For our small company, 2012 was a decent year. We saw solid growth in our product sales. We were careful with our expenses and stayed profitable. One thing I was encouraged about was that more of our customers are seriously looking at acquiring aircraft. Based on last year, and whatever stuck me, here is my 2013 Outlook.
Globally, the economic recovery is expected to continue, slowly. Corporate profits and the stock market are generally improving. Developing nations globally are expected to grow Gross Domestic Product (GDP) at 4% to 5% with China closer to 7%. So the global economy is expected to limp along with spots of higher growth. No inflation fears, yet.
One bright spot continues to be oil prices. Crude is back down around $100 a barrel with prices expected to stay stable into 2014. Look for fuel prices to be stable with one caveat.
Flying is still down. FBOs need to pay their bills and to offer those “free” services that we have come to expect. If five years ago that could be done at $0.30 per gallon added to the fuel price, with reduced fuel sales volume, today they might need $0.60n per gallon. So if you are seeing fuel prices increase, the cause is not the direct cost of the fuel, but the cost to provide all the other services that come with using the FBO.
Regarding aircraft sales, I sound like a broken record: it is a buyers’ market. Still. Here in the US, 2013 will have the 50% Bonus Depreciation available for new aircraft and capital upgrades. This will be a help for selling new aircraft to profitable companies who are in need some short-term tax write-offs.
These new aircraft sales will have an increasing adverse effect on used prices. None of the new aircraft manufacturers want to inventory used aircraft. So if they do take one in on a trade, they will be very anxious to resell it.
According to Vref, the jet market still has falling prices across most of the jet market. Even the large-cabin jets. Turboprop prices are flat. Piston pricing is still down with few bright spots. Buyers continue to be very price sensitive. As always, aircraft in excellent condition will still sell first. But most important is price.
If you are selling, don’t think prices will creep up anytime soon (soon as in the next two years). If your turbine aircraft is older than age 10 to 15 years, its value will not recover. Don’t plan on buying an older turbine aircraft thinking its retail value will improve enough to earn a profit. But if the older turbine aircraft meets your needs, then now is a good time to buy.
The helicopter industry is one that is, partly joking, dependent on disaster! High oil prices mean more oil and gas exploration. That isn’t likely this year. Who knows what the fire-fighting season will hold, but government agencies won’t be wanting to support big price increases unless justified. Health care: costs are too high and insurance companies are fighting every aspirin and hip replacement. Don’t expect a willingness for insurers to pay more for EMS services. I do not see a strong year for the commercial helicopter industry. There is hope as developing nations start to expand their infrastructure for helicopters but that is still years away. Still, from what I hear, the single-turbine sales market should be OK this year, provided the price is right.
I see weak growth in aviation for at least the next two years, but growth nonetheless. Now is the time to prepare for that growth, stay lean, and to invest in improvements in your business.
What about from where you sit? What do you see for 2013?