And Sees A Big Market For Little Jets In 2005

From Conklin & DeDecker...

VLJ's are still hot. Eclipse flew their certification flight test aircraft at the end of 2004. Right on schedule. Their website has a timeline which gets updated. Anyone interested can see what progress is being made. Certification is still expected early in 2006.

Cessna is making progress on the Mustang. Its PW615F engines are undergoing testing. Cessna has its hands full with this aircraft, plus updated CJ1+ and CJ2+ models.

Adam has slipped in their certification estimate for the A700. Adam expects to certify their A500 twin piston first and then apply much of that data to the A700. They are negotiating with the FAA on how much common data there will be. So, it looks like 2006 at the earliest.

It looks like no manufacturer will make it first to market much sooner than the others. Cessna and Eclipse both appear to have the funding, and thus the best shot at making their current targets. Adam appears to be doing adequate with funding, but isn't flush with cash. If the FAA makes the A700 do a lot more testing than anticipated by Adam, the schedule could slip some more. The rest of the proposed VLJ aircraft have not shown any remarkable progress.

The two-seat ATG Javelin as a VLJ, isn't so much of a VLJ as it is a sport jet. The VLJ race still looks like a three-horse race. Depending on their success, there are other candidates further away in terms of financing. Buyers of these aircraft must realize that until certification and delivery, any and all of these aircraft are subject to significant change, or even cancellation. Cessna and Eclipse appear to have the lowest risk of failure.

Bonus Depreciation

If your company ordered a new aircraft by December 31, 2004 and will take delivery this year, you could qualify for the bonus depreciation. That is if your company actually needs this depreciation. Regardless, any aircraft in business use has the potential for some sort of depreciation. And new or used, no aircraft can be depreciated more than 100%. While I'm sure the bonus depreciation encouraged some buyers to buy new rather than used, or to buy sooner rather than wait, I doubt the effect on new aircraft orders this year will be significant. Now if Congress brings back an Investment Tax Credit for aircraft, then you will see sales take off!

Aircraft Selling Prices

Pre-owned aircraft sales are steadily improving. For more and more models, it is not a buyer's market anymore.

Currently, 13% of the turbine fixed wing business aircraft fleet is available for sale. That still indicates a softness in the market. However, if you separate current production models from out-of-production models, the numbers tell another story. Only 6% of the active current production fleet is for sale. For the out-of-production models, the number climbs to 17%. So, if you are hunting for a bargain, you are not likely to find it in a late model production aircraft.

But, if you are looking at out-of-production aircraft and find one that is in excellent condition, with RVSM, you may be able to negotiate on the selling price. After all, there are likely to be many alternatives - even if they require RVSM and other updates. The market for these older aircraft favors the buyer.

Non-RVSM aircraft that are for sale may just end up sitting for a while longer, waiting either for their upgrade or sale to a non-RVSM nation. But for late model aircraft, sales should see a steady improvement.

With the market for late model aircraft tight, this favors the seller, and the new aircraft manufacturers. That doesn't mean that a fair price can't be negotiated, but that the selling price offer from last year that you didn't accept won't be lower this time around.

Helicopter Market Picking Up

As tough as it was for the fixed-wing market, the rotor-wing market was worse off. Today, it can be described as cautious optimism. Industry consolidation is underway. Sikorsky now makes piston helicopters (they purchased Schweizer). Bell teamed with Agusta-Westland (themselves a combination of manufacturers) to face off against Sikorsky for the US President's new helicopter. Sales are up. If gas prices continue to increase, oil explorations (and its need for helicopter support) will pick up. We'll have a better feel for the state of the rotor-wing industry after next months Heli-Expo in Anaheim, California.

Things To Watch In 2005

Cost pressures are there already. Fuel prices may continue to be volatile. As the aviation industry picks up speed, employment will increase and with it, pressure to increase salaries.

Avionics updates aren't done. While RVSM was the big issue for a lot of aircraft, TAWS (terrain warning systems) and Mode - S transponders (in Europe) may still present issues. When evaluating older aircraft, check and see if these are required, and if so, if they completed.

User fees and airport access. There are more and more pressures for user fees to be imposed. Similarly, some local airports are trying to restrict general aviation access, or impose prohibitive fees. Groups like NBAA, HAI, AOPA and more know this is a hot topic. If you aren't a member of the appropriate group, join!

FMI: www.conklindd.com