Private jet recovery from recession an uneven ride
By STEPHEN SINGER
The associated Press | July 21,2014
Workers assemble a PW500 engine destined for a Cesna Citation at the Pratt & Whitney plant in Longueuil, Quebec, Canada. Sale of private jets, like the Citation, are rising again in 2014 after the deep recession when the company plane was an easy target for spending cuts.
HARTFORD, Conn. — Private jet sales are rising again, climbing out of a deep recession when the company plane was an easy target for spending cuts.
The chief executive of General Dynamics Corp., maker of Gulfstream jets, says corporate customers are back and wealth creation is bringing out shoppers for private jets. The president of jet engine maker Pratt & Whitney says deliveries for private planes are growing after hitting bottom in 2011.
The improving market has not been universal. Signs of strength have been in large-cabin planes, while sales of small and mid-sized planes stall.
Credit markets also have not fully recovered, making it harder to finance some private-plane purchases.
Richard Aboulafia, an aerospace consultant, compared the industry’s uneven improvement with the bumpy economic recovery.
“In its own very high-end way, it mirrors what’s going on,” he said. “It’s the haves and the have-nots, but it’s all haves.”
General Dynamics CEO Phebe Novakovic told investor analysts in May that corporate customers have returned and “the world has experienced enormous wealth creation,” with the rich shopping for planes.
Pratt & Whitney Canada, a business jet engine manufacturer that laid off more than 400 workers in 2009 and 2010 — about 4.5 percent of its workforce — has a “very solid pipeline of products,” President Paul Adams told reporters in May. The subsidiary of Hartford-based United Technologies Corp. has “steady growth in product deliveries,” he said.
Improvements in the top part of the business — jets costing $26 million or more — have driven the market’s recovery, he said. Total business jet deliveries were valued at $20.9 billion in 2013, compared with a peak of $24.7 billion in 2008, Aboulafia said. The industry hit bottom at $18 billion in deliveries in 2012, he said.
Shipments of business jets peaked at 1,313 in 2008 and tumbled to 672 in 2012, a 48 percent drop, according to the General Aviation Manufacturers Association. The number rose in 2013 by a tiny 0.9 percent, but it was the first time in five years that shipments had increased from one year to the next.
The business jet became a symbol of corporate excess when Detroit auto executives flew to Washington seeking bailout money. And Citigroup, which downplayed the risks of subprime mortgages, was pressured by the White House to cancel the planned delivery of a jet.
Aboulafia said in a report in April that even in the recession, sales rose 0.3 percent for the top half of the private jet market. The bottom half, which accounts for jets costing $4 million to $26 million, fell nearly 56 percent, “one of the worst market cataclysms to ever impact any mature industry segment,” he said.
The poor performance of small and mid-sized business jet purchases are partly due to tight credit, while larger jet purchases are more likely to be self-financed, he said.
Edward Jones analyst Christian Mayes also cited as a reason a glut of smaller planes that were manufactured.
Industry details drawing distinctions between business purchases and those by the rich are not available. However, one reason financing is not as big of a challenge for large jets is that “some big celebrities still buy multimillion-dollar jets no matter what because they want to get from point A to B as fast as possible,” Mayes said.
Steve Varsano, founder of The Jet Business, a London-based seller of private planes, credited a boost in international business travel.
Business planes also are increasingly used by mid-level managers, not just chief executives, he said. As airport security requirements snarl air travel, businesses save money by cutting travel time with private jets available on demand, he said.
“It’s a time machine,” Varsano said. “You’re running a multibillion-dollar company, and time is money.”