Brian Foley: business aviation in a word, unsettled

Summing up the state of the business aviation industry in one word. Analyst, Brian Foley, said “unsettled”. He said Covid-19 is having a direct impact upon the industry, citing double digit decline in European business jet activity and the furlough of 7000 employees by Textron. There is no telling how long this pandemic will go on for, Foley said he seen some estimates of six to eight weeks for peak in the US but some as much as several months. Also he added, whether the pandemic turns out to be a short or longer term event could have massive sway on the overall impact.

 

Foley told Corporate Jet Investor: “The thing is, we just don’t know where the end is. You know, where things come back to some semblance of normalcy. I’ve seen estimates for at least in the US to wait six to eight weeks for the peak. And then I’ve seen things in the order of, you know, several months. Say depending if it’s a shorter-term event or a longer-term event, it will have a huge impact on where this thing could go in the more immediate term.”

 

“From what I’ve observed today, we’ve seen that Textron went ahead and, you know, furloughed seven thousand employees, I think, which would conceivably include the production. So, in a sense, if I read the tea leaves, that means they essentially halted production maybe for through May – if you read their press release. So minimum case, I suspect production is shut down there through May. Other than if there’s a principle program like for FedEx or something,” said Foley.

 

On the business jet side, Foley continued: “They’re just taking a wait and see attitude and assuming that some customers will cancel and defer and that they’ll be okay by the end of the year. You know, the situation they don’t want to get into is the one during the last financial crisis where not only Cessna, but others just had ramps full of unsold whitetail aircraft. So, they’re trying to be a little more aggressive in preventing this time. And they’re probably thinking that any kind of penalty fee for a late delivery is a lot less expensive than parking a $25m jet.”

 

Foley added: “They’re doing the conservative thing, I guess, and trying to stay in front of this. And you can bet if Cessna is doing it, the others are certainly looking. And if they haven’t already, you know, at least examining, pausing or slowing down their production right now, the serious period of uncertainty.”

 

The impact is industry wide, Foley concluded: “From WingX numbers in Europe we can see that there is double digit declines in business jet activity which has a direct impact on the industry. Because business jets are being used less, there’s less of a maintenance demand. So, MRO’s are feeling the pinch now. Really any deals that were in the works for pre-owned, or new aircraft, are certainly on hold for now until buyers better understand where this is going. And we just don’t have a direction yet. [Furthermore] the uncertainty just brings the industry a little bit to a screeching halt as far as new sales.”

 

Piaggio Aerospace solicits buyers

Piaggio Aero Industries and its subsidiary Piaggio Aviation have launched an international call for the sale of the brand which has been in administration for the past year. The two companies, currently under Extraordinary Administration, operate under the Piaggio Aerospace brand. Following authorisation from the Italian Ministry for Economic Development, a notice, calling for expressions of interest in the company, was published in a number of Italian financial publications on Thursday 27th February.

 

Piaggio officials have expressed a preference to sell both companies to one new owner. Despite Piaggio Aero Industries and Piaggio Aviation being two different legal entities, Piaggio says the two form a unified business operating synergistically. Potential buyers for all or part of the businesses have been invited to send their expressions of interest (EOI) to the Extraordinary Commissioner, Vincenzo Nicastro, no later than April 3, 2020.

 

After assessing the quality of each proposal, the commissioner will decide whether to admit the applicants to continue in the process. Similarly, as the published announcement literally reads, “any final determination with regard to the sale shall […] be subject to the authorization of the Italian Ministry of Economic Development, after hearing the opinion of the Surveillance Committee”.

 

Nicastro said in a statement: “Just over a year since the extraordinary administration started, we have succeeded in creating a respectable order intake, which makes the company attractive for a buyer.

 

“We shall rigorously evaluate each of the offers that will reach us with the aim of selling the company in its entirety and finding a buyer who can offer a solid, long-lasting recovery and development plan. We aim at concluding the process within the current year.”

 

Piaggio currently has an orderbook of €450m but a further €450m of sales is expected to be added shortly; taking the total order to book to about €900m.

