The market outlook is still rosy but…
PURCHASE PLANNING HANDBOOK
Stagflation, that ugly nightmare of the late 1970s, when the trio of persistent inflation, substantial unemployment and stagnant economic growth trapped consumers in a tailspin, is showing signs of reemerging four decades later, says Ronald Epstein, Bank of America’s senior equity analyst for aerospace. He adds that it won’t be the near-fatal disease it was when groovy tie-dyed shirts and plaid bell-bottoms were all the rage, but potentially it will slow and weaken demand for business aircraft, particularly at the entry level.
“Things were slowing down gradually until two weeks ago [early March 2023],” notes Epstein. Then, the collapse of Silicon Valley Bank and jitters at First Republic Bank, plus the implosion of Credit Suisse, rocked capital markets. They took a full haircut when Credit Suisse grabbed for a life preserver from the Swiss government to avoid drowning. Investors in, as well as depositors at, several U.S. regional banks shuddered.
Those events are clouding the broader economic outlook. “People are becoming more risk-averse. They’re cashing out their holdings. Money market funds are reaching all-time highs,” notes Epstein. In other words, investors are keeping their powder dry and not taking risks. “The lower down you go on the food chain, the less the demand.” Upsets in the economy likely will hurt OEMs like Cirrus, Piper and Textron more than Bombardier, Dassault and Gulfstream.
Raising interest rates, even in quarter-point increments, risks quenching, rather than just cooling, economic growth because of systemic inflation. “I have no crystal ball, but I can tell you that inflation can kill the economy. It’s the silent knife in your side,” says Marc Foulkrod, CEO of Avjet Global aircraft sales and a 40-year industry veteran.
Used bizjet aircraft inventories are building and the gap is narrowing between asking and selling prices in the pre-owned market. Foulkrod cautions against speculating in the business jet market, as in betting that you’ll be able to buy an aircraft for $16-million and flip it for $18-20-million. “Buy the airplane if you need the transportation,” he adds.
Brant Dahlfors, co-founder of the Jet Transactions brokerage with Mark Bloomer, has another take on the current state of the pre-owned market. “Sure, it’s slowed a little bit and inventories are three times what they were three years ago. But they’re still below 5% of all aircraft. Prices have flattened. Asking prices have decreased 5% to 10%, putting them more in line with selling prices. A lot of buyers have been rewarded for having waited until now.”
“There are no panic sales. A lot of people are taking advantage of the market by trading up. We’ve signed four new letters of intent in the last month. And OEMs remain bullish on harder [new-aircraft] prices,” Dahlfors notes.
Sheila Kahyaoglu, equity analyst at Jefferies Research Services, is even more bullish on the pre-owned market than Dahlfors. Her March 19, 2023 newsletter says that while used aircraft inventories are up 53% year-over-year, only 3.5% of the fleet is on the market, significantly below the 5.7% five-year average. And prices for aircraft 7-years-old or younger are up 22%.
Moreover, she notes that business jet operations are up 15% from 2019, including a 30% increase in private flights and a 21% boost in fractional and charter operations. Top performers in the jet card, fractional and charter sector include NetJets, FlexJet and Kinston, North Carolina-based flyExclusive.
Embraer’s Phenom 300 retains its position as the best-selling light jet. Credit: Embraer
But overall activity levels are 5% lower than a year earlier, and corporate flight department activity remains almost flat. Even so, business jet operations were higher in both 2021 and 2022 than they were in 2019 before the COVID-19 pandemic virtually closed down international flights.
Barring a recession more severe than in 2008, deliveries of new business jets will remain robust, says Rolland Vincent, the veteran market analyst. The Big Five—Bombardier, Dassault, Embraer, Gulfstream and Textron Aviation—racked up a record $49 billion backlog in 2022, a 27% increase over 2021. Their book-to-bill ratios, the number of orders versus number of deliveries, average 1.3:1 to 1.6:1, and provide 2+ year backlogs, Vincent notes.
Vincent predicts 750 deliveries in 2023, up 6% from 2022. He also foresees 800 deliveries in 2024. Delivery rates in 2026 should accelerate, climbing to about 950 shipments in the second half of his ten-year forecast period.
This will reduce backlogs of some current-production aircraft. But, the arrival of new aircraft, such as the swift Gulfstream G400, roomy Falcon 6X, four-section cabin G700 and top-of-the-class Falcon 10X will help spur a new round of orders and thus sustain long-term demand.
