Honeywell’s forecast for business jet industry: Slow, steady growth
07/13/2014 1:35 PM
08/08/2014 10:13 AM
The business jet industry is set for slow but steady growth over the next three years or so, followed by a “nice uptick” in volume, according to a leading business aviation forecast released Sunday.
Last year was the bottom of a down cycle that began in 2008 for business jet deliveries, according to the forecast. This year and 2013 are expected to be flat to slightly higher, “reflecting the protracted nature of the global economic recovery,” said Rob Wilson, president of Honeywell Aerospace’s business and general aviation segment.
Honeywell released its 21st annual Business Aviation Outlook on Sunday evening before the start of the National Business Aviation Association’s meeting and convention. The show, one of the largest general aviation gatherings, officially opens Tuesday.
The outlook is important to Wichita, where Cessna Aircraft, Bombardier Learjet and Hawker Beechcraft deliver nearly half of the world’s business jets.
The Honeywell forecast said that a return to historical growth conditions supported by globalization, wealth creation in developing nations and new aircraft development should boost jet orders and support accelerated growth beginning mid-decade, the forecast said.
The new forecast predicts sales and deliveries of nearly 10,000 new jets worth about $250 billion in the 11 years from 2012 to 2022. While deliveries may be fairly flat in the short term, dollar values will be higher.
“The decline has stopped, and we’re starting to see a buildup in output,” Wilson said. “I’d like to see it happen faster, but I’d rather see it positive than negative any day.”
The forecast projects a 9 percent increase in the value of the deliveries over the forecast period, which reflects a trend toward the demand for larger jet models and pricing increases.
This year, Honeywell expects manufacturers to deliver from 680 to 720 new business jets, compared to 683 a year ago. Similar numbers are expected in 2013, the company said.
“We’re going to see total output continue to increase in the next 10 years, which is a good thing,” Wilson said.
There is some good news for Wichita’s planemakers in the forecast, which is a survey of more than 1,500 business jet operators around the world.
“We see some nice growth in some of the segments where your constituents play,” especially in the latter part of the 10-year period, Wilson said.
In the light-medium class, the forecast predicts a high single-digit growth rate, he said. That class of aircraft is one of the top two growing segments in the next 10 years. The predicted demand is attributed largely to the introduction of new models, Wilson said.
The story, however, is still about jets with big cabins. That segment of the market has held up better than light and medium-sized business jets during the recent economic turmoil. And Honeywell’s forecast states larger business jets should account for nearly 70 percent of all purchases of new jets.
In the next five years, about 18 percent of the global demand is expected to come from Latin America, which has about 10 to 11 percent of the world’s fleet. Latin America is interested in small-, medium- and large-cabin aircraft.
“They’re interested in the kind of aircraft that comes out of Wichita,” Wilson said.
When asked why they’re buying a specific new jet, buyers say the top reason is “range, range, range,” Wilson said.
“Even a guy that’s buying a light jet, he may want to go a little bit further than current offerings allow him to. He may want a more comfortable ride.”
Wichita manufacturers already are responding to those kinds of trends, he said. Bombardier Learjet has the Learjet 85 and Cessna has the Citation Latitude, for example.
Still, “it’s not all about the biggest,” Wilson said. “It’s all about bigger than what I have. It’s all about moving up as much as buying new.”
And even though there’s a fair amount of economic uncertainty around the world, corporate operators still have fairly robust purchase plans, he said. Of jet operators who plan to replace their planes, 30 percent plan to buy in the next five years.
However, they may put off purchases in the short term because of economic conditions, the election, uncertainty over government policies on budget and debt issues, and aircraft-related legislation and regulations.
Other findings in the forecast include:• Demand from BRIC countries (Brazil, Russia, India and China) is growing. More than 40 percent of the respondents to Honeywell’s survey in these countries say they will buy business aircraft in the next two years.
• Thirty-four percent of operators surveyed in the Asia-Pacific region say they’re interested in buying new jets. That’s lower than 45 percent last year, but remains above the world average. More than a third of the respondents in the Asia-Pacific region who are planning to buy say they want to make the purchase within a year.
• In the Middle East and Africa, 32 percent of respondents plan to buy a corporate jet.
• In Latin America, 39 percent of current operators have plans to buy jets, with 70 percent timed to buy in the next three years.
• In Europe, 33 percent say they plan to buy.
• More than half of the projected worldwide demand for the next five years is expected to come from North America.
The number of used jets for sale is slowly diminishing, which analysts say should bolster the market for new products. Jets 10 years old or less makes up less than 20 percent of the planes up for sale, down from a record of about 30 percent in 2009.
Prospects for increases in flying activity in the near term are modest. The forecast expects flying activity in America to contract about 1 percent this year because of sluggish corporate operations, offset partly by relatively strong charter operations.
European activity this year is expected to decline 3 percent. Another similar contraction is expected in 2013 with recovery in flight volumes beginning in 2014.
Flight activity for charter operations and fractional ownership are doing relatively well in the U.S., but that’s not translating into many new aircraft orders.