Not to Beat a Dead Horse...

State of the Biz Av Economy, Part 4 of 3 (or something like that!)

In this concluding (I promise!) examination of the aviation business climate, I thought I'd summarize with some articles from significant observers/participants in the industry, following our review of Molly McMillin's Wichita Eagle article from last week.

(Partly prompted by Friday's sad news of another 240 job cuts at HawkerBeech; "Friday's WARN notices put the number of layoffs at HBC in the past 10 months at 3,553, or about 36 percent of last October's total work force."

Aviation Week reviewed the GA market in their Aug 10 article "GA Shipments Continue Downward Spiral". ("The second quarter of 2009 further compounded the economic woes of the general aviation manufacturing sector as the number of deliveries plunged some 49 percent, according to statistics released last week by the General Aviation Manufacturers Association. This has led to a 45.9 percent decline in total deliveries through the first half of the year.")

The Aviation Week Intelligence Network had coverage (Sept 23) of Wichita Suffers From Bizjet Downturn. "A severe downturn in the aviation industry has led to the loss of 30,000 jobs in Wichita as the impact from mass layoffs at companies such as Cessna, Hawker Beechcraft and Bombardier Learjet has rippled through small suppliers and the economy, according to Mayor Carl Brewer."

Our friend Richard Aboulafia, of the Teal Group, recently had an EXCELLENT two-part expose' of the state of affairs-

TEAL GROUP BIZAV OVERVIEW (PART 1)
("Our forecast assumes a three-year downturn. The key demand drivers – economic growth and corporate profits – will only recover in late 2010. It will take some time to reduce record inventories of available jets for sale. This means new business jet deliveries won’t start to recover until 2012. The trough year of our forecast – 2011 – will see business jet deliveries reduced by 40% relative to 2008. Our forecast then calls for a five-year recovery period with 10% growth per year starting in 2012.")

TEAL GROUP BUSINESS AVIATION OVERVIEW (PART 2) ("A closer look at the driving factors.")

Chad Trautvetter had a nice Sept piece in Aviation International News (AIN), which captures a quote many will be relieved to hear
UBS: Bizjet Market ‘Less Worse, Not Better’


But, as a note of caution, I will refresh our memories with Honeywell's Oct 2008 outlook (sorry, somebody there is cringing, or worse):
"The 2008 survey indicates record aircraft deliveries will continue into 2009 with a likely peak next year or in 2010...The stability in overall purchase expectations is supported by the increasingly global nature of the industry."

(Ah yes, I remember that widely repeated refrain- something like "the global demand for biz jets will damp out the US cyclical demand". Boy, that's so obviously erroneous in hindsight- but at the time, .I have to admit, it sounded reasonable to me too...).

To add insult to injury, or rather, injury to insult, Honeywell did not only not see their customer's market declining, they didn't even see their own market declining. From July 27, 2009: "Honeywell 2nd-Qtr earnings drop 38 percent as recession continues to take toll" (Oops. It will be interesting to see what the "18th Business Aviation Outlook" forecast says- should be out in a few weeks).

Bombardier has an aviation business forecast too, good reading,
Bombardier Business Aircraft Forecast 2009-2018

"Bombardier remains confident that there is strong
potential for the business jet industry over the next 10 years.".

(A bit understated, not nearly as disruptive as some forecasts we've heard in the past... :)

Let's hope for our friends in the industry, that better times are coming soon...

For Sale- By Owner (and dealer, and factory)

A delightful surprise came my way late last week- an article by journalist Molly McMillin. Molly covers the aviation industry for the Wichita (Ks) Eagle newspaper, and has graciously consented to allowing her article from last Thursday to be posted for us to discuss.

"Fewer business jets for sale: Despite fewer used business jets on the market, the market is still characterized by oversupply and weak pricing".

by Molly McMillin, Sep 17, 2009,The Wichita Eagle

”The number of used business jets on the market fell in August, the second decline in three months after 18 consecutive monthly increases, a recently released report says.

Although it's come down slightly from record highs, the number of business jets on the market is still 36 percent higher than it was a year ago, according to UBS analyst David Strauss in a report.

Seventeen percent of the business jet fleet is up for sale. The average asking price for newer models is down 30 percent from peak levels. Pricing fell another 2 to 3 percent in August, the report said.

The asking price for a Citation Excel was roughly unchanged last month but is down 38 percent from its peak, it said.

The price of a Hawker Beechcraft Hawker 800XP declined about 3 percent last month and is now 37 percent down from its peak.

The average asking price of a Cessna Citation X declined about 3 percent in August and is down 47 percent from its recent peak, the report said.

The used business jet market is a leading indicator of new business jet sales.

