After a decade of stagnation and oversupply followed by a COVID-19 shock, the business aviation industry is on a sharp upswing.
Molly McMillin
After a decade of stagnation and oversupply followed by the COVID-19 economic shock, the business aviation industry is on a sharp upswing, driven by new entrants to private aviation, pandemic-related health concerns, a booming stock market and near-record low interest rates.
New virus variants, such as omicron announced Nov. 24, may give the industry an additional boost.
“This makes people realize how important it is to fly privately and fly in a safe world,” says Rolland Vincent, a consultant with his own Plano, Texas, firm. “This is only going to create more interest.”
Aircraft manufacturers, in the midst of setting production schedules for 2022, are keeping a close eye.
The industry was in the doldrums for the 10 years following the financial crisis of 2009 but experienced an upturn in 2019. Then the pandemic hit, bringing a sharp downswing in 2020 demand. The downturn was shorter than most observers expected because the pandemic acted as a private-aviation accelerator.
“The market is pretty robust right now,” Eric Martel, Bombardier president and CEO, said in September. “It slowed down last year, but now it’s accelerating to a place we’ve never seen before.”
Charter and fractional ownership companies are reporting double-digit increases in demand, utilization is now exceeding pre-pandemic levels, and pre-owned inventory is at a historic low. Major manufacturers are reporting longer backlogs, firming prices and—for the first time in a decade—an appreciation in values for certain pre-owned models of aircraft.
“Clearly, it’s a good time to be an OEM again,” Vincent says.
The largest driver of industry growth has been COVID-related health concerns as first-time users of private aviation—those who could afford to use private aviation but did not before—seek alternatives to the airlines, says Cai von Rumohr, senior aerospace research analyst at Cowen.
With a surge in business, Wheels Up, NetJets, Jet Linx, Priester Aviation and other charter, jet-card and fractional-ownership providers temporarily suspended new sales or restricted flights for new customers to keep service quality high while demand outstripped capacity.
In October, NetJets said it no longer could provide immediate flights for new share and fractional owners, a move that followed an August pause of jet-card sales. The company reports its waiting list has grown to more than 1,700. NetJets is investing $2.5 billion in new aircraft for delivery by the end of 2022 and is hiring hundreds of pilots.
Wheels Up recorded a 47% increase in active members in the second quarter of 2021 followed by a 45% boost in the third quarter. A Wheels Up official says the inability to handle all of the new demand has meant tens of millions of dollars “spilled” for the company and hundreds of millions for the industry.
The pre-owned business jet market is especially robust, with inventories at record lows at 3.2% of the total fleet, including all makes and models, and average list prices up 9% from a year ago, according to Jefferies analysts. Inventory of in-production jets less than seven years old, meanwhile, fell 62% in November compared to a year ago, or to 2.2% of the total fleet. In November, 795 business jets were available for sale, compared to 1,674 a year ago.
Many aircraft are selling before they reach the market, brokers report. In some cases, owners are receiving multiple offers. Owners also have been hanging onto their aircraft as they struggle to find replacements, with few choices available.
“Finding an aircraft in the pre-owned market is like [looking through] this massive Kansas haystack trying to find that little needle,” Vincent says. “It just doesn’t exist. [Inventory] is so low, it’s ridiculous.”
The market for new aircraft is also up.
Typically, first-time buyers of business aircraft comprise 10-20% of sales. That figure now has risen to more than 30%. Major business jet manufacturers report a book-to-bill of about 2:1, or two orders for every delivery.
Gulfstream’s strong order demand has led to its highest backlog in six years, officials say. As a result, the company plans to raise production in 2022.
First-time buyers also are changing the purchase process.
“You have to introduce them to tax advisors and broker-dealers and bring them along with that process,” explains Michael Amalfitano, Embraer Executive Jets president and CEO. “It’s much more engaging, and you have to be much more patient in the process.”
At the same time, experts are not predicting the return to the highs of 2007 and 2008, when the industry delivered 1,300 business jets in a year.
The 2022 Aviation Week Business Aviation Fleet & MRO Forecast does not expect business-jet deliveries to reach 2019 levels until 2023. According to the forecast, the industry is expected to deliver 7,900 business jets and 2,700 turboprops, valued at a total of $240 billion in the decade, with small jets projected to represent the largest portion of the deliveries. Deliveries also will be spurred by new and upgraded products coming into the market.
In the first nine months of 2021, deliveries of business jets rose nearly 16% and turboprops close to 41% over 2020 figures, according to the General Aviation Manufacturers Association.
The question is whether new users will stay or return to the airlines post-COVID.
Ron Epstein, senior equity analyst at Bank of America Merrill Lynch, expects new entrants may not stay, given that the “power of reversion to the mean” is strong.
Others are more optimistic.
“Somebody buying a new airplane? That sticks,” says Don Dwyer, Guardian Jet co-managing partner. “They’re probably going to buy another one in their lifetime. The entry-level charter person that’s calling around to get the cheapest rate? I don’t know how sticky that is.”
Jefferies analyst Sheila Kahyaoglu credits the boom to the number of new initial public offerings (IPO), wealth creation and an increase in money supply, rather than to COVID-19.
For example, on a rolling 12-month basis, the number of IPOs totaled 1,239 listings in November, compared to 463 in November 2020, a 167% increase, Kahyaoglu says.
Those are potential new customers.
“I think wealth creation is going to push people to buy a business jet,” she says.
On the other hand, some are skeptical about the long-term sustainability of an upturn. The industry has had a “terrible” 12-year run, for example, Kahyaoglu notes.
And while the pandemic has boosted the industry in the U.S., air travel restrictions are inhibiting global recovery. The omicron variant has only increased those restrictions.
“At some point, the recovery has to be international,” Kahyaoglu says.
The business aviation industry faces several challenges. For one, there is a risk if inflation concerns change monetary policy, possibly creating a skittish market, Kahyaoglu notes. “As governments have to battle inflation, how do they take that head-on, and how does that create a headwind to the industry, especially as these variants keep rolling through?” she asks.
In addition, the supply chain and lack of available skilled labor can be limiting. When manufacturers call suppliers for production-rate increases, suppliers often say they lack enough workforce. It is a problem that is not going away soon. Manufacturers also are hiring and facing similar issues.
“Rejiggering your supply chain is not done lightly,” Vincent says. “It’s very difficult.”
