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Tuesday, November 1, 2011

Cautious Optimism

It’s been a very difficult couple of years in the business aviation segment, to say the least. So I’ll forgive presenters at this year’s National Business Aviation Association (NBAA) conference and exhibition for looking a little war-weary, scarred and conservative.

The Great Recession of 2008 has forced a lot of business aviation operators, airframe manufacturers, equipment manufacturers and component suppliers to rethink the way they do business. But hope springs eternal, to be accurate, it springs cautiously, that growth will return to the business aviation market. According to Honeywell’s much-anticipated Business Aviation Forecast released on the eve of the show in Las Vegas, 2011 will be the “trough year,” followed by modest growth in 2012 and 2013. But it’ll be at least five or six years until the industry hits the pre-recession levels. It’s interesting; I seem to remember almost the exact wording expressed a few years ago at NBAA…

Airframe manufacturers Cessna and Gulfstream expressed similar “cautious optimism,” which seems to me to be a face-saving, bet-hedging way of expressing even the slightest confidence in the market. Cessna CEO Scott Ernest called the market “spotty,” but still predicted a slight uptick in deliveries this year over last. When a reporter called Honeywell’s forecast bullish, Rob Wilson, president of Honeywell’s business and general aviation business, was quick to correct him, repeating the “cautious optimistic” characterization. “We’re still significantly better than we were a year ago,” Wilson said. “We’ve got a good story to tell in light of a difficult environment.”

Mood on the show floor was upbeat, like people were legitimately excited about the business jet market, but were not quite ready to go out on the limb and say so. Still, it was a busy show — lots of traffic, lots of exhibitors and lots of good information out there. “I don’t see a recovery happening in ’12. I think we’re going to see more of the same. [But] we’re somewhat more optimistic after the show this week; there are a lot of programs that are kicking up,” said Paul DeHerrera, chief operating officer at Universal Avionics. (For more on DeHerrera and Universal, see page 20.)

Honeywell and others conceded that no one thought the recovery in the United States and Europe would take this long or would be this weak. Everyone was quick to qualify any statement about the future, saying the European debt crisis, the weakness in the stock market and slow job growth in the United States could further derail growth around the world.

“The economy is what it is; we can’t wait. Our destiny is in our own hands,” said Mark Paolucci, senior vice president of sales, Cessna.

The bright spot of this otherwise so-so market is the strength in the international business aviation market, particularly in Brazil, Russia, India and China. This message was repeated again and again at the conference from show organizers to companies alike. The rest of the world is buoying the essentially flat growth in North America. The exhibits and attendee numbers were up, edging closer to what they were in the boom times of just a few years ago. But, since then, NBAA is changing to become much more of an international show, NBAA President Ed Bolen told me. U.S. operators might not be buying, investing in or upgrading their business jets, but overseas operators are. Gulfstream Aerospace President Larry Flynn told reporters it has been sustained in a challenging market by international orders. More than 70 percent of new orders in the last year came from outside the United States. Honeywell concurred, saying international accounts for more than 45 percent of the new aircraft purchase plans projected in the next five years.

Cautious optimism aside, there does seem to be a good story here. Orders are increasing, backlogs are deepening and new aircraft models are heightening the excitement. Maybe next year, we can just be optimistic.

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