Market for corporate planes dips after a decade of climbing sales
Tucson, Ariz. — Bermar (Bib) Stillwell, the jocular president of the Gates Learjet Corporation, has a theory on peddling multimillion-dollar jets to businesses - recession or not.
True, profits are plummeting for many corporations, and managers (not to mention stockholders) tend to arch eyebrows whenever there's talk of big-ticket expenditures.
But putting a jet in the company hangar doesn't necessarily mean frivolous frittering away of corporate dollars, Mr. Stillwell reasons. On the contrary, he sees it as a hidden profitmaker.
''Corporate airplanes pay dividends - not regarding the cost of travel but in terms of time saved and the flexibility they give companies,'' says the former Australian race-car driver, who was recently moved up as Learjet president.
It's an idea whose time apparently has not come.
Yes, it is true that the corporate jet, once considered just a perk for the chief executive officer, has become widely accepted by many big corporations today as an essential transportation tool. But jumping into aircraft ownership in the teeth of a recession is another matter.
In fact, within recent months the near decade-long surge in corporate aircraft sales has tapered off as abruptly as the nose of a Learjet. What has been one of the success stories of the aircraft industry is now going bump in the recession like much of the rest of corporate America.
''There's no question that it is a postponable kind of item in a recession,'' says Michael Carstens, senior analyst with Warburg Paribas Becker-A.G. Becker Inc., the brokerage firm.
Although the long-term outlook for business aviation looks good, few companies are now buying planes in the face of punishing interest rates and dipping corporate profits.
Gates Learjet, which produces about one-quarter of all the corporate jets that fly, recently announced plans to lay off as many as 1,500 of its 5,700 aircraft division workers at plants here and in Wichita, Kan., over the next year. Their move mirrors the tough state of the general aviation industry, where unemployment is running at about 40 percent as a result of layoffs in the past two years.
Overall, US manufacturers shipped at least 25 percent fewer turbojets and turboprops (aircraft used mainly in business) the first four months of this year than in 1981, according to the General Aviation Manufacturers Association, a trade group.
The current hiatus in the business plane market comes after years of steady growth. World sales of business jets hit 552 last year, double those of about seven years ago. Of the Fortune 1,000 companies, 541 now own planes, ranging from Cessna prop planes to the $10 million-plus jet made by Gulfstream American Corporation. Half a dozen major companies make such aircraft worldwide.
Indeed, the expanding market for business aircraft (including helicopters) the past decade marked a broad shift in the general aviation industry away from personal and recreational flying to business-related plane use. Today as much as 80 percent of general aviation centers on use of planes for business, according to the Washington D.C.-based National Business Aircraft Association, another trade group.
Once the recessionary grip loosens, corporations are expected to go on a shopping spree. One reason is the deregulation of the airline industry, which has forced many big commercial carriers to cut back service to small and midsize cities. This comes at a time when corporations are scattering plants away from big cities in the US.
Of the country's more than 15,000 airstrips - 5,800 of which are paved - fewer than 500 are now regularly visited by commercial or commuter aircraft. Just as important as accessibility for many corporations, however, is the time saved by hopping a company jet.
''The market for business aircraft remains almost limitless,'' says Harry Adams, research director for Aviation Data Service Inc., a Wichita, Kan.,firm that tracks general aviation worldwide.
By Mr. Stillwell's addition, some 23,000 US companies alone have sales exceeding $20 million a year - prime customers, he believes, for having their own jet fleets.
''The corporate jet market is at best 20 years young,'' he says. ''We have more sales in the pending file right now than we've ever had. But they are all waiting.''
A key battle is shaping up between Gates Learjet and Cessna Aircraft Company, the world's largest producer of piston-engine aircraft. In December, Cessna will begin delivery of its Citation III business-jet plane, for which it now has orders for about 150. Learjet has orders stretching into 1984 for its new 50 series Longhorn, which hit the market a year ago and is the company's largest jet, seating up to 10 passengers. Together, the two firms account for close to half of the world business-jet market.
Still, both planes may not be flying into an unlimited market. By operating their own planes, firms are left to cope with the same problems as commercial airlines: rising fuel costs, crowded airspace, and growing complaints about ''noise pollution,'' which has resulted in landing restrictions at some airports.
Also worrisome to some are improvements in the telecommunications industry, such as ''video conferencing,'' which could render the need for some business travel obsolete. James Molloy, a transportation expert at Northeastern University School of Business, thinks the demand for business jets will level off by the mid-1980s, once commuter and regional airlines become more established.