May 27, 2011 By Pete Bunce, President and CEO of GAMA
The general aviation manufacturing industry has experienced a lot of turbulence in the last two and one-half years as a result of the global economic downturn and the media’s perception of business aviation. But, optimism is returning.
If the enthusiasm of our workforce can be used as a barometer of that optimism, then Department of Transportation Secretary Ray LaHood’s recent visit to Wichita was a great sign. When he took the stage and was greeted with thunderous applause by thousands of general aviation manufacturing workers in one of Cessna’s hangars at Mid-Continent Airport, the message of resilience was transmitted loud and clear.
In fact, Secretary LaHood told the crowd in his opening remarks that on trips to 43 states and more than 120 cities, he had never been more warmly welcomed.
This is the GA family that I am so proud to represent. It is a community that stands together when times are tough and one that will bring this industry back to prosperity and growth.
However, progress on the path to recovery has been incremental and the driving factors have been mixed. On the positive side, markets outside North America continue to show vitality. This is proof that the rest of the world now understands that aircraft are an important economic and productivity tool. To sustain this positive trend, it is important that we advocate for open markets, accelerated infrastructure development, and access by all manufacturers to a global, level playing field in which to compete.
We are pleased that worldwide corporate profits are up. Since demand for turbine aircraft is largely a function of this economic measure, this bodes well for the future. Although it takes between one to two years for our industry to feel the positive effects from growth in corporate profits, a strong increase holds promise for future sales and a recovery in industry shipments over the next several years. Flight activity around the world has turned the corner and continues to inch up over time. Although we are encouraged by the positive trend, operations are still well below the peak that occurred before the economic downturn and we are carefully watching any negative impact that may occur as a result of fuel price volatility.
On the cautionary side, more than 75 percent of business jet purchases made in the United States in 2010 were cash transactions. This points to the continuation of limited credit availability for the purchase of new aircraft, especially for the mid- to light end of the turbine market, which relies more heavily on third-party financing.
The used jet market continues to be the indicator of greatest concern. Asking prices remain stubbornly low and time to sell remains too long. Our hope is that the inventory of used jets will continue to decline and that the trend will accelerate as the year continues.
As general aviation manufacturers continue to meet current challenges by positioning themselves for a recovering global economy, a critical ingredient for success is pro-growth, pro-manufacturing, and pro-export policies. These policies are critical for creating jobs, stimulating innovation, and getting production lines moving again at manufacturing plants in all corners of the globe.
Congress extended two critical tax incentives in 2010. First, the industry has long relied upon bonus depreciation to stimulate aircraft purchases and upgrades – a provision proven to boost sales in a recession. The tax bill passed by Congress and signed by President Barack Obama in December 2010 allows purchasers of new aircraft, for the first time ever, to expense 100 percent of their investment in the first year after taking delivery.
As a springboard for economic growth, manufacturers also believe that government policies must foster investment in the research, ideas, and people who produce innovation. We are encouraged that the U.S. research and development (R&D) tax credit was also extended in December for two years. As companies continue to plan and invest for the future, GAMA will work to ensure that the R&D credit is further extended.
This era of new fiscal realities must drive fresh and innovative thinking in the way regulators interface with industry. We are exploring new ways for the FAA and the European Aviation Safety Agency to develop the efficiencies necessary to keep up with the pace of rapid technological change during a time of more austere government budget authority.
That brings us full circle back to Secretary LaHood’s visit to Wichita. It is a good sign that senior government officials in both the administration and Congress are continuing to acknowledge the importance of general aviation.
“You’re creating and exporting the business tools that companies around the world need to grow the economy, create jobs, and expand economic opportunity,” said Secretary LaHood. “I’m proud to stand with you, to work with you, and to fight with you to make sure that general aviation continues to flourish as the global economy picks up – you will be one of the leaders in helping the global economy pick up. We get it.”
Source: AOPA PILOT MAGAZINE