June 23, 2013

Business jet forecast sees slight rebound

A new 10-year forecast predicts business jet deliveries of 9,234 units valued at $255 billion in revenue, although it doesn’t project demand for narrow-body jets returning to pre-recession levels at any point in the decade.

A new 10-year forecast predicts business jet deliveries of 9,234 units valued at $255 billion in revenue, although it doesn’t project demand for narrow-body jets returning to pre-recession levels at any point in the decade.

“I don’t see it,” said George Tsopeis, author of the forecast and a principal with Zenith Jet. “Going forward, even in a bull market, you’re going to have relatively significantly less annual production in those narrow-body categories.”

Wichita’s plane manufacturers are primarily in that narrow-body market, which Tsopeis defines as midsize jets and smaller.

But with Bombardier Learjet’s Learjet 85 and Cessna Aircraft’s upgraded Citation X, “there’s a very good prospect that … these two new models might be able to tap some wide-body customers in the super midsize categories that would like to trade down to a better aligned product for their mission profile.”

Before the recession, business jet manufacturers delivered a record 1,313 narrow-body planes in 2008, Tsopeis said.

Although the projection doesn’t forecast those kind of numbers anytime over the next 10 years, the narrow-body market is still significant, he said.

Tsopeis’ forecast is for 2013 through 2022.

Bombardier Aerospace’s just-released forecast predicts slightly higher delivery figures for the same 10 years.

It predicts deliveries of 9,800 business aircraft worth $269 billion. For the 20-year period from 2013 to 2032, it projects demand for 24,000 business jets.

“The business aviation market continues to recover, and while current macroeconomic indicators are mixed, the overall trend for the world economy is stable to positive,” Bombardier said in its forecast released on Friday.

Shift in demand

Bombardier expects orders and deliveries this year to be comparable to those of 2012, and begin to improve in 2014.

It also expects demand to shift toward emerging markets with demand growing in the medium and large jet categories, with large business jets growing the fastest.

The industry seems to have weathered the storm, Tsopeis said. The forecast provides a decent base for future growth, and Wichita remains something of a barometer for the industry

“If you want to take the pulse of what’s happening in business aviation, there’s no better place than falling right in the middle of Wichita to get that sense,” he said.

Cessna will continue to lead in unit delivery during the forecast period with a 26 percent share of the market, followed by Bombardier with a 23 percent share. Bombardier will lead in the revenue with 30 percent, followed by Gulfstream.

The forecast projects 2013 deliveries of 686 planes, and sees 19 percent growth over the next four years.

Zenith Jet’s delivery projections predict demand for 3,322 light jets, 3,121 medium-size jets, 2,489 large jets and 302 airliners converted to business aircraft over the 10-year period.

The study projects a slowdown, although a relatively soft one, in 2017. From peak to trough, the contraction of the slowdown is expected to be 37 percent, Tsopeis said in the forecast.

More than half of new program activity is expected to transpire over the next four years, it said.

Last year, Hawker Beechcraft filed for bankruptcy protection and emerged as the restructured Beechcraft Corp. In the bankruptcy, the company exited the business of manufacturing jets.

“The industry is healthier as its weakest link has been bypassed,” Tsopeis wrote in the forecast.

At one time, industry experts looked to Honda Aircraft to bring stability to the ranks. But its HondaJet has had a series of certification delays and has yet to map out its business aviation strategy, Tsopeis wrote.

Lost their appetite

Tsopeis continues to think the narrow-body market will rebound.

But before the recession hit, a big portion of buyers were new to business aviation. The downturn swiped their appetite for ownership, he said.

They also were able to get “sweetheart financing deals where you had Cessna literally engineering transactions, getting current customers out of old Cessnas into new Cessnas” for about the same price, Tsopeis said.

Although the financial resources of this group allows them to wade back into the market, their collective experience with aircraft ownership makes it too soon for them to return in similar numbers, he said.

“These customers, namely private equity types, high-net worth individuals, CEOs and surgeons have effectively retracted from the market, and we believe that an entire business cycle has to pass in order for them to consider returning to business aviation,” he said.

There is no such issue, however, when it comes to wide-body, or super-midsize and bigger, jets, Tsopeis said.

In fact, demand has prompted manufacturers to present multiple offerings in those categories.

Gulfstream, for example, is preparing to deliver its new G650 and is working on a new family of follow-ons based on the model.

Bombardier will begin delivering its new, clean sheet G7000 ultra-long range jet in 2016, followed by the longer version G8000 a year later.

Commercial forecast

Bombardier’s forecast also included projections for commercial aircraft.

The forecast projects 12,800 deliveries of 20- to 149-seat commercial aircraft with revenue of $646 billion during the 20 years from 2013 to 2032.

Projected strong traffic demand and an expanding middle class population in growth markets are two driving forces behind the forecast numbers.

Demand from international markets, such as India, China, Africa and Latin America, are expected to increase significantly.

North America is expected to remain the world’s biggest market, with an expected 3,710 new aircraft, followed by China with 2,330 deliveries and Europe with 1,700 aircraft.

Technical obsolescence and rising oil prices will be the most critical factors influencing airlines’ decisions over the next 20 years, fueling demand for more cost-efficient and fuel-efficient planes.

Bombardier’s projections forecast that 60 percent of the current commercial fleet will be retired by 2032.

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