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Analyst: Product development cuts in downturn hurt Wichita aviation industry

  • The Wichita Eagle
  • Published Tuesday, May 14, 2013, at 7:07 p.m.

The biggest concern for Wichita’s general aviation industry isn’t the market or jobs, said Teal Group aviation analyst Richard Aboulafia.

It’s manufacturers’ decision to cut engineering and product development capabilities through the downturn, Aboulafia told nearly 200 people gathered at the Wichita Aero Club luncheon on Tuesday.

There’s been some deterioration there, he said. And that can impair the capability to rebound in a still-sluggish market.

“That’s what makes an aerospace cluster — the ability to create a new design,” he said.

Wichita competitor Embraer, for example, has an array of new products.

“They got it right,” Aboulafia said after his speech, although Embraer also got hit by the downturn.

Another way forward for Wichita is to focus on a global business development plan.

Companies must look to the rest of the world for sales.

Wichita can’t be complacent, Aboulafia said. Local and state government officials must take a key role.

They should show up at air shows, such as the Paris Air Show, and talk to companies about putting work in Wichita.

It must compete for work, not only among U.S. cities and states, but globally.

Just as the industry will be increasingly dependent on emerging markets overseas for sales, it also will be enticed to locate plants and jobs in those markets.

Local and state officials should be asking companies what they need for infrastructure, training and education, Aboulafia said after the speech.

The epicenter of all the pain in the aviation industry during the downturn was in Wichita, Aboulafia said. And what the city experienced was the near destruction of the lower half of the business jet market.

That segment got crushed, he said.

The business jet market overall fell 29 percent in the downturn.

But the light and midsized segment of the market, where Wichita manufacturers compete, fell nearly 60 percent.

“The bottom half of the market is Wichita,” Aboulafia said. “Wichita is the bottom half of the market.”

The upper half of the market fared better.

It’s too early to say whether the top half and the bottom half of the business jet market will recover at the same pace.

For Wichita’s sake, “what we would like to see … is a faster recovery,” Aboulafia said.

The recovery is taking longer than anyone expected. Still, when it does occur, the momentum could happen quickly, he said.

It’s not clear whether an upturn will occur this year or next. But it does seem that demand is shifting to larger aircraft.

“When does it trickle down to small and medium-cabin business jets?” Aboulafia said. “I do not know. I hope it’s soon.”

Although there are signs of improvement – corporate profits are strong – companies haven’t been in a hurry to spend their cash.

He said the uneasy and uneven economic recovery seems to be as much emotional as financial.

Still, there is pent-up demand for business jets, and eventually, a “re-equipment cycle” will kick in, Aboulafia said.

For the jetliner part of the industry, where Spirit AeroSystems is involved, the picture is good, he said.

Fuel prices are high and the cost of capital is low. Growth in jetliner demand has been brisk.

Bombardier Learjet

Bombardier Learjet has a reasonably healthy parent company willing to invest in new products, Aboulafia said after the meeting.

That is working in its favor. The company is working on the Learjet 70 and 75 in Wichita.

And although it’s had some problems with Learjet 85 composites, the company is working through them.

Cessna Aircraft

Cessna has a weaker parent company, Textron, one less willing to invest in new products, Aboulafia said.

Its biggest issue is the loss of knowledge, Aboulafia said. The company has gotten rid of some key people, he said.

“That’s eating your seed corn,” he said.

Its recent offer of voluntary retirement for those 55 and older is a problem, he said.

“Experience really matters,” Aboulafia said.

Beechcraft

Beechcraft, which emerged from Chapter 11 bankruptcy in February, gave up its jet line in the restructuring.

For the company, “there’s not a lot of margin for error,” Aboulafia said.

Its key product is its King Air.

“There’s still a nice market for the King Air,” he said.

Reach Molly McMillin at 316-269-6708 or mmcmillin@wichitaeagle.com.

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