The business jet market is still characterized by significant oversupply, weak pricing and tight financing, Strauss wrote.

"We think record high used available inventories will continue to overhang orders, pressure existing backlogs and could force further production cuts," he said.

Although there is indication of modest improvement, "we still see risk of an extended downturn," Strauss wrote.

Rich Jiwanlal, Hawker Beechcraft vice president for human resources, said last week that business conditions have not improved in any meaningful way.

"These are very, very challenging times," Jiwanlal said.

Leaders from Cessna Aircraft's parent company told analysts last week that business jet deliveries are expected to decline slightly in 2010 before moving higher.

This year, Cessna's jet deliveries are expected to be down about 40 percent to 275 over last year's shipments.

At the end of August, Strauss estimated there were 3,014 business jets for sale, about 1 percent lower than the previous month and 36 percent higher than a year ago.

Business jet inventories decreased 2 percent in August, Strauss reported.

Of the five major planemakers, Bombardier had the highest percentage of its fleet up for sale at 18 percent. That's followed by Cessna and Hawker Beechcraft at 17 percent, Dassault at 15 percent and Gulfstream at 14 percent, the report said.”

It's refreshing to see good journalism, and makes me eager to read more of Molly's articles. She has a great blog site too- Air Capital Insider

Labor Day 2009 (Part 3 of 3)

The aviation industry has always had its ups and downs.

It seems like we've been on the "down side" for the past year or so. This Labor Day series is dedicated to those who might be new to the industry, perhaps recently enough to have only witnessed the "up cycle" until now, and are wondering what's going on.

On our distinguished predecessor blog, Eclipse Aviation Critic-NG, there was a truly excellent discussion of the economics involved with this current cycle (See Feb 06, 2009 Eclipse Is Dead-Long Live Eclipski, and go to "page 2" Eclipse_Deep_Throat, Feb 10, 8:26 AM).

An very informative discussion of, amongst other things, economic cycles. (Wikipedia has a nice article for those of us who need a primer on the topics that were discussed then: Business Cycles).

"In 1860, French economist Clement Juglar identified the presence of economic cycles 8 to 11 years long, although he was cautious not to claim any rigid regularity. Later, Austrian economist Joseph Schumpeter argued that a Juglar cycle has four stages: (i) expansion (increase in production and prices, low interests rates); (ii) crisis (stock exchanges crash and multiple bankruptcies of firms occur); (iii) recession (drops in prices and in output, high interests rates); (iv) recovery (stocks recover because of the fall in prices and incomes). In this model, recovery and prosperity are associated with increases in productivity, consumer confidence, aggregate demand, and prices.

In the mid-20th century, Schumpeter and others proposed a typology of business cycles according to its periodicity, so that a number of particular cycles were named after their discoverers or proposers:
-the Kitchin inventory cycle of 3–5 years;
-the Juglar fixed investment cycle of 7–11 years (often identified as 'the' business cycle);
-the Kuznets infrastructural investment cycle of 15–25 years (after Simon Kuznets);
-the Kondratiev wave, or long technological cycle of 45–60 years (after Nikolai Kondratiev).

The Wikipedia goes on to caution that "Interest in these different typologies of cycles has waned since the development of modern macroeconomics, which gives little support to the idea of regular periodic cycles."

(Maybe true, but it sure seems like aviation goes is pretty close to the proposed Juglar cycle).

From what I've read, the business aviation market has had/is forecast to have the following extremes:

Peak years 1968, 1974, 1980, 1991, 1999, 2008
Trough years 1972, 1977, 1984, 1995, 2003, 2011

Which, comes out to an average, for this 40+ year period, of about 8 years per cycle.

In the March 2009 issue of Flying magazine, J. Mac McClellan has an excellent article regarding the business plan challenges faced by Eclipse Aviation (not the current Eclipse Aerospace), What Went Wrong With Eclipse , he mentions the unsustainability of the post World War 2 general aviation boom:

"But the aviation industry has deluded itself about the size of demand many times in the past. In 1946 and '47 it is believed about 50,000 airplanes were built by the manufacturers who imagined a giant demand from returning military men. The market wasn't there and dozens of airplane manufacturers went out of business, and it took at least 15 years to build the next 50,000 airplanes. There was a spectacular boom in the late 1970s with total GA production reaching about 18,000 airplanes in both 1978 and '79. A few years later production rates dropped to one-tenth of that number, and at the low end not even 1,000 airplanes per year were built."

Now THAT was a rough time. The mid-1980's collapse brought big changes (including bankruptcy of Piper, and Beech bought by Raytheon, Cessna bought by General Dynamics, and then by Textron, and Learjet -already owned by Gates- bought by Bombardier). These calamitous times were well documented by Scott E. Tarry, in a June 22, 1995 article in Transportation Journal (The rise and fall of general aviation: product liability, market structure, and technological innovation.; This is an excellent article- long, but detailed- the single best one I have read; remember, it was written in 1995, so our current perspective is a bit different).

