cessna piston products are built.

It’s clear- then- that production and delivery anomalies at Cirrus and Cessna pretty much account for the shortfall in piston single deliveries between this year and last. With both companies coming back up to speed- the apparent shortfall in the market should look less glaring by the end of the year.

One other factor has contributed to the appearance of market weakness in the piston category- particularly this quarter. Columbia Aircraft- one of the new start-up stars in the piston market- has fallen on hard times. The company entered Chapter 11 bankruptcy status earlier this year- and that has been a significant factor in a drop-off in deliveries this quarter.

Columbia delivered just 30 airplanes in the third quarter- down from 54 in the second quarter. That’s a drop of 44 percent. Added to all that’s been going on at Cessna and Cirrus- it’s easy to see how the raw numbers in the GAMA report suggest a piston single airplanes for sale market that’s faltering. But now you can see why that’s not true.

Elsewhere in the piston market- things are looking pretty good. Occupying third place in deliveries during the third quarter was Diamond Aircraft- whose single-engine totals are up 14 percent over a year ago- with 220 DA20s and DA40s delivered this year compared with 205 in 2006. Diamond’s twin production is up- too – by almost 39 percent over last year- from 98 units in 2006 to 136 this year.

Piper is in fourth place in single-engine piston production- with 116 units for the year to date. That’s slightly below its 2006 three-quarter total of 120- but that’s not bad considering that Piper announced earlier this year that it is reducing its emphasis on light airplanes for sale to focus on the upscale end of its product line.

Columbia is in fifth place- with a situation we’ve already noted- followed by Mooney. With 59 deliveries for the first three quarters- Mooney is five percent ahead of its 2006 year-to-date total of 56. And Hawker Beechcraft is also ahead of its 2006 pace with its venerable Bonanza model at 54 deliveries- up from 49 a year ago when the aircraft was reported under Raytheon Aircraft.

The rest of the single engine piston market includes Alpha Aviation- up nine units this year over last; Liberty aircraft manufacturer- up five; American Champion- even at 50 for both years; and- Maule- down two and Gippsland down three from a year ago. Also worthy of note in the piston market- Adam Aircraft delivered an A500 piston twin model this past quarter- thereby matching its 2006 three-quarter delivery total.

On balance- then- you can see that the piston market is really doing very well in 2007. There are no structural problems with the market- only individual company situations that are causing anomalies in the total delivery numbers. These are not the signs that would herald trouble on the horizon for our industry. The good times should continue to roll.

­­Jets for sale: the good times are rolling
When you look at the corporate jet aircraft for sale market- you can see the good times are rolling as they never have before. The jet market is up 20 percent over a year ago. Of 10 jet makers that reported to GAMA last quarter- eight had delivery increases over a year ago and one was even. Only one - Boeing - reported fewer deliveries to GAMA than it had a year ago – and that’s because Boeing’s airline deliveries are keeping it from earmarking many airplanes for BBJ customers.

Very light jets for sale began to come into the market in significant numbers this quarter- with Cessna delivering 15 Mustangs and Eclipse delivering 27 Eclipse 500s. That brought Eclipse total deliveries for the year to 48 airplanes.

The expanding market is shifting somewhat- though- as customers spend more and more money for more and more expensive airplanes. For several years Bombardier has been the leader in the sales dollar race- and on a year-to-date basis it continues to lead- but only by a narrow margin. For the nine-month period Bombardier has recorded sales of more than $3.83 billion on deliveries of 163 airplanes. That compares with 160 airplanes Bombardier delivered in the same period last year- worth $3.6 billion.

Looking at just the third quarter- however- the sales dollar champion is Gulfstream- with sales of $1.3 billion on deliveries of 37 airplanes. That was enough to surpass Bombardier’s third-quarter-only total of just under $1.1 billion for 50 airplanes. Gulfstream’s year-to-date total dollar sales came in at $3.6 billion on 103 airplanes. That’s a 24-percent increase in unit deliveries over the 83 airplanes Gulfstream delivered in the first three quarters of 2006.

If Gulfstream and Bombardier continue to deliver at the same pace in the fourth quarter- it is probable that Gulfstream will finish the year as the jet maker with the high sales dollar total.

In unit deliveries- Cessna continues to be the leader by a wide margin that is continuing to grow at 268. Cessna expects to deliver 380 jets this year- up from 307 in 2006- and that’s just the beginning. For 2008 Cessna is projecting a jet delivery total of 470 units. That’s an increase of more than 53 percent in just two years. Hawker Beechcraft continues to be a major player in the corporate business jet for sale market- with 97 units for the first three quarters of the year in both 2006 and 2007. (This total includes deliveries made when the jets were sold under Raytheon Aircraft).

Dassault was among the companies recording significant gains in jet deliveries from last year to this one. Dassault’s year-to-date total of 44 units was up more than 22 percent from the 36 units it delivered in the same period last year. Embraer also had good gains over the same period- up from 17 units in 2006 to 21 this year.

At the top end of the market- Airbus is making a significant run at the corporate market with its A318- A319 and A320 models. Airbus’ expanded marketing effort showed in this past quarter- with the delivery of five corporate Airbus models- bringing its year-to-date total to 10. Earlier in the year Airbus reported that it has now delivered 100 aircraft in corporate configuration worth more than $5.5 billion since the program was launched in 1997.

Business Turboprop Aircraft for Sale Market Prospers
The business turboprop aircraft for sale market also continues to prosper as 2007 moves into the record books. With a little luck this could prove to be the best year for turboprop sales since 1982. Hawker Beechcraft continues to be the market leader- with 102 of its King Air models delivered over the nine-month period. Meantime- Pilatus and Cessna are locked in battle for the number two position in turboprop deliveries- with Pilatus holding a slight lead at 68 units for the year-to-date. Cessna reported delivery of 54 of its Caravan models- and Cessna expects to deliver 80 Caravans before the year is out. Rounding out the turboprop sales reported to GAMA this quarter is Piper with 34 for the year to date and Socata EADS with 29.

The wildcard in trying to forecast the total turboprop market for 2007 is Piaggio. The company reported sales of six aircraft for the first half of the year- but it only reports every six months so there is no way to tell how it is doing now. A year ago Piaggio reported sales of 18 units in the fourth quarter after recording only one sale in each of the previous three quarters. If Piaggio’s results this year are in any way similar- that should push total turboprop sales above the 421 mark set in 2001.

That would make 2007 the best year for jet sales ever- and the best year for turboprop sales since 1982. As strong as the business aviation market has been this year- it seems only fitting that that should happen. But we’ll have to wait and see. GAMA’s full third quarter shipment report appears overleaf.

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