Economic recovery a three-year process

August 5, 2009

Aerospace analyst Richard Aboulafia said he “very strongly agrees” with a recent assessment of the economy by Cessna Aircraft President and CEO Jack Pelton that the economic depression may have reached the bottom, but recovery might not start until late 2010 and could take until 2012 before the recovery is complete.

“We’re halfway through a three-year process,” Aboulafia said. He is vice president of the Teal Group for analysis.

Aboulafia said the second quarter delivery results provide little in the way of an economic health indicator. “Delivery reports are the ultimate lagging indicator,” he said. The General Aviation Manufacturers Association shows in the second quarter that total airplane shipments worldwide fell 46 percent. Piston-engine shipments fell 58 percent, while business jet shipments fell 38 percent.

While there can be product-specific exceptions to the rule that delivery reports are poor indicators, such reports are “…the last thing I would be looking at,” Aboulafia said. The only indications now are that the economy is not dropping as steeply as it once did, he said. Corporate profits have to return first before the GA industry can expect a recovery.

Aboulafia noted the economy suffered a similar drop in 2001, with the stock market losing one-third of its value, and grew back strongly for five years using “cheap cash” such as that found in the subprime mortgage industry. This time around, the world is paying the price for the “cheap cash,” but it is difficult to predict recovery. However, Aboulafia noted there is lots of stimulus cash making its way into the world economy, a reason for optimism.