Boom times will not quickly return to the business aviation marketplace, but the pace of aircraft orders should start picking up slightly over the next 12 to 18 months. Deliveries, however, will drop slightly this year and next, before getting back on a growth curve. These are the predictions of the latest Honeywell Aerospace Business Aviation Outlook report released here at the NBAA show on Sunday evening.
The outlook forecast demand for 7,600 new business aircraft, valued at more than $121 billion for the period 2003-13. “Significant aircraft backlogs (currently at more than 1,800 units), bolstered by the appeal of new and derivative aircraft models entering service and continued growth in fractional ownership, position the industry for a near-term period of sustained demand at current or slightly lower levels,” the report concluded.
At a press conference here in Orlando on Sunday, however, Dean Flatt, president of Honeywell Aerospace Electronic Systems, conceded that the study was based on industry input gathered in the spring–before July’s slide of the Dow Jones stock index and the Bush Administration’s indication of U.S. intent to go to war with Iraq. Honeywell’s market analysts have since relied on their field service network to take a more current temperature of business aviation consumer confidence, but they admit that the published report does not take full account of nightmare scenarios such as a prolonged oil crisis and return to recession. “We have no quantifiable answer on this,” said Flatt.
Later this decade, the arrival of the next wave of new models in the sub-100,000-lb mtow class will make for a “steady climb” toward nearly 900 annual deliveries. Honeywell’s analysts have also found that demand for airliners configured as bizjets (e.g, the Boeing Business Jet) has dropped somewhat but should continue to result in 150 deliveries between 2003 and 2012 with a combined value of around $7.5 billion.
The report stated that despite slowing order rates in some market segments last year, the industry-wide backlog is still high in statistical terms and few orders have been canceled. At 352 units, deliveries during the first half of this year marked a 13-percent decline on the record-breaking output of the same period in 2001. By the end of this year, 700 new bizjets should have been delivered (compared with 769 in 2001) with around 650 deliveries expected next year. New models accounted for 44 percent of all aircraft mentioned in the latest five-year purchase plans.
Asked whether the short-term reduction in new orders would force firms along the supply chain to make further cutbacks, Flatt said this would largely depend on the state of the aftermarket, which is driven by rates of operation. Current utilization rates for Honeywell’s TFE731 engine family led it to believe that revenues will be maintained at acceptable levels.
The bottom line for Honeywell, said Flatt, is that, “the long term is very positive after a modest decline in 2002 and 2003.” He concluded, “The strong purchasing plans and backlog will prevent a repeat of the 1970’s boom-bust cycle.”
Honeywell’s new survey was derived from purchasing projections from some 1,000 flight departments throughout North America, Europe, Latin America and Asia. Buyer interest was measured against historical analysis of survey expectations compared with actual market behavior. The results were cross-checked against business aircraft manufacturers’ own sales forecasts and assume that projected U.S. economic growth over the next four to six quarters will be achieved. The majority of the respondents were chief pilots or corporate aviation managers.
The report estimated that the world market for business jets over the next five years will see new airplane deliveries 3 percent ahead of results for the last five years. “Despite unsettled economic conditions since late 2001, purchase expectations rose slightly above last year’s levels in the aggregate and were up in three of the four regions,” it said.
Fractionals Still Key Driver
According to the new forecast, by 2012 the fractional ownership fleet will comprise 10 to 12 percent of all active business aircraft in the world (compared with around 7 percent today). In the near term, demand from fractional programs accounts for 15 to 16 percent of deliveries and this is expected to increase to 20 percent by 2012. Honeywell has estimated that fractional operators speak for roughly 45 percent of the current backlog.
“Honeywell Aerospace continues to believe that only a small portion of the potential fractional business has been developed, and we believe that continued growth in this segment is sustainable for years to come,” said the company’s president, Bob Johnson.
Fractional ownership continues to be the main point of entry for new bizav consumers. Asked whether the September 11 hijackings have induced companies and individuals to come into the marketplace–as many had predicted would happen–Flatt said, “we haven’t seen anything out of the ordinary.”
