November 2010

What a difference a year makes!

Attendance alone helps tell the story. More people walked through the turnstiles on the first day of this year's NBAA (National Business Aircraft Association) meeting in Atlanta than during all three days of last year's show.  Attitudes were less glum, and one could again feel some of the excitement missing for the last two years.

With the industry still waiting for proof of a sustained recovery, exhibits were a bit less lavish than in "the good old days", but even so...

I submit that the majority of companies attending NBAA are in a much better position financially than they were a year ago.  Most companies are at around midpoint between the highs of 2007/2008 and the lows of 2009.  The first segments of the industry to enter the downturn are also the first recovering.  That's long been our thesis, and the evidence is plain.

As an example, companies representing charter, MRO, fractional and FBOs had started to decline as far back as late 2007 (now known to be the beginning of the recession).  Aircraft manufacturers on the other hand, didn’t feel the effects until a full year later.

Fast forward to today: Those who suffered at the downturn's leading edge are doing better than last year, and this holds true nearly across the board.  Some of the aircraft manufacturers, by contrast, have yet to show any measurable signs of recovery. 

And therein lies a problem with the industry’s overall assessment of its health, because the aircraft manufacturers have the biggest media voice in the industry. Headlines about skimpy order books and layoffs present the image of an industry in collapse.  This is simply not true!

There were about 1100 exhibitors at NBAA and only six of them were major bizjet manufacturers. The vast majority of exhibitors are doing measurably better. They’ve taken tough action, stabilized and are now poised for growth. And of those six bizjet makers, half are doing pretty well in this environment. It's not fair to judge one whole industry by the other three.

So how does all of this affect the supplier world?

If you're joined at the hip with the handful of business jet manufacturers, life is probably intolerable -- quite a contrast to those stellar years of 2003-2008!  What once seemed like firm contracts have since evaporated. Your phones are ringing less.  Your customers beat on you mercilessly for concessions.

But if you're more diversified you're probably doing better. So what if airframe manufacturers aren't knocking on the door? MRO facilities can still call for quotes as pent-up demand has started to appear; ditto for aircraft completion facilities experiencing an uptick in their refurb activities due to a gradual increase in pre-owned aircraft sales.

Finally, there are those of you whose footprint extends beyond just general aviation.   Take the airlines, for example.That industry is profitable again and new sales are flowing. Military business too, though sometimes fickle, has also helped you through tough times. For you, the general aviation slowdown has been more of an annoyance than a showstopper.

In summary, the general aviation industry is on the mend and should grow at an average of 2.7% CAGR over the next ten years. However recovery will be uneven, notably with the aircraft manufactures on the tail end. Those who still view past peaks as historic norms should stop deluding themselves; that probably isn't going to happen. It’s far more likely we’ll return to something akin to 2005-2006 activity levels, which were healthy but not peak, and at the time were regarded as prosperous periods.

So hang in there. Things are improving, albeit slowly.

About Brian Foley Associates (BRiFO)
Brian Foley Associates are recognized thought leaders and management advisors to the general aviation industry.  Primary practice areas include industry analysis and forecasting, market research, strategic planning, new product evaluation and transaction support.  It was formed in 2006 by industry veteran Brian Foley, a former executive at a major business jet manufacturer for over 20 years.  Mr. Foley is also a licensed securities representative who, through an affiliated company, helps find buyers and growth capital for general aviation companies.  For more information visit or follow @BrianFoleyAssoc on Twitter.

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