GO
Loading...

Business Jet Industry Takes Off — Will Interest Remain Aloft?

Demand for business jets could be flying high once again, as the economy slowly recovers and emerging global markets enter the fray. Can interest remain aloft?

Citation CJ4
Courtesy of Gulfstream Aerospace Corporation
Citation CJ4


Dan Hubbard, senior vice president of communications for the National Business Aviation Association, says after weathering some turbulent times there are reasons to be hopeful.

“When the economy slides into a recession, business aviation is one of the first things to follow that in terms of sales dropping way off, hours dropping way off,” he explains.

“So, predictably, if unfortunately, we have the greatest recession since the Great Depression, and we’re tied closely to the economy, the whole industry is going to fall off precipitously, and it did.”

While business might not be picking up full throttle just yet, Hubbard believes there is reason for “cautious optimism” based on three important industry markers.

A look at the first quarter data from the General Aviation Manufacturers Association, GAMA, shows that while there was actually a decrease in the jet market, there was an increase in sales of piston airplanes, which are smaller aircraft, seating between one and six passengers, flying at lower altitudes and traveling relatively short distances of 300 to 400 miles.

Paris Air Show 2011 - A CNBC Special Report
Paris Air Show 2011 - A CNBC Special Report

“The reason that gives us cause for optimism is that an uptick in sales in piston airplanes typically is a sign of a broader recovery across the board for all types of airplanes,” Hubbard notes.

A second positive sign, according to Hubbard, is an increase in flight hours, or hours that a company has an airplane in the air, which is up five to seven percent from this time last year.

“Now, that said, they had fallen off by about a total of 35 percent or so. It’s been steadily coming back up, but we still have about fifteen percent or so to get back to the big peaks of 2007 and 2008.”

Hubbard says the third useful metric that industry people look at is the used airplane fleet.

“Much like the housing market, if there’s a glut of them out there, people don’t view it as a good thing,” Hubbard says. “That means that a lot of companies have gotten rid of the airplane and because there are so many of them, that’ll drive prices down.”

According to Hubbard, the 2009 and early 2010 used fleet was the largest ever, contributing to an unsettling picture overall.

“That fleet is now diminishing,” Hubbard says. “It’s down quite a bit, which is a good sign, but as that’s happening, a lot of airplanes have sold at much lower values than they otherwise would have.”

Time is Money

Hubbard reasons that one explanation for the increase in flight hours is that companies have not have lost sight of the value of a business jet.

“Using it optimizes time, efficiency and flexibility and what you’re seeing is, for companies who already do own an airplane, they’re putting it back into full use again,” he says.

Doug Oliver, director of corporate communications at Cessna Aircraft Company, a leading designer and manufacturer of light and mid-size business jets, agrees with Hubbard.

“It might sound hokey but I’ve heard it referred to as a time machine,” says Oliver. “It allows people to use their time more wisely because they’re connected in flight. Security’s better. You can do business on the airplane because you’ve got your top people with you.”

Oliver also notes that everyone boarding the aircraft has been pre-screened, another big time saver.

“You basically go to the airport and get on and go,” he says.

Symbol
Price
 
Change
%Change
ALGT
---
XCS
---
DAL
---
AIR
---
O066
---
JBLU
---
LCC
---
LUV
---
SAVE
---
TXT
---
UAL
---

Because business jets are faster and offer direct travel, companies save on pricey add-ons such hotels and meals, as well as additional ground transportation.

Who’s On Board?

Oliver says while most people envision the very rich jetting off to Monte Carlo, that client accounts for a very small percentage of users. He also points out that while the perception is that only CEOs fly business jets, more often it is technicians who are able to board a flight with the parts they need to fix something in a plant or factory more swiftly.

In addition to the stalled economy keeping business jets grounded, the industry took a lot of flak in late 2008 when executives from the top-three automakers arrived in Washington, D.C. on private jets to ask the government for public funding.

“There might have been a number of good reasons why they did that but whatever the case, they did not communicate any of them and so it led the congressmen holding that hearing to think ‘well, then there must’ve been no good reason why you used the airplane,’” Hubbard explains. “And then I think in Washington a conventional wisdom took hold that said ‘maybe there is never a good reason to use the airplane.’

“Most of the turbulence was related to the economy but it was made some amount worse, we don’t know how much, with the perception fallout after that event,” he said.

Demand Boosts Hiring of Pilots and Others

Courtesy of Cessna Aircraft Company

Back to Work

Because of the global recession, Cessna was forced to lay off half its workforce between January, 2009 and September, 2010.

“Three years ago there was a three-year wait on business jets,” Oliver said. “There was huge demand from Eastern Europe—Russia, specifically. We couldn’t build them fast enough. All of a sudden, one thing led to another and the economy was depressed. Fortunes vanished and people were walking from hundreds of thousands of dollars they’d put down.”

Oliver notes, while there’s still a little hesitation on the part of buyers, he’s definitely seeing an uptick in interest.

“The December we had last year was phenomenal, especially when you compare the year over year,” he says. “Demand from China and the Middle East has been very good. South America— Brazil—is our second biggest market outside the U.S. because of oil and exploration. The bottom line is business had been devastating, but, gradually, we’re climbing back out.”

Woody Harford, senior vice president and chief revenue officer for Citation Air, a wholly-owned subsidiary of Cessna,which offers a range of business aviation services, says, “Broadly speaking, I’d say that we are feeling much more bullish about where we, as a company, are headed and broadly, the industry, and Cessna, as a leader in it.”

The biggest indicator that business is moving in the right direction, according to Harford, is the fact that over the past 12 to 14 months Citation has offered employment contracts to all of the 85 pilots that were furloughed during the economic downturn.

Montreal-based Bombardier , began revving up for recovery in March thanks to a record order from Citation’s competitor NetJets, the business-jet operator owned by Warren Buffett’s Berkshire Hathaway.

The plane and train maker received a firm order for 50 jets, with options to purchase an additional 70. The deal could be valued at as much as $6.7 billion if the options are converted to firm orders, making it the largest business aircraft sale for the world’s third largest aircraft maker.

Heidi Fedak, senior manager for social media and external communications for Gulfstream Aerospace Corp, says the company, with more than 1,950 business jets worldwide, is seeing an increase in demand for their large-cabin aircraft.

Gulfstream projects delivering 90 “green” (those that have finished the initial phase of manufacturing and are moving into the final phase) large-cabin aircraft in 2011 up from 75 in 2010.

“We are also beginning to see renewed interest in our mid-cabin airplanes; this segment was more impacted in the recession and in the current economic environment,” she says.

Paris Air Show 2011 - A CNBC Special Report
Paris Air Show 2011 - A CNBC Special Report

“About 70 percent of our sales recently have gone outside the U.S., so emerging global markets have certainly been a key factor in our continued success. Our large-cabin, long-range jets are especially well-suited to Asia because of their intercontinental range, high cruise altitudes—for more direct flying—and speeds.”

“It’s a mixed picture right now,” says Hubbard. “There are signs that give us cautious optimism, but, like the broader economy, you don’t see a consistent, full, robust recovery back to the levels of activity on a couple of fronts that we saw three or four years ago.”

Industry insiders are hopeful that with more cash on company balance sheets and greater interest from global markets, business jets will prove to be time-saving, high-flying successes once again.

“That’s ultimately what this business is about. It’s about being able to do more things, more effectively in less time. If there’s one currency everyone shares the same restraint on, it’s time,” says Harford.

While it might not be all blue skies for the business jet industry just yet, the horizon is looking a bit brighter.

Contact Business

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    To learn more about how we use your information,
    please read our Privacy Policy.
    › Learn More