The Future of the Flight Department

At its heart, a corporate flight department consists of a group of qualified professionals and associated manuals and management procedures that exist to support the safe, efficient and legal operation of business aircraft. Beyond the duties associated with transporting company personnel, the flight department’s roles can include aircraft scheduling, crew management, maintenance and repair, and flight planning, or these tasks can be farmed out to third parties. In its simplest form, a “flight department” can consist of one pilot who flies a single airplane and runs the entire operation. At the other end of the spectrum, a company can choose to build its own private flight terminal, hangar, and fueling and maintenance facilities, staffed by a group of employees that includes a director of aviation, chief pilot, chief of maintenance and crew members flying multiple corporate jets, turboprops and helicopters.

Diving into the numbers, the facts and figures about business aviation’s current dire straits that usually garner the most attention revolve around the number of layoffs in business jet manufacturing — more than 20,000 and counting — and sharp declines in aircraft deliveries that have cut the production rate almost in half.

But again, drill further down and the still-frame picture that some see of a stagnating industry begins to be shaped in a broader context. For instance, despite a steep rise in layoffs after the economic crisis began in 2008, the business aviation industry as a whole continues to employ more than 1.2 million and contributes $150 billion annually to U.S. economic output. Before the downturn, there were about 13,000 corporate flight departments and individual owners operating more than 17,000 business jets and turboprops in the United States, according to the National Business Aviation Association. Today, both of those figures are rising, not falling.

The rate of growth has slowed, but flight departments have not disbanded en masse as you might have guessed. Just as encouraging, far fewer of them are putting airplanes up for sale. Some have even begun placing aircraft orders again.

A key indicator of the health of business aviation is the delivery rate of new airplanes. The tally dropped this year to its lowest point since 2003 — put in historical context, 2003 was a very good year, but it was still well off the industry highs of 2007 and 2008 and far below where it should be to support the current manufacturing supply chain. Looking at recent data, business jet shipments totaled 261 in the first six months of 2011, a 26.5 percent decline compared with the 355 delivered in the first six months of 2010. Billings for general aviation airplanes totaled $7.3 billion, down 22.3 percent from 2010.

So the numbers aren't great. But on the bright side, shipments of large-cabin business jets in this time period actually rose by about 1.2 percent, while the rate of decline for piston-powered airplanes and turboprops appears to be slowing. Meanwhile, order books for several new business jet models, including the Gulfstream G650 and G280, Bombardier Global 7000 and 8000, Embraer Legacy 450 and 500 and Honda Aircraft HondaJet, are quite healthy.

Most important now, say industry insiders, is righting America’s economic ship. “Business aviation’s tide historically rises and falls with the economy,” notes NBAA President Ed Bolen. “That’s especially true now.”

Until we see strong economic growth returning, Wall Street stabilizing and the unemployment rate falling, all bets are off. Still, industry forecasts and surveys administered by Honeywell, Embraer, Bombardier, the Teal Group and others all agree that the bizjet manufacturing sector has reached its nadir — or very close to it. These crystal-ball assertions about the future direction of the industry are formulated by asking corporate flight departments how likely they are to become purchasers of new airplanes and in what time frame. In each survey, the trend line shows deliveries increasing starting next year and climbing at a more or less steady rate for five years until finally equaling the all-time record delivery numbers set in 2008. That’s predicted to happen by around 2017 or so.

The Teal Group forecast, as one example, foresees production of 12,768 turbine business aircraft worth $195.9 billion over the next decade. The tally includes 9,300 business jets worth $154 billion, 575 corporate jetliners worth a combined total of $29.6 billion and 2,893 business turboprops worth $12.4 billion. Presented with numbers such as these, many find it hard to buy into predictions about a permanent state of decline in bizav.

“The bottom line is, the past 13 years have seen business aviation transformed from a backwater market to a key part of the aerospace industry,” said Teal Group analyst Richard Aboulafia. “This transformation will not be reversed. Even at the low point of our forecast, the business jet industry will be well over twice as large as it was in any year prior to 1997.”

