Friday, September 20, 2013

General aviation plane sales rebounding


DENVER (DENVER BUSINESS JOURNAL) - Between the Great Recession and some bad publicity, few companies suffered as much in the past five years as those that manufacture and sell small aircraft to businesses. 

The number of general aviation aircraft sold nationwide in 2012 was less than half that shipped in 2007, and their average price fell as much as 70 percent from the pre-recession peak. Many aircraft dealers have gone out of business, and some companies owning planes simply shut them down, unable to find buyers and unwilling to be criticized for using them.

But there's finally some good news, experts say, after corporate jet prices have dropped for 25 consecutive quarters: The number of transactions, especially for used planes, has risen slightly for two years now. Also, business aviation leaders have launched a campaign - so far successful - to ward off changes in federal law they say could stunt restarting a vital means of transportation for companies.

"I'm hopeful that we are in spitting distance of a recovery," said Jay Mesinger, founder of J. Mesinger Corporate Jet Sales Inc. of Boulder. "We're busier in our office today than we have been for years."

A corporate jet is a major investment, costing anywhere from a few million dollars for used aircraft to $60 million for high-end planes coming off factory lines.

Many larger companies, in particular, owned corporate jets not so long ago. There were 3,279 new planes made and shipped in 2007, according to the General Aviation Manufacturers Association (GAMA). And buyers in the mid-2000s would pay premiums of 10 to 20 percent above the price of the planes to ensure they could obtain high-demand aircraft, recalled Michael Amalfitano, an aircraft finance expert at Bank of America Merill Lynch and associate member of the National Business Aviation Association (NBAA) Advisory Council.

Then came the recession, which wiped out company finances. And then came Nov. 19, 2008, when the CEOs of the big three American automakers acknowledged they flew private aircraft to Washington, D.C., to plead for public bailout funds. That gave a bad reputation to using such private aircraft.

By 2010, just 1,334 new aircraft were shipped, sales of used planes froze and tax increases on corporate jets became very popular.

From that period emerged groups such as the Alliance for Aviation Across America, which sought to remind lawmakers and businesspeople of the benefits of corporate jets - faster travel to meet clients, chances to expand sales and opportunities to connect to an increasingly international customer base.

NBAA and GAMA teamed on a publicity campaign in 2009 dubbed "No Plane No Gain." So far this year, that campaign has helped to keep air towers open through the first round of sequestration, and spurred the U.S. House to pass a bill designed to streamline regulation of small aircraft, Ed Bolen, NBAA president and CEO, said during a July forum his organization held at Centennial Airport.

Despite the improving image and policy gains, restarting aircraft sales has been slow in Colorado, where general aviation supports 22,650 jobs with a payroll of almost $750 million a year. And that, Mesinger explained, is mostly because few lenders are willing to give money to businesses to buy planes - the first time that element is missing from an economic recovery.

Lenders lost hundreds of millions of dollars on airplane loans during the recession, as a number of loans went into default and other lessors turned planes back in at prices that forced lenders to take a loss, Amalfitano said at the NBAA forum. So in this recovery cycle, 75 percent of plane buyers are paying cash and the remaining 25 percent are leasing the aircraft rather than buying them, he said.

Mesinger compares the post-recession years to a junior-high dance, where buyers and sellers stood on opposite sides of the room, both too scared to make offers because they had no idea what to ask for and feared rejection.

He projected that prices on planes will continue to decline for the next 12 to 18 months as demand slowly catches up to the market's oversupply. But with attitudes changing about the need for corporate planes and companies once again willing to take a chance on investing in growing their businesses, the scared kids at opposite ends of the room are starting to move toward each other, he said.

"Today, it's not over. But the fact that people fly aircraft to do business, to get ahead of their competitors, to get out of their rural communities, again - they're doing it because they have more confidence in the economy, more confidence in where the economy is going," Mesinger said. "It wasn't until the end of 2010, beginning of 2011, that everyone got enough confidence to try to dance again."

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