Report sees improvement for business jet market

Improvements in the key indicators of the business jet market show that a recovery in the market is in its early stages, according to a UBS Investment Research report released this week.

Increased flight activity, lower used-aircraft inventories and surveys of operators show positive signs.

Fourteen percent of the business jets in operation are for sale, down from 18 percent in the peak of the downturn, according to the report.

The historical average is 12 to 13 percent.

In April, the number of used jets for sale — 2,599 — declined 1 percent.

Embraer has the highest proportion of its fleet for sale at 20 percent. That's followed by Hawker Beechcraft with 15 percent, Cessna and Dassault at 14 percent each and Gulfsteam at 10 percent, UBS said.

UBS also follows business-jet flight activity by monitoring business jet takeoffs and landings at domestic and international airports reported by the Federal Aviation Administration.

Takeoffs and landings have risen 30 percent from their lowest point in early 2009. Still, activity is 16 percent lower than its peak in late 2007, according to the report.

In March, takeoffs and landings rose 4 percent from a year ago. However, they were down slightly from February. Charter flights, meanwhile, rose 8 percent in March from a year ago.

The report also tracked pricing trends in the used market, which are a key indicator of the sale of new aircraft.

In the light jet segment, the average asking price of a used Citation CJ3 was roughly unchanged in April. But prices remain 25 lower from their peak.

In the super light segment, the price of a Citation Excel rose 2 percent in April but pricing remains 49 percent from its peak.

In the medium jet segment, the price of a used Hawker 800XP declined 2 percent in April and is down 53 percent from its peak.

And in the medium-large segment, the price of a used Citation X rose 4 percent last month but remains 53 percent off its peak.

UBS surveyed 179 brokers, dealers and other aviation market professionals.

Fifty-three percent of them said that customer interest has improved; 10 percent said it has deteriorated.

Seventy-two percent said they were seeing the strongest interest in large-cabin aircraft, the segment receiving the strongest pricing.

Sixty-one percent said they expect business conditions to improve; 35 percent said they expected conditions to remain the same.

The report also studied the fractional ownership market, which allows buyers to buy a portion of a business jet.

In the past 10 years, except for 2009 and 2010, fractional jet providers have taken 10 to 15 percent of the total business jet deliveries.

Now, "deliveries to the fractional industry have stalled to a standstill," the report said.

The major providers have taken delivery of one new plane this year after taking delivery of three aircraft last year.

That compares with an average of 10 a month, the report said.

The fractional fleet has contracted 14 percent from peak 2008 levels, from the sale or retirement of aircraft and lower new aircraft deliveries.

The fractional ownership market appears to still have overcapacity, the report said.

Usage, however, looks to have stabilized after a double-dip decline from the peak of late 2007.