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5 CHAPTER 2 GA Forecast Introduction U.S. manufacturers were obtained from the General Aviation Manufacturers Association (GAMA) Annual Shipment Re- The use of next-generation aircraft for personal, private, and ports, which also include reports of GA exports and imports. corporate purposes is more in line with the traditional reasons To assess how U.S. net shipments are tied to movements in the for purchasing small GA aircraft compared with the new mar- overall economy, data were assembled on annual shipments,4 ket potential for air taxi services. However, projections of such on U.S. real gross domestic product (GDP), and on long-term sales can still be very uncertain because the reasons for purchase interest rates (using the rate on 10-yr U.S. treasury notes) are quite varied and will depend on individual or company cir- from 1999 through 2007. These data are shown in Table 4. cumstances that are typically unobservable, on intended use, on There is typically a strong trend component in time series equipment characteristics that will have differing importance to data that can falsely imply a relationship among components differing buyers, and so forth. where none really exists. To account for this, all data series These difficulties argue against a detailed bottoms-up were converted to annual percentage changes and then a lin- "micro" approach. A better alternative is a macro-type analy- ear regression of the percentage change in net shipments as a sis that relates aircraft sales to larger economic factors such as function of the percentage change in GDP and the 10-yr trea- overall growth in the economy and interest rates. For the cur- rent analysis, such relationships are likely to track better at sury rate was run. The regression line provided a reasonably more aggregate levels. Consequently, the relevant market into good fit to the data with an adjusted R2 of 0.701. The actual which VLJs will fit into is defined to include shipments of GA versus predicted results are shown in Figure 1. piston, turboprop, and light jet aircraft (plus the initial ship- To project future net shipments through 2017, the latest ments of VLJs themselves in 2007--the Eclipse 500 and Cessna 10-yr forecast issued in September 2008 from the U.S. Con- Citation Mustang). The light jet models included in this defi- gressional Budget Office (CBO) was used to get projections nition are the Cessna CJ1 and CJ2 series, plus the Hawker of real GDP growth and the interest rate on 10-yr treasury Beechcraft Premier 1A.2 notes. The CBO forecast reflects some recognition of the steep economic downturn in the second half of 2008, projects very slow growth through the end of 2009 followed by a re- Projections for the Overall Market bound in 2010­11 but with interest rates also increasing, and Because the primary interest is in aircraft fleets that will be then projects a gentle softening throughout the remainder active at U.S. airports, the U.S. fleet is defined as total U.S. of the forecast through 2017. Substituting these forecasts into shipments minus exports plus imports.3 Shipment counts by the regression equation yields estimates of net U.S. aircraft shipments encompassing the piston, turboprop, and light jet 2 The remainder of the jet aircraft are all priced well beyond what any categories (plus the first-year VLJ shipments from Eclipse and VLJ might sell for and really do not compete in the same market. Cessna). These projections are shown in Figure 2. As will be 3 Aircraft are considered to be manufactured in the United States when seen, shipments through the first half of 2008 indicate an over- produced under an FAA production certificate. Export and import data all decline in sales, but the regression model shows virtually no are not identified for individual makes and models. In addition, the im- port statistics used are shown in the GAMA shipment reports obtained from the Aerospace Industries Association (AIA); these statistics in- 4 Because this portion of the analysis focuses only on GA use, the ship- clude single-engine aircraft plus small and medium multi-engine air- ment totals were decremented by the share of air taxi (FAA Part 135) craft weighing up to 10,000 lbs. use reported for each aircraft group in the annual GAMA Databooks.

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6 Table 4. Historical data. Real GDP Rate on 10-Year Year Net US Shipments* (Billions of 2000$) Treasury Note 1999 1837 9,470 5.65 2000 1948 9,817 6.03 2001 1889 9,891 5.02 2002 1763 10,049 4.61 2003 1895 10,301 4.01 2004 2027 10,676 4.27 2005 2273 10,990 4.29 2006 2358 11,295 4.80 2007 2298 11,524 4.63 *Includes piston, turboprops, VLJs and light jets, adjusted for GA use only Sources: Net US Shipments - GAMA General Aviation Airplane Shipment Report, various years. Real GDP - US Department of Commerce, Bureau of Economic Analysis, www.bea.gov/national/nipaweb/index.asp Treasury Rate - US Federal Reserve Board, www.federalreserve.gov/releases/h15 30.0% Annual Percentage Change 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 -10.0% Predicted Actual Figure 1. Actual versus predicted change in net U.S. ship- ments of small GA aircraft. 3000 2500 Net US Shipments 2000 1500 1000 500 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Figure 2. Projected net U.S. shipments of small GA aircraft.