At this year's NBAA show, while attendees search for signs that the industry downturn is finally ending, engine, equipment and avionics manufacturer Honeywell sees at least one more down year in 2011 before the start of a rebound cycle.
The Phoenix, Ariz.-based company released its 19th annual business aviation forecast Sunday and despite the gradual uptick in business net usage over the past year, it predicts deliveries of between 675 and 700 new business jets for this year–the lowest total since 2004–followed by another year of less than 700 deliveries in 2011. "I think the downturn in 2009 demonstrated for all of us that nothing is really firm in an economic calamity as we saw, but that said, we are seeing a lot less volatility in that order book, a lot more stability and more of a sense of continuity," Rob Wilson, Honeywell's president for business and general aviation, told AIN. "I would add that we have yet to see widespread consistent order intake across the entire industry and that is what we are looking for before we start to signal a strong recovery."
That recovery is now expected to begin in 2012, fueled by deferred demand, new high-value aircraft models and more solid rates of global economic recovery. The forecast anticipates a cyclic peak likely higher than in 2008, occurring late in the decade.
Honeywell last year estimated 2009 would finish with an industry output of between 750 and 800 business jets. According to the General Aviation Manufacturer's Association, the total number of jets (including business jetliners which are generally excluded from the survey) handed over was 870. Through the 10-year forecast horizon, last year the company predicted deliveries of up to 11,000 new business jets through 2019, based on record purchase expectations outside of North America. While this year's forecast sees little change in that total, there has been some shuffling in regional demand. "This year operators outside North America have become more cautious about the strength and pace of the recovery," said Wilson. "While they are still looking beyond the current economic climate and anticipating a return to improved business conditions, they have tempered near-term expectations and buying decisions as reflected in the current delivery forecast."
Honeywell's survey methodology involves interviewing 1,200 randomly selected flight departments worldwide. "As part of the survey, we ask 'do you plan to purchase [a business jet] in the next five years,' and that's what we cite as the purchase expectation number," said Charles Park, the company's director of analysis. "Then we go on and ask 'at what point in the five-year window do you expect to replace or expand your fleet?'" Park and his team–using production data from the airframers and market analysis–then project that out to the forecast's 10-year horizon.
Based on the survey results, Honeywell sees increasing activity toward the end of that five-year window, with approximately 90 percent of planned purchases considered for 2011 and beyond. "Acting on these purchase plans in 2011 and 2012 is critical to giving the recovery momentum as current backlogs will not sustain delivery levels indefinitely," said Wilson. If this occurs we will start back on the path toward recovery and expansion in the industry."
Over the life of the survey Honeywell sees a potential worldwide demand of more than 5,000 business jets during the 2011-2015 timeframe, excluding orders from fractional providers and branded charter start-ups. Despite the slowdown in orders, Wilson noted there have been relatively few program cancellations from the manufacturers. "Even in a downturn many of the OEMs across the industry are continuing to work on new airplane development and historically new aircraft entering service have driven demand, especially as they set new points of performance around value," he said. "Part of what is going to fuel our recovery is some of these new aircraft coming on line in the latter part of the next five years." While the total delivery prediction of up to 11,000 new business jets over the next decade remained unchanged from last year's forecast, Honeywell this year revised its sales value upward by 10 percent to $225 billion, reflecting the increasing popularity of large-cabin aircraft among survey participants. "Another point that keeps coming back is the importance of the large-cabin aircraft," Wilson said. "It's 70 percent of the dollar value over the forecast horizon and 42 percent of all the mentions that were in the survey."
Overseas Expectations Shrink
According to the survey results, international demand now equals approximately 42 percent of the new business jets purchase plans considered over the next five years, after exceeding 50 percent in last year's forecast, the decline attributed mainly to the lackluster global economy. Overall, the survey called for five-year purchase expectations around 30 percent, with North America trending up one point over last year to an anticipated replacement or expansion of 26 percent of the respondents' existing fleet. During the next ten years the region is expected to account for 58 percent of aircraft deliveries. "Despite the slow pace of recent economic growth in the U.S. and the ongoing concerns over job growth and credit restrictions, the survey indicates that purchases over the next five-year period are planned at levels similar to those reported in our 2009 survey, reflecting the value and productivity these aircraft deliver," said Wilson. Deferred purchasing was a clear motivation, with the aircraft age selected as a reason for replacement plans in 45 percent of the replies.
In Europe, the second largest consumer of business jets, purchase expectations of 34 percent of the current fleet were down considerably from last year's record high of nearly 59 percent, but the forecast considered possible declines of the dollar against the European currencies as a potential incentive for aircraft purchases starting as early as next year. In terms of purchase plans, large and midsize cabins outpaced small aircraft by a five-to-one margin, while a desire for longer legs and new aircraft with their comprehensive warranty coverage were named as key factors in purchase considerations.
The Middle East, Africa and Asian regions have likewise tempered their purchase expectations over the next five years. Based on the plateau of oil prices that existed for most of the year and sluggish increases in oil demand, the Middle East and Africa have become more conservative in their economic outlook, as evidenced in purchase expectations of approximately 30 percent, down 25 points from last year's survey. Purchase plans in the region are still planned for sooner in the five-year window than North America, Latin America and Europe, but diminish during the mid-forecast period, when expectations in those other regions begin to improve.
In Asia, the current purchase plans of 40 percent represent an 18 point decline from those of a year ago, which Honeywell attributes to caution among operators due to slow recovery of the region's major trading partner economies and concerns of export-fueled growth and Chinese real estate markets.
In the fractional ownership segment, new jet deliveries were off 80 percent from last year through the first half of 2010 and net incremental sales have continued to deteriorate further after last year's more than 50 percent loss. Honeywell is forecasting significantly lower deliveries over the next few years as excess capacity is worked off and shareholder levels are rebuilt."
Aircraft by the numbers
Based on the results of the survey, Honeywell sees a slow but steady change in aircraft category demand over the next five years. Through 2015, medium to large aircraft such as the Bombardier Challenger 605, Dassault Falcon 7X, Cessna's Citation X and Embraer's growing Legacy family will account for 32 percent of the projected purchases, while light and medium business jets including new designs like Bombardier's Learjet 85, the Gulfstream G250, Embraer's Phenom 300 and Cessna's CJ4 will make up approximately 22 percent. Long-range and ultra-long range aircraft such as the new Gulfstream G650 and Bombardier's Global family will garner 21 percent. Those longer-range aircraft will constitute nearly 50 percent of the delivery dollar value over that same period. Very light jets will constitute the remaining 25 percent of demand but equate to only five percent of the retail shipment value. While the personal jet segment is not a part of the survey, the forecast calls for deliveries over the next 10 years of 500 to 1,000 of the aircraft such as the still-developing PiperJet and the slowly developing Cirrus Vision.
As recently as two years ago, Honeywell's forecast called for deliveries of the diminutive aircraft on the order of 4,000 to 5,000 in a 10-year span. Last year that number dwindled to between 1,000 and 1,500.
The outlook also does not explicitly include businessliners such as the Airbus ACJ, Boeing BBJ, Embraer Lineage 1000 and other corporate versions of twin-aisle and regional jetliners among its forecast totals, yet Honeywell predicts deliveries in this segment to average roughly 20 aircraft per year for the 10-year period.