Quoting from this same article,

"Following the recession in the early 1970s, production rates began to increase very rapidly, from 7,466 units in 1971 to 17,000 in 1977 - an increase of more than 125 percent in six years. Production in recent years is a trickle when compared to the heyday of general aviation. The numbers are compelling: Since reaching a peak of 17,811 shipments of light aircraft in 1979, U.S. production plummeted to 811 units in 1993, a decline of 95.5 percent."

That was a really tough time. But, the industry recovered a few years later. The General Aviation Manufacturers Association has GAMA sales figures for the current decade available on-line:

2000 2,816, $8.5 B
2001 2,994, $13.8 B
2002 2,432, $11.8 B
2003 2,686 $10.0 B
2004 2,963 $ 11.9 B
2005 3,580 $15.1 B
2006 4,053 $18.8 B
2007 4,272 $21.9 B
2008 3,967 $24.7 B

(Amazingly, considering current difficulties, 2008Q4 was the all-time billing high, $6.8B; great news, if it were still 2008: GAMA reports for the first half of 2009, units down 45%, billings down 21%, compared to the first half of 2008).

And it's not just general aviation that faces cyclical demand, note the Boeing deliveries on this chart. Pretty up-and-down too. (I cannot explain why the Airbus deliveries are more stable- anyone? More Boeing versus Airbus shipment information here).

Things might seem bleak now, and they are, and might get a little bit worse yet. But, the industry has been through it before, and although many of us are rightfully wondering Will General Aviation Survive? (article circa 1995), from observing historical patterns, yes, it will. Our thoughts are with each one who is in a difficult way until the recovery begins.

Labor Day 2009 (Part 2 of 3)

Partly cloudy skies...

While preparing the previous thread, I came across some material, which is moderately encouraging. I wish it were more dramatically so, but the fact it was not all bad news, is in itself, encouraging

As bleak as things might seem, Reuters, Aug 24 reports:

"U.S. aerospace and defense firms are expected to cut about 30,000 jobs in 2009, or about 4.5 percent of the workforce, and layoffs are likely to continue in 2010, according to a study by Aviation Week and several industry associations.

"The group's annual workforce survey concluded that total job losses in the sector could reach 10 percent, but said that was still far below the 40 percent cut seen after the end of the Cold War, when defense spending was pared back sharply."

Frankly, I was somewhat surprised to see the losses were -only- 4.5 percent. That's not much comfort to anyone in that 4.5 percent group, but it's encouraging to know 95.5% of the aerospace workforce is still employed. The good news for our friends in the 4.5 percent group is, turnover is typically several percent at most companies, potentially creating openings for many- theoretically almost everyone who is out of work. Things won't quite work out that way for all, but hopefully, it will for some.

The 10 percent number of potential cutbacks is also a mixed bag; growth would be good news, but "only" bottoming out at 10 percent reduction, is 400 percent better than bottoming out with a 40 percent reduction. (Lots of percentages/statistics there- some saying about statistics and the people who use them...but still, moderately encouraging news).

While the general economy slowly improves (some), there are pending developments which might bring good news.

The Air Force KC-X tanker program is being re-competed, with a new Request for Proposal expected soon. Some opine that the World Trade Organization ruling against Airbus might favor a Boeing bid, and create jobs more US jobs than a Northrop-Grumman/Airbus venture (sorry for our friends in Europe). On the other hand, I've heard the opinion that the only way there will EVER be a new tanker program, unencumbered with legal protests, is for the pentagon to award both teams a contract, presumable for a smaller, and a larger, version. (And with mid-term elections coming up, that would give politicians the opportunity to create even more jobs, with two programs. Oh, I forgot- the process is not political... :).

Also, from the Reuters article, "Retirement eligibility was expected to increase from 13 percent this year to 18 percent in 2011 and 20 percent in 2013, compared with just 5.7 percent in 2008." This seems like a HUGE pending opportunity. Again, actual realization will be somewhat less than desired, as with many 401K's being temporarily (or worse) down, many who could retire will elect to wait. But- many will not.

The 787 -might- evolve from a delightful parade float (especially if you have 80 knot parades or so), to an actual flight article (even if the management at Boeing has to borrow the Goodyear blimp to "float" it before the end of the year). Hopefully, there will be some jobs created by this program next year.

The U.S.Army Airborne Common Sensor platform -might- get going. (Or not, right away, anyway). But, it's been in the works for 10 years, without being cancelled outright, so there is some traction out there for it somewhere. (I think the tanker competition "only" started 8 or 9 years ago!). More tangibly, there are a number of similar small programs in work.

