2014 outlook for business jet market looking up

02/05/2014 4:55 PM

08/08/2014 10:21 AM

It’s been a long time coming, but growth in the business jet market appears set to resume this year.

Industry experts say 2013 should mark the bottom of the market and that 2014 should bring a modest upturn.

That’s welcome news for Wichita, where planemakers Cessna Aircraft and Bombardier Learjet build jets in the light to medium end of the market.

That market segment was the hardest hit over the past six years, as recovery from the recession has been slow to stalled.

“Wichita is where we put all of our pain as an industry,” said Teal Group aviation analyst Richard Aboulafia. “This could finally be the year we see progress, and, hopefully, it’s sustainable.”

The market for large business jets recovered faster.

“The big end of the market is doing great,” Aboulafia said.

Rolland Vincent, an aviation consultant with Rolland Vincent Associates, predicts manufacturers will deliver more business jets this year than in 2013.

Aboulafia also predicts long-term growth.

“We think there’s a good five-year run-up coming,” Aboulafia said.

Scott Donnelly, chairman and CEO of Textron, Cessna’s parent company, said the market remains challenging.

And increases in deliveries will be driven by new products.

“I don’t think we are expecting any dramatic change in terms of the market dynamic that’s out there,” Donnelly told analysts in a conference call last month.

However, deliveries at Cessna Aircraft are expected to increase in 2014 due to the introduction of new products, such as the Citation M2, Sovereign and Citation X, Donnelly said.

Aboulafia predicts Cessna will deliver 160 Citations this year, up from 139 in 2013, and for growth to continue for several years.

At the same time, he predicts Bombardier Learjet, which delivered 29 Learjets last year, will deliver 36 Wichita-assembled Learjets in 2014.

A changing market

It’s been difficult for analysts and experts to predict when demand for light and medium-size business jets would rebound.

“This is a tough one,” Donnelly told analysts. “We’ve been guessing at this for quite a number of years now.”

Key metrics such as the number of used aircraft on the market have been favorable, Donnelly said.

“The used market has been quite active again,” he said. And customer surveys show that people are more bullish, especially in the U.S.

Still, this has been no normal economic cycle, said Ed Bolen, president and CEO of the National Business Aviation Association, an industry trade group.

The economic contraction that began in 2008 was the most significant since the Great Depression, Bolen said. With the economic turmoil, orders for business jets dried up.

Recovery in the business jet market will be different as well.

In past cycles, the general aviation industry looked to the strength of the U.S. economy to gauge when recovery would occur, Bolen said.

Today, it’s a global industry.

“We continue to be concerned about what’s going on around the economies in Latin America and in Europe, which are sort of our second- and third-largest markets classically for those light midsized business jets,” Donnelly said.

Other indicators once used to foretell an improving market have not proved reliable this time.

“Corporate profits don’t mean much; stock prices don’t mean much,” Aboulafia said. “They used to.”

Today, the big issues are the ability to finance aircraft and the used-airplane market.

Finance terms aren’t what they once were, and the used-business jet inventory, while dropping, is still a factor, Aboulafia said. The picture in those two areas is improving, however.

Business confidence in the small to midsize market is improving as well.

That should drive an increase in orders this year and “probably deliveries, too,” primarily in the fourth quarter of 2014, Aboulafia said.

There are other reasons for optimism, said Bolen of the NBAA.

Besides an improving used market, fuel sales and flight activity levels are rising, and the economy is improving, he said.

And airplanes in operation today are aging, “which would suggest they need to be replaced at some point,” Bolen said.

Another positive sign was a change in mood at the NBAA convention in October. The mood was more positive than during previous conventions since the downturn.

“There was an enthusiasm and optimism that was palpable at the event,” Bolen said. “I think there was a sense that most people feel that we are moving off the bottom.”

The optimism at the NBAA’s convention in Las Vegas carried over to January’s NBAA’s Schedulers and Dispatchers conference in New Orleans, he said.

The conference had record attendance.