Political Backlash
It's impossible to know the full impact in dollar terms the economic downturn has brought to bear on business jet manufacturers, but suffice it to say the carnage has been in the tens of billions of dollars. Consider this telling fact: At the height of the bizjet market in 2008, the industry's total billings soared to $24.8 billion.

Last year, industrywide billings reached $19.7 billion — that’s $5 billion wiped off the books. This year the total is expected to be lower still. And these numbers account only for money flowing into the manufacturers and their suppliers. When you look at the economic impact on the industry as a whole — on charter firms, training providers, caterers, flight planning providers and so on — the toll is multiplied.

No wonder, then, that current predictions about a return to solid growth are so closely watched. But no matter what the predictions call for, there could be unforeseen market turbulence that forces buyers to rethink their purchasing plans. If unemployment remains as high as it is now and stocks continue their seesaw ride, purchasing expectations might start shifting to the right. Changes to IRS rules that alter the depreciation schedules for business jets could have the same effect. And, industry leaders say, more bad-mouthing by the president could also have a very real impact on future orders.

Speaking at a June 29 press conference at the White House, President Barack Obama mentioned the words "corporate jets" and "corporate jet owners" six times as he outlined a plan to cut spending, spur investment in small business and increase taxes on the wealthiest Americans. As part of his Jobs Act unveiled in September, Obama called for changes to decades-old IRS rules that allow owners of business jets to depreciate their investment over five years, backing a seven-year depreciation schedule instead. While the White House has said closing these "tax loopholes" would have a minimal impact on business jet sales and a net positive effect on reducing the nation's debt, industry advocates bristle at the president's negative remarks about business jets.

“General aviation is an incredibly important contributor to the U.S. economy,” said General Aviation Manufacturers Association President Pete Bunce. “We are one of the few remaining manufacturing industries that still provide a significant trade surplus for the United States. Yet this administration has singled out business aircraft owners with political demagoguery. It is simply astonishing that they cannot connect the dots back to manufacturing jobs and realize they are doing more damage to an industry that has obviously not yet gotten out of this recession.”

While some will argue that the antagonism against corporate jet owners is steeped in a new era of class warfare, in reality similar enmity has existed in America going back at least as far as the start of the Industrial Revolution. Of course, if you were to pinpoint where and when business aviation’s tribulations really started, you’d have to rewind the tape to November 2008, when the top executives of the Big Three automakers flew to Washington with hats in hand to ask for a massive government bailout. In case you don’t recall the exact circumstances of the ABC News segment that touched off business aviation’s worst public relations firestorm ever, here’s how it all unfolded:

Through a chain-link security perimeter fence, grainy video showed a Gulfstream parked on the tarmac, its airstair door open above a swath of red carpet. Veteran ABC reporter Brian Ross provided the voice-over commentary. “The man boarding this $36 million private luxury jet at the Detroit Airport is the CEO of General Motors Corp., Rick Wagoner, on his way to Washington to cry poor — to tell Congress that GM is burning through cash and will fail unless taxpayers bail out the auto industry, with 10 to 12 billion dollars for GM alone. While he was testifying, Wagoner’s GIV private jet was parked at Dulles Airport, one of eight luxury jets in the GM fleet. Wagoner’s private jet trip to Washington cost GM an estimated $20,000 round trip.”

The segment lasted less than four minutes, but by the time it was over the reputations of “luxury private jets” and the CEOs who maintained supposedly lavish lifestyles even as their companies faltered lay in tatters. Other news outlets and politicians latched onto one of the bigger side stories to emerge from the financial meltdown as the business aviation industry was thrown into damage-control mode, where it has been stuck ever since.

