June 4, 2013


By Greteman Group Vice President/Senior Writer Randy Bradbury

Just as it no longer makes sense to talk about the U.S. aviation market without putting it into a global context, it’s equally misleading to analyze business aircraft manufacturing as if it were a single trend.

Richard Aboulafia
Richard Aboulafia, vice president for analysis at the Teal Group, tells the Wichita Aero Club that the downturn and subsequent recovery revealed a two-tiered corporate aircraft market that may be driven more by factors such as credit availability than by uncertainty over the intrinsic value of business aviation.

Richard Aboulafia, the Teal Group’s oft-quoted seer of aviation economics, makes a compelling case that the business aircraft market now splits decisively between larger, long-range aircraft and everything else.

He calls everything else the bottom half of the market – even though it may seem strange to refer to items that cost anywhere from a few million dollars to about $25 million as the bottom half of anything.

Trends Hit Wichita the Hardest

Speaking to the Wichita Aero Club recently, Aboulafia said the Air Capital of the World does indeed rule the roost on light to mid-size aircraft. That’s why the city’s manufacturing sector was so devastated by the downturn that began in 2008.

“Wichita was building more than half of the world’s business jets,” he said. “By 2012, that had fallen to 20 percent.”

Most analyses have made it seem as though the aviation industry as a whole was hit hard by the downturn and that it has been recovering slowly.

Aboulafia debunks that view.

In fact, his numbers demonstrate that airliner deliveries have been booming – up 12 percent from 2008 to 2012. That’s pulled total aviation deliveries up by 8 percent over the same period for a decent, sustainable growth rate. Meanwhile, business aircraft deliveries declined 6 percent.

Big Biz Jets in Demand

And within the biz av sector, the top half – aircraft costing $25 million and up – recovered much more quickly to enjoy robust sales today.

Analysts have laid poor sales at the feet of reduced corporate profits and lack of confidence. Aboulafia adds another key factor: availability of credit.

Since 2008, he says, the percentage of biz jets bought with cash has increased from 50 percent to 77 percent.

“If you were a top-half company, you probably didn’t need a loan,” he said. Smaller companies with tighter cash flow rely more on credit. So, whether they needed a new aircraft of not, they may not have been able to obtain financing.

Unleashing Pent-Up Demand

There’s a lot of good news in this analysis. First, general faith in the business value of aviation never flagged – or if it did, the doubt didn’t last long. Second, major portions of the industry fared relatively well and now are in full recovery. And third, Aboulafia is convinced that there’s a heap of pent-up demand for smaller business aircraft, and we’ll see that start to manifest itself soon. The wild cards are world political stability and U.S. economic policy.

If there are no additional major international crises in coming months, he expects things to start moving a lot faster yet this year or, at the latest, early next year. Wichita is ready.

© SpeedNews, 2013