Oscar Garcia Business Aviation Status Analysis

The prestigious Gerson Lehrman Group intelligence network published Oscar Garcia’s commentary on the state of business aviation with a strong focus in the USA markets. The commentary is based on a recent business aviation industry review published by Aviation week and Space Technology journal . “Some of the analysis and commentaries apply well to global markets” Oscar Garcia comments “ regions where the lending practices required more down payments, 80% Loan to Value maximums, are suffering much less or even keeping a constant rate of business aircraft deliveries and resale values. In my opinion, this is an adjustment stage from what was an abnormal financing high risk stage between 2004-mid 2008” . As lending and borrowing practices normalize in USA and Europe, the most affected regions, the business jet market should grow at 2-3% starting mid 2010 to peak again in the 207-2019 timeframe, IFC consultants believe.

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The prestigious Gerson Lehrman Group intelligence network published Oscar Garcia’s commentary on the state of business aviation with a strong focus in the USA markets. The commentary is based on a recent business aviation industry review published by Aviation week and Space Technology journal . “Some of the analysis and commentaries apply well to global markets” Oscar Garcia comments “ regions where the lending practices required more down payments, 80% Loan to Value maximums, are suffering much less or even keeping a constant rate of business aircraft deliveries and resale values. In my opinion, this is an adjustment stage from what was an abnormal financing high risk stage between 2004-mid 2008” . As lending and borrowing practices normalize in USA and Europe, the most affected regions, the business jet market should grow at 2-3% starting mid 2010 to peak again in the 207-2019 timeframe, IFC consultants believe.

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http://www.glgroup.com/News/When-and-How-High-The-Rebound---Business-Aviation-Hidden-Ponies-39625.html 

Read the whole article and some press references to it below:

When and How High The Rebound? Business Aviation Hidden Ponies

May 25, 2009
Analysis by: GLG Expert Contributor, Oscar S. Garcia

• Analysis of: When Business Aviation Rebounds
• Published at: www.aviationweek.com

Implications

What is not said in this article is what it truly important: 1. Business Aviation grew strongly after 9/11 due mainly to safety, security and airline inefficiencies issues. Business aviation growth driver has always been efficiency and assets (planes) ROI, not corporate excess or luxury (private aviation) 2. Business aviation activities are closely aligned with GDP and productivity of the businesses, communities and countries it serves, not the other way around. Media hysteria is not fact! 3. The current adjustments in aircraft values and lending "rules of the game" simply respond to the over-leveraging-borrowing craze of 2004-2007. LTV's of 70-80% are now the norm as before 2004 4. This is the best opportunity in the history of business aviation to set the record straight. By the way, TARP clearly supports business aviation and even increased tax benefits to extend beyond the aircraft and to cover the additional equipment such as instruments and in flight communications

Analysis

Business aviation is alive and well. It is simply "corrected" to where it should be barring the 2004-2007 global financial leverage-lending madness. The recovery starts NOW, we just need to admit the collective bubble we all blew and move on. Let's set the record straight:

first, the media sensationalism related to the automobile CEO's and TARP has given the industry its best opportunity to educate both government and mainstream about how well business aviation has been optimized throughout the past 5 decades. In addition a few myths have been set straight about business vs. private/luxury aviation. By the way, TARP's detailed language not only welcomes business aviation to rescued companies but it expands depreciation tax incentives beyond the aircraft to include extra onboard equipment such as avionics and onboard communications.

With all due respect to experts and panelists, business aviation practices and procedures in US corporations, yes, even the automobile big three, have been run efficiently, audited often by shareholders and demonstrated to add tremendous value to the companies they serve.

No, the media hysteria of lately has not discovered a hidden excess about business aviation, they simply screamed, bluffed and unfortunately, three weak and weary CEO's kneeled down. The masses felt vindicated and the new President gained a few brownie points, that's it.

Second, make no mistake, there is plenty of capital to finance new and used aircraft, except that the lenders have sobered and now want 20-30% down payments as well as a robust credit file. Nothing wrong with that, this was the normal business practice before the irrational "leveraging" and real estate value fueled over borrowing-lending surges of late 2003-early 2004. By the way, foreign economies used to 70-80% LTV lending which did not embark in the USA's roller coaster debt ride, such as Latin America are growing their business aviation with a business as usual stance.

Thus, opportunities abound.

First pony. The bottom end of older , fully written off, fuel thirsty and maintenance intensive aircraft, those 25+ years old will certainly fall and these aircraft will be decommissioned. Thus, the not so large glut (about 5% more than the average) of used aircraft will quickly be absorbed at realistic prices, with 70-8-% LTV loans and the best finance rates in the last 25 years.

Second pony. After the industry stakeholders and its very capable associations (NBAA.AOPA, NARA, NATA, etc) educate the public on the merits of business aviation, there are going to be many, many new entrants. Companies with revenues of US$10 million an up who thought private aviation was beyond their reach will find out that new generation "right size-right price"very light jets and operators (charters, jet cards, fractionals) are ready to partner with them to enhance their business and economic impact to the community.

Third pony. The airline industry worldwide is not really pushing to be regulated, sorry Mr. Crandall, moreover, it is seriously looking at ways to introduce business jets into its premium passengers service offerings. The idea is to enhance the service levels and to complement the well optimized hub and spoke system. Delta Elite, Lufthansa/Swiss Private Jets, Korean airlines are pioneering this effort with compelling results thus far.

As a conclusion, look at Q3 2009 as the "adjustment" milestone for business aviation and rest assured that 2010 will see a 2-3% sector growth from the adjusted values. From there on, the growth should be 3-5% as long as all of us, collectively, don't blow another 3-4 year "free money"bubble. And the business aviation world who followed us into the bubble will also follow us into a solid decade of sober growth.

Even the Federal Aviation Administration forecast team, a pilar of no nonsense aviation business dry-matter of fact analysis agrees

www.faa.gov/data_research/aviation/aerospace_forecasts/2009-2025

Analyses are solely the work of the authors and have not been edited or endorsed by GLG.

Contributed by Oscar S. Garcia, a Member of the GLG Energy & Industrials Councils 

http://www.avweb.com/eletter/archives/bizav/1383-full.html#200447 

Bizjet Recovery On The Way

The Gerson Lehrmann Group has issued its take on the state of business aviation and it claims there are a few things working in the industry's favor. For one thing, airlines are going out of business or cutting back flights and destinations to avoid that, leaving business aviation as an increasingly attractive option for business owners and execs whose travel needs haven't disappeared in the current climate. "In the weeks and months after 9/11 when the airlines were in lockdown and security requirements made airline travel, if not impossible, extremely unpleasant, business aviation had its finest hour," the analysts said. "Every business jet on a charter certificate was booked." Gerson Lehrmann also says the current anti-business aviation attitude will disappear and be a non-issue in the decision-making processes of companies and individuals looking for new aircraft. It quotes the Teal Group as predicting recovery for the industry by 2012 with a 10-percent annual growth rate after that. A total of 12,768 business aircraft will be delivered in the next ten years, according to the Teal Group. But even the downturn hasn't been that bad, according to Gerson Lehrmann. "While the industry is working through this down cycle, business jets have not been grounded," the analysis reads. "Flight hours may be off 20%, but the fleet is still growing, and aging."