Signs of growth lift the mood in business aviation

16.6.2010 (FT)

By Rohit Jaggi       (Special Reports)

Welcome to High Flying: The FT Guide to Corporate Aviation. This new section
of aims to provide a dynamic barometer to a sector that has been described
as a bellwether for the health of the whole economy.

And there are tentative signs that business aviation has started on a flight
path to recovery, after the severe turbulence of the past months.

At the European Business Aviation Convention and Exhibition (Ebace) show in Geneva
in early 2008, the mood of the sector was unabashedly upbeat, with aircraft orders, utilisation and expectations of continued growth all rising.

But the financial storm that broke fully just a few months later could not be
out-run. While the effects have been severe, though, they have not been uniform
across the industry.   Indeed they have wrought a significant and lasting split
that has never before been seen in business aviation.

Yet, at the same show in Geneva in May this year, industry figures were more
optimistic than they had been for a long time.

"Ebace was busy and buzzy," says Geoff Wood-Hill, aerospace and defence team
director at consultancy Ernst and Young. "The mood is definitely better than it

The figures back that up. A report from Eurocontrol, the air-traffic coordinating
body for Europe, in May pointed to a rise in aircraft movements at the start of
this year, after steep falls in 2009.   Business aviation traffic was up 11% in March compared with the same month last
year. That compares with a fall of 14% in 2009 as a whole from the year before.

The US is also reporting a rise in hours flown by business aircraft. "Flight
hours are coming back pretty well," says Richard Aboulafia, vice-president for
analysis at the Teal Group consultancy. "Utilisation is still below the peak of
December 2007-January 2008. But at one point it was 30 per cent off."

Mr Aboulafia points to increasingly strong evidence of a new split in the sector.

"When the bottom half of the market collapsed, the top half stayed nearly intact,"
he says. "Now we’re hearing that the top sector is, if anything, growing. Dassault
actually grew production in 2009.

"The bottom half is still very depressed. But at least you can say it’s no longer
a collapse."

Aircraft maker Cessna, a division of US conglomerate Textron that sells more
business jets than any other single manufacturer, is an example of the pain that
the sector suffered. It cut its workforce by half as new orders plummeted and
existing orders were cancelled. It was also forced to shelve plans for the Columbus,
a long-range, large cabin jet that would have given it an additional model at
the top end to help stop customers moving up and beyond its product range.

But now Jack Pelton, Cessna president and chief executive, sees a sign of improvement
in the market. "After the severe market contraction of the past two years, we
are beginning to see customer interest picking up again," he says. "The problems
still facing many economies mean the recovery will be slow and fragile, and we
only expect that process to really begin in 2011. However, potential customers
are back talking to us, which gives us grounds for cautious optimism."

Bright spot

Growing markets in Asia that have not been so badly affected by the economic
downturn have also helped reinforce another trend.

Robert Wells, chief executive of global private aviation management and charter
company TAG Aviation, started in the industry "four economic cycles ago".

Then, he says, North America took 85 per cent of business jets manufactured.
Now, the rest of the world accounts for more than half – and rising.

According to Mr Pelton, "Asia has remained a bright spot throughout the crisis,
and we are finding pockets of interest in Europe, the Americas and Middle East,
although a clear pattern has yet to emerge.

"Longer term, however, we believe that the fundamentals are right for a sustained
growth in sales and we have upped our product development spend to prepare for
that demand when it comes."

Cessna has achieved high sales with its four-passenger Citation Mustang, which
fits into the entry-level or very-light-jet category.

But that sector of the market is one that is unlikely to fulfil some of the more
extravagant claims made at the height of the bull market.

Teal Group’s Mr Aboulafia was consistent in his warnings. "I always thought very
light jets [were] oversold. I said the market was good for a couple of hundred
a year, but no more."

The idea of very cheap, very light jets also fuelled the hopes of a legion of
would-be air taxi operators, many of which have either gone under or never actually
got off the ground.

"I was fairly pessimistic about air taxis," says Mr Aboulafia. "But I missed
– I aimed too high."

However, Mr Wood-Hill says that in spite of some high-profile failures in the
US, the focus is on the other side of the Atlantic. Many still hope air taxis
will prove to be successful in Europe.

Air-taxi operators are responsible for many of the large numbers of entry-level
jets on order. But partly as a result, he says, the market for entry-level jets
is "the most fragile of all".

Going supersonic

The Aerion project to build a supersonic business jet is another example of how
the market froth has been blown away. Orders for the $80m ( £54m, €65m) aircraft
are still there, but the management team is also still looking for a manufacturer.

At this rate the original supersonic jet, Concorde, may take to the air again
first – courtesy of French plans to make an example capable of at least high-speed
ground runs.

Eurocontrol sees business aviation growth slower than in the peak 2004-07 period
but still more rapid than for aviation as a whole. It predicts that the market
share of business aviation in Europe will recover from 6.9 per cent in 2009 to
pass 8 per cent around 2015.

Whatever happens, this is a time of great change in the business aviation sector.
This microsite, along with the rest of the FT’s extensive coverage, will keep
you up to date with any new developments.