Business jet demand, long in recovering, poised to increase next year

The business jet market has taken much longer to recover than expected, but demand remains poised to accelerate next year as long as the economy stays on track, Cowen and Co. aviation analyst Cai von Rumohr wrote in a note to investors this week.

At Cessna Aircraft, the number of used Citation business jets of models that are still in production and up for sale remains flat at 5.7 percent of the fleet, von Rumohr wrote. And the asking prices for the used planes are stable.

A survey of Cessna dealers suggested demand stability, although at a low level, he said.

“Given the glacial pace of recovery, Cessna is planning for a ‘flattish market’ in 2015, with all delivery growth (coming) from the new (Citation) Latitude,” von Rumohr wrote.

The Latitude is expected to enter service in the middle of next year.

Cessna, a division of Textron Aviation, will set its production plans for 2015 during the fourth quarter of 2014.

When it does, Von Rumohr expects Cessna to plan for a flat market.

“Barring lift in coming months, (production plans) likely will call for flat legacy deliveries to avoid pricing pressure,” he said. “However, if the economy continues to firm, we think legacy demand also will lift as it has in every other cycle.”

A key indicator of the sale of new jets, used business jet data, has improved, von Rumohr said.

If the economy continues to show improvement, von Rumohr expects demand for Cessna’s legacy jets to increase as well.

That’s why he’s assuming that 2015 deliveries for Cessna legacy jets, excluding the Citation Mustang and the Latitude, will be up more than 10 percent to 182 units.

Still, that’s down significantly from average annual deliveries of 316 planes during the years 2005 to 2008, before the downturn.

At the same time, Textron Aviation’s integration of Beechcraft Corp., which it bought in March, is firmly on track, von Rumohr wrote.

He expects Textron Inc., Textron Aviation’s parent company, to generate $1 billion in free cash flow by the end of 2015, which will allow it to repay $500 million of bank debt for the Beech acquisition.

This story was originally published September 18, 2014 at 11:00 AM with the headline "Business jet demand, long in recovering, poised to increase next year."