Evolution also continues in the piston-engine segment, although Vincent and Epstein don’t track that end of the market. For 2023, Piper is dropping the PA-34-220T Seneca V from its model line-up, leaving the PA-44-180 Seminole trainer as its only multi-engine aircraft. Piper dropped the PA-28R-201 Arrow in 2022, ceding the four-seat high-performance single-engine market to Cirrus and Textron Aviation. Prices for some piston-engine aircraft generally have risen 5-6% over 2022, but Cirrus hiked the SR20 price by 10%. Textron, in contrast, is holding fast on its $999,000 asking price for the Beechcraft Bonanza G36.
Single-engine turboprop sales remain strong, with Daher delivering 56 TBM 960, 16 Kodiak 100 utility aircraft and its first $3.5-million Kodiak 900, a faster, longer and more powerful variant of the Kodiak 100. Piper delivered 41 M600 aircraft in 2022, bolstering a $226,000 price hike for 2023. Sales of the M500, essentially a rebadged Meridian, remain lackluster. Epic remains focused on poaching sales from Daher with its all-composite 300+ KTAS E1000 GX, a direct competitor to the TBM 910/960. The Bend, Oregon-based company also is hiking prices by $260,000, closing the gap between the E1000 GX and TBM 910 to $90,000.
Pilatus delivered 80 PC-12 NGX aircraft in 2022 and predicts it will deliver the 2,000th PC-12 in 2023. It’s celebrating by hiking prices by 5.5%, so a new PC-12 NGX will cost more than $6 million this year. Textron Aviation still is forecasting certification and first customer deliveries for the Beech Denali, a direct competitor for the PC-12 NGX, in late 2024. Ongoing development woes with Denali’s GE Catalyst turboprop engine continue to delay the program. Notably, Textron has reduced 2023 prices for both the Caravan and Grand Caravan EX to stimulate sales.
Twin turboprops remain a strong suit for Textron, as the venerable Beech King Air B200 and B300 series soldier on with steady sales. Deliveries of freighter versions of the versatile Cessna CE-408 SkyCourier began in May 2022 and are expected to ramp up in 2023. The SkyCourier Freighter can tote three LD3 cargo containers in its 884-ft.3 cabin, making an ideal fit for launch partner Fedex, which has 50 orders and 50 options for the aircraft.
There continues to be room for growth in the single-engine turbofan segment, a niche solely owned by the Cirrus SF50 at present. Stratos Aircraft of Redmond, Oregon has intentions of developing a 1,600-nm range, 41,000-ft. cruise, 400+ kt., step-up single-engine jet with better fuel efficiency than current single-engine turboprops, but chronic underfunding continues to hobble development work.
The FAR/CS 23 light-jet segment remains a strong segment for Textron as deliveries of Citation M2, CJ3+ and CJ4 Gen2 remain robust. New entrants, however, are challenging the old guard. Embraer’s EMB-505 Phenom 300 retains its position as the best-selling light jet of the last decade, racking up 59 deliveries in 2022. Pilatus anticipates rolling out its 200th PC-24 this year, but industry analysts say production is capped at 40-45 units per year because of supply chain bottlenecks.
In other news, many industry observers still are waiting for Embraer to announce a successor to the EMB-500 Phenom 100. For now, Embraer is concentrating its efforts upmarket with its Praetor 500 and 600 super-midsize jets, plus its second-generation regional jets. The industry still waits for Textron to announce a successor to the Citation XLS+, perhaps a large-fuselage variant of the CJs. Those light jets 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 would be better inside the cabin.
“G400 will kill Challenger 650,” opines Epstein. But “G400 also is late to the game. People are looking for solutions…now.”
Vincent believes Honda Aircraft will announce the launch of its HondaJet 2600 in the next several months, a super-light jet with a cabin larger than the now-discontinued Learjet 75, but with 30% more range, higher usable cruising altitudes and a considerably quieter cabin environment.
Super-midsize aircraft continue to be hot sellers, as Bombardier, Embraer, Gulfstream and Textron collectively delivered 166 units. “Every OEM has its own niche,” Vincent says. Top honors go to the Citation Latitude, with 42 deliveries in 2022. Its blend of runway performance, cabin comfort and $20-million price tag make it a winner. Bombardier’s Challenger 350/3500 came in second, with 38 deliveries. Challenger 3500 carries on as Bombardier’s only super-mid in 2023. It’s an airplane essentially identical to Challenger 350, but having a plusher interior and lower cabin sound levels.
The Big Three—Bombardier, Dassault and Gulfstream—continue to control the large-cabin-class segment. Gulfstream maintains its unassailable first-place position, logging $6.6 billion in revenue with 120 deliveries. At the end of 2022, its backlog stood at $19 billion, 20% higher than at the end of 2021. Gulfstream’s order book now totals nearly almost as much as Bombardier and Dassault combined for 2022.
