Heather Gordon is Legal Director at Martyn Fiddler Aviation. Heather joined the team in 2013 having previously practiced within a leading Isle of Man law ...Contact Heather Gordon
Challenge #2: Coping with the downturn
The headlines are already filled with skyrocketing inflation. Many economies will stagnate or shrink, and business aviation needs to prepare for that reality.
Managing Director of the WingX global tracker, Richard Koe said in November 2022:
“We have seen almost six consecutive months of falling bizjet flight activity in 2022 compared to 2021, taking demand well off the peaks of the covid rebound, although the market still has a substantial gain versus pre-covid 2019. Directionally, Europe is seeing weakest trends, with the US steady although charter demand is ebbing, whilst Middle East and Asia still have strong growth compared to 2021.”
Despite the depressing economic outlook and predicated fall in flight activity, some businesses remain optimistic about the industry weathering the upcoming storm. In part optimism follows the Covid-19 pandemic highlighting the value of business aviation in respect of safety, flexibility, and productivity to first time business aircraft owners (which were at all-time highs during 2021 and 2022). Another view is the users of business aircraft are primarily large corporates who typically have a larger financial cushion to fall back on, as well as access to better resources and opportunities. However, they are still affected due to a number of factors, including stock market declines, reduced bonus payments, and layoffs.
While business aviation activity may have increased during 2021 and 2022, so has pressure from environmental groups, activists and politicians. The introduction of luxury taxes in Italy and Canada (aimed at taxing aircraft, passenger vehicles and yachts) are likely just the beginning of new taxes, regulations and penal-ties targeting business aircraft as the pressure builds.
The dizzying price of aircraft and rapid transaction closings of 2022 could also hurt business aviation going into a recession. Many aircraft owners rapidly sold aircraft at a profit during the year but were unable to find a replacement due to the same low inventory levels which provided them with their profit. At the same time, many first-time buyers have purchased aircraft at high cost and in rapid time scales, often with scant pre-purchase checks and transactional structuring. 2023 could well see air-craft owners succumbing to activist pressure, not replacing aircraft and turning to charter, equally some first-time buyers could find their ‘quick buy’ has turned into a long-term headache.
Entering into a period of recession is nothing new for business aviation having already experienced economic downturns in 2008 and 2020. It is arguable however that the industry escaped much of the impact of those recessions in comparison to others. The challenge for business aviation will be to use the lessons it has learnt over the last 15 years and, in the words of Jerome Powell, the chairman of the Federal Reserve, to “land the plane softly.
The information included in this article is considered true and correct at the date of publication; changes to rules and regulation made after the time of publication may impact on the accuracy of the information referenced or inferred to in this article. The information in the article may change without notice and Martyn Fiddler Aviation is in no way liable for the accuracy of any information printed or stored or in any way interpreted and used by the user. This article or the information contained in it is not provided or intended to be used as advice of any form.
If you have any doubts or would like to discuss any aspect of this article, please do not hesitate to contact one of our experts who will be happy to discuss your individual circumstance.