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.”
Ziegler says opportunity remains in the U.S. market, particularly for his company on the West Coast, an obvious hole in its network. “We think there’s still opportunities in the U.S. for FBO acquisitions and for aircraft management,” he says. He cites Salt Lake City, where the company remains on track to build a Midcoast maintenance/repair/overhaul facility.
Regarding FBO values and the acquisition arena, robust in recent times, officials speculate that new opportunities could arise, while others may reconsider their strategies and exit the aviation service sector.
“This is not a good time to sell,” comments Van Allen at Signature. “Is there a potential for a fire sale? I think there could be, especially if FBOs have over-extended themselves or if there are too many competitors on the field — some airports have irresponsibly allowed that to happen on their airfield. “
Van Allen also says this is a time when industry will discover whether or not the high multiples paid in some recent FBO acquisitions were justified. “There’s a great deal of speculation on values,” he says.
Adds Ziegler, “The situation may rationalize some of that.” He says that should some fixed base operators choose to sell, his company is in a good position because it still is interested in growth through acquisition. “We see it as an opportunity for us,” he says. “General Dynamics doesn’t want to slow our growth.”
Emphasis on safety
At the show, NBAA’s Bolen opened the event with a statement emphasizing internationalism within the business aviation community. “Yesterday I listened to a press conference of one of the major manufacturers who said two years ago, 70 percent of their orders were from the United States; this year, that number is reversed, 30 percent of their orders came from the U.S., 70 percent were international,” says Bolen.
In order to reflect the growing internationalism of business aviation, NBAA chose the president of the International Civil Aviation Organization (ICAO), Roberto Kobeh Gonzalez, as the event’s keynote speaker.
“It’s a great pleasure for me...,” said Kobeh, “to take part in the world’s largest and most important annual gathering of the business aviation community.”
“With over 25,000 turbine aircraft operated by over 17,000 companies in an expanding market, [NBAA members] represent a significant proportion of aircraft movements and activities worldwide,” relates Kobeh.
Kobeh focused on the industry’s most challenging issues including: safety, security, congestion management, and environmental responsibility. Safety, he stresses, is priority one for ICAO. While favoring technical and operational improvements, Kobeh says industry can move in a more holistic manner, taking into account economic, social, and geopolitical realities.
GASP, ICAO’s Global Aviation Safety Plan, is a performance-based approach which focuses on resources and activities that provide the highest return for increasing safety. Kobeh relates that GASP is the organization’s overall strategy for improving aviation safety.
“GASP reflects a remarkable level of cooperation with all major stakeholders, by incorporating in the document the Global Aviation Safety Roadmap, developed by the air transport industry in cooperation with ICAO,” says Kobeh.
Kobeh also commends the leadership position taken by the business aviation community in the development and implementation of Safety Management Systems (SMS).
“SMS represents the best way of responding to the need for results-based supervision of personnel and functions with a relatively small workforce,” says Kobeh.
In the security sector, business aviation has been active in the ICAO Aviation Security Panel, says Kobeh. “It is by working together that we will find ways and means of providing secure air transport in an intelligent and practical way,” Kobeh says.
Regarding airspace and airport congestion that can lead to access restrictions for business aviation, Kobeh says that one way to address the issue is through the development and implementation of an interoperable and seamless global air traffic management system. “A system that applies to all users, during all phases of flight, and that meets agreed levels of safety, provides for optimum economic operations, is environmentally sustainable, and meets national security requirements,” he says.
Kobeh notes that progress is being made under ICAO’s Operational Concept, Global Air Navigation Plan, and framework for a performance-based transition. ICAO recently held a forum on the integration and harmonization of the U.S. NextGen and the European SESAR projects into the global air traffic management framework.
On the issue of climate change, Kobeh reminds that global aviation is estimated to account for just 2 percent of human-produced CO2. The problem, Kobeh says, is growth.
