NBAA Wrap: Sound Bites

Now that the Orange County Convention Center is empty of the aviation bazaar that is the National Business Aircraft Association, it is time to reflect on what happened last week.

There is no question the mood was both somber and combative as the industry continues to hunker down to weather the storm. The new, very belated campaigns with CEOs extolling the virtues of business aviation were balanced by conflicting coverage in the mainstream media – MSNBC’s coverage, that could have come out of NBAA’s playbook, and Anderson Cooper’s targeting of corporate jets in the CEO compensation reports that came out of Wall Street last week. NBAA: Reporter’s Notebook

The prognostications of meaningful recovery beginning in 2011 was met with contemplative nods of the head, along with forecasts for a new normal coming in 2012-2014 and the next big peak in 2017. Federal Aviation Administrator Randy Babbitt delivered his call for more professionalism amongst corporations and their pilot corps, what has become the message du jour from both the agency and the National Transportation Safety Board.

Signs of the times could be seen throughout the show as large holes in the rows of booths signaled the fact that a lot of companies decided not to come. The highly visible swag was gone in favor of candy, making convention seem more like an adult trick-or-treat event. I have to say, though, that I’m not sure that’s a bad thing. On every booth was a large bottle of hand sanitizer that progressively emptied as the show wore on.

The difference a year makes can be seen in which segment of aviation is being dissed. With its Aunt Edna campaign, GAMA pointed out, airlines were cementing the link between business aircraft and fat cats. The airlines, however, have been continually getting their own with the steady drumbeat of press reports about the deterioration of airline service, especially surrounding baggage. Numerous advertising campaigns are capitalizing on the airline’s reputations and even Amtrak has a commercial touting the benefit of its service over the hassles of airline service. Most of the campaigns include a tag line about getting there on time – with the luggage.

Unfortunately, business and general aviation also remain under attack as symbols of corporate excess and with the airline-orchestrated campaign against federal dollars to small airports. NBAA’s Ed Bolen pointed out the nationwide development of airports carried the same strategic imperative as the national highway system in the post-war period, a role that remains today. He also pointed out that Congress is starting to link the loss of revenues in the Trust Fund with improving the aviation infrastructure since doing so would bring in more revenues to a cash-desperate Congress.

But it was the briefings and off-hand discussions that brought the real flavor. Some of these items are paraphrased.

General Aviation Manufacturers Association’s Pete Bunce:
• There were 19,000 layoffs in the industry so far.
• A second stimulus is unlikely now that the industry has its act together.
• NextGen and SARs are the two biggest items in play that will be key to the industry’s future. But the problem in selling the programs to Congress is the complexity of the programs and the fact we use too many acronyms that don’t really explain how a given part of the program will be a benefit. Compounding this is the lack of understanding in the administration and the failure of the FAA to provide a good estimate of the cost or accurate plans for rollout.
• The landscape has changed as the alphabet soup groups are talking with one voice about the importance of NextGen and the fact that we’ll lose an entire generation of capability.
• The biggest advance is a recognition on both sides of the Atlantic that the two modernization systems have to be coordinated and happen at the same time.

Honeywell’s Rob Wilson:
• The most surprising development is customers walking away from sizeable deposits and the fact that no one is moving forward to fill those slots because they cannot get financing.
• Honeywell is not a strong believer in the stability of backlogs because it is not as meaningful as it once was two years ago. In the face of another global crisis the back log is not going to matter.
• EPA being given authority over the regulation of green house gases (GHGs) is a landmark event that changes the entire landscape.
• Biggest vulnerabilities, according to the corporate flight departments surveyed by the company, include whether or not the forecast for economic growth will hold. Also of major concern are the regulatory and environmental initiatives and whether they will be punitive with environmental taxes and user fees based on misperceptions of the industry.
• Respondents are worried about whether we are entering an era of a more protectionist trade environment that could have a devastating impact on the industry. Finally, they are worried about general world instability.
• Can the U.S. environment get worse? The answer is yes based on the terms and availability of credit and huge issues in the last year. The impact of capital is something we’ve been debating a long time at Honeywell.
• The trend toward business travelers shifting away from airlines will continue.
• Higher demand in Asia and Europe will see a default to the larger cabin, longer-range equipment.
• Our respondents clearly indicated they would wait to buy until the second half of the next five years. The economic environment of the next three years and how that plays out will be the biggest driver.
• It is too early to tell about any recovery in the fractional industry owing to excess capacity that still needs to be worked through.

Former Bombardier Exec:
• Congress remembers that the industry got its money right after 9/11 so they should stop whining.

Hawker Beechcraft’s Bill Boisture:
• New acronym for biz aircraft – WES – Weapons for Economic Success.
• Possible regulatory changes in China will mean more flexible use of airspace from regulatory authorities there where the industry is pushing that agenda. We’re optimists and are finally seeing a breakthrough that will be significant.
• The credit markets are key to recovery but they are new requirements for more equity to be put down than before and they want lots of security

Cessna’s Jack Pelton:
• With the reduced production rates, I worry about the supply chain. The supply chain has been damaged and there has been a tremendous loss of talent with the layoffs.
• Key event will be the machinist union working on the administration to tout the importance of general and business aviation to jobs.

Dassault:
• Cancellations have come because customers could not sell aircraft in their current fleet.
• China is getting more realistic on their import duties while the Middle East is still robust.
• The financing market has fewer players with some of the biggest disappearing since 2006. With 75% of sales in the international market we are looking at both traditional lenders and local banks. This is not, bar far, the worst of our problems.

Gulfstream’s Joe Lombardi:
• The credit crunch and jet fuel costs are the two largest issues.
• Perception and image remain a problem because the industry was just not prepared for the onslaught.
• Other issues on the agenda include regulations and user fees, NextGen, certification services, cap and trade.
• General and business aviation accounts for a U.S. payroll of $690 million while vendor expenditures reach $2.1 billion. International vendor expenditures are at $1.3 billion. That’s $3.4 billion of expenditures that point to jobs.
• NEXA Advisor’s study showed that the annual revenues for business aviation users was higher than non users by 116%; earnings were 434% higher and total stock and dividend growth was 353% higher.
• The issue of the sonic boom will have to be solved before supersonic aircraft become viable. The regulations against flying supersonically over land have to be changed or we have to prove we can do it quietly or we just won’t be able to make the case for supersonic.
• The pick up in large cabin orders took the production rate for mid-size cabins down.