Lagging growth in Europe business aviation remains a concern, but encouragement is to be found in greater numbers of flights last year, according to Bombardier Aerospace in its current market forecast for 2011-30. Although utilization levels during 2011 were not back to pre-recession levels, business jet movements continued to improve, relative to the previous year, said the annual document. It noted that business aviation activity in the region 12 months ago was some 12 percent up on the second half of 2009 and 3 percent higher than in 2010.
In a report published last year, before the latest disclosures about a second wave of public debt implosion in Spain and other southern European states, Bombardier expressed the worry that a “two-speed Europe” is becoming an increasing economic reality. “As the Euro area–Germany, France and the UK–are turning the corner, the peripherals–Greece, Ireland, Spain and Portugal–are still suffering from the sovereign-debt crisis,” the Canadian airframer’s most recent forecast concluded.
At the time, the manufacturer expressed the view that the German economy has been recovering “quite well” from the 2008-09 downturn, with little impact being felt from the ramifications of the Eurozone sovereign debt crisis. Following “massive and sustained growth acceleration” since early 2010, Bombardier expected Germany’s economy to remain “exceptionally robust,” compared with those of France and the UK.
France’s industry network was “slowly deteriorating, [with] consumption hampered by a rising inflation,” while Britain’s short- to mid-term growth was expected to remain mild under “governmental budget tightening,” according to the forecast. Meanwhile, continuous high levels of Greek public debt were expected to dampen private consumption and investment. Bombardier cited IHS Global Insight as predicting that, for the 2011-30 forecast period, Eurozone GDP annual growth would average 1.7 percent.
Prior to the lingering downturn, Europe had taken an “increasingly prominent position” in the business aircraft market, accounting for 31 percent of worldwide deliveries in 2008, compared with just 12 percent in 2003. This prompted Bombardier to envision this installed base as being the foundation for “a significant replacement market and a major source of demand.”
The Canadian airframer said Europe’s “fleet per 100 million population” is expected to grow from 470 to 1,300 over the next 20 years, receiving some 4,100 aircraft. “The 2010 fleet of 1,800 business jets will grow to 5,190 with a [annual] fleet growth of approximately 5 percent,” concluded Bombardier.
Another manufacturer looking closely at the European replacement market is engine and equipment supplier Honeywell, whose annual survey of “purchase expectations” showed a reduction in fleet-expansion plans last year.
“Ongoing concerns over European debt and the future of the currency union are weighing on operators,” said business aviation division president Rob Wilson in Honeywell’s most recent forecast published at last October’s NBAA show in the U.S. Five-year purchase expectations in 2011 equaled 29 percent of the region’s current fleet, down about four percentage points from the previous year. Purchase plans are timed predominantly in 2012-15, demonstrating “a more restrained posture” than 12 months earlier, said Honeywell.
Wilson remained optimistic about longer-term prospects: “The weaker dollar is projected against the euro and other major trading-partner currencies for some time. The trend should result in [a] potential tailwind for new jet demand, driven by higher-than-average rates of growth and business expansion expected in Eastern Europe and Russia, the regional growth drivers.”
Honeywell also perceived continued European-operator interest in moving into larger, longer-range and lower-cost models: “Large- and mid-cabin models outpolled small-cabin aircraft by a three-to-one margin in purchase plans, though small-cabin models improved their share of purchase plans somewhat over 2010 levels.”
Beyond concerns over European currencies and debt, U.S.-based business aviation consultant Brian Foley recently added a further note of caution, pointing out that the “perhaps environmentally well-intentioned” European Union emissions trading system (ETS) might have the unintended consequence of obstructing business aviation’s recovery.
As a result, Foley has lowered his 10-year forecast for Europe’s share of global business jet deliveries from 25 percent to 20 percent. “There’s an evident pattern of expanding taxes and regulations [in the region], including ETS, that will limit future growth potential.”
He sees ETS as simply the latest among many constraints: “The combined effects of high fuel prices, user fees, carbon taxes, airspace issues, new regulations and airport-slot restrictions are enough to limit growth. When you factor in sustained economic weakness, a near-term robust market outlook just isn’t a reasonable expectation.”
But Foley is not totally pessimistic. “Europe will remain a significant market,” he concluded. “And we see an interesting opportunity in that a disproportionate share of deliveries will go to new customers in Eastern Europe, while Western Europe becomes more of a replacement market.”
The region’s economic factors will drive a gradual downward shift in aircraft-cabin size toward small and mid-sized jets, believes Foley. Some 38 percent of the 2011 business jet fleet comprised large-cabin machines, but “over time, that should normalize to the worldwide average of 33 percent.”
He said buying behavior would “continue to change as operators embrace [smaller-aircraft] benefits, from fuel savings to lower user fees and other taxes.” Ultimately, Foley expects European operators to become even more practical. “They’ll buy the business tool they need, as opposed to the more capable jet they might want, and be content to make that extra fuel stop once or twice a year if it means saving money,” he said.