Uncertain government legislation, foreign investment support, sputtering domestic business activity, and elite class resentment…the U.S. economy? Perhaps. But these attributes definitely characterize the private aviation industry, as evidenced in events and stories from just this past month.
Firstly, Congress passed a record 20th FAA reauthorization bill extension, further delaying regulatory certainty about airspace fees, fuel taxes, aircraft navigation technology direction (NEXTGen), and flight plan privacy (BARR). These are just a few of the provisions contained in the proposed bill that will greatly affect both the general and commercial aviation industries. And just this week, President Obama called into question general aviation’s tax depreciation schedules.
On the foreign investment front, Cirrus finalized its merger plans with China Aviation Industry General Aircraft (CAIGA). Without this foreign investment, it’s unlikely Cirrus, maker of the most popular single engine piston aircraft in the world, would have continued to invest in its Vision Jet program. Similarly, Diamond Aircraft received an injection from an unnamed investor (my bet is it’s a foreign entity) to continue their D-JET program, a single turbine personal jet development project.
As for domestic business aviation activity, the picture remains quite muddled with JPMorgan saying that a “decisive recovery remains elusive”. Business aviation flight activity from May further illustrates this uncertainty as overall flights were up 2.7% over one year ago while Part 135 (traditional charter) fell almost 6%. Business jet flight activity is still 10% off the 2008 peak and is showing gradual signs of improvement.
Meanwhile, resentment of the corporate & individual elite was further exacerbated by several articles in the Wall Street Journal this month. The WSJ found through its analysis of recently released business jet activity that public corporations made, on average, 30% of their private jet flights to or from resort destinations. The wealthy’s immunity to such economic cycles (see large cabin flight activity from May’s ARGUS report…up 10+%) and the growing disparity between socio-economic classes is further contributing to this angst. Case in point: while vacation travelers are revolting against further commercial fare increases, predicted to hit $430 on average for round-trip domestic ticket, there was a story of a wealthy businessman who enthusiastically plunked down $1 million to enjoy 100 hours of flights, primarily to get to his favorite vacation spots.
Luckily, resentment hasn’t spilled over against business aviation providers like it has in the commercial space (for a chuckle, watch Conan O’Brien mock interview with a Delta Airlines executive)…yet.
The good news is that there continues to be evidence of innovation within the bizav space. Some with near-term relevancy, like JetSuite’s opening a new office complex and Sikorsky’s public support of Eclipse’s growth plans. Some with future ramifications like the solar plane, Impulse, that made a demonstration flight at this month’s Paris Air Show. However, there appears to be no game-changing technologies that will solve the industry’s macro economic challenges anytime soon.
(Excerpted from the June, 2011, Igojet e-newsletter. To receive future e-newsletters directly to your Inbox, please click here and sign up)