Despite rising inflation, increases in interest rates and a fluctuating stock market, business jet market demand signals are strong, experts say. Order books continue to grow, aircraft are coming to the end of their life cycles and demand continues to outstrip supply.
The COVID pandemic and surging wealth have brought an influx of new users into the business jet industry, with increases in charter and fractional services and demand for pre-owned and new aircraft. Production levels in the industry are fairly low.
“I have no earthly idea where the economy is going, nor am I going to try to predict,” Ron Draper, Textron Aviation president and CEO, said in an interview before NBAA-BACE. “Obviously, we’re planning for all scenarios. [Do] we see a softening happening? How we prepare as a company for that. Do we see continued strength in the market today? We’re prepared for both scenarios. We’re not afraid of a softening at all.”
“We’re not too far above some of the low years of [2015], ’16 and ‘17. It’s nothing like [2008], where Cessna alone was building 450 jets and the whole thing collapsed, and three years later, Cessna built 140 jets,” Draper said. “The whole industry is only building 600 or 700 jets. We do see backlogs growing. Everybody’s seeing that in the industry. That’s changing the nature of the conversations a little bit now when customers have to wait a year and a half, two years, or longer for an airplane. But I really feel like the demand is still strong out there. We’re seeing that.
At the same time, supply chain challenges have mitigated the number of aircraft manufacturers are able to produce.
“We’re in an interesting situation where you’ve got supply chain constraints, which have forced the OEMs to not increase production,” Ford von Weise, director and global head of the global finance group at Citi Private Bank, said. “Of course, they would love to increase production to capture more of that demand. But at the end of the day, I think that’s going to be the Savior for the industry two years down the road,” should declines in equity indices around the world continue.
“So, I’m bullish,” von Weise says. “I’m not saying that ... this industry is going to continue to grow at the rate it’s growing. I think we’re going to level off here. But do I think we’re going to see a major contraction over the next few years? No.”
Order backlogs at the world’s five largest manufacturers, totaled $46.7 billion at the end of the second quarter of 2022, up 20% from $38.8 billion in 2021 and up from $27.3 billion in 2020, according to data from JetNet. Aircraft values and pricing have risen as well, meaning manufacturers have better margins and healthier businesses.Is the strong market sustainable going forward?
“I think that’s the question,” David Rosenberg, Textron Aviation senior vice president and chief financial officer, said. “I think there’s some things we need to keep in mind. We all feel great right now. The market’s doing well. Because of the nature of our industry, we do have a tendency to have reflexes that [say], ‘well, when is that going to end?’” That question should be put in perspective, however.
“This isn’t 2007 and 2008, number one because in 2007 and 2008 OEMs were producing 1,300 jets,” Rosenberg says. Those levels haven’t been seen since then. “Best case, they will produce half that this year.” Even should a recession occur, “there is a significant mismatch right now between supply and demand, whereas demand is much greater than supply.”
Thierry Betbeze, Dassault Falcon Jet CEO, agrees. Supply chain issues will continue to moderate manufacturers’ production rates of about 600 to 700 business jets per year. “Personally, I believe we have a healthy market in front of us,” Betbeze says.
Demand from first-time buyers has risen to record levels.
In 2021, for example, 41% of Embraer business jet customers were first-time buyers, up from the historical average of 10-12%, said Michael Amalfitano, Embraer Executive Jets president and CEO. During the first eight months of 2022, first-time buyers declined to 25%, although the decline is still double that of pre-pandemic figures. Others see similar trends.
“The pie has gotten bigger,” Amalfitano says. Besides orders from new customers, a good part of the backlog includes orders for replacement aircraft. Corporate flight departments also are working to “right size” their fleets, moving from ultra-long-range jets, for example, to smaller aircraft as travel needs change, he says.
Rising backlogs are changing conversations with buyers, who must wait up to two years or longer for an aircraft. New entrants into the market have also changed interactions, with more education and “hand-holding,” as an aircraft broker remarked recently.
Experts predict the influx of new buyers to temper. While some may return to the commercial airlines over time, those who can afford to will stay, they predict.
Rolland Vincent, a consultant and president of Rolland Vincent Associates and JetNet iQ director, forecasts business jet deliveries to rise in 2022 and 2023, with 2023 deliveries exceeding those of 2019.
