Analysis of the aircraft market and how economic and geopolitical factors could impact it.
PURCHASE PLANNING HANDBOOK
The year 2022 rapidly has become a torturous time of war in Europe, supply-chain woes, labor shortages and $1 trillion in trade sanctions on Russia. Those developments could not have come at a worse time in light of the post-COVID-19 resurgence in U.S. demand for products and services. The U.S. economy was supercharged in large part by the federal government’s infusion of $2.2 trillion into the economy by means of the 2020 Coronavirus Aid, Relief and Economic Security (CARES) Act, followed by the $1.9 trillion American Rescue Plan signed into law in March 2021. These massive stimuli, coupled with near-record-low federal funds interest rates, are fueling the highest U.S. inflation rates in four decades.
As of the end of February 2022, food was up 7.9%, gasoline was up 38%, fuel oil spiked 44%, electricity rose by 9% and natural gas was 24% more expensive, compared to one year earlier, according to the U.S. Bureau of Labor Statistics. New car prices are 12.4% higher and used car prices soared by 41% primarily due to computer chip shortages that have hampered new vehicle production. The Federal Reserve is 12 months late in recognizing that skyrocketing inflation is not a temporary problem but a pernicious long-term crisis, according to market analysts.
Daher debuted the TBM 960 at Sun ‘n Fun in April. Credit: Molly McMillin/Aviation Week
“The Fed definitely is behind the curve,” says Ronald Epstein, managing director, aerospace & defense, Bank of America global research. So, the Fed is launching a series of rapid-fire interest rate hikes aimed at cooling the white-hot economy. Goldman Sachs projects that in each of its next two meetings the Fed will raise its rates by 0.5%. Raising interest rates, however, risks quenching, rather than just cooling, economic growth. “It’ll take some time to solve the underlying economic issues,” Epstein adds. Some market analysts predict that the resulting downturn could plunge the U.S. into a significant recession. Yet, business jet deliveries won’t sink immediately with a market correction, or even a mild near-term recession, says Rolland Vincent, a prominent market analyst based in Plano, Texas. Vincent believes the industry will sustain its momentum and even start an upward tick in 2024. Strong OEM book-to-bill backlogs will support healthy delivery rates even though sharp corrections in major markets loom large. Embraer Executive Jets, for instance, reports a record 2.5:1 book-to-bill ratio, says Vincent. Long term, robust demand for business aircraft air transportation will continue, starting at air charter, jet club and fractional entry points. “It begins with Wheels Up and goes up,” says Epstein. Rising consumer price index rates and diminished purchasing power may curb demand for passenger seats on airlines, but it’s not likely to have much near-term impact on the business aircraft market. “For people who have made the transition from commercial airlines to business aviation, my gut sense is that inflation is not going to cause people to switch back to the airlines,” Epstein adds. There’s enough pent-up demand in the high-net-worth demographic to sustain sales momentum. Vincent is forecasting nearly 760 business jet deliveries in 2022 and 2023, followed by increasing demand in 2024 that continues throughout the decade. However, the mix of models will change.
