Aerospace has always been a boom-bust business, but following the economic downturn of 2008, the robust upswing has proven elusive, primarily because there are simply too many airplanes available for too few buyers. Says Citi aerospace analyst Jonathan Raviv, this sluggish recovery has earned a name: the lost decade. In this exclusive podcast, AVweb spoke with Raviv about his market findings.
“The lost decade does indeed refer to a decade in which we did not see in the bizjet market that we would have expected to see coming out of the recession,” Raviv says, summarizing a presentation he will give on March 19 at NBAA’s Business, Finance and Legal conference in Fort Myers, Florida. Raviv says the post-2008 non-recovery was different because although the three leading indicators—GDP growth, corporate earnings and a rising Dow—portended a sales snap back, it hasn’t happened yet.
In retrospect, Raviv says, the reason is clear. The industry simply overbuilt during the boom period of the mid-2000s. A line drawn though business aircraft deliveries from 1959 through 2017 shows a sharp bump in the mid-2000s. “What’s driving this underperformance, it’s our contention, is that there were too many jets delivered in the mid 2000s, during the boom time. That’s probably pretty clear. Deliveries were way above trend. These over-deliveries essentially became shadow inventory. That was an overhang on the new market,” Raviv says. Prices on the used market tanked, too.
“If you think of a business jet as essentially a very expensive flying luxury car, luxury cars tend to depreciate very rapidly when you take the keys and drive them off the lot. Why not a business jet?” Raviv adds. For a time, even delivery positions on some jets were appreciating during the 2005 to 2007 period. Overproduction ended that.
So what about a real recovery? Raviv says tax reform looks like a net positive and by next year might clear used inventory faster than it would have otherwise. But he says the business aircraft market still lives in a modest-growth economy so sales will be slow and steady, not booming.
“The thing that got the industry into trouble in 2007 and 2008 is the oversupply which flooded the market and put supply and demand way off balance,” Raviv says. “I would hope that the OEMs have learned a lesson and would be very careful before they ramp production quickly to maintain that supply and demand balance which is core to the pricing dynamic.”
