Aerospace: A market divided

The business aviation market was the hardest hit of all the aerospace market segments, revealed Richard Aboulafia, vice president of analysis at Teal Group in Fairfax, Va. In fact, at Mentor’s mil/aero IESF, he described the business aircraft as “a cyclical market that is completely torn in half.”

The top half of the market blazed ahead with a 2009/2010 compound annual growth rate (CAGR) of 6.5%. At the same time (literally, during the same period), the lower half—which constitutes the business jet, or bizjet, subsegment—took an enormous and painful hit, plummeting to a -24.7% CAGR.

How is this possible, that the more expensive aircraft (priced $26 million or more) are outselling less expensive jets (priced between $4 million and $25 million) in a period of global economic turmoil? The geek could not have predicted such a trend.

A fork in the runway?

Aboulafia reasons that the market bifurcation could be due to a number of factors, or a combination of circumstances. The lower half of the market is more reliant on third-party finance, resulting in a shying away from large expenditures and reduced availability of funding. The lower half is also reported to have greater customer sensitivity to economic cycles, more discretionary users, and greater fractional exposure, he adds.

The top half, according to Aboulafia, has greater exposure to emerging markets that have stayed intact, including the Middle East and Asia. The lower half, conversely, has greater exposure to North American customers. The top half also benefits from increased exposure to government demand, particularly when it comes to head-of-state aircraft.

Hmm, ponders this geek. The military portion may just have helped buoy (and is likely continuing to keep afloat) the overall mil/aero industry.

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Posted October 23rd, 2011, by

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About J. VanDomelen Mil/Aero Blog

J. VanDomelen holds a Bachelor of Science in Information Systems and myriad certifications from Microsoft, Cisco, and CompTia in varying facets of computer software, hardware, and network design and implementation. He has worked in the electronics industry for more than 12 years in varied fields, including advanced systems design of highly technical military and aerospace computer systems, semiconductor manufacturing, open source software development, hardware design, and rapid prototyping. J. VanDomelen Mil/Aero Blog

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