Planes aren't selling

Posted by John McHale

The commercial and general aviation markets and in turn the avionics industry have been hit hard by the recession, with no upswing expected in the short term. Major airlines are laying off thousands and holding off on airplane purchases.
The commercial and general aviation markets and in turn the avionics industry have been hit hard by the recession, with no upswing expected in the short term. Major airlines are laying off thousands and holding off on airplane purchases.

Business and general aviation customers are also keeping their checkbooks closed, especially those who typically by luxury jets -- large companies taking bailout money from the U.S. government. As a result aircraft manufacturers are not buying new avionics displays and avionics computers for new aircraft cockpits.

As one supplier said to me this summer if it wasn't for his military business he would have to shut his doors. Yet, even the military is cutting back on aviation evidenced by the impending cancellation of the F-22 Raptor Jet Fighter.

According to market analysts at the General Aviation Manufacturers Association (GAMA) in Washington, worldwide shipments of general aviation aircraft were cut nearly in half over the first half of 2009, compared with the same period last year.

Officials at Bombardier say business aviation faces challenges such as "high pre-owned inventories, negative public perceptions, and a difficult economic climate." However, in the long term they predict strong growth with revenues of approximately $256 billion U.S. over the next ten years for the industry, according to their "Bombardier Business Aircraft Market Forecast."

While looking at the websites for Boeing and Airbus, I found that many of their purchase announcements typically numbered less than 50 airplane orders at a time, where in good times they have been in the hundreds.

Will it get worse before gets better?

Perhaps not. At the Paris Air Show earlier this month Airbus officials told me that they think the market has hit bottom, but that it is unknown when it will come back if it will come back slowly or dramatically.

Boeing officials in their latest quarterly earnings announcement stated that Boeing Commercial Airplanes (BCA) second-quarter revenues decreased 2 percent to $8.4 billion on slightly lower airplane deliveries and lower volume in services while "operating earnings increased 5 percent and margins rose to 9.7 percent due to lower research and development expense partially offset by the lower services volume."

This is a good sign for Boeing and also a result of the company making major workforce cuts earlier in the year to offset the poor economy. Company officials also see India as a strong growth market -- the country's economy has averaged 7 percent annual growth over the past 10 years.