All posts tagged 'Economic'

General Aviation - Billings up in 2011 but delivers still slow to the punch

Written by Molly McMillin
The Wichita Eagle

A resurgence expected last year in the general aviation market didn’t happen, but an increase is expected for 2012.

“Unfortunately, you will see that a resurgence did not take place for the industry as a whole,” General Aviation Manufacturers Association chairwoman Caroline Daniels said Wednesday, speaking of 2011. “However, 2011 did furnish signs of a sustained recovery and some reason for optimism.”

The 2011 decline in general aviation aircraft delivered was in the single digits at 3.5 percent. That’s after three years of double-digit declines since record deliveries in 2007. Billings, however, were up slightly last year “This is an indication that the trough in the industry cycle has been established,” Daniels said during a webcast from Washington, D.C. Some manufacturers showed flat or improved performance last year over 2010.

Deliveries by Wichita’s general aviation manufacturers rose last year. Wichita planemakers delivered 45 percent of all general aviation aircraft last year. GAMA released year-end general aviation shipment and billing numbers Wednesday during a state-of-the-industry event in Washington. Shipments for 2011 totaled 1,865 planes, down 3.5 percent from 1,932 planes the year before. Billings totaled $19.1 billion, up from $19.0 billion in 2010. “We don’t think we can go anywhere but up,” said Pete Bunce, GAMA president and CEO. “But how great the slope is depends on economic conditions.”

Those conditions include uncertainty in the European and global economy, he said. The good news, however, is that a majority of the market fundamentals for the industry are moving in the right direction. Unemployment levels are declining, corporate profits are up, flight activity has improved and emerging markets are driving new sales, GAMA officials said.

Despite a return to strong corporate profits, “it seems though, that companies remain in a wait and see mode,” Daniels said. Eventually, the healthy profits will turn into business from pent-up demand, she said. The number of used aircraft for sale has declined slightly, but is still at historically high figures. The amount of used aircraft inventory affects the sale of new planes.

The impact of the economic recession has been felt most acutely in the lighter end of the business jet market, while larger jets have turned in a steady performance. Buyers of large jets rely less on third-party financing and emerging markets have favored the large-jet category, Daniels said.

Wichita general aviation deliveries, 2007-11

  2011* 2010 2009 2008 2007
Bombardier Learjet 43 28 46 74 80
Cessna 689 534 740 1,300 1,274
Hawker Beechcraft 113 214 273 435 430**
Total Wichita 845 776 1,059 1,809 1,784
Worldwide shipments 1,865 1,932 2,276 3,969 4,272
Worldwide billings $19.1B $19.0B $19.5B $24.8B $21.9B


*2011 figures do not include Hawker Beechcraft’s fourth-quarter deliveries or billings. All figures do not include shipments for military use. **Hawker Beechcraft 2007 figures include shipments from Hawker Beechcraft and its predecessor, Raytheon Aircraft. When 2010 fourth quarter Hawker Beechcraft numbers are eliminated, total 2011 billings were 0.4 percent higher than a year ago. GAMA will adjust figures after Hawker Beechcraft’s earnings results.

Hawker Beechcraft

For months, Bill Boisture, chairman of Hawker Beechcraft Corp., has described the market as “bumping along the bottom.” Last year, Boisture predicted that demand in 2011 would be much like 2010, and 2012 would be much like 2011. “I have to say, sadly we were right,” Boisture said this week about demand last year. “We’ve felt like and thought for many reasons that ’12 would be a lot like ’11. And I can’t see much reason yet why that would be different.”

