General aviation plane makers posted a record $ 18.2 billion in billings through the first nine months of the year, driven primarily by a 30 percent jump in business jet shipments. But the strong industry performance was quieted as turbulent markets have chipped away at backlogs in recent months, forcing more manufacturers to scale back production plans and lay off workers. Aerospace analysts also predicted that the worst is yet to come.
The General Aviation Manufacturers Association reported that GA manufacturers delivered 2,977 aircraft in the first three quarters, valued at .2 billion. The shipments overall were up 2 percent, compared with the 2,918 units shipped in the first nine months of 2007. But billings were up 20 percent from the $ 15.1 billion billed in the same period in 2007 and nearly matched billings for all of 2006.
Business jets led the improvements, increasing from 761 delivered in the first nine months of 2007 to 990 shipped through Sept. 30 of 2008. Turboprops deliveries improved by almost 14 percent, from the 300 shipped in the first three quarters of 2007 to 341 in 2008. But the piston market, which is the first to feel the impact of an uncertain economy, began to show signs of weakness. Piston makers shipped 1,646 aircraft in the first nine months of 2008, down more than 11 percent from the 1,857 delivered in the same period in 2007.
GAMA President and CEO Pete Bunce acknowledged that the results did not reflect the impact that the market has had on the industry in recent weeks.
"Notwithstanding these positive third-quarter numbers for turbine-powered aircraft deliveries, our industry is experience difficulties due to the weakness of the global economy," Bunce said. "Reacting to the lead and lag nature of this economic slowdown, several companies have announced layoffs and are working very aggressively to retain orders and encourage new ones." He added that the industry is feeling the impact of the economy even though the price of fuel has declined from the "debilitating high levels we saw this past summer."
The announcement of the numbers came amid growing reports of widespread industry layoffs. The newest announcements included Cessna and Rockwell Collins last week, and reports surfaced that Eclipse missed its November payroll.
Cessna this month scaled back plans to increase production of Citation jets in 2009 (BA, Nov. 10/218), and last week told workers both in Wichita and Bend, Ore., where the Cessna 350 and 400 (former Columbia models) are produced, of planned layoffs. Cessna is expected to lay off 665 employees, less than 5 percent of the company´s 16,000 workers. But 165 of those workers will be cut from the Bend factory, which only employs 450. The remaining 500 positions will be eliminated in Wichita. The cuts will come across the board in preparation for the revised production schedule, a spokeswoman said. Cessna crosstown rival Hawker Beechcraft already had announced plans to reduce its work force 5 percent and cut production (BA, Nov. 10/216).
Very Light Jet and piston manufacturers, however, appear especially vulnerable to the turbulence. Eclipse Aviation, which has been struggling to stay afloat for months despite cash infusions from its new Russian owners, missed its biweekly payroll Nov. 13. The manufacturer has fallen behind payments to several vendors and rumors of bankruptcy filings persist. Eclispe Friday confirmed that it could not meet its payroll obligations, but said payment would resume Nov. 18. The manufacturer also stated that no layoffs were involved, but employees were "given the choice to continue working or go home." The company expects to have its workforce in place beginning today (Nov. 17).
Other VLJ developers, including AAI Acquisition and Grob Aerospace, also laid off most of their workers late last month (BA, Nov. 3/205 and 207). Mooney halted all aircraft production and terminated about two-thirds of its work force, and Cirrus and Piper both reduced their workweeks (BA, Nov. 10/215 and 217).
The slowdown also is expanding to major suppliers, with Rockwell Collins announcing last week that it would trim about 300 employees from its work force, primarily in Operations, and reduce about 100 contract labor positions, primarily in engineering roles. Rockwell Collins said this represents about 1.5 percent of its work force. Honeywell Aerospace, meanwhile, reportedly made plans to shift 700 jobs from Phoenix, Ariz. to Mexico and the Czech Republic.
Analyst J.P. Morgan believes the outlook for business jets continues to deteriorate. "The rotten economy drove the largest increase of aircraft inventories seen in years in October, which has brought aircraft available for sale to an unprecedented level." The outlook has worsened all year, J.P. Morgan stated, but the increase in inventories "accelerated significantly" in the past month. "Utilization levels continue to decline, and while some manufacturers are now starting to report weaker orders, the bulk of the order decline is still in front of us."
All categories of used inventory increased, J.P. Morgan said, noting that 20 of 23 models the analyst tracked had higher inventory. The number of used business jets for sale increased by 135. "Although we expected a surge in inventory levels this month, the magnitude of the increase surpassed our expectations," J.P. Morgan said.
Asking prices on average are still slowly growing, but J.P. Morgan said the pricing is "showing the typical lag between a crumbling market and adjusted seller expectations."
Aviation consultancy Brian Foley Associates also last week warned of shrinking business aviation backlogs and agreed that the industry faces a rocky future in the months ahead. Foley acknowledged that the OEMs did not experience a spike in order cancellations immediately, but said that is because orders typically space out progress payments over time.
"The OEMs won´t see the order cancellations until these payments come due and a customer is unable to pay," said Brian Foley, head of the consultancy. "As a result, cancellations don´t come all at once but rather over time as progress payments come due. We won´t know the full extent of the order fallout for another year." Foley, however, predicted that double-digit percentage order cancellations "will be the norm."