Increased demand means increased pricing and margin enhancements for manufacturers, Vincent says. It also is giving plane makers “forward visibility knowing they’ve got a couple of good years of booked business with solid quality on the order book. We’re going to run through some turbulence, but I like the way this ship looks—very strong and resilient.”Headwinds include the upcoming end to bonus depreciation, a long wait for new aircraft, certification delays for new projects, supply chain challenges and a tight labor market.
That said, we’re very, very bullish, Vincent says. “The demand signals are so strong. We as an industry are not able to supply that demand. What a nice problem to have.”
From 2011 through 2019, business jet deliveries were fairly stable in the range of 600 to 700 jets, notes. Sheila Kahyaoglu, Jefferies senior equity research analyst. Jefferies forecasts business jet deliveries to rise from 538 in 2021 to an estimated 585 in 2022, followed by 2023 deliveries of 693 jets, an 18% increase, with 741 deliveries in 2024. Their aircraft scope parameters differ from Aviation Week’s scope.
Jefferies also forecasts an increase in large jet deliveries in 2023 to 236 jets, compared to an estimated 193 in 2022 as the Gulfstream G700 and G800.
Aviation Week’s Business Aviation Fleet and MRO Forecast predicts deliveries of 8,700 new business jets and 2,700 turboprops valued at $273.7 billion over the 10-year-period from 2023 through 2032.
Deliveries are projected to be led by light jets with 29% of all jet deliveries, followed by ultra-long business jets, super midsize jets, very light jets, large jets and midsize jets, Aviation Week predicts.
The pre-owned business jet market, meanwhile, is expected to remain strong.
Most recently, sales appear to have plateaued. Inventory has risen to 4% of the business jet fleet, up from a record low of 3%, but far below typical inventory levels. Strong pricing and valuations are expected to continue.
Retail pre-owned business jet transactions in the first half of 2022 totaled 3,605, compared to 3,642 transactions for the full year in 2021, he says. Janine Iannarelli, an aircraft broker and founder and president of Par Avion, has had an “incredible” 2022, as she did in 2021. While it’s been a little more difficult to find inventory, it has not been impossible.
However, “what I see are cracks in the façade and most of it is coming among the smaller jets,” Iannarelli says. “They were the ones that led the increase in values, and I think they’re the ones that are going to lead the decline. The change that I’ve noticed is more small jets are now available. And you’re starting to see the advertisements that say, ‘Price reduced; Need to sell before year end.’ That sort of commentary or advertising that you didn’t see over the course of the summer.” Available inventory for small jets has risen, but that has not been the case for super midsize and large jets, she says. Buyers of small jets differ from those of larger jets. Buyers of small jets “are the ones whose fortunes are still being made,” Iannarelli says.
“They’re reliant upon the generation of income through an ongoing business concern or other values are tied to the stock market performance.”
On the other hand, buyers of larger jets have different demographics. “I think people who are spending $15-$20 million and up? This is disposable income for them,” she says. “That’s the huge difference.”
Time will tell on whether the change will impact other sectors of the pre-owned market. “It’s a wait and see attitude I’m adopting for the rest of the market,” Iannarelli says.
Overall, challenges in the business aviation market remain. For one, the industry has been the victim of criticism or “flight shaming.” In France, for example, politicians are proposing to regulate or ban private flights as demand to curtail the effects of climate change swells. In August, the Washington Post called into question the environmental impact of business aviation.
Industry advocates are working to counter the negativity. “Business aviation continually leads the way in emission reduction, thanks to relentless investment in technologies that have slashed aircraft emissions nearly in half in recent decades,” says Ed Bolen, National Business Aviation Association president and CEO. “Today, the sector’s flights account for less than one half of 1% of all transportation emissions.”
Meanwhile, the industry has committed to net-zero emissions for business aircraft by 2050, to be achieved through the development of sustainable aviation fuels, carbon offsets and carbon-cutting technologies, such as electric and hydrogen propulsion.
The industry is fighting a “tidal wave” of public opposition, von Weise with Citi Private Bank says.
“It’s an easy target,” von Weise says. Many do not understand the industry’s importance to the global economy. But their comments are short-sighted. The industry must respond with facts and data. “It’s up to us to control what people think about the industry,” he says.
