The business aviation community will converge on Orlando, Florida, from 15 to 17 October for the industry’s largest annual showcase, the NBAA Business Aviation Convention and Exhibition (BACE). That this year’s venue is in the “Sunshine State” reflects the upbeat mood of a market that is finally daring to believe that a turnaround is finally underway – a decade after the collapse of Lehman Brothers and global financial crisis brought the industry to its knees.
The USA is leading the recovery charge thanks to its booming economy, and rising levels of business and consumer confidence. This is welcome news for the industry, given that this country has all the ingredients for a thriving aviation market – not least a vast customer base and a robust aviation infrastructure.
Flight Fleets Analyzer records an installed fleet of nearly 19,000 business jets and turboprops in the country, which represents over 60% of the global inventory and 95% of the tally for North American. The USA consistently accounts for more than half of new aircraft deliveries each year, with small and midsize-category models making up the bulk of the output.
Turbine aircraft shipments to US customers have climbed year-on-year from 446 units in 2012 to 603 in 2017, Fleets Analyzer shows. While this is significantly down on the 2008 market peak of nearly 943 units, the USA is faring better than the rest of the world.
“Despite all the on-going hoopla about globalisation, business aviation remains an industry that is very US-centric,” says aerospace analyst Rolland Vincent. He expects the situation will change little over the next five years, as “pent-up demand from years of deferred aircraft purchasing is now being released into the market”.
He cites the consistently strong and “fast-growing” US economy as a key driver, with growth expected to be around 3% in 2018. Economic strength has for decades been linked to corporate profits, and Vincent says US companies have reached “unprecedented corporate profitability” this year. Economic prosperity has also triggered an explosion in the number of US-based ultra-high-net-worth individuals– a vital demographic for the industry - which Vincent describes as an “accelerating worldwide phenomenon”.
As a boost to US businesses owners, the Trump administration introduced in late 2017 favourable new tax legislation. Under the new rules, a company can write off 100% of tax against capital expenditure, such as a business aircraft, in the first year. This move is a huge improvement on the previous rules, whereby 50% of tax could be written off in the first tax year followed by 10% for each subsequent year. Significantly, the new regulation also applies to used aircraft, and this measure has played some part in helping to shift a stubbornly high inventory, firm-up prices and create demand for new models.
FlightGlobal’s Ascend Consultancy lists fewer than 2,000 business jets for sale – less than 9% of the total fleet. This is the lowest tally for over a decade and falls under the 10% benchmark that is typically used to define a "healthy" business aircraft market.
For aircraft aged between six and 10 years the inventory is 6% of the total fleet, while for models less than five years old – many of which are still covered by the factory warranty – the global tally slips to only 3%.
“A tighter pre-owned jet market is driving buyers to make faster decisions and is beginning to put upward pressure on prices. Manufacturers are also beginning to report better results, whether in the form of firmer pricing, stronger margins, or increased new orders,” Vincent notes.
He cautions, however, that although declines have more recently stabilised, aircraft residual values were clobbered in the downturn, and have not recovered. “With some owners, operators, lessors still scratching their heads about a 30-50% drop in original value [for some models] this is not a simple problem, and certainly not one that is about to get resolved in the short-term,” says Vincent.
With aircraft acquisitions on the rise in the USA, a more confident business aircraft market is being sustained by what Vincent calls “strong entrepreneurship of new business models”.
From fractional ownership to charter card programmes, the USA is the birthplace for operator innovation, and arguably this is the most dynamic and competitive the market has ever been. There is a huge variety of options available to the end user from subscription-based VVIP business jet charter services, and mid-range aircraft membership programmes to “all-you can fly” scheduled charter offerings and daily shuttles.
Data released by the General Aviation Manufacturers Association reveals a year-on-year rise in the fleet of commercially, or Part 135, operated business jets in the USA from 11,600 in 2013 to over 14,000 in 2017. GAMA expects the fleet to continue its upward annual trajectory with an active fleet of 17,500 Part 135 business jets predicted to be operating in the USA in 2026.
However, concerns over pilot recruitment in the US business aviation industry could curtail this growth. Ed Bolen, president of the NBAA points the finger for the impending flight crew shortage at two issues: an overall decline in the number of people choosing aviation careers, and an aggressive strategy by the commercial airline industry to poach business aircraft pilots to fill their recruitment needs.
“Airline compensation is substantially better than the rewards given by many business aircraft operators, but the lifestyle is very different,” Bolen notes. “Business aviation can offer some extraordinary experiences for flight crew, but of course there are trade-offs such as being away from home for long periods of time. With airlines, pilots have pre-established schedules, which suits many lifestyles.”
Bolen cites a number of incidents where pilots working with business aviation companies of varying sizes have “jumped to airline flightdecks”.
The next headwind, he notes, is retirement over the next decade of 15,000 to 18,000 air carrier aviators whose careers were extended when the Federal Aviation Administration raised the mandatory retirement age for Part 121 pilots from 60 to 65. Add to that, the FAA’s 1,500h minimum for regional first officers, implemented in 2013, plus a declining number of people holding air transport licenses, and “the long-forewarned pilot shortage is a harsh reality”, Bolen notes.
A skills shortage is also hitting US business aircraft manufacturers with a dearth of airframe and powerplant technicians the key concern. These professionals have the “very best core competencies” that are highly transferable, Bolen argues. “Upon graduation they are given the opportunity to work in a range of exciting businesses, such as sound engineering on film sets or on roller-coasters with Disney,” he says.
The industry is starting to fight back with a strategy to attract fresh talent and promote careers in business aviation industry as “appealing, rewarding and well-compensated”.
Source: Flight International