The following is a region-by-region analysis of the Honeywell business aviation forecast:
Operators in North America expect to replace or expand the equivalent of about 22 percent of their jet fleets with new aircraft during the next five years, with the average age at which equipment is replaced increasing to just over 10 years. The 2002 Honeywell survey projected that around 71 percent of all new jets will be sold in North America during this period, sustaining the continent’s dominance in the world of business aviation. This represents a 3 percent drop in the North American share of purchases compared with last year’s survey.
New jet purchase plans for European operators are now rising slightly above the record levels reported in the 1999 survey, with fleet replacement being a more significant factor than fleet expansion. Over the next five years, Western Europe should continue to account for about 14 percent of worldwide bizjet demand. The strength of the Euro against the U.S. dollar and optimism about increased trade in Eastern Europe have been identified as factors in the strengthening demand in the continent.
The European section of the Honeywell survey also encompassed the Middle East and Africa. Operators told the company that they expect to replace or expand almost one-third of their current jet fleets over the next five years. This compares with an average of 29 percent last year and an average of 22 percent over the last five years.
The anticipated replacement age for aircraft in Europe has dropped by almost two years since the last survey, with the need for larger, newer models being most commonly cited as the reason for replacement, along with more range and speed, plus the impact of regulatory change and the desire to have better warranty coverage.
Just over half of all deliveries in Europe are expected to be new or derivative models over the next five years.
The 2002 survey found that in Latin America poor economic conditions, currency crises, high fuel costs, plus new technical requirements and user fees are suppressing expectations. Nonetheless, operators in the region reported plans to replace or expand some 18 percent of their existing fleets with new jets–in line with average rates over the past five years.
The desire to replace older aircraft is the main driver of Latin American demand, along with new requirements such as reduced vertical separation minimums (RVSM). The average age at which aircraft are replaced has dropped to 11 years–three years below the average age in 2000. The continent’s demand amounts to just under 6 percent of the worldwide total over the survey period.
Asia produced some of the most encouraging results in the Honeywell forecast, with the region recording strong purchase expectations this year and recording the highest peak level for any of the surveyed regions over the past 10 years. The near-term projection showed an overall average bizjet growth rate of 7 to 8 percent through 2006.
Operators throughout the Asia-Pacific region–where economic growth is now relatively stable after some turbulent times–should account for 9 to 10 percent of global business jet demand over the next five years. Interestingly, Asian operators pointed to continued political strife as a motive for buying longer-range aircraft to bypass trouble spots as a significant factor fueling demand.
The new survey also broke down demand projections for business aircraft according to the following size categories:
Long-range and ultra-long-range deliveries are expected to run at roughly 100 units this year. This market segment is viewed as having passed its near-term peak as initial pent-up demand has been satisfied and stable production rates established.
In the 2003 to 2012 timeframe, Honeywell forecast worldwide deliveries of 1,150 aircraft in this category. In the second half of the decade, annual deliveries will start accelerating to reach more than 130 units as product upgrades and new models such as Bombardier’s Global 5000 and Dassault Falcon 7X enter service.
Large-cabin aircraft are expected to account for 800 deliveries with annual rates ranging from 70 to 90 units. Medium and medium-large aircraft should see 2,300 deliveries through 2012. The introduction of several new types should see annual delivery rates grow from around 140 units to about 250.
Backlogs for light and light-medium aircraft remain “respectable” despite current softening of demand in this category. Honeywell projected nearly 2,100 deliveries through 2012, with current annual rates of 160 to 180 to increase to 240.
Order intake for very light aircraft has slowed since last year. The latest survey findings, however, show purchase expectations and a strong current backlog driving annual deliveries in the range of 130 to 150 units. The report concluded that heavy production rates of new models in this category (such as Cessna’s CJ1 and CJ2 and the Raytheon Premier I) will front-load manufacturing rates with lower output than expected for the back-end of the forecast period.
Honeywell included the emerging ultra-light sector (exemplified by the Eclipse 500 and the Safire S-26) in its separate general aviation survey. This indicated potential demand for no fewer than 8,000 aircraft over the next 10 to 15 years.