The Cessna Citation XLS+ is the only aircraft in the 1,900-nm midsize business aircraft segment. Credit: Textron Aviation
Aircraft Analysis Evolution is apparent in the piston-engine segment, although Vincent and Epstein don’t track that end of the market. For 2022, Piper drops the PA-28R-201 Arrow, leaving the four-seat single market to the speedy, comfortable and economical Cirrus SR20/22 fixed-gear airplanes and the venerable Cessna 182T Skylane, the 19th iteration of a model that dates back to 1956. Prices for piston-engine aircraft generally have risen 5-6% over 2021, but Textron Aviation is hiking the asking price for the Beech Bonanza G36 up to nearly $1 million. The original V-tail Bonanza of 1947 would cost $100,000 in 2022 dollars, admittedly a much-less-capable aircraft. Textron is reintroducing the turbocharged T182T Skylane for 2022, powered by a lightly blown Lycoming TIO-540-AK1A that promises long life and excellent hot-and-high performance. Put on oxygen masks and this aircraft will cruise as fast as 165 KTAS at FL220. Single-engine turboprop sales will remain strong. “A lot more people need to fly to Kalamazoo than Kazakhstan,” quips Vincent about the demand for smaller business aircraft. Daher introduced its top-line 2022 TBM 960 at Sun ’n Fun, upgraded with a FADEC-equipped Pratt & Whitney Canada PT6E-55XT. Its price is just 4.5% higher than the 2021 TBM 940. TBO jumps from 3,500 hr. for the TBM 940 to 5,000 hr. for the new model, with the potential for faster cruise speeds. The Beech BE-220 Denali makes its debut in this year’s Handbook, now that it's made its first flight. GE Aviation believes it will achieve type certification for its Catalyst turboprop, which powers the Denali, by the end of 2022. Further delays in Catalyst airworthiness approvals may cause Textron to reconsider its choice of engines for the Denali, Vincent believes. There’s also room for growth in the single-engine turbofan segment, a niche solely owned by the Cirrus SF50 at present. Perhaps Cirrus will develop longer-range, higher-flying, faster-cruising models in its Vision Jet family or there could be a new entrant from an outside firm, such as Stratos Aircraft with its 400+ KTAS 716 concept aircraft. Multiengine turboprop deliveries have been stable, but it’s not likely that Piaggio’s P180 Evo will remain in production, as it’s been eclipsed by a new generation of fast, fuel-efficient, roomy light jets. The General Aviation Manufacturers Association reports that Piaggio delivered only one P180 Evo in 2021. Textron, in contrast, is celebrating certification of its back-to-basics Cessna CE-408 SkyCourier with an 884-cu.-ft. interior that accommodates three LD3 freight containers. Delivery of the first of 50 aircraft for FedEx is slated for this year, with options for 50 more units. Textron also offers a 19-passenger commuter version.
The super-midsize aircraft segment includes several competitors, including the Embraer Praetor 600. Credit: Embraer
Growth in the FAR/CS Part 23 light-jet segment is particularly strong as more-fuel-efficient, more-economical, more-spacious aircraft replace older models. Vincent points to the Embraer EMB-505 Phenom 300 as an example. It’s a prime reason why demand for the Learjet 70/75 dropped so precipitously, causing Bombardier to discontinue production last year. The Pilatus PC-24 continues to sell well. Company insiders say the book-to-bill ratio strongly supports a production rate hike, but it’s capped at about 45 units per year due to supply-chain constraints. In other news, Vincent believes Embraer eventually will replace the EMB-500 Phenom 100 with a more-capable model. He also believes Textron will introduce a “CJ5,” his term for a larger-fuselage, longer-range variant of the 525 series. The CJs share their fuselage cross-sections with the original Cessna Fanjet 500 announced in October 1968. The average American is much larger than a half century ago, so bigger is better inside the cabin. The Pilatus PC-24 continues to sell well, especially as it offers a Cessna Citation XLS+ sized cabin cross-section, a flat floor and a large cargo door. It’s about $600,000 more expensive than the Citation CJ4 Gen2 and a full $2.2 million above the Phenom 300, but Pilatus isn’t having to discount