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BlueSky Business Aviation News | The Cycle in Aviation

Optimists call it upstream. Pessimists say downstream. The fact is that aviation runs in 7 to 10 year cycles. It mirrors the state of the economy. But is it chicken or egg? Are the signs of recession seen in the extraordinary behaviour of future aircraft owners?

Different from the airline business, where it can be measured in the consumer behaviour of suppliers, and passengers voting with their feet, business aviation cannot identify any kind of warnings. But it also has to face out layers of the big waves of recession (coming on average six months before the economy is hit by it.) In the new member countries the upstream economy and the hype of the post communistic development does not make people believe that there will ever be a recession as bad as where two digit growth is endangered.

In Central Europe the phenomenon of the consequences of recession could be seen in Russia two years ago, when private aviation basically collapsed and the reaction to the recession was in line with the west. The first thing to be cautious with is the actual jet, the corporate jet for psychological reasons and the private jet for savings and rational decisions because it is necessary to be more present locally rather than to travel abroad, so limiting the damage with the effect of cutting costs.

Prague in the Czech Republic has the best startup economy-wise after the dry times of communistic regime; yet even here you can feel a special cautiousness and procrastination when it comes to making decisions. Interesting is that the macroeconomic fact of inner and outer speed is an issue here. CE countries have to cope with a fast development – the so called outer speed, whereas the inner speed is the dynamic with which the population has adjusted to change.

In this period of development and more and more adjustment the recession here has found a surprised and angry population that believed it has been through the hard times. It has to understand about repossession to banks and becoming homeless – that is the dark side of capitalism. Europe is suffering, yet it suffers in a different way from the USA. Never before has the gap been wider these days. Each continent is trying to put things together and find a way to face all the processes to go through another of these unwelcome cycles that has hit us badly within the last 25 years.

Blaming illegal (grey) charter and high pilot costs may not be the right way to sort out things, because it has always been the way that business aviation is monetary driven. It calls for high investments and fast decisions. These cycles have their own not understandable dynamic and it is important to see the situation from the right angle. For all of us – charter operators, brokers, owners, banks, financing institutions – it is important to hold the same opinion and be firm in the same boat. We have to wait until the high tide is over and then we can go back to normal conditions. In the meantime we have to cut costs and make non-populist decisions, none of us are immune.

But making compromises is hard to do when the cycle is downstream. Predictions are that the aviation market will go up from the end of the last year has proved to be very unstable. The bright spots are elsewhere – in China, India, Latin America, Asia is the honeypot, analysts say.

Here, the market will still be volatile and unstable and we need to get some momentum going before we can get back up again. The bottom of the cycle is always the same. Banks will ask for more securities in terms of aircraft financing, the residual values are not predictable and the owners will sell their slots for new aircraft and buy them back when times are better. It is the same in 2012 as it was in 2002 when September 11. But we have to be ready for new conditions and for sure there is a transition phase right now which will change in the next years, along with regulations, change in wages for flight crew, duty time etc. I strongly believe and I hope that I am right, that in the next upstream, business aviation, alongside the low cost carriers, will lead the race.

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