He hears the discussion that the economy is improving. “I hope for the sake of the American people that that’s true,” Boisture said. “But I would say that I don’t think that has really filtered through into a significant change in the aircraft market in our sector.” People are beginning to be a little more optimistic – or maybe they’re more accepting that today’s economy is now the new normal and they have to grow their business, he said. And if buying an airplane is needed to grow it, they have to figure out how to do that in today’s circumstances, Boisture said. The company has figured out how to be better at aggressively selling airplanes in today’s market, he said. “Our team continues to improve and continues to have a tighter focus,” Boisture said. “I think we’re getting better at it.” The availability of financing remains a big issue, however, especially in the light jet through piston aircraft market segments, he said. “The amount of equity that a buyer has to come with to get aircraft financing for a new airplane is significantly higher,” Boisture said. Financing is less of an issue with higher-priced airplanes and almost nonexistent in the large jet category, he said, because most buyers don’t need financing. GAMA’s Daniels agrees. “Third-party financing has been difficult to secure since the downturn,” Daniels said. That has led buyers to cancel aircraft purchases. “Once financing flows more freely, the aircraft market will improve,” she said.

Cessna Aircraft

At Cessna Aircraft, the amount of interest and activity at the beginning of the year increased from the same time a year ago, Brad Thress, Cessna senior vice president of business jets, said recently. “It’s a great way to start the year because the last two (years) have started so slowly,” Thress said. The industry is no longer in a time of monstrous order backlogs, however. Instead, companies must sell airplanes this year to make production expectations. Cessna has aggressively increased its sales force to find customers. “We are in the hunt for every deal,” said company spokesman Dianne White.

Cessna is continuing to invest significantly in new products, Thress said. Last year, it introduced the Citation M2 and the Latitude. “But there’s more coming that we’ll be announcing in the coming years,” he said. “It’s good business long-term to invest a lot in new products so as we do emerge from the downturn, we’ll have a fresh (products) in an invigorated market.”

Working with the FAA

One of the biggest issues facing manufacturers, said GAMA’s Bunce, is the need to streamline the certification process.

The volume of certification activities from planemakers is on the rise, and there is pressure to keep up, said Walter Desrosier, GAMA vice president of engineering and maintenance. “We’re working with the FAA to move to a more systems-safety oversight,” Desrosier said. The way it does certification today is by reviewing and approving every drawing and every test. “They’re involved in the minute details of routine day-to-day activities that are the same,” he said. “It’s the same widget being designed for one airplane to the next airplane to the next airplane.” There’s interest and support for the FAA to focus on a systems safety oversight that would leverage limited resources to focus on “safety critical” areas, new technologies and new manufacturing methods, Desrosier said. To do that means the FAA would oversee a company’s program that has FAA-approved processes and procedures. “The FAA would oversee how they’re doing that and the FAA would be able to accept that,” Desrosier said.

Language in the FAA reauthorization bill signed by President Obama includes a commitment for the industry and the FAA to work together on ways to be more efficient, Bunce said. “We’re very encouraged,” Bunce said. “It has to get done. There is a gigantic bottleneck there. The amount of work is accelerating while budgets are diminishing.” Another issue is a transition from today’s aviation fuel to unleaded fuel for piston-powered airplanes. That’s “absolutely vital,” Bunce said. And last year, bonus depreciation allowed buyers of business aircraft to depreciate their planes 100 percent. That helped spur sales. Whether that will be extended is unclear, Bunce said.

The Economic Impact of a Lone Business Jet

For the purpose of this article, I shall use the ‘Gulfstream GIV’ as the example ‘Business Jet.’

The Gulfstream GIV is a member of a family of business jet aircraft that was first designed Grumman Aircraft Engineering Corporation (GAEC) on New York’s Long Island at Bethpage in the early 1960’s. Since this first aircraft (the G1159 – Gulfstream GII) first flew in 1966, almost 1,900 variations of this aircraft design have been produced. Of this continuing production run, 213 aircraft were built with the designation of Gulfstream GIV and 287 aircraft of GIVSP (500 in-total.)

A standard version of this aircraft normally seats 13 passengers (4-place club seating, a 4-Place conference/dining cluster, a 3-place side-facing couch, and a 2-place half-club which are all arranged in a ‘stand-up’ headroom cabin. There is a galley, and two enclosed lavatories/vanities at opposite ends of the cabin. It is flown by a 2 to 3 person crew, powered by two Rolls-Royce 611-8 Tay engines which will power the GIV up-to a service ceiling altitude of 45,000 feet and at a maximum cruising speed of 505 KTAS/581 MPH.

