Executive & VIP Aviation International

Executive & VIP Aviation International

An old joke goes that banks will only lend money to those who don’t need it, and it’s never been more true. Small and medium enterprises, perhaps seen as too great a risk, are finding it very difficult to finance expansion. It is inhibiting their investment in people, premises and equipment.

In our own industry, sellers of used aircraft complain that the soft lower end of the market is restricting those higher up the ladder who, in more normal times, would now be seeking to upgrade. Business aviation activity has always correlated closely with corporate earnings, which are increasing – but perhaps the historical rules are now being rewritten. Brokers insist it has never been a better time to buy. Potential customers in the static markets of North America and Europe must be thinking: if only we could.

By contrast, cash buyers and fast-growing companies in emerging markets continue to buy large, long-range jets. In the BRINC economies – the former BRIC has expanded to take account of Nigeria’s new wealth – buyers want the best and they want it now. The old world’s current austerity measures are an unfamiliar idea here, and there is less sensitivity around business aviation. Operators do not face the threat of new taxes and regulation is less burdensome.

This all puts pressure on manufacturers of smaller aircraft with longer established product lines in traditional markets, which makes the troubles of Hawker Beechcraft look sadly inevitable. The company delivered 198 GA aircraft in 2011, down from 214 the year before. Although it was catching up by the fourth quarter, delivering 85 planes compared with 88 a year earlier, it still lost an eye-watering $632.8 million in the full year.

Difficulty in obtaining composite parts has halted production of some models. Hawker also admits to problems implementing new computer software. But the real issue is clear: private equity interests acquired the former Raytheon Aircraft Co in a highly leveraged buyout right at the top of the market in 2007, leaving it saddled with multi-billion dollar debts.

Hawker has assured customers their down payments are secure and it will fulfill its commitments to them. But those in a position to order new aircraft will be understandably cautious in these circumstances, and rivals such as Cessna, Bombardier and Embraer will not be standing idly by.

In its delayed annual results filing, Hawker has admitted it may not survive the year unless it can comprehensively restructure or improve its liquidity. More than 10% of employees in Wichita have already been laid off. More drastic surgery lies ahead.

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