The recession and a negative perception of corporate jets is slowing orders for Savannah-based Gulfstream, but the company is cautiously continuing plans for expansion.
Gulfstream has seen a slowdown in sales of its planes with midsize cabins, primarily because of buyers running into problems financing the purchases, “so we are cautious in our activities,” said spokesman Robert Baugniet. The company has also seen a slight slowdown in orders for large cabin aircraft, he said.
The weaker market Gulfstream is seeing is part of a broader downturn in the cyclical business jet industry.
“It’s the first market to be directly affected by the downturn,” said aerospace consultant Richard Aboulafia, who is vice president of analysis at Teal Group in Fairfax, Va. “And it does have a sudden image issue, but it always does in times of economic pain.”
Still, Gulfstream is continuing with its long-range facilities expansion master plan, including construction of hangars at its service center and hiring.
“We’re still hiring people but we’re doing it carefully,” Baugniet said.
The company completed a manufacturing building earlier this year and dedicated a new research and development facility in August. It also announced the development of two new aircraft — the G650 and G250.
Gulfstream has nearly 10,000 employees, spread across locations in Savannah and Brunswick in Georgia; Dallas; Appleton, Wis.; Long Beach, Calif.; London; and Mexicali, Mexico.
Although companies selling jets or returning leased jets may not directly affect aircraft makers, it contributes to a growing inventory of planes for resale, which can reduce demand for new aircraft.
“Sellers are still looking for high prices. Buyers are looking for low prices, so until that rationalizes you’re going to have a lot of inventory in the marketplace,” Baugniet said.
He said Gulfstream has a much larger backlog of orders than after Sept. 11, 2001.
For the business jet market, although much of the past upturn had come from international markets, now “there’s no safe haven. That’s the problem,” Aboulafia said. “You’ll see the numbers turn down” for production and deliveries, along with sales, he said.
But Gulfstream has “the most promising new business jet in the industry” with its G650, “so they’re wisely getting that going in preparation for the next upturn,” Aboulafia said. “If you accept that wealth generation will return, the need for transport will return, globalization will return.”
In the past, “people didn’t defect, they simply deferred,” Aboulafia said.
Public relations issue
As the recession dampens sales, corporate jets have come into the crosshairs of public perception when jet-setting automakers sought a federal bailout.
Automakers decided to sell their aircraft — some of which were Gulfstream jets — after they were criticized at a congressional hearing for flying them to Washington to ask for the federal assistance. The package approved includes a clause that prohibits auto companies that are taking federal assistance from using business aircraft.
Some Gulfstream aircraft are commonly seen as among the most upscale private jets available.
“One of the things that is fairly unique to Gulfstream is their ultra-long-range capabilities, so I think one of the things that you tend to see with Gulfstream customers is they tend to be companies that fly long routes internationally,” said Ed Bolen, president of the National Business Aviation Association, a trade group for corporate aircraft users.
Observers expect other companies across industries to also re-evaluate whether to keep their corporate jets.
At the same time, proponents of business jets say they make sense when used appropriately.
“The reasons for people buying business jets have not changed and that is safe, reliable, efficient transportation to get from A to B to do your work,” Baugniet said. “You could paint a picture that it’s extravagant. You could also paint a picture that it’s a very effective way of moving senior people around the country.”
Where there is criticism, “the shareholders are going to be the ones that make the complaints,” Baugniet said. “Some will and some won’t.”
Corporate jet usage is an issue that shareholders and board members ask about “all the time,” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware.
“It’s one of those hot-button issues,” Elson said. “You have to evaluate it on a regular basis whether it makes sense to keep them.”
“The key is to make sure it’s not abused,” Elson said. “It’s an obvious symbol of waste at many companies where it has been improperly used. Done correctly, it’s perfectly legitimate and probably makes some sense.”
GULFSTREAM’S PRODUCT LINE
• G650: The ultra-large-cabin and ultra-long-range G650 under development was unveiled in March. Gulfstream expects to begin delivering it in 2012. It can travel 7,000 nautical miles at Mach 0.85 or 5,000 nautical miles at Mach 0.9. Its maximum operating speed is Mach 0.925, the fastest civil aircraft flying. It can climb up to 52,000 feet to avoid airline traffic congestion and bad weather.
• G550: A large-cabin, ultra-long-range jet, the G550 can fly up to 51,000 feet at speeds up to Mach 0.885. Can fly eight passengers and four crew members 6,750 nautical miles. Depending upon configuration, it can seat up to 18 passengers. The G550 entered service in 2003.
• G500: A large-cabin, ultra-long-range jet, the G500 can fly 5,800 nautical miles with eight passengers at a cruising speed of Mach 0.8. Depending upon configuration, it can seat up to 18 passengers. The G500 entered service in 2004.
• G450: A large-cabin, long-range business jet, can travel 4,350 nautical miles and cruise at Mach 0.88. It can seat up to 16 passengers. Gulfstream started delivering the G450 in May 2005.
• G350: The large-cabin, mid-range G350 can travel 3,800 nautical miles and cruise at Mach 0.88. It can seat up to 16 passengers and entered service in June 2005.
• G250: The large-cabin, mid-range G250 announced in October can travel 3,400 nautical miles and cruise at Mach 0.82. It can seat up to 10 passengers.
• G200: The large-cabin, mid-range G200 can fly at Mach 0.85 and cruise at up to 45,000 feet. Introduced in 2001, the G200 can seat up to 10 passengers.
• G100: The wide-cabin, high-speed G150 can fly 2,950 nautical miles and seat six to eight passengers. It was certified in 2005.