Gulfstream’s financial strength is enabling it to refresh its model line more aggressively than either Bombardier or Dassault. This is especially evident in the 4,000-mi.-class large-cabin entry point. Speed sells, and slower competitors are at a potential disadvantage. Gulfstream’s 4,200-nm, Mach 0.85 GVII-G400 arrives in just over two years. The 4,000-nm Bombardier Challenger 650 and Dassault Falcon 2000LXS clearly are in its sights. The G400 will have a larger cabin than either competitor, a 50-60-kt. speed advantage on the longest missions, higher cruising altitudes, lower cabin altitudes and more advanced technologies, including fly-by-wire flight controls. It’s also the only entry-level large-cabin aircraft to offer an optional forward lavatory in addition to the standard aft lav.
Brant Dahlfors of Jet Transactions offers counterpoints in defense of the Challenger 650 and Falcon 2000LXS. He notes that while Challenger 650 is the sixth iteration of the original 1980 Challenger 600, it has earned considerable operator loyalty. Similarly, the Falcon 2000LXS has been refreshed four times since it was first certified in 1995 and Dassault is tops in the industry for brand allegiance. Long order backlogs will slow migration to the G400. In addition, Bombardier likely will offer deep discounts on the Challenger 650 to spur sales, if the G400 becomes a threat.
“G400 will kill Challenger 650,” opines Epstein. But “G400 also is late to the game. People are looking for solutions . . . now,” counters Foulkrod. Older Challenger operators continue to trade up to the Challenger 650, says Dahlfors, because they’re comfortable with its capabilities and its support requirements.
Dassault is moving away from entry-level, large-cabin models with its commodious 5,500-nm-range, Falcon 6X, due to enter service in 2023 and topline Falcon 10X flagship slated for 2025 deliveries. Falcon 6X offers the largest cabin cross-section of any current-production large-cabin aircraft outside of jetliner derivatives, exceptionally low cabin sound levels, unparalleled low-speed agility and advanced safety technologies. Long-range cruise speed is Mach 0.80. Push it up to Mach 0.85 and range drops to 5,100 nm.
The Falcon 6X competes head-to-head with Bombardier Global 5500 and Gulfstream G500. Bombardier only delivered 8 Global 5500s in 2022, preferring to step up to the Global 6500. Gulfstream, in contrast, delivered 23 G500 jets, in large part due to its blend of speed, superior fuel efficiency, high cruise altitudes, quiet cabin and the lowest cabin altitude in its class.
Gulfstream’s 6,600-nm-range G600, its replacement for the G550, continues to sell against Bombardier’s Global 6500. As with the G500, it offers an unmatched combination of speed, fuel efficiency and cabin comfort.
Fuel-efficiency issues 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, and Gulfstream’s G500 and G600, are far more economical to operate.
Savannah also is well-positioned with its 6,900-nm-range G650 and 7,400-nm-range G650ER models. The 500th G650/G650ER should be delivered in 2023, just as the first 8,000+ nm G800 enters service. The G800 is an enhanced version of the G650 with an improved wing, more powerful and fuel-efficient engines, and new Symmetry flight deck adapted from the G400/G500/G600 series. Foulkrod expects the G800 to have considerably more range than Gulfstream currently predicts—more than any other purpose-built business aircraft. The G800 eventually may replace the G650 in Gulfstream’s product line, but for now the G650/G650ER continue to sell well, especially with their lower prices.
Bombardier reset expectations for large-cabin aircraft in 2018 when its 7,700-nm-range, four-section cabin Global 7500 entered service. It’s the biggest, heaviest and roomiest purpose-built business aircraft in current production, proving quite popular with ultra-high net worth individuals seeking the ultimate air yachts. Bombardier makes no pretense about Global 7500’s being designed primarily for public companies whose shareholders increasingly scrutinize the use of corporate aircraft.
The Global 7500 triggered strong responses, first from Gulfstream, then Dassault. Gulfstream’s own four-section cabin jet, the G700, is due for deliveries in 2023. It features enhanced, higher bypass-ratio Rolls-Royce Pearl 700 engines [aka BR700-730B2-14 turbofans], improved wing aerodynamics and the Symmetry flight deck carried over from the G-VII G400/G500/G600 series. Gulfstream advertises a 7,500-nm maximum range, but Foulkrod believes it will be closer to 8,000 nm.
Dassault was late to this party when it announced the 7,500-nm-range, four-section cabin Falcon 10X in mid-2021, so it needed a distinctive selling advantage: this would be the biggest, purpose-built business jet yet announced. “It’s a totally different creature,” says Epstein, who toured the Falcon 10X cabin mock-up at NBAA last year. “It reminds me of the first time I sat in a Boeing 787.”
