After five harsh years, the business aviation market is indeed showing signs worthy of optimism, according to responses from JetNet IQ’s most recent industry survey, released last month at the company’s fourth annual summit in New York City. Each quarter the company polls hundreds of business jet owners and operators to read the business climate they are facing, and in the latest round, 54 percent overall (and 59 percent of U.S. respondents) said they believe the industry has passed the low point in the trough, the highest percentage to show that level of optimism in the 13 quarterly surveys since the survey began back in 2011.
Giving his take on why the anticipated recovery has remained elusive for so long, JetNet IQ creator and director Rolland Vincent noted that while markets such as China and Hong Kong, India, Saudi Arabia and Mexico are forecast with the “key” 3 percent or better growth in gross domestic product (GDP) this year, they represent only 7.5 percent of the world business jet fleet. The U.S., home to the bulk of the world’s business aircraft, is anticipated to finish the year with 2.8 percent GDP growth. As the GDP rises, so does the annual number of U.S. business jet flights, which have been on an upward trajectory since the trough of slightly less than 3.5 million in 2009.
The inventory of pre-owned business jets, which peaked at 18 percent in 2009 and has been declining steadily since, is still about a year from resuming normal levels, according to Vincent. Of the young business jets (up to 10 years old) on the market, the percentage has shrunk to 7.5 percent in May from the peak of 12 percent in 2009, while 11 percent of older jets (those between 11 and 20 years) are on the market. Of those older than 21 years, 18 percent remain available.
Eleven percent of the survey respondents said there is a 61 percent or greater chance they will buy a new aircraft in the next 12 months, while nearly a quarter gave the same probability of making a purchase over the next five years. Of those considering the purchase of a business jet, nearly half said they would seek to acquire a medium-sized jet, a growing trend that has continued over the past year. While the results suggest large-cabin demand will remain static, the growth of the midsize and super-midsize category will come at the expense of the small jet segment, according to the respondents, who foresee purchases in that segment totaling less than 16 percent of the market over the next five years. “At the low end it’s going to be a bloodbath, we think,” noted Vincent, who expects to see a housecleaning among OEMs. “There are 42 different models of jet now chasing customers. Do the math; that’s around 15 to 18 airplanes per model on average,” he told the audience, citing the 678 bizjets delivered last year. “We’ve got too many airplane models chasing too few customers right now.”
JetNet expects a tad shy of 700 new business jets to be delivered this year, depending on the certification of several aircraft in the pipeline. Its latest 10-year forecast calls for the worldwide business jet fleet to grow by 35 percent, to 26,400, assuming 2,500 retirements. JetNet sees deliveries of approximately 9,400 private jets over the next decade, with large ultra-long-range and super-midsize jets accounting for 17 percent each. The former category is anticipated to generate 37 percent of the industry delivery value over that period.
OEM Delivery Forecast
Providing the OEMs’ perspective, Brant Dahlfors, Bombardier Business Aircraft’s vice president of sales, said that deliveries so far this year are well ahead of last year’s pace, and the Canadian airframer expects to deliver 9 percent more business aircraft this year. While orders across the company’s entire product line are up, he noted the recovery doesn’t yet inspire the same level of confidence seen in previous rebounds.
Gulfstream has doubled the number of its aircraft serving international clients over the past decade, to approximately 2,200 or 35 percent of the Savannah manufacturer’s fleet, said a company spokesman, and today more than half of the company’s backlog consists of international orders. “We have seen a lot of growth over the past few years,” he noted, “but it’s spotty; not everywhere is roses.”
Embraer delivered 120 business jets last year and expects to exceed that number slightly this year, said Jose Costas, the Brazilian airframer’s senior vice president for the company’s executive jet division, in anticipation of the entry into service of the super-midsize Legacy 500. He noted the company’s present lack of an ultra-long-range model might currently limit its revenues relative to other OEMs, but added that the Phenom 300 last year was the most sold aircraft in the world, with a 47-percent share in its segment.
At EBACE in May, Textron Aviation exhibited as an integrated enterprise combining Cessna, Beechcraft and Hawker. Textron Aviation has ramped up its company-owned European service network in anticipation of EASA approval for deliveries of a flurry of new models, including the M2, CJ3+, Sovereign+, the X+ and the Latitude. “From a delivery standpoint we haven’t had a lot of activity in Europe, but we anticipate a lot in the near term,” said Rob Scholl, regional vice president of sales. He noted that discussions with customers suggest the light segment is starting a real recovery. The company is now engaged more with Hawker owners considering upgrading and modifying their aircraft.
