Analyst Brian Foley: 'Mercy Sales' Have Run Their Course

It’s been tough going for the general aviation industry, with worldwide business jet deliveries plunging to half their 2008 peak. “It could have been worse if it weren't for a few pockets of strength in some developing parts of the world”, notes industry analyst and advisor Brian Foley. “But by now those 'mercy sales' have largely run their course, so the industry must once again rely on its traditional primary market, the United States, as the mainstay of its recovery. Fortunately for both jet makers and their supply chains, that seems to be exactly what's happening -- right on cue."

Industry observers will remember that much of the initial business jet delivery falloff was attributed to the abrupt and nearly complete cessation of sales in economically battered North America (representing some 50% of worldwide sales) and Europe (representing 25%). "So the two largest markets became partners in pain, shadows of their former selves for almost four years now as buyers postpone purchases amidst economic uncertainty.”  

Foley notes that other markets, most notably China, provided some relief during this difficult period. "The country was flush with cash and desirous of the industry’s biggest, most expensive offerings. It was a conveniently timed mini-rescue, a nice shot in the arm at a critical moment, but now it's starting to slow down. Chinese GDP is almost halved from 2010 and its stock market is at its lowest in three and a half years. Jet manufacturers have now shifted from sales mode to order preservation." Latin America and the Middle East also helped take up the slack for North America and Europe, but not in sufficient volume. Accordingly, some jet makers have had to reduce their workforces; in the worst case, by roughly half.

Foley says in his analysis, it looks like the greater North American market seems neatly poised to save the day. As evidence, AMSTAT reports North American new business jet deliveries in the first half of 2012 rose 20% over the same period last year. An even bigger surprise is the apparent resurgence of sales in economically-torn Western Europe which surged 34% in the same time frame, albeit from a smaller unit base. Some of this upsurge, Foley says, comes from pent-up demand that’s been building since 2008. "It's finally starting to manifest itself as real buyer action as confidence improves, just in time to reinforce the recovery and keep it from faltering.”

(Pictured: Gulfstream G280)

FMI: www.brifo.com