September 15, 2008
Convenience, Markets, Advances Lead to General Aviation Backlog
By Hengel, Mark
AIRRESOURCE GROUP OF Little Rock is in the right business at the right time.
General aviation manufacturers are facing a massive backlog of orders, totaling $58 billion industry-wide, according to a General Aviation Manufacturers Association spokeswoman.
And Carl Finch and Cheri McKelvey, AirResource's co-founders, are taking advantage of the increased demand and short supply.
The two act as brokers for private and business airplanes, while also assisting owners with staffing and management. They have also found an interesting new business niche: Helping people cut in the long line of buyers waiting for new aircraft.
"Say someone has an airplane to deliver in October" but decides not to purchase the plane, Finch said. "We can sell [the place in line] to someone who wants it."
The backlog has formed thanks to a number of converging phenomena. Many companies now have company-owned aircraft that allow top executives to better use their time; businesses have developed that allow companies to purchase a plane in what amounts to a timeshare agreement; and the market for jets and airplanes is growing in markets outside of the United States and Europe.
Two of the the major general aviation manufacturers have completion facilities at the Little Rock National Airport. Hawker Beechcroft Corp. and Dassault Falcon Jet Corp. recently expanded their Arkansas operations to keep up with demand. The two are both facing backlogs worth billions of dollars. Dassault's general aviation backlog totals more than $15 billion, according to company documents. Hawker's backlog totaled $7.4 billion as of June 29, according to filings with the Securities & Exchange Commission.
Despite AirResource's location in Little Rock, the company has developed a clientele that reflects the worldwide demand in business aviation, McKelvey, the company's vice president, said.
"As far as sales, we do business worldwide," McKelvey said. "As far as management, it's typically local."
Advances in small and mid-size airplanes have resulted in increased demand, she said. Plus, the ability to bypass commercial airlines is leading many businesses to invest in aircraft.
"A lot of the airplanes the manufacturers are building now are upgraded," she said. "And with the airline industry being what it is, it is more advantageous for a company to own its own aircraft."
It's Good Business
John Nance, aviation analyst for draw the wrong conclusion about why personal jets have experienced a boom in recent years.
"Many people believe private jets are the provenance of Oprah, movie stars and the rich," Nance said. "Business aviation and jets are for working executives and senior executives who can't waste time in an airport."
Flying commercially can often take two to three times longer than the time required for private jet travel, said Nance, who has logged more than 13,000 hours of flight time.
"When you consider that you are paying executives $150,000, $200,000 or $500,000, you don't want their time to he wasted," he said.
For companies with their own flight departments, the benefit can be seen quickly as the businesses' executives are efficiently shuttled from place to place. Nance cited a recent seminar he gave in Bakersfield, Calif., that 10 executives from Houston planned to attend.
Had the executives flown commercially, each would have lost between eight and 10 hours each way because of time required for check-in and changing planes and the lack of a direct flight between Bakersfield and Houston, Nance said. With a private jet, the 10 flew directly to Bakersfield in about three hours and held meetings on the jet, which was outfitted with communications equipment that allowed for contact with their office. Nance said the increased initial cost was worth it for the company, because the executives continued to work productively on the plane and were well rested on arrival.
New Markets, Models
The General Aviation Manufacturers Association, a trade group for the general aviation industry, predicts that South America and Asia in particular will become a large factor in general aviation.
The association forecasts that the regions will become a larger portion of the industry's market. A five-year forecast shows that while Asia and Australia accounted for only 4 percent of 2007 business jet deliveries, the regions will reach 15 percent in five years. South America's percentage of total business jet deliveries will jump from 8 percent in 2007 to 10 percent in five years. Conversely, the association projects that North America and Europe will account for smaller percentages of the overall business jet market. Projections show Europe's share shrinking from 25 percent in 2007 to 22 percent in five years, and North America's share of total deliveries will drop from 58 percent in 2007 to 50 percent in 2012.
Dan Hubbard, spokesman for the National Business Aviation Association, agreed that foreign buyers are helping to fuel the increase in airplane sales.
"It's the economies overseas that are filling that international growth in the market," he said.
The manufacturing of business planes should not he used as a proxy for determining the strength of the business aviation market in the United States, though, he said. Hubbard cited Federal Aviation Administration statistics to show that the general aviation and business aviation sectors have slightly declined during the past years in terms of hours of flight time. In 1995, business aviation logged about 3.3 million flight hours. In 2006, the number of business aviation hours totaled about 3.1 million. Similarly, total general aviation hours remained fairly constant during the same period, with planes logging about 25.1 million flight hours in 1995 and 24 million in 2006.
Dan Holbert, chairman of Central Flying Services of Little Rock, said while the business aviation sector is going well, fewer pilots are flying, which means fewer planes come due for scheduled maintenance. Central Flying is a fixed base operator based at Adams Field in Little Rock.
"Maintenance is predicated on the number of hours flown, and if they are not flying the number of hours, the maintenance doesn't come through," he said.
Central Flying recently cut five jobs, reducing its workforce to 197, Holbert said.
Also driving the demand for private jets and airplanes are companies that allow other companies to purchase shares of a jet in what is known as fractional ownership - a fancy term for a timeshare agreement. Companies' such as NetJets, which Berkshire Hathaway owns, and Flexjet, owned by Bombardier, a Canadian conglomerate that builds aircraft and trains, now offer fractional ownership to companies that wish to fly privately.
While Flexjet supplies its fleet with Bombardier planes such as the Learjet, NetJets has substantial purchases with both Hawker and Dassault. In May of this year, NetJets Europe ordered 20 jets from Dassault, worth about $720 million. And in May of last year, NetJets Europe bought 32 Hawker 4000 models for more than $700 million.
Feeling It Downstream
Luke Ribich is a managing partner at ASIC LLC of Maumelle, which provides engineering expertise to companies in the aerospace industry and also manufactures selected products.
The company moved to Maumelle in 2006 from its previous headquarters in Dallas at Dallas Love Field. ASIG, which stands for Avionics & Systems Integration Group, moved to Maumelle to capitalize on the boom Hawker and Dassault are experiencing, Ribich said. The contract work has not occurred at the rate ASI; had hoped, Ribich said, but things are expected to pick up.
"We are confident that it is really a matter of when these options will be exercised for greater capacity, not if," he said.
The company has felt the increase in private jets in other ways, Rihich said. The company's engineers act as FAA designees and inspect components to determine their airworthiness; the company's engineers can help aircraft manufacturers add capacity by working on a contract basis; and the company's engineers can provide services that help the owners of aircraft maintain their jets, he said.
Ron Mathieu, executive director of the Little Rock National Airport, said that despite the rise in business jets and personal aviation, he does not expect business travelers to move completely away from commercial airlines.
For multiple stops in one day, an executive taking a personal jet best serves a company, Mathieu said. However, when an executive is holding several meetings in one area over a series of days, a commercial flight makes the best sense.
"When there is a premium, there is no question [a private jet] is the best method," he said. "When not, commercial is most efficient."
Copyright Arkansas Business Aug 25, 2008
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