Brighter Skies For General Aviation

Fractional ownership and other trends help the industry climb out of a 15-year nosedive.

David West, president and CEO of Lida Cos., a sales agency for publishers of telephone yellow pages, never thought he'd see the day when he'd be traveling around in his own company aircraft. Even though he has spent 40% to 50% of his time during the last 30 years on the road, a corporate plane was always financially beyond the reach of his small ($25 million in annual sales) company. But now West and hundreds of other small-company executives like him are taking to the skies just like their large-corporation brethren. This has become possible thanks to a new concept, called fractional ownership, in which several companies (or individuals) own a share of an aircraft and receive management and pilot services from an aircraft-management company. West, who says he "got tired of staying in Marriotts," now owns a one-eighth share of an aircraft through Raytheon Travel Air, a subsidiary of Raytheon Aircraft, Wichita. Use of the aircraft, he says, has brought immeasurable efficiencies to his St. Louis-based company. On a larger scale, though, the growth of fractional ownership also is bolstering the bottom lines of manufacturers of general aviation aircraft -- a term used interchangeably with "business aircraft" to define a category of aircraft 19-seat capacity or less that aren't used by scheduled airlines or the military. After a 15-year skid beginning in 1980 triggered by a rash of product-liability suits, U.S. production of such aircraft started to emerge from the doldrums in 1995 and last year reached 1,569 units -- up nearly 40% from a year earlier, indicates the General Aviation Manufacturers Assn. (GAMA), Washington. Billings soared to an all-time high of $4.7 billion. "Participation in fractional ownership has been growing at 50% a year for the last six or seven years," says GAMA President Edward M. Bolen. "It's one of the big factors in the industry's recovery." Indeed, attests Karl Childs, vice president of sales and marketing at Raytheon Aircraft, fractional ownership has been a key reason for the 10% to 12% growth in each of his company's model lines during the last four years. The concept, he says, "has brought us a lot of incremental business that we wouldn't otherwise have had. Eighty percent of fractional owners have never owned an airplane before." Other factors are contributing to the recovery of the once-beleaguered industry, which is dominated by U.S. manufacturers. For one, Bolen cites the introduction of an array of new products that "meet niches in the global marketplace." Among them:

  • The long-range Gulfstream IV (built by Gulfstream Aerospace Corp., Savannah, Ga.), which Bolen says "flies farther than any general-aviation aircraft ever has before."
  • The Cessna Citation X (Cessna Aircraft Co., Wichita), "the fastest plane in the civil-aviation fleet behind the Concorde."
  • Raytheon's forthcoming Premier I, "an entry-level jet that makes business aviation more affordable."
  • New piston-driven aircraft and enhanced avionics packages.
An equally big factor, Bolen adds, is enactment of the General Aviation Revitalization Act of 1994, which set a time limit for general-aviation manufacturers' liability. The legislation is seen as particularly important in reviving orders of piston aircraft, which outnumber jets by about 190,000 to 11,000. The law is credited with enabling Cessna to restore production and New Piper Aircraft Inc., Vero Beach, Fla., to emerge from bankruptcy. From all indications, the recovery is likely to continue. GAMA reports that the industry's backlogs are strong, with existing orders at many manufacturers accounting for a record percentage of their production capacity. And exports are surging, last year soaring to about 30% of the industry's deliveries -- up 30% from 1996. Moreover, a survey by AlliedSignal Inc., an avionics manufacturer, forecasts that deliveries of new business aircraft could reach 5,300 in the next 10 years. The poll reports that business-aircraft operators, excited about the new models, expect to buy new jets to replace or expand their aging fleets. "None of us -- ourselves or other manufacturers I've talked to -- foresees any real slowdown coming unless something drastic happens to the economy," asserts Raytheon's Childs. He acknowledges that the ailing Asian economy "has caused a bit of a hiccup" in his company's sales, but says Asia "is not where a lot of our international sales were going anyway." Raytheon now exports about 40% of its production. Boding especially well for the future, however, is the booming growth of fractional ownership. "We've only scratched the surface of the market," says Kevin Russell, senior vice president of Executive Jet Aviation Inc., Montvale, N.J., the firm that pioneered the concept in 1986. "There are 120,000 companies with annual sales of $30 million or over. They're all targets of opportunity for fractional ownership." Executive Jet's NetJets program manages and provides pilots for 145 fractionally owned jets, the world's largest fleet of business aircraft, and has nearly 200 more jets on order. About 75% of the program's 800 fractional-ownership participants are companies; they range in size from one firm with as little as $20 million in annual sales to General Electric Co., with $80 billion. Even though 80% of fractional owners are first-time buyers of aircraft, many large firms -- GE among them -- also use the concept to supplement their fleets. For its part, Raytheon Travel Air 1997 foresees the overall number of participants expanding by 40% to 50% a year during the next five years. President Gary Hart projects his one-year-old firm to grow during the period from its current base of 80 owners to between 800 and 1,000; its number of aircraft, he estimates, will rise from the current 21 to 160. Raytheon regards fractional ownership as "a way of bringing new customers into the aviation industry," says Hart. "Our ultimate goal is that they'll buy a whole airplane." One pleased fractional owner, Lida's West, suggests he someday may do just that. With two months to go in the first year of its fractional ownership, his company has used up 80% of the 100 hours of flying time allotted by its one-eighth share. "You get used to this kind of convenience," he says. "We're considering buying another one-eighth share." If Lida and other fractional owners should pony up for "whole" airplanes, that will help swell the number of companies throughout the world that operate their own aircraft. Last year such firms numbered 12,157, including 7,611 in the U.S. Of their total fleet of 18,308 airplanes (11,798 in the U.S.), slightly more than half were jets. Overall, business aircraft last year flew more than 26 million hours -- nearly twice the number of airline hours -- and carried an estimated 145 million passengers.
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