Because we're in the midst of it, it always seems like aviation and aerospace are hardest hit by economic downturns. And the one we're in at the moment is unprecedented if only because it has hobbled a business aircraft industry that has never been larger, both in number of aircraft shipped and in dollars billed.
This was a constant topic of conversation at the NBAA show in Atlanta last week. As I circulated the show and asked people in the industry about their views of the coming recovery, I was just as often asked what I thought and what I was hearing. (To this, I usually revert to the Sgt. Schultz response: I know nothing.)
This can just as readily be said of some of the major players in the industry who are attempting to know the unknowableto predict when and how the market will rebound and how best to position a company to take advantage of if. Given the parts and pieces of the typical airplane company and the intense competition, this is a business challenge for the ages. History is not necessarily a good guide for a number of reasons. First, in all of the conversations I had and press briefings I heard, the general assumption is that this is a recession that just happens to be deeper than any in recent memory.
But while that's true, it's also true that this recession is distinguished by being coupled to a financial crisis. It's not the first time this has happened, the Great Depression was a recent example, but there are others, including the collapse of the world finance system after World War I that ultimately set the stage for the 1930s depression. So the biz aircraft industry has never had to deal with that, nor has the military aircraft side, for that matter.
The bottom line is that no one really understandsmuch less can predicthow the aircraft market will behave a year from now or five years from now. Cessna's Jack Pelton said the company was looking for a stronger rebound in 2010 than it has thus far seen, but in this podcast, he says the V-shaped snap back some had hoped for may in fact be a long, sweeping U instead. Although he didn't say it, I suspect Cessna is reconfiguring its balance sheet for an aircraft company that may well have lower volumes for quite some time and/or a different mix of products that favors more higher-end airplanes and perhaps fewer in the middle.
The low-end may be stuck in neutral for a while. The talk of the show was a NetJet order for 125 Phenoms, but those are 300s, not the entry-level 100. Related to the financial side, one UK-based lawyer involved in aircraft marketing, Aoife O'Sullivan, was quoted in BCA's Show News saying that VLJs are slow because banks don't like them, reasoning that if the would-be buyers aren't wealthy enough to afford a $2.5 million purchase out of ready cash, they shouldn't be considering a jet purchase in the first place, a bit of twisted logic that ignores the fact that anyone with that kind of wealth didn't get it by not knowing how to leverage cash flow.
I've never heard anyone in the industry use the 1979 market meltdown as a paradigm, although it might apply to a degree. GA aircraft produced fell from about 17,000 in 1979 to 6500 in 1981 and further eroded to under 2000 by 1983. Cessna bailed out of the piston market entirely in 1986. Bizjet deliveries in those early years were around 500 aircraft and these also suffered significant decline. Whether declining aircraft sales were a leading indicator or not, they predated the recession of 1980 and 1982. The financial system remained largely intact, at least by 2008 standards. At the time, I was covering military aircraftFairchild's A-10 contract to be specificand don't recall much about the piston GA industry outlook at the time.
After the fact, I've been told that many expected a rebound to a similar market, just as some do now. The rebound never happened, although piston GA did come back in another form, including Cessna's re-entry. Moreover, although it never regained the production numbers of the late 1970s, the revitalized GA from the late 1990s forward developed respectable vitality.
Could the biz jet market be about to undergo a similar transformation? No one really knows and even the best market indicators are too murky to paint a discernible picture. Honeywell's market prediction calls for 11,000 business jets between now and 2020, with significant demand from outside the U.S., something that didn't exist in 1982. The global market has become a powerful driver of business aircraft sales and as Piaggo's John Bingham says in this podcast, some parts of the world have been untouched by the recession, specifically Brazil and other South American economies. Honeywell's guess is that 2012 will see a climb back up strong demand. Here's hoping the guess is right.