Citing widely held industry predictions of approximately 24,000 business jet deliveries over the next two decades, Dahlfors challenged Vincent’s earlier verdict of too many aircraft types. “Divide that over 40 models and there’s a big enough pie, I think, to have pretty close to that many models.”
Dassault Falcon Jet president and CEO John Rosanvallon noted that the uncertainty in the U.S. market has driven some long-term customers to hold onto their aircraft for previously unheard-of lengths of time, creating pent-up demand for replacements. Brad Harris, president and CEO of aircraft brokerage Dallas Jet International and current chairman of the National Aircraft Resale Association (NARA), echoed that thought. “The Fortune 100-200s [companies] have two to five aircraft and typically they have been a five-year buyer, but we are seeing that cycle go from five to seven years.” He said his company is now seeing fleet replenishment by companies, with 90 percent of the deals consisting of aircraft upgrades. According to David Crick, senior appraiser and partner with Lloyd’s Asset services, corporate jet expectations have changed since the great financial crisis, with customers becoming more savvy in a buyer’s market, asking more questions.
Regulatory Concerns
In a round-up of the regulatory issues facing the industry, Pete Bunce, now in his 10th year as president and CEO of the General Aviation Manufacturers Association (GAMA), took the audience on a tour of the Washington bureaucracy, stopping at each agency and examining its effects on general aviation. He cited the current situation with the Customs and Border Protection’s electronic advance passenger information system (eApis), under which private jets arriving from international flights must commit to a meeting window plus or minus 15 minutes, yet agents can be late, forcing passengers and crew to remain on the aircraft in some cases for hours, awaiting clearance. One solution the association is working on is to establish integration with the agency’s Global Entry program to streamline the process.
In attempting to establish favorable and more standardized operating conditions worldwide for the industry, the Department of State has been useful in negotiating with other governments, according to Bunce. “One of our biggest impediments is when countries try to regulate business aviation the way they regulate commercial [aviation]. They drive up costs so astronomically that it makes flying prohibitive for a lot of our customers,” he said. As an example he cited the situation in the Middle East, where the region’s two major business aviation users (the UAE and Saudi Arabia) employ different sets of rules. One uses EASA rules while the other uses FAA rules, and there is little communication between the two countries, complicating private travel between them. “If we can get those two countries to start marching in the same direction we can actually help our fortunes,” Bunce said.
He also noted the importance of the U.S. Ex-Im Bank to the health of the industry, and its ability to close aircraft deals. The bank’s reauthorization ends at the end of September, and he urged the audience to convey its importance to their congressional representatives to ensure its continuing support.
Closer scrutiny on money laundering and the laws imposed to prevent it is being felt in aircraft purchase deals, according to a panel on financing moderated by Ford von Weise, Citi Private Bank’s director of global aircraft finance. It’s no longer enough for a customer to have the money to pay off an aircraft sale; its source must now be fully traceable or the deal could be delayed or even voided.
“There’s a full vetting process that we have to go through every time, not just when we are doing the loan up front, but now when they are selling and getting ready to pay the loan off,” said Wayne Starling, senior vice president of sales and marketing with PNC Aviation Finance. He mentioned that many customers are not aware of the current criteria and might not have the proper financial documentation available, an oversight that could derail some tightly scheduled back-to-back transactions. Given the current political and regulatory scrutiny, von Weise noted it is in the industry’s best interests that the letter and intent of the law be followed to the fullest extent possible.
In terms of aircraft age, liquidity of the asset is now a major consideration, as opposed to past formulas of age plus term equaling a certain value, according to Donald Synborski, managing director of business aviation finance with RBS Asset Finance. His company seldom finances anything older than 15 years these days, he noted.
In another sign of growing confidence in the market, the panelists noted that lenders are flocking back, elevating competition for transactions. Mike Kahmann, group head and managing director of CIT Business Aircraft Finance, a major player in the international aircraft finance market, noted stiffer competition in both Asia and Latin America from indigenous lenders.