Business jet demand in Europe, the Middle East, and Africa (EMEA) faces an inevitable slowdown after the disruption of the coronavirus pandemic and the onset of increased global economic uncertainty, Robert Gates, head of international sales at aircraft financier Global Jet Capital (GJC), told AIN.
He believes the past two years have been strong for the business jet industry. Many new users entered the market following the lifting of Covid-19 lockdowns, while established users also continued purchasing aircraft. The result was a surge in orders for new aircraft, increased activity in the preowned market, higher aircraft usage, decreased preowned inventory, and a strong pricing environment.
“As the global economy enters a period of higher uncertainty, the business jet market is inevitably taking a step back from these recent highs,” he said. “However, the market remains on a very strong footing. OEM backlogs are higher than they have been in years and inventory is still very low in terms of the proportion of the fleet listed for sale.”
Gates said JetNet placed inventory at about 5 percent of the fleet at the end of March. “While growth in flight operations has slowed and even declined in some segments, it is still well above 2019 levels, indicating that even as commercial operations normalize, many of the new users have continued to use business jets for travel needs. We expect the market to continue at a strong pace, even if it’s not quite at the same level as 2021 and 2022.”
As the global economy recovered from Covid-19 lockdowns, the value proposition of business aircraft was never stronger. Business aircraft enabled users to conduct travel efficiently while maintaining productivity and avoiding crowded commercial flights and airports. Disruptions in commercial flights in 2021 and 2022 further highlighted the benefits of using business aviation.
“As a result, many new users entered the market, driving up demand for business jets and driving down inventory,” Gates said. “As demand went up and supply went down, prices increased throughout 2021 and 2022. Since the inventory of younger aircraft was limited, many buyers turned to older aircraft to meet their needs, driving prices up more on a percentage basis for older aircraft than for younger aircraft.
“In addition, younger aircraft tend to corollate to values for new delivery aircraft, where OEMs have kept prices more stable," Gates noted. "Although values of young aircraft have gone up, the premium has not been as pronounced relative to older aircraft.”
According to Gates, like much of the rest of the world, the EMEA region experienced a strong surge in demand for business jets in 2021, following a Covid-induced slowdown in 2020.
“By late 2022, both new deliveries and preowned transactions had slowed,” he said. “New deliveries were impacted by supply-chain issues that prevented most manufacturers from producing enough aircraft to meet demand. A lack of inventory early in the year and the normalization of the market led to a slowdown on the preowned side.”
In Europe, the war in Ukraine and worries about an energy crisis on the continent exaggerated the 2022 softening. “Although countries in the region handled the crisis well and avoided the worst of a major energy shortage, the concerns encouraged some buyers to postpone aircraft purchases,” Gates said. “As a result, the market for new and preowned business jet transactions in Europe declined around 25 percent, while by comparison the Middle East and Africa combined declined only about 5 percent.”
One way GJC analyzes the business jet market is by comparing sales of new jets with those of preowned models either above or below 12 years of age. In 2022, older aircraft became more popular in the EMEA region, Gates said. As aircraft inventory declined due to the strong market in 2021, buyers around the world had less selection to choose from. As a result, many buyers who traditionally purchased new or late-model preowned aircraft turned to older airplanes to meet their needs.
“Overall, aircraft older than 12 years in age increased from 25 percent of transactions in 2019 to 42 percent in 2022,” Gates said. “New aircraft deliveries remained relatively stable, dropping from 42 percent of total transactions in 2019, to 39 percent. However, newer preowned aircraft, one to 12 years in age, dropped from 33 percent in 2019 to 19 percent in 2022.”
Gates said Europe dominated the EMEA region, accounting for 80 percent of transactions and almost 90 percent of new deliveries there in 2022. Within Europe, the largest markets were Germany, the UK, Austria, France, and Switzerland, while markets with strong growth in 2022 included Portugal and the Netherlands.
“Within the Middle East, the largest markets include Turkey, the UAE, Qatar, Israel, and Saudi Arabia,” Gates said. “Turkey was the fastest-growing market in the region in 2022. In Africa, South Africa, Nigeria, and Morocco are important markets. The South African market grew in 2022 but has not yet reached 2019 levels following declines in 2020 and 2021.”
In the Middle East, while governments were working to diversify their economies, GCC economies had largely been driven by the strength of the oil market. While the global economy faced many headwinds, such as persistent inflation, and supply-chain disruptions, higher energy prices meant that GCC countries were experiencing strong economic growth. Years of investment in other sectors of the economy were also beginning to pay countries dividends, enabling them to diversify economic activity.
“Our intelligence indicates that the GCC will be a robust market for business jets over the next few years,” Gates said. “We have also observed an increase in flight operations in the region over the past 12 months, indicating that demand for aircraft is there. Buyers in this region will purchase both new and preowned jets as the fleet in the region goes through an upgrade and expansion cycle.”
Gates noted that heavy aircraft accounted for a larger portion of transactions in the EMEA region than in the rest of the world, especially in the Middle East and Africa. “Globally, heavy jets typically account for about a quarter of all transactions,” he said. “However, in the Middle East and Africa, heavy aircraft account for more than half of all transactions, or 55 percent in 2022. In Europe, the total is a little lower than in the Middle East and Africa, but at 35 percent, they were still above global ratios.”
Looking ahead to the rest of 2023, in the Middle East, where high oil prices and increasing investment in alternate industries are fueling general economic growth, GJC anticipates an uptick in activity. The European economy continues to face headwinds from inflation, banking concerns, and the war in Ukraine and, as a result, does not anticipate any significant growth in the market.
“However, the region has handled the crisis well so far, and many economists now expect that the continent will not be hurt as much as once thought,” Gates said. “Africa remains a bit smaller than the other two regions, but economic growth should continue to support aircraft transactions. Global Jet Capital and our partners in the market continue to see robust activity levels in the EMEA region, and we expect the region to be a significant driver of business jet transactions in 2023.”
Gates concluded with a note on the efficacy of GJC’s business model. “While Global Jet Capital has observed that values ebb and flow over time, ultimately, business jets are depreciating assets with predictable lifespans,” he said. “So even if they rise and fall in value in the short term, over the life of an aircraft, the value will decline.
“For this reason, as a company, we do not focus on financing one segment or another due to short-term fluctuations. Instead, we have built a diversified portfolio of aircraft composed of different classes, models, and ages, enabling GJC to successfully navigate across varying cycles, both up and down.”