The airline industry has experienced a trying year. Surges in passenger demand, staff shortages, and bad weather created flight delays and cancellations during peak travel times.
American Airlines had its share of these challenges yet still reported profitable quarters. In fact, during the company’s third-quarter earnings call on October 20, American’s CEO Robert Isom eagerly cited a third-quarter net income of $483 million from record quarterly revenue of $13.5 billion. Isom claims this sets a new record for any quarter in the company’s history.
Despite talks of an impending recession, the airline continues to execute its plan to pay down approximately $15 billion of total debt by the end of 2025. It also opted to make key investments, such as its October 31 announcement to form a new partnership with Spartan College of Aeronautics and Technology. This collaboration provides cadets a career pathway resulting in an aviation degree and restricted airline transport pilot (R-ATP) certificate at 1,250 flight hours. On October 24, American also announced a new partnership with Aviation Institute of Maintenance (AIM) that provides aspiring aviation maintenance technicians (AMTs) with a direct career path to the airline.
Brokers Don’t See Buyer’s Remorse
When it comes to how aircraft charter and brokerage businesses are faring, data compiled from industry organizations, such as the International Aircraft Dealers Association (IADA), provide some indications. At the 2022 NBAA Business Aviation Convention & Exhibition (NBAA-BACE), IADA Chair Zipporah Marmor expressed optimism after publicly releasing their third quarter numbers.
“The collective sentiment of IADA members is that traditionally heavy fourth-quarter volume will be driven by the phase-out of 100-percent bonus depreciation in the U.S., airline cutbacks to smaller cities spurring first-time buyers, and cash available for most aircraft purchases,” she said.
Pointing to the organization’s 2022 Third Quarter Market Report, IADA’s executive director Wayne Starling reiterated the membership’s optimism despite what’s happening with key financial triggers. “Our buyers and sellers are somewhat immune to current increases in interest rates. Over 60 percent of our transactions are paid in cash,’’ he noted in the IADA report.
Factors outside the U.S. could slow down this buying activity, according to Marmor. “Obviously, from the international perspective, stability in Europe and Asia are wildcards for the future. However, used aircraft sales were strong in the third quarter, and the fourth quarter outlook is encouraging,” she said.
Paul Cardarelli, vice president of sales at JetNet, echoed IADA’s view of a solid buying momentum. “Inventory of business aircraft has gone up 4 percent with extremely limited quantity,’’ he told FLYING.
JetNet reports 10,800 light jets in service, with 520 of them for sale. Medium and large jets have 263 and 321 on the market, respectively. Cardarelli said the fourth quarter is historically busy, as buyers take advantage of bonus depreciation. “The fourth quarter will be pretty robust again,“ he noted.
The COVID-19 pandemic brought many first-time buyers looking for options outside of airline travel, Cardarelli said. “Some of that demand has been satiated,” as airlines are beginning to restore their operations to somewhat near normal levels, he said. Cardarelli added that “demand will continue to be strong” but will not exceed what we saw in 2021, once OEMs begin to catch up on new aircraft deliveries.
An Entrepreneur’s Perspective
Small business entrepreneurs face different potential economic stresses, according to Alfredo Diez, founder and CEO of Global Atlantis Group, and who also runs Atlantis Flight Academy and SkyJet Elite, a Part 135 jet charter operator.
The charter market continues to grow, according to Diez. “One of the signs of growth is percent of inventory,” he said. “The pre-pandemic ratio was about 30 percent of inventory. Now, it’s between 2 and 3 percent. Demand is not a problem; it’s more about finding the right inventory to operate our flights.”
A recession likely won’t result in a significant decrease in his charter business revenue, he said.
On the flight training side, the Spanish-born entrepreneur also expressed confidence that this segment will maintain an unprecedented pace, thanks to the ongoing pilot shortage.
“The airlines keep hiring at record levels, and Boeing’s commercial outlook supports a steady stream of new hires for the next eight to 10 years,” Diez noted. He added that many countries affected by the pandemic are opening up again, and this is allowing him to grow his large base of international flight cadets.
Diez recognizes that while the U.S. aviation market is solid for the time being, a strong dollar means a greater financial strain on those living in other countries and wishing to train here.
“We depend on resources primarily from family members supporting their aspiring son or daughter,” he said. “This will adversely affect them, so we’re always looking for ways to help finance their career dreams.”