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Ed’s Notes: September

August 15, 2017

 

Aviation is a capital-intensive industry that is typically very competitive and thus has low margins. To grow, the industry needs to have confidence in the economy – and in government.

South Africa is currently in a crisis of confidence. The ongoing deluge of ‘leaks’ relating to the capture of the State President and his cronies, and the pervasive stink of corruption, has destroyed what little confidence in the future the aviation sector had.

On top of the damage to the industry caused by the failure of South Africa’s top levels of government, there are the ongoing debilitating attacks on the industry itself, often led by well-meaning but misguided bureaucrats. Fortunately for now, the damage that would be inflicted on the business jet industry by the introduction of Part 93 has been put on hold by the postponement of the more harmful conditions for 180 days.

Reports from banks, and in particular aviation lenders, indicate that their customers are sitting on large cash balances, but in the current depressed market, and with an uncertain future, the industry is taking a wait-and-see approach to expenditure. The biggest loser has been discretionary expenditure. Flight schools report that there are very few people wanting to learn to fly for fun. The traditional flying school and club is almost defunct and the only flying schools that are surviving are those training foreign students for airline careers.

I am told that the charter industry is down to just 30% of its turnover in 2015. Owners of aircraft that rely on charter are desperate. The large Gulfstreams and Global Expresses are now available for the same cost per kilometre as mid-size jets. At that rate, they barely cover their maintenance, let alone their fixed costs. No wonder sales of new jets are depressed.

Similarly, the sale of recreational aviation aircraft is at an all-time low. The Airplane Factory now sells the bulk of its production internationally, as locally very few pilots can afford to pay more than a million Rand for a basic two-seater recreational plane. The sales of type certified piston aircraft have dried up almost entirely. I am told that the big four manufacturers combined have sold less than 10 new aircraft in South Africa so far this year (with the evergreen Cirrus SR22 apparently having accounted for almost half those sales). 

There is a sense that almost everyone is just holding their breath – or perhaps sitting on their hands. There is hope that with the end of the Zuma presidency there will be a collective sense of the unburdening of the economy, as though a huge weight of depression has been lifted from its shoulders. It may seem hard to imagine now, but everything is cyclical, and this too shall end. Then the pendulum will swing back from the extreme depression it is in now, to the other extreme of optimism, and we will once again be flying in the best country in the world.  

Dad’s Blog / Ed’s Note:

Aviation is a capital-intensive industry that is typically very competitive and thus has low margins. To grow, the industry needs to have confidence in the economy – and in government.

South Africa is currently in a crisis of confidence. The ongoing deluge of ‘leaks’ relating to the capture of the State President and his cronies, and the pervasive stink of corruption, has destroyed what little confidence in the future the aviation sector had.

On top of the damage to the industry caused by the failure of South Africa’s top levels of government, there are the ongoing debilitating attacks on the industry itself, often led by well-meaning but misguided bureaucrats. Fortunately for now, the damage that would be inflicted on the business jet industry by the introduction of Part 93 has been put on hold by the postponement of the more harmful conditions for 180 days.

Reports from banks, and in particular aviation lenders, indicate that their customers are sitting on large cash balances, but in the current depressed market, and with an uncertain future, the industry is taking a wait-and-see approach to expenditure. The biggest loser has been discretionary expenditure. Flight schools report that there are very few people wanting to learn to fly for fun. The traditional flying school and club is almost defunct and the only flying schools that are surviving are those training foreign students for airline careers.

I am told that the charter industry is down to just 30% of its turnover in 2015. Owners of aircraft that rely on charter are desperate. The large Gulfstreams and Global Expresses are now available for the same cost per kilometre as mid-size jets. At that rate, they barely cover their maintenance, let alone their fixed costs. No wonder sales of new jets are depressed.

Similarly, the sale of recreational aviation aircraft is at an all-time low. The Airplane Factory now sells the bulk of its production internationally, as locally very few pilots can afford to pay more than a million Rand for a basic two-seater recreational plane. The sales of type certified piston aircraft have dried up almost entirely. I am told that the big four manufacturers combined have sold less than 10 new aircraft in South Africa so far this year (with the evergreen Cirrus SR22 apparently having accounted for almost half those sales). 

There is a sense that almost everyone is just holding their breath – or perhaps sitting on their hands. There is hope that with the end of the Zuma presidency there will be a collective sense of the unburdening of the economy, as though a huge weight of depression has been lifted from its shoulders. It may seem hard to imagine now, but everything is cyclical, and this too shall end. Then the pendulum will swing back from the extreme depression it is in now, to the other extreme of optimism, and we will once again be flying in the best country in the world.  

 

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