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Forecast sees ME as leader in upturn

 - November 12, 2009, 7:09 PM

The Middle East could lead the troubled business aviation industry out of its lingering downturn. This was one of the headline projections from the latest edition of Honeywell Aerospace’s (Stand A470) annual market forecast published last month at the National Business Aviation Association Convention in the U.S.

The engine and avionics manufacturer has surveyed customers around the world to find out about their plans to buy new aircraft over the next five years. It found that up to 41 percent of all new jet purchases will come from Europe, the Middle East and Africa over the next five years, with these regions collectively representing a higher proportion of the world market than Honeywell’s 2008 forecast had predicted.

Overall, more than 50 percent of global demand for new business aircraft now comes from outside North America–a region that has historically dominated this sector of aviation. The latest survey shows demand falling in both North and South America.

More specifically, the aircraft buying plans of operators in the Middle East and Africa climbed by more than 10 points to 55 percent–the highest level of expected demand ever seen from this part of the world. “Emerging markets, like the Middle East, are expected to lead the global recovery after 2010,” said Rob Wilson, president of Honeywell Aerospace’s Business and General Aviation division.

Looking at the global statistics from the Honeywell forecast, the good news is that demand will recover from its current low level, with new aircraft purchase expectations increasing from just above 30 percent last year to 40 percent of respondents. The bad news, in the short term, is that these prospective buyers generally are going to defer their purchases until the back end of the five-year time frame.

“The relatively stronger levels and timing of international purchase plans suggests that pent-up demand will improve both order intake and new jet delivery rates by 2011-2012, similar to what the industry experienced in the last cycle,” said Wilson. “Despite some program cancellations and delays, there is still a solid pipeline of new high-value models supporting long-term growth and our survey indicates that international demand will remain significant.”

According to the Honeywell forecasters, the increases in Middle East, Asia and Africa purchase plans are based on fleet replacement. By contrast, fleet expansion demand in these regions fell by about three points in the survey compared
to last year. Middle East and selected African economies continue to benefit from improved oil prices and burgeoning trade with China and Asia, and operators in these regions expect to be active buyers.

What’s more, operators’ plans to buy in these countries are likely to be fulfilled sooner than in Latin America, North America and Europe. But the fleets concerned are relatively small, so even high planned purchase rates yield smaller absolute numbers of new jet purchases until the fleets expand in the future.

Further east in Asia, purchase plans had posted a nearly nine-point gain in the 2008 survey versus the previous year, and they have continued to climb. Total fleet replacement and expansion plans are just over 58 percent for the region in the 2009 survey after approaching 50 percent last year.

“Confidence in Middle Eastern and Asian economic growth in the intermediate and long term remains high, boosting interest in larger, longer-range aircraft with better operating economics,” concluded Honeywell. Its survey found that operators are concerned about new flight duty-time restrictions and carbon emission regulations.

Based on the operator responses, the survey considers the next five-year period, while Honeywell’s forecasters extend those numbers out to 10 years. According to the respondents, the demand for new aircraft will be balanced across the spectrum. Through 2014, light and light-medium aircraft will make up the largest demand share, at 24 percent. Honeywell predicts that roughly 2,400 aircraft in this class, which includes the Hawker 450, Cessna Citation XLS, Embraer Phenom 300 and Learjet 45, will be delivered by 2019.

The next largest group–the medium and medium-large jets– which includes new designs like the Embraer Legacy 450 and 500, Learjet 85 and Gulfstream 250 as well as current aircraft such as the Citation Sovereign, Challenger 300, Learjet 60, Hawker 850XP and 900XP, and Gulfstream 150 and 200, is expected to garner 23 percent of sales in the next five years, with deliveries of approximately 2,400 aircraft over the life of the forecast.

Large aircraft, a group that includes the Challenger 605, Gulfstream 350, Falcon 2000 family, Embraer Legacy 600 and the recently shelved Citation Columbus, will earn 18 percent of the demand through 2014, according to the survey respondents. Honeywell’s forecast predicts deliveries of around 1,000 aircraft in this class during the next decade.

The long- and ultra-long-range category also received 18 percent of the potential market demand over the next five years. The class is represented by Bombardier’s Globals and Challenger 850, Gulfstream’s 450 through 550 and Dassault’s Falcon 900 and 7X, and is projected to top 1,500 deliveries through 2019, while a new subset of high-speed, ultra-long aircraft, primarily Gulfstream’s new flagship 650, would add another 500 to the total.

The very light jet segment, which has been relatively insulated from the declining flight- hours trend, is represented by types like the Embraer Phenom 100, Cessna Citation Mustang, CJ1+ and CJ2+, Hawker Beech-craft Premier I and Emivest SJ30-2, according to Honeywell. Deliveries in the group are expected to exceed 2,800 over the next 10 years.

After several years of gradual increases in the price of used jets, the market has seen significant erosion with prices dropping from 15 to 18 percent of where they were a year ago. According to the forecast, that trend could continue as survey respondents indicated a further decline in used jet purchases over the next five years.