Can General Aviation Keep Growing in a Recession?
Just about everyone involved in manufacturing airframes, avionics or pilot supplies has been enjoying significant growth through 2006 and 2007, and from Cessna to Cirrus to Mooney, order books are jammed and deposit checks are in the bank.
But as our economy slows in 2008 into what an increasing number of analysts are calling a full-blown recession, the resilience of every aviation business will be tested. Pressures on the market from artificially high fuel prices mixed with the busting real estate market and anemic dollar overseas will try and challenge both aircraft owners and future buyers to re-evaluate the value of private aircraft ownership. The outcome of that challenge may surprise analysts not familiar with this sector.
Let's take a look at what aviation business can expect in 2008:
New aircraft manufacturers: The last couple of years have been very good for anyone who builds and sells new piston or turbine-powered aircraft, and throughout 2008, expect that trend will continue. Why? Because of the high acquisition costs of any new aircraft, the baseline for personal wealth to afford new birds remains high. In the piston market where you can easily drop half a million dollars on a beautiful new Cirrus, even the entry level models are pushing $200,000. The majority of new four passenger and up aircraft require a buyer with a substantial amount of disposable income.
In the turbine sector, the good times of recent years will show no signs of letting up, due in part to the reason listed above, times ten. While most of the newest"personal jets" are still on the drawing boards of Piper and Cirrus, the makers of "very light jets" and the larger cabin business-class jets cannot build them fast enough. Even if the U.S. economy tanks, serious buyers that can afford even the cheapest twin jet will need such an enormous amount of cash on hand that a they will be part of a "recession proof" pool of customers that will just keep growing. And forget about a recession slowing the assembly lines down where they build the $10 million and up ships...those buyers might never even KNOW there is a recession. All they want is to lunch in NYC and party in Cabo, in the same day.
Avionics: Two factors drive the avionics markets, OEM installations in new aircraft (see above) and retrofits into the existing fleet of pistons and turbines. Makers like Avidyne and Garmin will still feed the "all glass" movement in new planes, while their innovation will continue to bring glass to just about any make or model. I believe a day is coming very soon when a guy like me that owns a 1964 Piper Cherokee 235 will be able to completely rip out his steam gauge panel and drop in a full glass replacement at a cost south of $40,000. Would that be viable for my $70,000 plane, no, but for a guy with a $150,000 Baron or Cessna 210, these future panel swaps start to make great financial sense.
A recession might slow the sale of $15,000 Garmin aftermarket boxes to guys like me, however. I am a prime example of an aircraft owner with enough cash to operate my trusty vintage plane, but not enough spare change to upgrade my panel. In a recession, pilots like me - the vast majority of owners - will hold off on that new Garmin stack, and milk a high-time engine for another year to see if the Democrats can deliver a solution to this mess in 2009.
FBOs and Airport Services: There will not be any less planes flying in a recession, except at the flight schools where middle income people will have trouble coughing up the $7,000 or more it now costs to get your private ticket. Light Sport student starts will grow in 2008, but in a recession, that growth will be slowed.
But the guys with the big fast birds will still be up flying in a tanked economy, and business aircraft will continue to beat down the airlines on convenience. Fixed Based Operators that do maintenance might see a slip in revenue as low-end owners avoid repairs until annual, and recreational aircraft rental operations certainly will see less weekend flyers chasing that $100 hamburger when a recession pushes the cost of your favorite slab o'beef to $156.73.
Charter and Air Taxi: You would think that the high cost of private aircraft charter would push business flyers in a recession back to the airlines, but you would be wrong. That's because as I type this, the game is changing big time in the charter market, with more and more affordable options for business and pleasure flights on your schedule.
Yesterday, charter was for the jet set, those Hollywood types who flew around in Gulfstreams and paid $7,500 an hour to do so. But today, smaller operators such as Stratus Alliance Air Charter Network are arranging private air charter flights aboard shiny new Cirrus SR22 aircraft for as little as $395 to $495...for the whole plane! With fares this low, much smaller corporate clients can now send middle managers out to compete via chartered aircraft, and families can travel with kids or Fido with much less hassle then the airlines.
In a recession, rich people will be fine, and low income people will suffer most, this we know. While flying in your own airplane or booking a private charter or air taxi ride can be done with great value today, it in no way can be called cheap. Flying via any other method then the airlines is expensive, but thankfully the majority of these general aviation customers will weather the 2008 recession without flinching.