At the same time, aviation-related companies have taken out costs and made adjustments needed to survive the downturn, Bolen said.

Those improvements are hitting the bottom line.

“There is now a sense we’re climbing out,” Bolen said. “There’s a sense we can make it. (Companies have adjusted) for this environment, and as the environment improves, we can improve, too.”

Still, “I don’t think anyone is expecting huge growth,” he said.

The big-jet picture

The turboprop market seems to have recovered, Vincent said. And demand in the large cabin-size jets never really slowed down. Not so for the light and middle part of the market.

“There are too many airplanes chasing too few customers at the light end,” Vincent said.

The split in demand between the small and medium jets and the large ones remained apparent last year.

For the first time, Gulfstream, the maker of large, more expensive business jets, outdelivered Cessna. Bombardier also outdelivered Cessna in 2013.

Gulfstream delivered 144 jets last year, up 35 percent from 94 a year ago, Gulfstream said last month.

Bombardier delivered 180 business jets in 2013 – although deliveries of Learjets, built in Wichita, fell, it said.

Cessna delivered 139 Citations in 2013, down 26.5 percent from 181 the year before.

Bombardier Learjet delivered 29 Learjets last year, down from 39 in 2012.

Bombardier told employees in January that it was cutting 550 Wichita jobs because of the soft market for light and medium jets, product line transitions and some program delays.

Bombardier also paused production on the Learjet 60 roughly a year ago. That pause continues.

“On-going analysis indicates that demand for aircraft in the light segment category is weak,” Bombardier spokeswoman Annie Cossette said in an e-mail. “We continue to evaluate the market pending improvement of conditions.”

The number of light jets delivered last year declined 17 percent from 2012, according to research firm JetNet. They’re down 67 percent from a high in 2008.

Delivery of medium-size jets declined 24 percent in 2013, JetNet said. They’re down 69 percent from a high in 2008.

The trend has gone the other way for the large jets, deliveries of which were up 18 percent last year.

During the first nine months of 2013, business jet shipments overall fell 2.1 percent from the same time a year ago, according to the General Aviation Manufacturers Association, which compiles the figures. GAMA will release year-end figures later this month.

Vincent predicts business jet manufacturers will deliver 10 percent more jets this year, or about 710, over 2013 figures.

December deliveries in 2013 would have been stronger had some shipments not slid into January because of the government shutdown, Vincent said.

The two-week shutdown delayed work on certifying new products, such as Cessna’s Citation M2 and Sovereign and Learjet’s 70 and 75.

“The stuff was in the pipeline,” Vincent said. “Some of that work slid into the new year. Had it not slid, I think we could be saying 2013 would be up.”

In October, Honeywell’s Global Business Aviation Forecast predicted 4 to 5 percent annual growth over 10 years from 2013 to 2022, with deliveries totaling as many as 9,250 during that time.

Aboulafia projects manufacturers will deliver more than 9,500 business jets over the 10 years from 2014 to 2023.

Still, Aboulafia predicts that it will take time for the small and midsize segments of the market to return to its 2008 peak.

“You’re probably not going to get back to that peak until 2020,” Aboulafia said.

The business jet market in Wichita also changed when Beechcraft decided to exit the market when it emerged from Chapter 11 bankruptcy a year ago.

In December, Cessna parent company Textron announced that it had signed a deal to acquire Beechcraft. That deal is expected to close by midyear.

The outlook for business aviation is good, Cessna chairman emeritus Russ Meyer said at a speech at the Wichita Aero Club Gala in January.

Business jets provide efficient and versatile air transportation, Meyer said.

Significant advances have been made in technology, and local and state governments are supportive of the industry and want to keep Wichita as the Air Capital of the World, he said.

In addition, “we have enormous strength from employees who are committed to general aviation,” he said.

Excellent service, developing long-term relationships and delivering on promises are key, Meyer said.

“I promise you this,” he said. “If I were 25 years old today, I’d pursue a career in this industry in a heartbeat.”

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