 

Potential buyers should sent an EOI in English or Italian to the Extraordinary Commissioner via email. More information for prospective buyers is available here.

Gulfstream’s ‘playroom for technicians’ feeds engineer pipeline

Gulfstream needs to make 300 to 400 gross hires of technicians a year and has no trouble reaching that target.

Gulfstream Aerospace operates training laboratories and a simulated service centre where student engineers and technicians can consolidate their skills and build confidence before moving to operational facilities.

The training centres are coupled with school and community outreach programmes and are a key means of ensuring access to a skilled workforce at a time of growing competition for skilled labour, Derek Zimmerman, Gulfstream’s President, Product Support, told Corporate Jet Investor’s Miami 2019 conference last year.

“Recruiting from an A&P [airframe and powerplants] school is extremely competitive,” said Zimmerman at the session entitled: ‘After the aftermarket – the battle for maintenance’. “It is not unusual for a major airline to show up at an A&P school and take entirety of a graduating class.”

So, Gulfstream has sought new ways to boost its pipeline of engineers and technicians. One way is to selects recruits with some technical aptitude – perhaps from an automotive or electronics background – and train them rapidly and effectively to work on business jets. “You just can’t go out these days and find a large number of already experienced technicians to add to your labour pool,” said Zimmerman.

Experience has taught Gulfstream that assigning recruits to its simulated service centre is a far more effective means of training than pairing the student with an experienced engineer in an operational facility. “Given the demand for technicians, putting an experienced person out on the [engineering facility] floor with an inexperienced person is a good way to bring that experienced person’s productivity down,” said Zimmerman. “It would also put that inexperienced person in a place where they are not as competent or as confident as we would like them to be.”

‘Work on our assets in a safe space’

Gulfstream’s solution was to invest in an on-the-job training centre with laboratories and a simulated service centre where students can practice what they have learnt in a supported environment. “This enables students to work on our assets in a safe space and to practice things repeatedly. And there is no pressure from a customer who wants their airplane back or worries about the quality of the work they are doing.”

After hearing Gulfstream’s approach to training, session chair Ford von Weise, Citi Private Bank’s global head of Aircraft Finance, said: “It sounds as though you have built a playroom for mechanics.”

Zimmerman responded: “Yes, that is essentially what it is. It allows us not to compete head-to-head with some of those big players who have a tremendous appetite for technicians.”

Gulfstream Aerospace’s other strategy is to reach out to high schools and technical colleges to contact students who may never have considered a career in business aviation. Gulfstream recognises that the students they contact may not end up working for the company but believes it is important to portray business aviation in a positive light to youngsters.

The US recruitment market has tightened considerably in the past five years, says Zimmerman. But Gulfstream does not expect any shortfall in recruitment, despite requiring another 100 to 200 technicians a year reflecting the opening of new facilities and the expansion of its fleet. “Based on retirements and people moving around the business, Gulfstream needs to make 300 to 400 gross hires [of technicians] a year. We have no trouble doing that.”

‘Gulfstream needs to make 300 to 400 gross hires a year’

Gus Faucher, chief economist with PNC Financial Services Group, underlined the competitive nature of the US recruitment market with unemployment rates reaching an historic low. “The unemployment rate is 3.5% – basically the lowest we have had in 50 years. Pretty much everyone who wants a job can find a job,” said Faucher in his keynote address. “So, if we haven’t got full employment now, we are very close to it.”

In a separate presentation, Michael Amalfitano, President and CEO of Embraer Executive Jets, highlighted the importance of designing recruitment strategies that appealed to Millennials. One-in-three of all American workers is a Millennial, and the group already forms a bigger cohort than the Baby Boomers born between 1946 and 1964.

“When you are thinking about workforce development and thinking about hiring engineers, the people you need to work for your business, sustainability is going to be a big part of what Millennials and your future workforce is thinking about,” said Amalfitano.

Corporate Jet Investor’s Miami 2019 conference took place at the Fontainebleau Miami Beach on November 12 and 13.

Meanwhile, Corporate Jet Investor’s London 2020 conference will take place at The Landmark on February 3rd and February 4th. Read the full conference programme here and booking details here.