NetJets layoffs suggest general aviation industry faces continued headwinds
Sep 15th 2009 10:00AM
Updated Dec 4th 2009 3:25PM
The general aviation industry, which is made up of private and corporate jet manufacturers, is in an awful fix. The latest? Plane-leasing outfit NetJets just announced it is laying off 5 percent of its staff, or 350 employees, due to "severe economic conditions facing the aviation industry," according to a Bloomberg report.
The Columbus, Ohio-based company, owned by Warren Buffett's Berkshire Hathaway, had previously furloughed pilots and taken a $192-million second-quarter charge related to "downsizing costs," Bloomberg says. That comes on top of news that total general aviation shipments nosedived nearly 46 percent in the first half of 2009 to 1,039 planes, from 1,918 planes in the same period a year ago, according to the General Aviation Manufacturers Association. Meantime, first-half billings swooned nearly 22 percent to $9.3 billion from $11.99 billion during the same period last year, the trade group says.
The industry is beginning to see a renewed interest in sales, says spokeswoman Katie Pribyl. "But by no means do we have anyone saying 'we have hit the bottom' or 'we're out of the woods,'" Pribyl says.
There's good reason for caution. With capital markets in tatters, even the super wealthy are having second thoughts about their jet purchases, when prices for jets like Dassault Falcon's 7X long-range 12-seater can reach $50 million. Corporate customers are cutting back on private jets, too, after Big Three auto execs came to Washington, D.C. seeking bailout money last year in their glitzy birds, creating a PR disaster. In short, private jets have gotten a bad rap of late. The auto exec incident "definitely had an effect on sales," says Pribyl, "but it is one of those things that is very hard to quantify."
Critics of corporate jets say the scrutiny of the aircraft is well deserved. Sarah Anderson, a fellow at the Institute for Policy Studies think tank in Washington, D.C. told the Daily Herald in Chicago that "it's become a symbol of extreme excess." Anderson is the co-author of a 2008 report called "High Flyers: How Private Jet Travel Is Straining the System, Warming the Planet and Costing You Money."
But Pribyl counters that the general aviation industry is a positive addition to the economy, providing some 1.2 million jobs. She explains that it is also one of the few industries that contributes to a positive balance of trade, meaning it's one of the few areas of the economy where we export more goods than we import. The notion that corporate jets represent "extreme excess" is baloney, she argues. "You can't get to two or three business meetings in a day using commercial airlines," says Pribyl. "For many businesses, it is the most efficient and economical way to travel."
Of course, the job for U.S.-based Cessna, Canada's Bombardier, which makes Learjets in Wichita, Kansas, and France's Dassault Falcon will be to persuade corporations that their planes make good business sense. European plane manufacturer Airbus says it expects private jet sales to bounce back in 2010, thanks to growing demand from China, according to a report in Private Jet Daily. Airbus foresees interest especially among Chinese businessmen in the oil trading industry, construction, and chemical sectors, the news source says.
As for the business jet market, Bombardier sees it more than doubling to $256 billion, or 11,500 planes delivered between 2009 to 2018, from $122 billion, or 6,500 planes delivered between 1999 and 2008. Part of that will come from economic and market recoveries in the next few years, Bombardier predicts. But the company also says that "Bombardier believes that unwarranted negative perceptions regarding business jets (in certain regions) will no longer be an issue once the market fully re-assesses the positive benefits offered by business aviation." Sounds like the general aviation industry's PR campaign is ready for takeoff.