With equity markets whipsawing, sovereign debt issues and overall economic uncertainty, some in the general aviation sector wonder if it’s a precursor to another 2008-like industry free-fall. “Not so,” asserts industry analyst Brian Foley. “I wasn’t shy in publicly proclaiming the sky was falling back then, and I’m now categorically insisting that same scenario just isn’t plausible today.” Here’s why.
Foley points out that today’s aircraft order books are of an entirely different customer makeup than before. Gone are the speculators and those that qualified for aircraft financing simply because they were “breathing.” Today’s order books are of a much higher caliber, made up of those with the financial wherewithal to buy their own aircraft or by borrowers who have been heavily scrutinized by lenders and made meaningful down-payments.
The possibility of large scale fleet cancellations is also greatly diminished in the present environment. In the previous downturn, widespread fractional and start-up air taxi order cancellations exacerbated an already dire situation. Industry fleet backlogs today are much smaller and made up of mainstream clients. Delivery dates are typically well into the future – presumably after these choppy seas have passed.
Foley concedes the recent market volatility may result in a short period of slower sales for some manufacturers, but net orders (sales less cancellations) will remain positive. There’s also the likelihood of temporarily lower aircraft utilization which negatively affects service providers such as those in the maintenance, fuel, charter and fractional business. But these aviation companies have already adapted to the slower environment and are in a better position than they were before to deal with the occasional pullback. Those who were unable have largely disappeared.
Private aircraft consumers who scale back or delay based on current market volatility are only adding to a growing pent-up demand, which will provide even more momentum to the inevitable upswing. “For the time being, volatility is the new norm. But those companies left in general aviation are the leaner, tougher survivors. Bring it on.”
About Brian Foley Associates (BRiFO)
Brian Foley Associates are recognized thought leaders and management advisors to the general aviation industry. Primary practice areas include industry analysis and forecasting, market research, strategic planning, new product evaluation and transaction support. The firm was formed in 2006 by industry veteran Brian Foley, a former executive at a major business jet manufacturer for over 20 years. Mr. Foley is also a licensed securities representative of John W. Loofbourrow Associates, Inc., Member FINRA, SIPC, MSRB, who helps find buyers and growth capital for general aviation companies. For more information visit www.BRiFO.com, www.LoofInc.com, or follow @BrianFoleyAssoc on Twitter.