Cirrus seems to be recovering (perhaps despite 85 layoffs announced a few weeks ago). The Cessna Skycatcher will be on the market soon (assembly, service, flight instructor jobs). Diamond seems to be proceeding with some interesting piston planes (the D-50 looks nice!), regardless of the D-Jet.

The Honda program continues to progress, Eclipse is open again in some vestige, Piper continues working on their SEJ, and there are a multitude of Regional Jets (Russian, Chinese, Japanese) in development- from which the supplier base will benefit. Spirit Aerostructures continues to do relatively well.

And Gulfstream is rock'n with their new G-250 and G-650 programs. Not that they haven't had layoffs and furloughs this year as well, but they are big-time committed to these great platforms, and I think that reflects "enthusiasm" over the future.

From the above Reuters report:
"The report showed the aerospace and defense companies were still hiring despite the downturn, and had 21,000 job openings as of April 1 when the data were collected, down from 32,000 a year ago".

The "end of the rainbow" might still be a few months down the road. There are still some storm clouds in the vicinity, and it might be raining where you are at right now, but at least there are some rays of sunshine starting to peek through. We all wish good cheer to our friends who need it now.

Labor Day 2009 (Part 1 of 3)

My appologies for using, um, steam gages, rather than something "glassier", for a barometer of the health of the general aviation industry.

Our friends in Albquerque are just beginning their journey, so it is premature to measure their success. But recent developments have most enthusiasts, and critics, pondering the state of the industry at large.

As we conclude this Labor Day weekend (in North America), I am curious how our fellow bloggers feel about the industry's health, from their relative vantage points.

I've heard, on and off for literally decades, that aviation manufacturing lags the general economy by 18 months. (Example- of hearing it anyway: Craig Fuller, AOPA President, March 2009).

From my keyhole on the world, it appeared the general (USA) economy bottomed out around March. I was hopeful things would be flat (rather than declining) for a few months. And, well, right about now- start improving. Eclipse Aerospace emergence on the scene seemed to fit nicely with that scenerio.

But of late, there seems to be more unexpected bad news in other houses of aviation...

Wichita Eagle, Aug 15, 2009 (Cessna cuts another 500 workers in August)

Aviation Week, Aug 20, 2009 (HawkerBeech benefits reductions and layoffs)

Wall Street Journal, Aug 20, 2009 (Learjet cancels 110 airplane deal)

WDIO-TV, Aug 26, 2009 (Cirrus cuts 90 employees)

Wichita Business Journal, Sept 04, 2009 (Hawker lays off 395, plus 118 the next week)

AP, Sept 05, 2009 (Wichita suppliers layoff 1000 workers)

All that, on top of previous bad news for the year;

TCPalm, July 27, 2009 (Cutbacks at Piper)

AP, June 12, 2009 (Cessna to cut 1300 more staff, plus 6,900 since Nov 2008)

Financial Times, June 3, 2009 (Embraer cuts employment 20%)

And of course, the 2000+ jobs lost during Eclipse Aviation's demise. (Puzzling how Mayor Chavez keeps referring only to 800).

Sooo,
It's not the greatest Labor Day we've had in aviation.

But, not the worst. I know that's small comfort for thousands out of work.
I don't mention it to be trite, but instead to offer some small ray of encouragement.

I sincerely hope next Labor Day will be one to celebrate more reobustly.

(This is part one, of a three-part Labor Day series- to be continued on Thursday and next Monday mornings. This one is the least encouraging- as such, I hope it doesn't bum anyone out, but is rather intended to illustrate that "you are not alone". Again- small comfort- but hopefully, some. Stay tuned for better news on Thursday).

OPEN !

Eclipse Aerospace has acquired the assets of Eclipse Aviation, and today, September 1st, 2009, was their first official day in business.

The press has not exactly been "all over this".

(Perhaps they are a bit -overly, I believe- cautious, because they are not quite "all over" their last experience of being mindless regurgitators of press releases- that being un-cautious, practically unconscious, and definitely unconscionable copy-dispensing drones).

Let's hope Eclipse (et al) and the press (THE press, as well as Mike Press- and Mason Holland-) are able to make this experience a more OPEN experience, than the previous adventures in aerospace episode.

Here are a few -of the few- available links on the opening:

KOB, ABQ CH4, Part 1

KOB, ABQ CH4, Part 2

AP (Sept 1st): Eclipse Reopens

The new company is off to a modest start-15 employees. With appreciation and empathy for everyone involved, it is difficult to predict how fast, and how far, things will ramp up.

But- it's a start- and a welcome one.