Summary
What is not said in this article is what it truly important: 1. Business Aviation grew strongly after 9/11 due mainly to safety, security and airline inefficiencies issues. Business aviation growth driver has always been efficiency and assets (planes) ROI, not corporate excess or luxury (private aviation) 2. Business aviation activities are closely aligned with GDP and productivity of the businesses, communities and countries it serves, not the other way around. Media hysteria is not fact! 3. The current adjustments in aircraft values and lending "rules of the game" simply respond to the over-leveraging-borrowing craze of 2004-2007. LTV's of 70-80% are now the norm as before 2004 4. This is the best opportunity in the history of business aviation to set the record straight. By the way, TARP clearly supports business aviation and even increased tax benefits to extend beyond the aircraft and to cover the additional equipment such as instruments and in flight communications
Analysis
Business aviation is alive and well. It is simply "corrected" to where it should be barring the 2004-2007 global financial leverage-lending madness. The recovery starts NOW, we just need to admit the collective bubble we all blew and move on. Let's set the record straight:
first, the media sensationalism related to the automobile CEO's and TARP has given the industry its best opportunity to educate both government and mainstream about how well business aviation has been optimized throughout the past 5 decades. In addition a few myths have been set straight about business vs. private/luxury aviation. By the way, TARP's detailed language not only welcomes business aviation to rescued companies but it expands depreciation tax incentives beyond the aircraft to include extra onboard equipment such as avionics and onboard communications.
With all due respect to experts and panelists, business aviation practices and procedures in US corporations, yes, even the automobile big three, have been run efficiently, audited often by shareholders and demonstrated to add tremendous value to the companies they serve.
No, the media hysteria of lately has not discovered a hidden excess about business aviation, they simply screamed, bluffed and unfortunately, three weak and weary CEO's kneeled down. The masses felt vindicated and the new President gained a few brownie points, that's it.
Second, make no mistake, there is plenty of capital to finance new and used aircraft, except that the lenders have sobered and now want 20-30% down payments as well as a robust credit file. Nothing wrong with that, this was the normal business practice before the irrational "leveraging" and real estate value fueled overborrowing-lending surges of late 2003-early 2004. By the way, foreign economies used to 70-80% LTV lending which did not embark in the USA's roller coaster debt ride, such as Latin America are growing their business aviation with a business as usual stance.
Thus, opportunities abound.
First pony.The bottom end of older , fully written off, fuel thirsty and maintenance intensive aircraft, those 25+ years old will certainly fall and these aircraft will be decommissioned. Thus, the not so large glut (about 5% more than the average) of used aircraft will quickly be absorbed at realistic prices, with 70-8-% LTV loans and the best finance rates in the last 25 years.
Second pony. After the industry stakeholders and its very capable associations (NBAA.AOPA, NARA, NATA, etc) educate the public on the merits of business aviation, there are going to be many, many new entrants. Companies with revenues of US$10 million an up who thought private aviation was beyond their reach will find out that new generation "right size-right price"very light jets and operators (charters, jet cards, fractionals) are ready to partner with them to enhance their business and economic impact to the community.
Third pony. The airline industry worldwide is not really pushing to be regulated, sorry Mr. Crandall, moreover, it is seriously looking at ways to introduce business jets into its premium passengers service offerings. The idea is to enhance the service levels and to complement the well optimized hub and spoke system. Delta Elite, Lufthansa/Swiss Private Jets, Korean airlines are pioneering this effort with compelling results thus far.
As a conclusion, look at Q3 2009 as the "adjustment" milestone for business aviation and rest assured that 2010 will see a 2-3% sector growth from the adjusted values. From there on, the growth should be 3-5% as long as all of us, collectively, don't blow another 3-4 year "free money"bubble. And the business aviation world who followed us into the bubble will also follow us into a solid decade of sober growth.
Even the Federal Aviation Administration forecast team, a pilar of no nonsense aviation business dry-matter of fact analysis agrees www.faa.gov/data_research/aviation/aerospace_forecasts/2009-2025/)
