Forecasts predict bizjet market will thrive

 - May 31, 2007, 12:08 PM

The Teal Group put it best in this year’s forecast when, echoing all other major predictors, it asked rhetorically, “Is it wrong to use these unusually good times as a forecasting base year?” Though issuing 10-year (and longer) forecasts might be akin to looking into a crystal ball, six major players have issued surprisingly similar numbers. At the high end, Forecast International expects the market will produce 12,629 business jets by 2015, while Embraer brackets the others (with the exception of Bombardier, which excluded VLJs) at 11,115.

As the accompanying chart shows, Forecast International, Bombardier, Rolls-Royce, Teal, Honeywell and Embraer have all predicted robust times ahead for business aviation. Despite the fact that almost none of the forecasts studied the exact same period, all the predictions were relatively consistent.

Though aircraft shipment predictions remained consistent among the six, billing figures varied considerably. Some of this discrepancy can be chalked up to the difference between 2006 and 2007 dollars, but much of it is due to what type of aircraft each respective forecaster thinks will be produced. For example, while Forecast International thinks Cessna will be the market leader between 2006 and 2015 with 26.2 percent market share, Teal predicts Gulfstream will take the top spot with 24.6 percent, compared with Cessna’s 19.1 percent.

Regardless of the variation in number of aircraft produced and the amount those aircraft will be worth, the key point is that even if orders dip somewhat in the future, as they are widely expected to do between 2009 and 2011, they will almost certainly remain above the level of the late 1990s and early 21st century. According to Forecast International, 6,008 jets were produced between 1996 and 2005, roughly half the output expected in the next 10 years. Or as Bombardier put it, “A new plateau seems to have been established.”

International Market Strong
But why the growth? According to Teal, there are many reasons; one is the economy as a whole and, more specifically, the corporate profits it nurtures. Teal said corporate profits rose 12 percent last year in relation to the U.S. gross domestic product, and “there is a close correlation between the increase in profits and the impressive run-up in the business jet market over the past three years.”

Ask the manufacturers, and most will likely identify expansion of international markets as a major driver. Cessna is doing 50 percent of its business outside the U.S., and Hawker Beechcraft is relatively close to that figure. Bombardier confirmed the point, saying, “Major emerging markets are showing brisk growth in deliveries.” For its part, Rolls-Royce is a bit cooler on international markets, predicting that between 2006 and 2025, only 34 percent of new aircraft will be delivered outside North America.

Bombardier offered additional factors it thinks will drive the market over the next decade. Specifically, new aircraft programs and buyer intentions, or consumer interest, will increase or remain strong. OEM backlogs are another positive factor. The Canadian manufacturer says the average among its competition is now 24 months.

With good news comes reservations and talk of factors that could sink such great prospects. In almost every forecast, VLJs were the clear wild card. Bombardier, for example, excluded the segment from its forecast. Interestingly, the company still predicted the highest revenue at $227 billion between 2007 and 2016. This confirms that because VLJs are relatively inexpensive, their success or failure likely won’t affect the larger market a great deal.

Not surprisingly, VLJ predictions are all over the map. Rolls-Royce predicts roughly 7,500 in the next 20 years. Forecast International thinks 4,355 VLJs will be produced between last year and 2015, or about one-third of total aircraft production. The company said, “Key to the VLJ market reaching its ultimate potential will be the development and growth of the VLJ-based air-taxi services.” Teal predicts 3,016 VLJs, including 745 Cessna Mustangs.

Honeywell decided to forecast only the Mustang, HondaJet and Embraer Phenom 100, although the company said that an additional 4,000 “personal jets” could be produced above and beyond its forecast. Finally, Embraer comes in at the low end, forecasting only 2,500 to 3,000 very light jets. To put all this in perspective, Teal said, “Double our VLJ numbers to 600 per year and you [expand] the total business jet market less than 4 percent by value.”