Sales of Wichita’s business jets poised for takeoff

Final assembly area at Cessna’s Independence Plant. In the foreground are two Citation Mustangs. (January 9, 2013)
Final assembly area at Cessna’s Independence Plant. In the foreground are two Citation Mustangs. (January 9, 2013) File photo

You likely have heard it before, but, really, 2015 will finally be the year that the business jet industry sees significant recovery.

While the segment’s turnaround has been predicted a number of times in the past five years, analysts seem to agree that all signs are for a substantially improved market for small and medium-sized business jets.

At the same time, demand for high-end business jets, or large-cabin jets, has slowed to a crawl, said Teal Group analyst Richard Aboulafia.

“All the growth we’re seeing is small and medium-size jets,” he said.

If so, that will be good for Wichita, where Bombardier Learjet and Textron Aviation, which includes Cessna Aircraft and Beechcraft Corp., manufacture business aircraft.

Said Rolland Vincent, with Rolland Vincent Consultants: “2015 is the first year people are going to say, ‘Wow. There’s a recovery.’”

Deliveries in 2014 should end the year up slightly from 2013. Growth in 2015 will be more robust.

“As we move into 2015, we think we’ll see strength in the market,” Vincent said.

Vincent forecasts that business jet deliveries in 2014 will total about 715 planes, up 4 percent from 2013, and valued at nearly $22 billion. (The figures do not include twin-aisle commercial airliners that have been converted to business jets.)

That’s expected to grow to nearly 800 in 2015.

Strength next year is expected in the middle of the market, such as in mid-size and super mid-size business jets, Vincent said. “That’s a nice rebounding segment.”

That includes the new Cessna Citation Latitude and Citation Sovereign built in Wichita, Bombardier’s Challenger 350 and Embraer’s Legacy 500.

“That’s where we think a lot of the unit growth will occur,” Vincent said. “That’s good news. The Latitude is going to be the big news in Wichita. That airplane is going to be very well received by Citation customers.”

Customers can stand up inside it and walk around. It’s a nice design, has a transcontinental range and is a good value for the money, he said.

“I think it’s going to be a very successful program,” Vincent said.

A rebound has been a long time coming.

The small to mid-size part of the business jet market was hardest hit by the recession.

Now, nearly all the indicators for new sales have improved — consumer confidence is up, while oil prices are down, Vincent said.

He’s expecting deliveries to plateau in 2019 with about 1,000 units delivered – valued at a record $27 billion to $28 billion.

“We think the industry is going to pause there, partly because we don’t have a good understanding of what the manufacturers are going to be doing and what the engine manufacturers are going to be doing,” he said.

Plus the industry tends to cycle with the economy about every 10 years.

Aboulafia, the Teal Group analyst, agrees Wichita’s end of the business aviation market is set for a rebound.

“I’m extremely optimistic,” Aboulafia said. “Everything looks good.”

Today, “we’re sort of in a mirror image of where we were in 2008,” before the downturn, he said. “In 2008, our hope was in emerging markets and exports and large cabin aircraft.”

Those markets favored large business jets, a segment of aircraft that Wichita has little hand in.

“When you look at it, only two countries in the world have recovered from the great financial meltdown of 2008,” Aboulafia said. “They are Germany, which is slow, and America, which is doing really well. There’s a strong argument that we’re the healthiest major economy in the world. The U.S. is the driver of small and mid-sized cabin jets.”

Growth in the large-cabin aircraft was driven from outside the U.S.

“If you think about what was driving large-cabin jets, it was Russia — forget that. China — forget that pretty much, at least for now. And the Middle East where oil prices have put pressures on things,” Aboulafia said. “Those were the three biggest drivers of large-cabin growth.”

With recovery expected in North America, Wichita’s planemakers should recover with it.

Aboulafia predicts the industry will deliver 650 business jets in 2014, plus 45 jetliners and regional jets converted to business aircraft.

In 2015, he forecasts deliveries of 772 traditional business jets plus 48 jetliners and regional jets converted to business aircraft.

In addition, he projects deliveries of 263 turboprops in 2014 followed by 295 turboprops in 2015.

Used plane indicator

The number of used business aircraft available for sale, a key indicator for new aircraft sales, is down, while the number of orders and even deliveries are starting to increase, he said.

Gross domestic product and corporate profits are increasing while unemployment has declined.

A wild card for Wichita, is Embraer, however.

Embraer’s mid-size Legacy 450 and 500 will be hitting the market and competing with Textron Aviation’s Citation Sovereign and to an extent, the new Latitude.

How much of the demand Embraer will capture is yet to be determined, Aboulafia said.

Looking even further ahead, there’s a need to get more people flying for the health of the industry.

“There’s a shortage of pilots,” Vincent said.

Flight training and getting a pilot’s license is expensive, he said.

“Technology is not very affordable for a lot of people,” Vincent said. “I think it’s limiting the pipeline of talent coming into the industry and limiting the number of pilots.”

For years, manufacturers knew their customers and saw them move up from trainers into bigger and bigger planes.

Now it’s a “bit of an older client base,” Vincent said.

The industry is aware of it.

“But no one feels we have a lever to pull and fix it,” he said. “It’s a strategic question that we don’t have an answer for.”

Reach Molly McMillin at 316-269-6708 or mmcmillin@wichitaeagle.com. Follow her on Twitter: @mmcmillin.