Honeywell bizjet outlook shows pent-up demand

 - May 3, 2010, 10:32 AM

Europe remains at the epicenter of business aviation growth, according to the latest data from Honeywell’s just-updated forecast of market conditions. Operators’ plans to purchase new jets over the next five years have increased by 19 points compared to surveys conducted by the avionics and engines manufacturer prior to the economic downturn.

As many as 59 percent of the operators surveyed now say they are planning to buy new aircraft. This is a new record for Honeywell survey data, despite the fact that the latest research was done during the height of the recession–suggesting a build-up of pent-up demand.

The revised survey also shows that up to 34 percent of all new jet purchase plans worldwide could come from Europe, the Middle East and Africa. In the Middle East and Africa, five-year new-jet buy plans of 55 percent increased by more than 10 points from pre-economic-downturn levels, also setting a new record.

Non-U.S. demand now accounts for more than 50 percent of the new aircraft purchase plans projected over the next five years. Honeywell forecasts that regional mix of deliveries will continue to reflect this global shift in share.

In the short term, Honeywell forecasts deliveries of some 700 new business jets this year, down from the peak deliveries of 1,139 in 2008. Based on operator survey responses, long-term interest has increased. However, new purchase plans are currently timed later in the five-year planning window, suggesting that by 2011-2012, there will be significant deferred demand that will improve the outlook for order intake and new jet deliveries.

Fleet Replacements

Russia, the Middle East and selected African economies continue to benefit from improved oil prices and burgeoning trade with China and Asia, and operators surveyed in these regions expect to be active buyers. Operators’ plans-to-buy are timed sooner in Europe, the Middle East, Africa and Asia than in Latin America and North America.

Large European fleet levels will contribute to early purchase plans in Europe, which may fuel overall demand recovery. Fleets in the Middle East, Africa and Asia are relatively small so even high-planned purchased rates yield smaller absolute numbers of new jet purchases until the fleets expand sufficiently to create greater demand.

“Clearly the less severe contraction in parts of Europe, coupled with rebounding energy prices bolstering Russia, have acted to support a stronger outlook toward new jet purchases in the region,” said Paolo Carmassi, president of Europe, Middle East and Africa for Honeywell Aerospace.  “Though few purchases are planned immediately, the operators surveyed said they intend to schedule up to 80 percent of their demand between 2010 and 2013, much more front-loaded than any other region.”

Honeywell’s 2009 survey indicates a potential demand for more than 5,000 aircraft globally during the 2010-2014 period, excluding demand from fractional ownership or branded charter start-up businesses and piston aircraft owner trade-ups into jet aircraft.

In the near term, the used jet environment remains challenging, said Honeywell. Over the last year, asking prices rapidly declined, first for older used models, but more recently newer model jets also saw significant price erosion. Average pricing is estimated to be 20 to 25 percent lower than a year ago after several years of gradual increases.

The 2009 survey recorded a further decline in planned used jet purchases over the next five years, which may add continued pressure to pricing of older, less economically attractive models.

The Recovery Is Coming

While business jet flight operations were sharply lower in early 2009, both Europe and the U.S. have seen recoveries beginning in the latter part of that year. Based on Eurocontrol and FAA operational data, said the report, “We have seen net positive growth in both regions for several months now after double-digit declines posted for the full year 2009.

“We expect to see continued strong performance well into the year due to the week comparison bases of 2009; however, flight activity generally precedes more generalized improvement in the industry, so the gains are encouraging.”

“There is every reason to believe that demand for business jets will begin to recover 10 to 18 months after a global economic recovery begins,” said Rob Wilson, president of Honeywell Aerospace Business and General Aviation. “Recent economic performance around the world would suggest that the recovery is under way.”

Honeywell predicts delivery rates will remain soft in 2010 and the peak-to-trough decline will be in the range of 40- to 45-percent compared to 2008 deliveries. By 2012, a combination of deferred demand and global economic recovery will cause demand for new jets to improve.