Page 79 - World Airnews Magazine April 2020 Edition

NEWS DIGITAL

BUSINESS AVIATION BETTER

CORONA VIRUS
LATEST UPDATE PREPARED FOR CORONAVIRUS
DOWNTURN

By Brian Foley

In a matter of days, the business aviation community
has gone from optimism over a promising start to the
year to a state of bewilderment, uncertainty and anxiety.
While anyone can surmise which way business jet sales
and usage are headed based on the recent avalanche of
negative financial news, the industry is arguably in better
shape to weather this downturn than it was going into
the pummelling 2007-2008 financial crisis.
The epicentre of business aviation is the United States,
where 63% of the worldwide fleet, or 14,163 active jets,
currently reside according to AMSTAT.
Before the turn of events, US stock markets had been
at all-time highs that were 67% above 2007 levels, with
quarterly corporate profits around a third higher.
The most recent quarterly GDP growth figure was 2.1%, Gulfstream G700
compared to 1.9% in 2007.
Manufacturing was improving; job growth strong,
consumer strength was meaningful and business
investment healthy. The unemployment level hovered
at historic lows. The most important economy to the
industry was clearly in better shape before this downturn
than it was in the last.
Congressional reforms to the financial system have
required more reserves by banks and tighter lending
standards, providing added liquidity and reduced credit
risk. For those who need to finance or lease a jet, rates are
significantly lower than they were back then.
While the backlogs of business jet manufacturers are
smaller than in the late ‘ 00s, they aren’t stacked with
as many speculators. Some manufacturers put added
teeth in their contracts since the last downturn, aimed
to keep airplane flippers out of their books. While there
will inevitably be some cancellations and deferrals, the
current order books are stickier.
Business jet deliveries ticked up a solid 15% in 2019 after
being essentially flat over the past decade. Much of the increase While there has been a recent spike in charter activity due
was from a bevy of recently introduced new planes, which tend to to one-time Carlos Ghosn-style overseas escape plans that too
stir up sales, and will do so into the future. will taper as fewer onsite meetings occur. Pre-emptive layoffs at
There are admittedly some weaknesses in 2020 compared smaller firms have already occurred with more public announce-
to before. International markets are weak and will not provide ments to surely follow.
the safety net they once did back when emerging markets were The industry will undeniably be impacted after 10 years of
vibrant. relatively clear sailing. It’s a cyclical business but the speed and
Whereas the Federal Reserve had room to cut interest rates intensity of the change caught many off guard. Although there will
back then, today we’re already essentially at zero, meaning fewer be casualties, the majority of players have been here before and
accommodative tools. As it was in 2007, the new jet market is still are survivors, having adapted their businesses to swings in the
oversupplied with too many models chasing a finite number of past.
buyers. It’s said that the second half of 2020 may be more forgiving, but
Few in business aviation will escape the impending downdraft. the wait will admittedly be excruciating.
New and pre-owned sales will all be impacted as buyers wait for While there’s always a worst-case scenario, it’s possible that the
some semblance of normality. Reduced business jet utilisation will positives going into this downturn will at least help to soften the
ultimately impact fuel sales (FBO) and maintenance (MRO) activity. inevitable blow. Q

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