The economic figures quoted at the end of this article are my best-educated guess, so I ask for your forgiveness now before you start aiming your shot at me for being either low, or possibly even missing important data that increases my claims.


The raw materials


Working backwards in the way the Gulfstream IV is constructed: The Empty Weight of a GIV is circa 35,500 Lbs. With the interior and engines removed this drops down to about 15,000 Lbs. Remove the Landing Gear and this figure drops down to about 12,000 Lbs. With the avionics, electrical pumps, wiring looms, switches, relays, circuit breakers, windows and various plumbing components, you end up with a little-less than 6,000 Lbs of Aluminum. The list of materials that must be procured to construct and assemble a Gulfstream GIV includes, but is not limited to: Aluminum, Steel, Plastic, Rubber, Leather, Wool, Cotton, Silicon, Glass, Titanium, Nickel, Copper, Zinc, Gold, Paint, Solvent, Hydraulic Fluid, Oil, Grease, Paper, Chromium, Carbon, Nitrogen, Oxygen, Neon, Xenon, etc. All of these materials must be procured from somewhere. Fortunately all of these raw materials are native to the United States, thus for many present-day manufacturers, these items can be sourced at home, thus adding to the Economic Impact of a Business Jet to the bottom-line of this country’s Gross National Product.

The Build

Unfortunately I do not have any reliable statistics on the effort required to construct and build a Gulfstream GIV, however my best guess is that it would take at least 15,000 hours to build from start to finish, which equates to 375 single-man-weeks or 7.5 single-man-years, plus Engineering, Design, Inspection, completion, testing, etc. As an example, according to data supplied by the Boeing Company, a decade or so before, a Boeing 747 requires the support of 1,600 suppliers who ship component parts from 14 countries and 44 U.S. states. It takes 6,000,000 individual parts to complete a 747 which includes 3,000,000 fasteners which include 1,500,000 rivets; 2,403 pieces of tubing that if placed end-to-end would be 2.4 miles long; 145 miles of wire in 1,750 separate bundles. It takes between 18 to 24 months to build and an additional 40 weeks for final assembly, outfitting and testing before it can be delivered ready for the customer. Normally the Engines themselves constitute 20% of the raw cost of a pre-delivered aircraft regardless of the aircraft make and model being manufactured.

Remember that in addition to the raw materials mentioned new the beginning of this article, separate companies are called upon to sell and supply Rivets, sealers, glues, paints, screws, bolts, fasteners, tools, etc. along with Electricity, Water, all associated Taxes local, state, federal, etc. and the Economic Trickledown provided by a highly skilled and well-paid American workforce.

The Owner/Operator

To take full advantage of the capability of the Gulfstream GIV, the owner will need to employ at least 3 three pilots as well as a flight attendant and a mechanic. This is at least five high skilled and qualified employees who will be compensated well above the U.S. government’s idea of the standard minimum wage. The employer of these flight-department employees will be paying 60% more than their gross salaries combined in both benefits and taxes, while the employees themselves shall be paying at least 35% of their gross income in taxes.

Even though the Gulfstream GIV is designed to weather the elements well, without the need for a hangar, most owners choose to either rent or buy their own hangar building to house their aircraft. This facility then allows the flight department employees to have a permanent place to maintain an office and working space. Real-estate ownership or space rental all comes at a cost, which this too is added to the overall Economic Impact of a Business Jet. Expenditure does not stop there. The flight department and the aircraft have all to be insured against loss and liability. Fuel, Oil, Hydraulic Fluid, Cleaning Supplies, Outside Contracted Maintenance, and Service Contracts all must be ordered and kept on-hand to keep the aircraft flying.

A Gulfstream GIV, on average consumes about 500 U.S. Gallons of Jet Fuel an hour in-flight. That is $3,000 worth of Jet A at $6.00 per U.S. Gallon. $109.50 of which goes directly to the U.S. Government in Federal Excise Taxes in-place of a User Fee System.