“In spite of the current drop in traffic due to rising fuel prices, mid- to long-term projections are for an increase in traffic, which would outpace our capacity for bringing down emissions,” says Kobeh. The solution lies in the development of a combination of technical, operational, and market-based measures, under the leadership of ICAO.”
New Construction briefs
• APPH Houston, Inc. begins construction of a new 62,000-square foot facility at its Houston parts supply, repair, and overhaul location. The facility is scheduled to be completed in March 2009 and houses a sheetmetal shop, accessory and pneumatic shop, and parts inventory.
• RW Martin Inc. announces completion of a new 20,000-square foot hangar addition to its aircraft modification facility in Murrieta, CA. The hangar has 2,000 square feet of office space and a 24x110-foot hangar door suited for mid-sized jets and turboprop aircraft. The facility will enhance capabilities for supporting special missions market and DHC-6 Twin Otter customers.
• Midcoast Aviation opens a 146,000-square foot narrow-body hangar at St. Louis Downtown Airport. Completed in just 14 months at an investment of $18.5 million, the company expects the new facility to accommodate the growing narrow-body business aircraft market and Midcoast’s robust completions schedule.
As part of the expansion, Midcoast plans to add at least 200 new employees within the first two years of operation. The hangar features two 48,000-square foot bays connected by a 36,000-square foot three-story central core while also offering 14,000 square feet of shop space. Midcoast now controls nearly 650,000 square feet of hangar space at the St. Louis Downtown location.
OEM news ...
cessna aircraft — which logged a record 770 bizjet orders in 2007 and unveiled its largest aircraft, the Columbus, in January, announced it is preparing to begin deliveries of its new Citation XLS+ after receiving FAA certification in May. The OEM has more than 225 orders for the new Citation.
• Cessna debuted the first production Citation CJ4 business jet fitted with a production interior at Orlando, and announced upgrades to its line of CJ1+, CJ2+, and CJ3+ models.
• The Citation Mustang, Cessna’s entry into the very light jet market, is now at full production levels. The company projects it will deliver some 150 Mustangs per year, starting in 2009.
• A new Cessna Service Center at Mesa, AZ is on track to open in January, and its Greensboro, NC Service Center has added more than 69,000 square feet of ramp space.
dassault falcon — based in France announces the company had 87 orders in the first half of 2008, a number that’s second only to its record set in 2007. The fuel-efficient, now winglet-equipped, Dassault 900 LX, 40 percent lighter with a 200nm range, is expected to be certified by mid-2010. The Falcon 2000 LX, also now winglet-equipped, has gained 5 percent in range and has undergone high stress wing certification. Priced at some $29.7 million, the 2000 LX is expected to be ready for initial deliveries in 2010.
• Dassault announces upgrades for the Falcon avionics system EASy (enhanced avionics system) flight deck. EASy Phase II includes synthetic vision system (SVS) technology, a system which displays a three-dimensional synthesized representation of the flying environment on both pilots’ flight displays. Certification of SVS for the 900 series jet is expected by the end of the year, and by mid-2010 for the 2000 and 7X series.
• Dassault has completed its first factory-owned service center at Reno-Tahoe International Airport. The nearly 40,000-square foot facility will open in early 2009. The company also announces the development of a new service center network in South Africa.
gulfstream aerospace — based in Savannah, GA unveils its new super-midsize G250. Priced around $24 million, the G250 has increased interior length, in-flight baggage access, and 19 large windows. Best-in-class fuel efficiency provides for lower operating costs and lower CO2 emissions. The G250’s expected entry into service is set for 2011.
• Gulfstream’s largest jet, the ultra-long range G650, has had excellent market response, says the company. The G650’s expected entry into service is set for 2012 with a price in the upper $50 million range. The jet offers more cabin space, larger windows, a top speed of Mach 0.925, and a maximum range of 7000nm.
embraer — the Brazilian-based manufacturer of commercial and corporate jets, projects the sale of 7,220 jets for delivery to the U.S. during the next ten years. Embraer’s investment in the bizjet sector has been substantial, approaching $1.5 billion to date.The company has invested $235 million alone in the development of its very light Phenom 100 and 300 aircraft; $750 million on its midlight Legacy 450 and 500 development; and $100 million on customer support facilities worldwide.
