Business Jet Makers Could Book Negative Orders for 2009

Posted by: Carol Matlack on August 06, 2009

Manufacturers of business jets are likely to book more cancellations than new orders this year, as corporate and private customers cancel orders worth billions of dollars. “Some companies will buck that trend, but taken as a whole the industry could see net negative orders for the year,” says Brian Foley, a New Jersey-based business aviation consultant.

Wichita-based Cessna (TXT) last week said it suffered 243 cancellations during the second quarter, contributing to a 42% drop in revenues during the period. Paris-based Dassault Aviation (AVMD) said the value of its order book dropped more than $1.6 billion during the first half, because of an undisclosed number of cancelled orders for its Falcon corporate jets. Canada’s Bombardier (BBDB) also has said that cancellations in its corporate jet business are running ahead of new orders.

Adding to the pain of the economic downturn, the industry says it suffered a wave of cancellations after President Barack Obama took a swipe in his State of the Union address at corporate executives who “disappear on a private jet.” Industry leaders visited the White House last spring to plead for an end to such rhetoric.

The pace of cancellations may be slowing. Gulfstream Aerospace (GD) recently called more than 2,000 furloughed employees back to work after orders outpaced cancellations during the second quarter.

But more troubles could lie ahead. “Whereas some buyers had the financial wherewithal to pay for their jets back when they ordered them, they’re now scrambling to find financing to make their next progress payment as their airplane nears final delivery,” Foley says. “They’ll find credit markets stubbornly tight and more restrictive.”

Foley says some manufacturers may be playing “backlog roulette” with such customers, allowing them to defer rather than cancel orders, even though they may never be able to buy the planes. “This creates a weak, artificially high apparent backlog which does a disservice to both investors and suppliers.”