list prices to make sales. Embraer also is holding firm on asking prices. The HondaJet 2600 concept is another promising design. Announced at NBAA 2021 by outgoing Honda Aircraft CEO Michimasa Fujino, this growth version of the HA-420 HondaJet Elite S has an eight-seat cabin that’s larger than that of the Learjet 75. Honda Aircraft projects it will have 2,625-nm range, with a top cruise speed of Mach 0.785, a 47,000-ft. service ceiling and unprecedented fuel efficiency. Fujino declined to name the engine supplier, but industry insiders at NBAA 2021 told BCA that a growth version of the HondaJet’s GE Honda HF 120 is not currently on the table. Meanwhile, the HondaJet Elite S is earning the highest marks for build quality and dispatch reliability, a fitting tribute to the foresight, creativity and tenacity of Fujino, who retired at the end of March. The traditional midsize business aircraft segment has shrunk to a single player, the 1,900-nm range Citation XLS+. Long gone are the Citation X, Hawker 900, Gulfstream G150 and Learjet 60XR. The XLS+ is being squeezed from the bottom by light jets with similar range performance and at the top by the Embraer Praetor 500 with 3,200-nm range and priced just $1.5 million higher, and even Textron’s Latitude super-mid. Textron delivered 19 units of the aircraft in 2021, according to GAMA year-end shipment records. Company insiders say the firm is considering a major makeover of the 14-year-old model that made its original debut as the Citation Excel in 1998. Among the updates being mulled over are a flat cabin floor, a flight deck makeover, and perhaps even wing and landing gear upgrades. The super-midsize segment remains hotly contested with the Embraer EMB-545 Praetor 500 and EMB-550 Praetor 600, Citations CE-680A Latitude and CE-700 Longitude, Bombardier BD-100 Challenger 350/3500, and the Gulfstream G280, a joint venture between Gulfstream and Israel Aerospace Industries. The Challenger 300/350/3500 continue to dominate the super-midsize class and high demand is enabling Bombardier to sell the aircraft without deep discounts. “Getting price is close to asking price,” Vincent comments, generating healthier cashflow that helped Bombardier buy down $2.9 billion (about 35%) of its debt by the end of 2021. Gulfstream continues to dominate the top end of the market with nearly $6 billion in 2021 billing for large-cabin models, according to GAMA. The G550, last of the legacy Gulfstreams that date back to the GII, has been dropped from the lineup. All current-production large-cabin aircraft boast 488-kt. long-range cruise speeds with impressive fuel efficiency. Parent company General Dynamics’ strong balance sheet makes possible full development funding of Gulfstream’s next-generation aircraft, including the 4,200-nm range G400 that fills the hole left by the departure of the G450 in January 2018, the 7,500+ nm range G700 that competes head-on with the Global 7500, and the 8,000-nm range G800 that will replace the G650ER. Bombardier places second with 2021 billings close to $5 billion. Challenger 350/3500 deliveries remain strong, and Bombardier has achieved full ramp-up of Global 7500 production. Bombardier and VistaJet recently celebrated the delivery of the 100th Global 7500. The Global 5500, while clearly a better, longer-range aircraft than the Global 5000 it replaces, is not selling well because of its relativity poor fuel efficiency, Vincent says. The 6,600-nm range Global 6500 is doing better than its shorter sibling, but it still lags most competitors in fuel economy. Bombardier’s biggest challenge is generating the cash flow needed for new product development, says Epstein. The Challenger 650, for instance, is an iteration of the 1980 Challenger 600, albeit one updated with winglets, better engines, improved avionics and 35% more range. It’s long overdue for a clean-sheet replacement. The arrival of the $35 million Gulfstream G400 in 2025 may crush sales of the $32.4 million Challenger 650. Fuel efficiency issues will continue to dog the Global 5500 and 6500, as the basic designs remain rooted in 1990s-era Global Express technology. Newer designs from Dassault, such as the Falcon 7X and 8X, as well as Gulfstream’s G500 and G600, are far more economical to operate.
