Bizjet Demand Still Lagging Rise in Corporate Profits

 - August 19, 2014, 3:40 PM

Business jet demand has not recovered in line with corporate profits as it has in the past. J.P. Morgan aerospace analyst Joseph Nadol III attributes the sluggishness to “the stigma attached to bizjets during the recent recession and a focus on cost cutting among corporate customers. We estimate that 2013 U.S. corporate profits were up about 50 percent from the 2008 trough, whereas bizjet deliveries have yet to turn up decisively.”

Business jet deliveries rose 9 percent in the first half of this year, “boosting our confidence that production will move off the bottom this year,” he said. J.P. Morgan’s 2014 business jet forecast is calling for 4-percent growth, or 687 deliveries, which would bring shipments back to the 2011 level. “We estimate faster growth going forward, driven largely by new or relatively new models,” Nadol said.

Meanwhile, pre-owned business jet market conditions were “particularly challenging in July, as used inventory rose for the first time since October 2013 and pricing was down again,” he noted. Inventory of in-production jets increased to 8.3 percent last month, up 0.3 points from June. Nadol warned observers “not to read too much into the inventory data yet since the weakness was not broad based, has not broken above the recent range and the inventory of young aircraft was stable.” The downward trend in pre-owned pricing, which fell 3.5 percent year-over-year last month, “is more sustained and more pronounced, an important signal that demand is not yet healthy,” he said.