Dassault’s Falcon 6X is scheduled to enter service this year. Credit: Dassault
Falcon 10X represents a radical departure for Dassault from earlier Falcon Jet designs. It’s designed from the outset to cruise as fast as the best from Bombardier and Gulfstream. Its cabin is nearly 8 in. wider and 2 in. taller than any purpose-built business jet in production, plus it will have the largest window area. Dassault is crafting the first composite wing for a large-cabin business aircraft, borrowing extensively from its military aircraft designs.
Similar to its Mach 2-class Rafale, Falcon 10X will have a single thrust lever for both engines, automatic loss-of-control recovery system, and a HUD that will function as its primary flight display. Dahlfors notes that Falcons have always appealed to buyers with strong engineering interests. The Falcon 10X capitalizes on that strength to the maximum. The model is on track for late-2025 deliveries.
Vincent concedes that the Falcon 10X will cost Bombardier some Global 7500 sales. But the Gulfstream G700 “will hold its own” against Falcon 10X because of its performance advantage, fuel efficiency and brand loyalty.
Gulfstream thus retains its gold medal position, with Dassault in line to take silver and Bombardier winning the bronze. One reason for this ranking is product support. Bombardier is still late in beefing up its aftermarket business. Support stimulates sales, as demonstrated by both Dassault and Gulfstream.
Even so, Gulfstream is hedging its bets by holding to its 2022 pricing, while Bombardier and Dassault have bumped up retail prices for 2023.
The largest purpose-built business aircraft from Canada, France and the U.S., however, remain too small to meet the needs of some VIP/head-of-state air wings, air charter operators and a few ultra-high net worth individuals. These buyers are willing to spend $80-$200 million, or more, on highly modified jetliners, customized with bespoke cabins, long-range fuel tanks and elaborate communications systems. Comlux, in Indianapolis, for instance, recently delivered its first ACJ220 to Dubai-based Five, a luxury hotel group, which will use the aircraft to fly its most elite guests between their homes and its hotel properties.
The $90-million ACJ220 airborne penthouse completed for Five has 786 ft.2 of floor space, accommodating 16 travelers in six seating sections, including an 8-place dining area, private stateroom with full king-size bed, en-suite bath with shower and galley worthy of a three-star Michelin restaurant. Comlux now has a second ACJ220 in the works.
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 Purchase Planning Handbook. The ultimate French flying palace is the ACJ350, a veritable airborne Versailles with more than 3,300 ft.2 of floor space and range up to 11,000 nm.
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 a single 737-8 MAX BBJ and another 787-9 MAX BBJ in 2022. (The certification of Boeing 737-7 MAX continues to be postponed in the aftermath of the MCAS debacle.) When the BBJ enters service, it should offer a slight range advantage over the Airbus ACJ319neo due to its lower empty weight, plus it’s priced $6 million less, according to our estimates.
While the business aircraft industry is propelled upward by record order backlogs, it faces tough challenges from increasingly vocal environmental activists who point to the disproportionate carbon footprint of private aircraft. While private jets account for just 0.2% of carbon emissions, they are a favorite target of activists because their carbon footprint per passenger is several times larger than for commercial airliners.
The aviation community is embracing sustainable aviation fuel (SAF) as the best near-term solution for reducing its carbon footprint. But the transition from fossil fuel to SAF is moving forward at a “glacial pace,” says Vincent. SAF production tripled to 79 million gal. in 2022, according to the International Air Transport Association. But annual jet fuel consumption now exceeds 27 billion gal., according to the U.S. Energy Information Administration, so fossil fuel still accounts for 99.99% of the total.
Shortages of pilot training slots at Part 142 simulator training centers pose another challenge for business aircraft operators. OEMs have reserved all but a few seats for new-aircraft customers, plus some of their own used-aircraft customers. Many business aircraft operators are feeling the pinch.
Finally, ESG [Environmental, Social and Governance] advocates will continue to pressure public companies to recognize “stakeholder capitalism” and to promote the value of “non-financial performance.” For many, this means corporate aircraft increasingly will become targets for activists, not only for their perceived excessive carbon footprint, but because they’re used primarily by top management rather than rank-and-file employees. Several studies conducted by NBAA indicate that companies that use business aircraft outperform non-users, at least financially. But such statistics are discounted by activists who promote “non-financial performance” as an important goal.
For 2023, public companies that operate business aircraft thus face more potential challenges than at any time in the past. Privately owned businesses and ultra-high net worth individuals feel much less heat from critics, and they’re much less susceptible to potential economic upheaval caused by a new round of stagflation. So for now, the combination of record order backlogs and a shift in marketing focus away from public corporations and toward private jet buyers is sustaining the strength of the business jet industry.
—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.
