Aviationtoday.com: Masters No More

The interrelated dangers now facing aviation are unprecedented in scope, as the global financial system grapples with its worst crisis since the Great Depression. In the context of the wider economy, aviation is a lagging indicator, a fact that begs the question: will aircraft values fall into the abyss next year? Or have we seen a bottom?

At the recent Aviation Finance Summit in New York City, I posed this question to the attendees and speakers. The summit was composed of a "who’s who" of investment bankers, venture capitalists and chief financial officers — the folks that Tom Wolfe famously referred to as "Masters of the Universe."

One of those speakers, George Godlin, vice president of Moody’s Investors Service, is scheduled to appear on the panel of our latest Webinar: "Aircraft Valuations in the Coming Year: The Trends of 2008 and How They Will Affect Values in 2009," scheduled for Dec. 11, 11 a.m. (ET). Our Webinar will be recorded and archived; you can register for it at www.AviationToday.com.

The consensus of those at the New York summit: the aviation industry faces a "perfect storm" of permanently high fuel prices, slackening passenger traffic, tight credit and recessionary pressures. The coming year promises to be a difficult one.

Indeed, Forecast International’s analysts say "warning signs are appearing" that seem to indicate an aviation downturn is on the way. "Warning signs" is putting it mildly. Year-to-date, the stock market has lost about $4.2 trillion. And you thought the $700 billion banking bailout represented a lot of money. Or, as the late U.S. Senator Everett Dirksen once said: "A billion here, a billion there, and pretty soon you’re talking real money."

T.K. Kallenbach, vice president of marketing and product management at Honeywell, said at the National Business Aviation Association convention in October his company’s well-regarded survey of 1,866 corporate jet users was already reflecting early signs of slipping demand — as far back as May-August, when the survey was conducted.

The statistical evidence: fewer flying hours and more used jets entering the market. The fact is, deliveries of new aircraft are a lagging indicator because they are bought and paid for over 3- to 4-year cycles. As Kallenbach pointed out, if there’s a downturn in the economy, business aviation historically doesn’t feel the adverse effects on new aircraft purchases for another 12 to 18 months.

Paradoxically, hard times can benefit the major aviation players. Large companies such as Boeing, Airbus, Honeywell, Thales and Rockwell Collins have the deep pockets to ride out market downturns, as their smaller competitors fall by the wayside. The "big boys" also boast the far-flung sales and support networks needed to please ever-fickle customers.

One optimist I recently spoke with is Oscar Garcia, founding partner, chairman and CEO of InterFlight Global Corp., which he started in 1992. Oscar holds FAA/JAR Airline Transport Pilot and Flight Instructor licenses as well as Instrument and Multi-Engine certificates with a total flight time of more than 8,500 hours in a variety of aircraft and flight simulators. "Once you get the aviation bug, it never lets you go," Oscar said. "As a kid, I learned to speak English by reading my father’s aviation encyclopedias. I’ve been hooked ever since."

Oscar was a speaker for Aviation Today’s Oct. 16 webinar on business jets. (This Webinar is available on demand for viewing on AviationToday.com). He is currently soliciting venture capital for a start-up OEM of seaplanes, a subject on which he waxed enthusiastic.

"Most people don’t realize it, but seaplanes are a growth industry," he said. "The advancement of composite materials makes it possible to build better, more resilient seaplanes. Also, they are very handy in areas that lack airport infrastructure."

So, despite the high anxiety in aviation these days, believers such as Garcia remain undeterred. As our industry attempts to weather the coming storm, we’ll need to rely on the passion of people like him.