Business jet market slowly gaining, says exec

02/24/2012 12:00 AM

02/24/2012 9:46 AM

After three years of a frozen business jet market, the pipes may be slowly beginning to thaw, according to a Cessna Aircraft executive.

The momentum of activity that began late last year has, so far, carried into 2012, said Brad Thress, Cessna senior vice president for jets.

“It’s not coming all at once, though,” he said of inquiries and activity. “It’s like the pipe is slowly thawing out, and instead of a drip by drip, there seems to be a constant dribble. It’s not by any means a fury or a torrent.”

But it does seem to be more substantial interest and at a higher level, Thress said.

“That gives us hope that if we start at a higher level already, we can continue to build that through the year,” Thress said.

Customers are still reluctant to sign on the bottom line, however, because of uncertain political policies and the global economic condition, he said.

“There’s a lot of folks sitting on the sidelines,” he said.

Forecasters expect 2011 to have been the trough in the business jet market, followed by a slow recovery. But no one expects the level of orders during the go-go years before the recession to return any time soon.

And the days of monstrous order backlogs are over. Instead, planemakers must make spot sales through the year to fill 2012 production expectations.

In the general aviation industry, the bottom half of the business jet market was hit hardest during the recession. That’s where Cessna, Hawker Beechcraft and Bombardier’s Learjet plant focus.

About 90 percent of the world’s business jets in the bottom half of the market are built in Wichita. From 2008 through 2011, deliveries at Wichita’s three planemakers fell 60.4 percent by value, according to information from the Teal Group.

The upper end of the business jet market fared better in the downturn. Cowen & Co. analyst Cai von Rumohr says it’s difficult to say when the low end of the market will turnaround. It remains a “tenuous or brittle” situation, von Rumohr said.

Corporate profits – long a sign of new business jet activity – are up 40 percent from their bottom, von Rumohr said. They turned up two years ago. Typically, there’s a two-year lag between the return of corporate profits and jet orders.

Plus there’s pent-up demand for business aircraft, especially in the U.S.

At the same time, world economic events could interfere with the recovery.

The book-to-bill ratio – how many orders are taken for every delivery – is below one, he said. So new orders aren’t replacing the delivery backlog.

Hawker Beechcraft will have a harder time, he said, because people worry about the company’s financial health. Earlier this month, the company hired a restructuring and turnaround specialist, Steve Miller, as its CEO, with the mission of fixing its financial picture.

Thress, the Cessna executive, said it’s a good sign that used aircraft inventory for sale continues to decline. The number and price of used planes on the market affect the sale of new ones.

In late 2008 and in 2009, the percentage of used Cessna planes climbed to 18 percent, compared to a historic average of 13 percent. Last year, the number of planes for sale dropped to an average of 13 percent and is approaching 12 percent, Thress said.

“That really helps us,” Thress said.

Last year, shipments of piston, turboprop and business aircraft fell from 2010 deliveries. Planemakers worldwide delivered 860 pistons last year, compared to 889 the year before. They also delivered 324 turboprops and 681 business jets, compared to 362 and 763 planes respectively.

The figures don’t include fourth-quarter Hawker Beechcraft deliveries because the company isn’t releasing its fourth-quarter and year-end 2011 results until sometime in March.

Deliveries in the first nine months of 2011, however, were down from the same time a year ago. Hawker Beechcraft delivered 113 planes in the first three quarters of 2011, compared to 126 for the same time in 2010.

Cessna Aircraft and Bombardier’s Learjet deliveries rose last year, however.

Cessna delivered 689 aircraft in 2011 with billings of $1.76 billion, compared to 534 aircraft and $1.54 billion in billings the year before.

And Bombardier delivered 43 Learjets last year, compared to 28 the year before.

It’s still a tough market, said Miller, Hawker Beechcraft’s new CEO.

“The great recovery we’re all hoping for hasn’t quite happened,” Miller said. “I think it’s still problematic for the whole industry.”

Still, the industry is hoping for better times.

“People are still flying aircraft,” Miller said.

“Somewhere down the line, we will see a better aircraft market.”

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