Bombardier predicts steady five-year market

 - September 13, 2006, 6:14 AM

Bombardier is forecasting continued growth for the business aviation industry over the next five years and is positioning itself, though somewhat cautiously, to take advantage of the market.

Speaking at a pre-Farnborough media event, v-p of business aircraft James Hoblyn noted a number of current market indicators that predict steady growth over the next couple of years. Those strongest markers include a worldwide fleet of 13,000 business jets, whose owners are replacing airplanes on average every six years, and a surge of concept buyers in 2004 and 2005 on the international market. Hoblyn noted that non-U.S./Canadian operators placed 43 percent of all orders last year.

With this in mind, Bombardier believes corporate aircraft manufacturers could deliver 600 to 700 business aircraft–excluding very light jets–annually between this year and 2010. That would indicate little change from the annual average of 666 deliveries between 2001 and 2005 as reported by GAMA.

The forecast is more conservative than the Honeywell outlook released last November at the NBAA Convention. Honeywell predicted some 800 business jet deliveries this year, and an average of slightly more than 900 airplanes a year over the decade between 2006 and 2015. The prognosis Forecast International released last year was even more optimistic than Honeywell’s, forecasting the manufacture of nearly 11,000 business jets between 2005 and 2014–an average of approximately 1,100 a year.

Bombardier’s research suggests that among the market hotspots, super-midsize business jets will generate the most heat. It’s a category in which Bombardier places the Citation X, Falcon 50EX, Gulfstream G200, Hawker 4000 and its own Challenger 300.

Market Heats Up
Speaking of the industry as a whole, “We’re riding an up-cycle now,” said Jahid Fazal-Karim, senior v-p of aircraft sales for the business aircraft division. The low point was in 2003. The upswing since then, he said, is due primarily to U.S. annual economic growth of approximately 3 percent, an emerging class of wealthy individuals in developing countries, healthy backlog numbers and a strong pre-owned aircraft market.

Fazal-Karim also noted that there are more aircraft models available than ever before, allowing customers to choose an airplane that more precisely meets their requirements. According to Bombardier, there were 20 aircraft models available in 1996, and more than 40 available today. Fazal-Karim did note that more than ever the industry is creating airplanes to fit smaller niche markets.

Bombardier also foresees a growing demand for the corporate shuttle and last year launched a series of aircraft for this market–the Challenger 850/870/890. They are derivatives of the CRJ200, 700 and 900 regional jets, respectively, but have direct operating costs similar to those of the smaller Challenger 605. While market response to the shuttle versions has been “gratifying,” Hoblyn said the executive variant of the Challenger 850, priced at $27 million to $28 million typically equipped, has been “an immediate success.”

Bombardier picked Lufthansa Technik of Hamburg, Germany, and Midcoast Aviation in the U.S. to do the executive interiors, and at last report Lufthansa already had a backlog of 17 Challenger 850s. Midcoast Aviation has its first 850 already in the shop and expects to do another seven. Hoblyn said the regional-jet production line is holding 10 to 15 slots a year for airplanes that will undergo the executive treatment. Most of the Challenger 850 executive aircraft orders have come from European operators, as has most of the interest in the shuttle variant.

According to Fazal-Karim, Bombardier sees the next big markets for business aircraft in Russia, India and the People’s Republic of China. Russia, he said, accounted for 35 percent of Bombardier’s European orders last year.

“A couple of years ago, Russian demand was primarily for widebody business jets,” he said. “Now, in an improving economy, that demand is shifting to midsize airplanes, and they are registering and basing the aircraft outside Russia to avoid the high import taxes.”

While India and China have “tremendous market potential,” said Fazal-Karim, there are some obstacles to be overcome. In India, he said, the challenge is in a “cumbersome” import process, and in China, there is a need to open more military airports to civil use. In both countries, the process of getting landing permits is lengthy and complicated.

On the up side, at least in terms of aircraft sales, Fazal-Karim also pointed to the shrinking U.S. dollar on a world market as having a positive effect on business aircraft sales in other countries.

Hoblyn said that if there is a potential stumbling block to business aviation growth over the next five years, it is likely to come in the form of user fees in the U.S. “The airlines are our adversaries in this,” he contended, noting that the airlines are vehemently claiming that general aviation, including business aviation, does not pay its share into the federal coffers in terms of taxes. However, Hoblyn said, what they don’t say is that of the 35 most active airports in the U.S., general aviation represents only 6 percent of the airports’ cost.

Another cloud on the horizon of emerging markets outside the U.S. is political instability. This is particularly true in the Middle East, where political unrest and violence have combined to drive the price of oil to nearly $80 per barrel.