The 6,600-nm range Bombardier Global 6500 faces competition from Dassault’s and Gulfstream’s new long-range aircraft. Credit: Bombardier
Dassault came in a distant third place in 2021 with just more than $1.5 billion in billings. But Vincent expects the French firm to come roaring back with its 5,500-nm range, widebody Falcon 6X slated to enter service later this year and the 7,500-nm range, ultra-wide-body Falcon 10X scheduled to arrive in 2025. Epstein says that both Dassault and Gulfstream’s parent General Dynamics have profitable military aircraft businesses that help sustain civil aircraft development programs during market downturns. Vincent says that both firms also have top-notch aftermarket support businesses that bolster customer loyalty and boost bottom lines. Long term, Gulfstream and Dassault are first and second in large-cabin business jet sales, Vincent projects. The Canadians finish in a distant third. One reason for that third-place position is product support. Bombardier, late in recognizing the role of aftermarket support in stimulating new sales and brand loyalty, now is racing to catch up with Dassault and Gulfstream. It’s using most of the $3.6 billion in proceeds from the sale of its rail unit to Alstom to infuse its aftermarket support business unit with tools, parts inventory and technicians. Vincent believes it will take considerable time for Bombardier to elevate its product support to the levels of its U.S. and French rivals. The largest purpose-built business aircraft from Canada, France and the U.S., however, aren’t big enough to serve the needs of some head-of-state air wings, air charter firms and ultra-high-net-worth individuals that want highly modified jetliners with bespoke cabins, long-range fuel tanks and elaborate communications. Indianapolis-based Comlux, for instance, is completing its first Airbus ACJ220 for delivery in 2023 to Dubai-based Five, a luxury hotel group that will use the aircraft to fly its most elite guests between home and hotel properties. This $90 million airborne penthouse has 786 sq. ft. of floor space, accommodating 16 travelers in six seating sections, including an eight-place dining area, a private stateroom with full king-size bed, en-suite bath with shower, and a galley worthy of a three-star Michelin restaurant. Need more room? Airbus Corporate Jets offers the $115 million ACJ320neo with up to 6,000 nm of range and the slightly smaller $105 million ACJ319neo that can fly 6,750 nm, as shown in this year’s Handbook. The ultimate French flying palace is the ACJ350, a veritable Versailles with more than 3,300 sq. ft. of floor space and up to 11,000 nm of range. Boeing Business Jets slowly is rebuilding its biz-liner order book, now that the 737 MAX is back in production after being grounded for two years due to MCAS malfunctions. Boeing Business Jets delivered only two 737-8 MAX biz-liners in 2021, even though they can fly 10% farther than the ACJ320neo. The 737-7 MAX, slated for certification this year, should offer a slight range advantage over the ACJ319neo due to its lower empty weight, and it’s priced $6.7 million less according to our estimates. Raw Materials While strong business aircraft sales are forecast to continue this year, the long-term impact of the Russia/Ukraine war could have profound consequences for the world economy and thus for the business aircraft industry. Russia’s war has so far cost Ukraine $120 billion, or more, of damage to infrastructure, according to Oleg Ustenko, the country’s chief economic advisor. Ukraine’s manufacturing infrastructure, for instance, produces wiring harnesses for the auto industry. The war has slowed or paused production of certain Volkswagen, Audi, Porsche and Mercedes-Benz models that use wiring harnesses and other components manufactured in Ukraine. Russia and Ukraine are leading producers of nickel, copper and iron. Cutting off that supply has greatly inflated the prices of these everyday commodities used by U.S. and European manufacturers. More critically for high-tech industries, Russia and Ukraine supply neon, palladium and platinum used for semi-conductor manufacturing, automotive catalytic converters, mobile phones and even dentistry. Epstein notes that Russia is the leading producer of aircraft-grade titanium. VSMPO (Metal Producing Company of Verkhnyaya Salda), a subsidiary of state-owned defense company Rostec, is the world’s largest titanium producer for aerospace. It’s a large-scale supplier of landing-gear forgings and aircraft-grade titanium for Boeing and Airbus. About 60% of the titanium used by Airbus and 40% of the metal used by Boeing is made by VSMPO. Due to trade sanctions imposed on Russia by the West, Boeing’s joint venture with VSMPO and titanium purchases were suspended in March 2022. Cutting off titanium from VSMPO and other Russian suppliers won’t have a direct impact on business aircraft manufacturers, but it will cause long-term problems for jet engine manufacturers. Titanium is used for fan blisks and other engine parts. If non-Russian suppliers have to choose between high-volume airliner manufacturers and low-volume business aircraft engine OEMs, they’ll follow the money. Long term, business aircraft pundits say frosty relations between the West and both Russia and China will make Western manufacturers reduce or eliminate outsourced materials and components from these two nations. Japan’s Toho Titanium, for instance, says it’s ramping up production to fill in for Russia’s VSMPO. South Africa likely will be tapped for more platinum and palladium.
—Fred George is former chief pilot and senior editor for BCA and former chief aircraft evaluation editor for Aviation Week & Space Technology. He now operates his own consulting company.
