ORLANDO — Ten years ago, Warren Buffett’s Birkshire Hathaway acquired fractional ownership provider NetJets, a move which at the time was viewed by many as the coming of age for business aviation. Since then the industry sector has boomed, with its rapid growth reflected in a flurry of new aircraft and new purchase orders each year at the Annual Meeting & Convention of the National Business Aviation Association. This year, the exhibitors and delegates were in full force at NBAA, but the air of exhuberance was missing, replaced by uncertainty and caution. For the aviation services sector, which has ridden the bizav wave, a common topic of discussion was the impact the recent downturn will have on the fixed base operator community. Comments one senior level official at a major FBO chain, “The FBO industry is correcting itself. It will be a buyer’s market for the next couple of years.”
According to NBAA, some 30,811 people took part in this year’s show in Orlando. NBAA president and CEO Ed Bolen called it “a solid turnout.” Some 1,183 exhibiting companies were on hand, along with a record 138 aircraft at the Static Display held at nearby Orlando Executive Airport.
Missing this year were the large number of new aircraft introductions and associated record orders that have come to be expected at NBAA. Also absent were the large number of FBO acquisitions that have occurred during recent shows.
“Business aviation has been impacted by adverse economic trends like every other industry,” explains Bolen. Yet compared to the airline sector and other segments of the economy, business aviation to date has fared the financial storm of 2008 fairly well, say most observers.
Much of the industry is maintaining a wait and see approach to the marketplace. Aircraft manufacturers continue to have large backlogs on their order books, driven by international buyers.
The FBO sector, which today is dominated by non-traditional ownership driven by new financial players, remains more uncertain. Some questions out there: Will the new FBO players remain committed to the sector, or will they move onto other investment strategies? Will the financial resources of the new players serve as a more solid foundation for the FBO sector in the future? Will the consolidation among FBOs over the last decade continue?
The business aviation slowdown is also having an impact on airports, particularly non-commercial facilities that have made infrastructure improvements and marketing pushes oriented at corporate aircraft.
Uncertain times for FBOs
Fixed base operators across the U.S. have seen a downturn in activity since the first of the year — on average some 15 percent, say many officials contacted at the show.
Bruce Van Allen, CEO of Signature Flight Support, which is owned by U.K.-based BBA, agrees on the 15 percent number, but says Signature bases have seen single-digit drops in 2008, which he attributes to being in more dynamic locations.
“I suspect this is another cycle,” says Van Allen. “though it’s more acute. “This year, things have gotten worse as the year has gone on, and if it continues downward in 2009 it could be troublesome. And 2010 is anybody’s guess.”
Van Allen relates that his FBO chain began to see signs of a weakening in the U.S. marketplace in 2007. Offshore, he says that the slowdown has lagged that of the U.S., with Signature’s European bases only seeing a slowdown in mid-2008. He says markets in China and the Middle East have remained relatively strong through September.
At Jet Aviation, CEO Jim Ziegler relates that while his company is cautious about the next 12 to 24 months, he is “very, very optimistic about the business over the next eight to ten years.”
Jet Aviation and its sister company Midcoast Aviation were acquired earlier this year by General Dynamics, which also owns Gulfstream Aerospace. Ziegler says that the GD acquisition should be complete by year end. When asked if the acquisition could significantly change the companies’ course, he comments, “What they were interested in was our vision. We had a very good financial partner before; General Dynamics will continue that. They’re in this for the long term.”