Operating the Jet

Unless the Gulfstream and its owner only flies exclusively from his privately owned (by him) Airport, to another of his privately owned (by him) Airports, the Economic Impact of this Lone Business Jet continues to spread its fingers all-through-out this country, and also the World (well it does have at least a 4,200 NM/4,830 Mile range.) It will achieve this by arriving and departing from a selected Fixed Base Operation (FBO) at various airports. Catering will likely be requested and purchased, Hotels, Rental Cars, Weather Services, Flight Planning and General Handling will all be required during the operational life of this aircraft - the average age of a GIV is currently sitting at 22 years, so that is already a massive amount of Economic Impact Dollars that this aircraft model has generated over its service life!

Excluding Bank Financing and Loan Costs, on average a typical Gulfstream IV costs about $4,800 per-hour to operate with a typical annual budget required to fly 400 hours a year, or the equivalent of about 201,000 miles a year (about 8 times around the World) costing $2.5 Million U.S. Dollars a year.

So let’s add it all-up to see if we can come close to producing a near-accurate approximation of the Economic Impact of a Lone Business Jet.

First let us calculate the Trickle-Down Economics of the Build:

3,000 people involved in the build. Let me use $40,000 as the average annual salary, thus 3,000 x 40,000 = $120,000,000 per year. Let’s say that 50 people are dedicated to the construction of a single Gulfstream GIV (we are going back to 1980’s and 1990’s now.) Thus 50 x 40,000 = $2,000,000. Then we shall add 25 more people at supply companies, sub-assembly manufacturers, raw material producing companies, etc. who also can be counted as being dedicated to the construction of a single copy of a GIV. We shall say that they earn $30,000 annually, thus this group shall add an additional $750,000. Now let’s figure that it took two years to build a GIV therefore we do the following calculation:

($2,000,000 x 2) + ($750,000 x 2) = $5,500,000. Then we add an additional 60% to make a total of $8,800,000 as the total Economic Contribution made by the Laborers and companies who built an individual copy of a GIV (I would love to hear from someone who was in upper management and accounting at Gulfstream when the GIV was actually being built to see if my figures are even close.)

In 1990 the purchase-price of a new Gulfstream GIV averaged out to $24,000,000.

If you add $10,000,000 in engines, avionics, components, raw materials and the like, to the labor cost calculated above, you can see that the earned profit works out to amount that is about 40% of the final price of the finished aircraft, i.e. $17,000,000 Cost for roughly a $7,000,000 return. Hey, that’s the most American thing that can happen: ‘Spending Money to Make Money!’

 

Now we need to add 21 years of annual-operational expenditure that has been contributed to the economy by this lone 1990 year-model Gulfstream IV:

To adjust for rising and falling commodity prices, inflation, etc. I will average the annual expenditure out to $1,500,000.

The final number now shows itself:

(21 x $1,500,000) + $5,500 = $37,000,000 U.S.D.

Alternatively $37,000,000 divided by 21 = $1,760,000 approximately per annum.

The Economic Impact of a Lone Business Jet = $1,760,000 per annum.

In closing, I beseech you to remind everyone that you come into contact during your day, every day that:

The United States Invented the Airplane. Aviation was born in the U.S.A. in 1903. Aviation is a very American Industry. The United States has led the World as the foremost producer of Business, General Aviation, Airliner and Military Aircraft. The largest fleet of Business and General Aviation aircraft also exists in the United States. This country also still has the largest economy on this planet. Contrary to what many Socialist and Ignorant thinkers and orators might try and make the general public believe; it is fact number one that the liquid that flows through the economic veins of this country is Jet A1.


It is about time that all American Citizen’s learn about these facts so they can begin to take on as their own, the pride that this industry has always known but has never been recognized for, that: “The roots of the Global Aviation Industry is 100% All-American; and Aviation is absolutely Vital to the Economic Prosperity of all American Citizens.”

So why doesn’t the Government and Media know this, if they are as smart as they want us to believe they are?

We shall talk next month.

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