U.S. Economy’s Revival — Boosting Outlook for Business Aviation

by Daniel Casciato Nov/Dec 2014

Monitor contributor Daniel Casciato catches up with NBAA President and CEO Ed Bolen to discuss the current state of the business aviation industry. While the industry has been on a positive trajectory since the Great Recession, Bolen is keeping a keen eye on many issues going into 2015, including the reauthorization of the Federal Aviation Administration.

Ed Bolen,
President & CEO,
National Business Aviation Association

In its most recent report on general aviation shipments, the General Aviation Manufacturers Association (GAMA) revealed some good news. Industry airplane shipments increased 4.8% to 1,110 units in the second quarter of 2014, while airplane billings rose to $10.9 billion, up 4.5%. This is the second consecutive year since the recession of 2008 that airplane revenues have exceeded $10 billion in the first six months of the year.

In addition, a recent Bloomberg report shows the SPX 500 Index is at the highest level in six years, which bodes well for business aviation as it tends to mirror the U.S. economy. If the economy is in a recession or stagnant, business aviation feels that effect. When the economy is growing, usually at about 3% or better, there is an incremental increase in the sales of business aircraft, hours flown and other metrics indicating the industry is healthy.

“The indicators are pointing in the right way from an economic standpoint,” says Ed Bolen, president and CEO of the Washington, D.C.-based National Business Aviation Association (NBAA), which represents more than 10,000 companies that rely on general aviation aircraft to help operate their businesses. “We can be cautiously optimistic that if the economy continues on the trajectory it is on right now, the health of the industry should remain steady.”

Key Component to American Economy

In the aftermath of the 2008 financial crisis, American companies began seeking opportunities in other regions of the world, particularly the BRIC countries — Brazil, Russia, India and China. Since the U.S. leads the world in business aviation, the sluggish economy had a very pronounced blow to the industry. But as the economy continues to improve, these same companies are again looking for opportunities domestically and are using business aviation.

“Flight hours are inching their way up, sales of all kinds of aircraft across all segments are now beginning to firm up, and we also see the fleet of used/pre-owned aircraft beginning to shrink, which is a good sign,” explains Bolen. “When a fleet gets large, it’s similar to having housing stock sitting on the market — it’s an indicator that things are not going well.”

Without hesitation, Bolen calls business aviation an essential ingredient to the U.S. economy. The industry directly supports more than 1.2 million jobs in the U.S., including manufacturing, flight support, maintenance, as well as companies that finance the purchase and lending of aircraft.

“There’s an important jobs element in business aviation,” he says. “Also, as an industry, it generates about $150 billion annually in economic output. In fact, it’s one of the few American industries that contributes positively to the nation’s balance of trade.”

Supporting Long-Term Sustainable Solutions

Although its recent findings revealed a positive outlook on the current state of aviation, GAMA stressed that much work needs to be done to sustain the recovery over the long term. It cites both the Small Airplane Revitalization Act and the U.S. Export-Import Bank’s reauthorization as critical in moving the industry forward. Bolen agrees with the insight and notes that the NBAA is based in Washington, D.C., to promote policies that help advance the industry growth.

“The Small Aviation Revitalization Act is aimed at streamlining the certification approval process, for not only aircraft, but for the avionics in the aircraft, which helps get aircraft more quickly to the market,” he says.

Bolen also shares GAMA’s position of incentivizing the purchase of business aircraft and encouraging businesses to buy now as opposed to waiting for six months, a year or longer to make that decision.

“We generally support tax and financing policies that help to put business aircraft into the hands of companies that want to be able to use it as a competitive asset,” he says. “Studies have repeatedly shown that companies using business aircraft tend to outperform by a host of measures, compared to companies not using business aircraft.”

Bolen says that ultimately every company has to make its own decision about how to purchase and use business aircraft as a competitive asset. For some companies, this means the outright purchase of aircraft may make the most sense, or they might find shared ownership of an aircraft to be beneficial. Some companies may choose not to buy aircraft at all; rather, they may decide to charter one if they need to.

“But for those companies whose plan involves mid-term turnover of the asset, leasing can be a very important option,” says Bolen. “We see many companies turn to leasing as the right solution for them.”

FAA Reauthorization and Modernization

Another important role of the NBAA is to advocate for its members and represent business aviation before policymakers at the state, federal and local level. The association keeps its members abreast of important issues in the business aviation community.

One of the biggest issues Bolen says NBAA is keeping an eye on entering 2015 is the reauthorization of the Federal Aviation Administration (FAA). Every few years, Congress debates this legislation, which provides the funds and programming for the FAA. President Barack Obama signed H.R. 658, the FAA Modernization and Reform Act of 2012, into law in February 2012. The bill provided $63.4 billion to fund the agency through 2015, including approximately $11 billion toward the FAA’s proposed Next Generation (NextGen) air traffic control system. Because the bill covers multiple years, it provides predictability and stability to FAA programs.

“Since this legislation has a direct impact on business aviation, we will be keeping a very careful eye on what’s being discussed as Congress looks towards funding the FAA for the next several years,” says Bolen. “We’ll also pay close attention to modernization in terms of moving from a ground-based system to a satellite-based system. The satellite-based system is expected to make operations much more efficient and safer, as well.”

The efficiency of operations is important to the NBAA, notes Bolen, because it helps to optimize the use of airspace and airports. When room for airports and airspace becomes restricted, business aviation tends to get pushed out.

“We want to be able to optimally use both airport space and air space,” says Bolen. “When Congress is talking about reauthorizing the FAA, a big component of that will be how we fund programs that optimize the use of airports and airspace.”

Daniel Casciato is a professional business writer and regular Monitor contributor.

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