GE Business Aircraft Finance Says Worst Is Over

The sharpest downturn on record for the corporate jet market appears to be leveling off, said Dave Labrozzi, president of Corporate Aircraft Finance at GE Capital, a unit of General Electric Co. (GE), and one of world's biggest business aircraft lenders.

The first sign of a market recovery will be when prices stabilize for used business aircraft, Labrozzi said in an interview. Some aircraft prices have dropped as much as 30% to 45% from their peak 15 months ago, he said. At that time, some companies were willing to pay a premium to get earlier delivery on the hottest models of corporate planes.

But, when the financial crisis hit, companies in industries like real estate and finance rushed to raise cash from valuable assets, flooding the market with used aircraft. For GE Corporate Aircraft Finance, which lends to small, medium and large businesses, it was the worst downturn in 30 years of working in the cyclical aircraft business. "In a typical downturn - such as after Sept. 11, 2001 - prices fall 15% in 20% in two years. This time, that happened in one quarter," he said. Even with a glut of planes on the market, Labrozzi said, "we've recently taken back some aircraft and have been able to place them with other customers."

The business aircraft market is "92% correlated with corporate profits," Labrozzi said. As corporate profits rise, he expects money to go back in the budget for a company plane. But, he said he anticipates a lasting effect from recent negative publicity that linked corporate aircraft ownership to spending excesses.

Honeywell International Inc. (HON) on Monday said in its annual forecast for the business jet market that it doesn't expect a recovery to get under way until 2011, and it will be many years before annual deliveries approach last year's levels. The U.S. will make up 48% of the market in the next few years, down from the 55% that Honeywell forecast just a year ago.

About 30% to 40% of the GE unit's financing business is outside the U.S. The best growth opportunities are in emerging markets in Latin America and Asia, Labrozzi said, although some countries are behind in building the infrastructure needed for business flying. "China has done a good job" of building airports related facilities for business travel, Labrozzi said. "We would certainly like to have a bigger footprint there," he added.

There's no typical business jet, Labrozzi said. The planes, made by many manufacturers, range from simple six-seaters to luxury models with sleeping quarters.

Corporate jet-makers like Bombardier Inc. (BBD.A.T.), General Dynamics Corp.'s (GD) Gulfstream, and Cessna, a unit of Textron Inc. (TXT) have scrambled to downsize their businesses. Gulfstream recently unveiled its new G650, a larger, faster model that can carry up to 18 passengers. The company said that will position it well when the market recovers.

But Cessna last summer canceled its Columbus program, for the largest version of its Citation model. The company had taken orders for about 70 of the aircraft, with list prices of $27 million, to be delivered beginning in 2014. Cessna chief Jack Pelton said in a recent interview that Cessna will restart the program when the market regains its health. "In a typical recession, business jet sales lag the return of economic growth by about eight quarters," Pelton said.

The 62nd National Business Aviation Association convention, which opens in Orlando Tuesday, is working to put a positive face on corporate aircraft ownership, as well as to energize a beleaguered industry.

Brian Foley, a consultant to the business jet industry, said that "some participants are predicting the NBAA convention will be a resume job fair. In my view, it will be a showcase of the companies who are the long-term players, and will prosper from an eventual uptick."

-By Ann Keeton; Dow Jones Newswires; 312-750-4120; [e-mail]