When too much money chases too few goods, prices rise – Economics 101 – and weak business plans get funded. It looks like that idea is being applied to the emerging VLJ industry. I count 14 manufacturers that have entered this space or have announced they will very soon. Seven air taxi business plans are being circulated amongst the investment community. There seems to be no shortage of capital waiting to be wasted away on this dream that has yet to fly a single commercial flight and, so far, has only one viable aircraft (the Cessna Mustang) capable of flying a paying passenger. I have no doubt that VLJs will be produced in quantity, but far lower than almost all forecasts. I feel equally strongly that the VLJ air taxi models will fail and the manufacturers that are basing their production plans on these models will be sadly disappointed. Most of these manufacturers will also fail.
2006 was the best year ever for business jet manufactures. Backlogs are high and the outlook for 2007 is very promising. But with the exception of Embraer, Cessna, and Honda, the VLJ companies are skating on very thin ice – ice being capital. The ice supporting the VLJ air taxi companies is even thinner. A hiccup in the economy or a VLJ accident could cause big problems for the under-capitalized companies.
At the moment there seems to be plenty of ice. It is 19 degrees outside my window. Watch out - warmer days are coming.
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It will be interesting to watch. I saw a video of the Eclipse first delivery. Very long time coming.
ReplyDeletePerhaps if airline travel gets worse (which seems impossible but is probably likely) and the economy continues to grow disporportionately, there will be a high willingness to pay for limited seating.
But I agree it is an extremely risky bet.
While I don't necessarily disagree with your comments, I am curious about your thoughts on the effect these aircraft may have on the GA marketplace. If we can believe the operating costs forecasted by Eclipse, it will formidly compete with aircraft such as the Beech Bonanza, Cessna 400 series and even the Beech 400 and Citation aircraft, except in overall load capacity. It's abilty to operate in and out of small regional airports will circumvent the security issues and resolve much auto parking problems. The issue of safty in smaller numbers also to be considered, as in the case of the loss of all top management in a single mishap. Three Eclipse flying to the same destination can economically replace a single corporate jet. I would be most interested Mr. Jom Haynes opinion of these issues. I respect your background and experience and would appreciate comparing your thoughts to mine.
ReplyDeleteRespectfully
Art Jackson
VP Sales Marketing
Aircraft Power and Service, Inc.
Art,
ReplyDeleteI believe the VLJs will give a big boost to the GA industry. I give Vern Rayburn a lot of credit for being brave enough and having the vision to start this movement. Cessna, Honda, Embraer, and all the others would not be in this space had Vern not showed them that there is a market. I just hope that Eclipse and others don’t over extend themselves by counting on an air taxi market that is unproven. Will the public except very small airplanes with no baggage room, no potty, and other amenities they are use to finding on the airlines or larger business jets? Of course some will, but in what numbers? I am also concerned about the support for these aircraft, particularly when and if they are operated with the frequency proposed in the air taxi business plans.
Thanks for reading and being part of this conversation.
Jim