When a microphone was shoved in his face after the hearing, Wagoner mumbled something about an earlier meeting in Detroit before exiting the room. NBAA and GAMA look back on that drama as one of business aviation’s darkest days. What Wagoner should have explained when confronted was that the hubs of commerce in America are too geographically separated for fast-moving corporations like GM to stay competitive without access to a business jet or, yes, a whole fleet of them. He could have also pointed out that most company jets aren’t only for senior executives. According to a Harris Poll study, 74 percent of business jet flights carry sales, technical and middle management employees. And what Wagoner of course knew but couldn’t frame in an eloquent sound bite for the camera was this: When a single congressional hearing can mean securing a $12 billion bailout that will save your company and jobs for tens of thousands of workers, wouldn’t it be downright foolish to put your faith in making it to that meeting on time by relying on airline schedules?

You may recall that a similar scene played out for real in late 2009 when three key figures in the banking industry meltdown — Goldman Sachs CEO Lloyd Blankfein, Morgan Stanley CEO John Mack and Citigroup Chairman Richard Parsons — missed an important meeting with the president and other banking industry leaders at the White House because they were too worried by appearances to fly to Washington on their corporate jets. When their airline flights were canceled, they had to go back to their offices and listen in to the meeting by telephone.

Pilots' Perspective
While some companies have become more sensitive to media and public scrutiny of their flying habits, corporate pilots we spoke with said that, by and large, their daily routines are little changed from before the financial crisis, although several admitted to flying less lately. But they still wake up in the morning, head out to the airplane and fly the mission, whatever it happens to be. "It really has been more of a perception issue," said a pilot for a large East Coast-based company. "We did put an airplane up for sale at one point, but nothing came of it. You could blame the [pre-owned aircraft] market, or the fact that we were asking way too much for an airplane we really didn't want to sell. But our executives also understand the value of our airplanes, and they aren't afraid to tell that story."

Another pilot told us his multinational firm has added one airplane since the start of the recession — a Dassault Falcon 7X — and has a Gulfstream G650 on order, and that it’s been business as usual. His biggest worry? “Making sure I don’t have to fly the G650,” he said with a laugh. “Gulfstreams are wonderful and I’m sure the G650 will be a fantastic airplane, but let the younger guys fly those long legs. Do you know how far that thing can fly? No, thanks.” He said he much prefers the Falcon 900 he flies, which has comfortable seats and a range far short of the G650’s 7,000 nautical miles.

Certainly any pilot who has a job these days should consider himself or herself fortunate considering that the national unemployment level remains so high. NBAA says pilot hiring numbers have been almost totally unaffected by closures of flight departments or layoffs of business jet pilots. Rather, hiring trends continue to be dictated by what happens in the airline industry. And after highly publicized layoffs at large charter outfits and the big fractional jet providers in 2009 and 2010, many of these companies are bringing pilots back, albeit slowly.

That doesn’t change the fact that an awful lot of pilots are out of work. “If you throw a rock into a crowd right now, it’ll bounce off 12 unemployed pilots,” said a corporate pilot we talked to. “This recovery is taking longer than most expected, and our present administration appears pretty clueless with a ‘stay calm, all is well’ attitude.”

Despite the lingering effects of the economic downturn, NBAA continues to wave the industry banner by resurrecting its “No Plane, No Gain” advocacy campaign while pulling out reams of financial data showing the benefits of business jet travel. “We can point to studies that have shown companies that use business jets far outperform those that do not,” Bolen said. “Any list of great companies, you’ll see that at least 90 percent of them rely on business aviation.”

Another positive for the industry has been the formation of GA caucuses in the House and Senate, which emerged in response to attacks on the industry. Today, one in three U.S. senators belongs to the caucus. One in four House members do.

While business aviation continues to face its share of economic difficulties and public assaults, the thing to keep in mind is that these airplanes really are the very tools of business. They not only help companies grow and prosper, they also keep them in business. Without business aircraft, we probably never would have attained a level of prosperity in the first place from which a sharp fall would hurt so badly. Now that we have stumbled, it will be by business jet that American business is carried to those lofty heights once more.