Despite Embraer’s business jet fleet of some 160 aircraft, the company has five business jets currently under development, including its Phenom 100 VLJ. The Phenom 100 is priced at $2.98 million and is nearing final certification. Embraer expects to deliver up to 15 of the new VLJs this year. The Phenom 300, 800 of which have been sold in 44 countries, is equipped with synthetic vision functionality and is priced between $6.65 and $6.85 million.
• Embraer recently opened its third executive jet center, located at Ft. Lauderdale-Hollywood International Airport, following openings at Bradley International Airport, in Windsor Locks, CT, and Phoenix-Mesa Gateway Airport.
hawker beechcraft — launches its newest light bizjet, the Hawker 450 XP, which features 10 percent better fuel economy and the Rockwell Collins Pro Line 21 avionics package. The 450 XP is expected to take its first flight in mid-2009, with FAA certification targeted for one year later.
• The company also introduces a new Beechcraft King Air 350i, with lower operating costs and better fuel economy. It will be the first turboprop aircraft to utilize the Rockwell Collins Venue cabin management system. Certification of the 350i is slated for late 2009.
Industry briefings ...
accord technology — develops the NexNav Max GPS, aimed at providing an enhanced solution for applications needing global positioning system WAAS Class Beta-3 capability, such as L/APV precision approaches.
airbp — unveils its Compass Transaction Processing System, designed to provide its dealers a more streamlined and efficient credit card transaction and bill processing capability.
chevron global aviation — launches a new rewards program, FlyBuys (www.FlyBuysRewardsProgram.com), for both business and general aviation pilots, allowing aircraft operators to accumulate reward points at Chevron and Texaco FBOs.
dallas airmotive — a BBA Aviation engine repair and overhaul company, is relocating its Regional Turbine Center in Phoenix from Scottsdale to Deer Valley Airport.
horizon business concepts — of Broken Arrow, OK introduces its newest accounting and aviation management software, TotalFBO V6, which features improved work flow in shop orders, new handling of open inventory, additional processor capabilities in credit cards, improved charter quotes with easier airport searching and faster quote generation, and new PCI security certification. Horizon also unveils its new TotalFBOweb, the company’s web hosting service for general aviation businesses that use TotalFBO.
microturbo — of the SAFRAN Group announces that development is on schedule for its e-APU program which began in 2006. The first test run is planned for December Final certification of the complete e-APU is not expected for three years.
pentastar aviation — unveils the first industry Articulating Yoke Mount, designed to increase safety and convenience for aircrews and aircraft operators. The patent-pending yoke mount can be installed in a wide range of aircraft and is designed to provide safe operation during extreme maneuvering. Pentastar has EFB supplemental type certificates for a variety of Gulfstream, Dassault Falcon, LearJet, and Westwind Astra business aircraft.
syn-tech’s fuel master plus — is a fuel management system which collects data for any fueling operation and gives instant readouts to hand-held PDAs. Data can be imported into FBO software for data management and accounting.
qt technologies — launches Multi-Display, a high visibility fueling display designed to meet states’ requirements for more information when fueling. The display was designed to meet the emerging requirement for the person fueling an airplane to be able to see the total amount, the dollar value, and the price of the fuel from a distance.
phillips 66 aviation — announces its new WingPoints rewards program, which is targeted at pilots, schedulers and dispatchers, and aircraft owners.
• The company also teams up with Multi Service to offer the Phillips 66 Aviation Corporate Card, a credit card that will be accepted at some 7,500 locations in 190 countries.
sterling aviation — of Milwaukee, WI will soon offer the Aircraft Ownership Budget Analyzer, an intuitive interactive business tool that allows customers to quickly analyze and assess the annual cost of aircraft ownership. The budget analyzer is expected to launch in mid-December, with a subscription cost around $400 annually.