Demand for business jets could be on the upswing

02/28/2013 3:19 PM

02/28/2013 3:20 PM

The business jet industry finished up its fourth tough year in a row in 2012, but signs suggest demand could be on the upswing, experts say.

The industry seems to have weathered the storm, said George Tsopeis, vice president of operations at Zenith Jet, which recently released its annual business jet market forecast.

“With the Dow Jones index currently at 14,000, a congressional deal secured on the financial cliff, averting a self-afflicted economic crisis, and the partisan politics of the U.S. presidential election behind us, the elements of a sustained recovery are in place,” Tsopeis said.

Still, “there’s this uneasiness in the market,” Tsopeis said.

The economy and the business aviation industry need momentum.

“The only thing that cures that is time,” Tsopeis said.

But a steady stream of orders and a few expected announcements of new aircraft programs during the European Business Aviation Convention and Exhibition in May could provide the momentum for a sustained trend of higher sales, he said.

Last year, the industry saw a retraction in the market from Hawker Beechcraft after it filed for Chapter 11 bankruptcy protection in May. The bankruptcy resulted in a decrease in half a year’s deliveries, Tsopeis said. And Bombardier Learjet in Wichita sustained a month-long strike by its Machinists union.

“When you account for these two events, we’re effectively in Year Two of the expected recovery,” Tsopeis said.

On Feb. 19, Hawker Beechcraft emerged from bankruptcy as a smaller company named Beechcraft Corp.

Although the reorganization meant the end of its business jet production, the industry is healthier “as its weakest link has been bypassed,” Tsopeis said.

The company’s exit from the business jet market is a plus for remaining manufacturers, particularly Cessna and Embraer, Joseph Nadol, an aerospace analyst with J.P. Morgan, said in a report.

“We anticipate that other companies may be interested in acquiring Beechcraft if the price is right as we see a good strategic fit in several cases,” Nadol wrote.

The cyclical business jet industry should turn up eventually, and there have been intermittent signs of stabilization, he wrote. That suggests demand could improve this year.

Nadol forecasts deliveries will grow 2 percent this year, with the potential for orders to increase and drive a more robust 2014.

Zenith Jet’s forecast expects business jet manufacturers to deliver 757 jets this year, representing more than $21 billion in revenue, up from 672 shipments in 2012.

Deliveries are expected to grow an average of 17 percent each year through 2016.

They are expected to peak at 1,214 before a slowdown in 2017 and a drop to 707 shipments.

About 60 percent of new program activity — entry-into-service, ramp-up in production and steady-state production — will transpire before 2016, it said.

Deliveries over the next 10 years, however, aren’t expected to reach the peak seen in 2006 when business jet makers shipped 1,313 jets.

In the 10 years from 2013 to 2022, the forecast predicts business jet makers will deliver 9,400 aircraft, the largest number of them ultra-large-range jets.

Over the next decade, the forecast predicts deliveries of 2,933 light jets, 2,752 medium-size jets and 3,413 large jets. That includes 1,577 ultra-long-range jets.

During the period, Cessna is expected to lead the market with a 27.5 percent share and Bombardier is expected to secure the lead in revenue with 30.3 percent.

Cessna

At Cessna, a rebound in the light to mid-size jet market did not materialize last year as the company had hoped.

That forced Cessna to dip into its backlog to make a few jet shipments early, the Zenith Jet forecast said.

The delivery “hit,” however, seemed to be isolated to the Citation Mustang and the CJ2+.

“Regarding the Mustang, we believe Cessna lost orders from customers at the higher end of the category who opted for the (Embraer) Phenom 100,” the forecast said. “That will no longer be a problem when the (Citation) M2 comes on-line this year.”

With the M2, Citation Sovereign and the revamped Citation X starting production this year, Cessna’s order backlog should rebound nicely, it said.

Cessna’s deliveries this year are expected to equal or exceed 2012 levels, company officials said in January.

Cessna is expected to deliver 199 jets this year with billings of $1.82 billion, according to the Zenith Jet forecast. Cessna is expected to deliver 2,583 business jets over the 10-year period.

Bombardier

This year will be a “resetting” year for Bombardier, the Zenith forecast said.

“Slow off the mark due to the simultaneous draw-down of the Learjet 40 and 45 line, and ramp up of the Learjet 70/75 models, coupled with the ceasing of production of the Learjet 60 and no Learjet 85s being delivered this year, 2013 will result in marginally fewer unit deliveries,” it said.

The forecast predicts that Bombardier will deliver 571 Wichita-assembled Learjets over the 10-year forecast.

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