Honeywell forecast calls for bizav's continued good fortune

 - June 11, 2008, 6:43 AM

Deliveries of new business jets continue to grow despite the slow economy and, according to Honeywell’s 10th annual business aviation outlook, the market will remain healthy in the near term with purchase expectations up in all regions.

However, the forecast, which Honeywell planned to release at the NBAA Convention last month, doesn’t consider the effects of the catastrophic and subsequent events of September 11 when terrorists crashed hijacked airliners into New York’s World Trade Center and the Pentagon.  As the outlook concedes: it “does not reflect the impact of additional unforeseen events such as a major economic shock, fuel crisis or new regulatory restrictions,” all possible outcomes of the September 11 disaster. Nevertheless, Honeywell told AIN it stands by the forecast, which projects that 8,900 business jets, valued at over $136 billion, will be delivered between 2002 and 2011, a 30-percent increase over the previous five-year period.

The survey indicates a potential recovery in business aircraft order levels in about one year, assuming the U.S. economic recovery predicted for next year is realized. Coupled with historically high aircraft backlogs, the effect of new and derivative aircraft models entering service and continued growth in fractional ownership, the industry is positioned for a near-term period of sustained demand at current or slightly higher levels. After reaching a record peak this year, deliveries will pause slightly next year and then return to the 800-unit level. Later in the decade, new jet offerings will stimulate a steady climb toward 1,000 aircraft deliveries per year. In addition, Honeywell found demand for BBJs and other airliner aircraft configured as business jets had improved over the last two survey years and should support deliveries of about 175 aircraft between 2002 and 2011.

Manufacturer backlogs now stand at more than 2,700 business jets, according to Honeywell. Despite evidence of “significant slowing” of order rates, new demand channels have taken up much of the slack. This is evidenced by the 200 business jets ordered earlier this year at the Paris Air Show, many by United BizJet (UAL’s new business aviation subsidiary). First-half deliveries of more than 400 business jets represented the strongest half-year performance in business jet history. Honeywell expects operators to take delivery of approximately 760 new business jets this year and about the same number next year. That figure also is about the same as last year, according to AIN tabulations.

The survey measured expectations for the purchase of new turbofans over the next five years, as reported earlier this year by 1,000 flight departments (operating nearly 2,050 aircraft) in North America, Latin America, Europe and Asia. Honeywell Aerospace’s outlook for deliveries of new business jets between 2002 and 2006 is for 4,034 aircraft, a nearly 30-percent increase over the previous five-year period, when 3,108 new jets were delivered. Purchase expectations have remained generally high since 1995. In this year’s survey, new designs accounted for nearly 46 percent of all jets mentioned for purchase during the next five years. Honeywell projects that order rates will improve in the latter part of next year. Following the 2001 to 2003 period, the industry should enjoy steady growth at annual quantities well above the levels experienced in the previous five years.

Frax Continue Rapid Growth

A major contributor to the strength of the industry is the fractional aircraft ownership business. Fractional operations account for nearly 6 percent of the global business aircraft fleet and serve more than 3,000 shareholders, said Honeywell. By 2011, Honeywell predicts the fractional-ownership fleet will comprise 15 to 17 percent of the active turbine business aircraft in the world. Charter operations have expanded, in part, to support the growing demand from numerous fractional fleet operators. Honeywell estimates that roughly 45 percent of the current aircraft backlog is on order by fractional fleet operators. On a yearly basis, fractional demand in the near term contributes less than 18 percent of annual deliveries, but that will increase to the 20- to 25-percent range by 2011, according to the aerospace company.

“Despite the record growth in fractionals over the last few years, Honeywell Aerospace continues to believe only a small portion of this market has been developed, providing confidence that strong growth in this segment of the business is sustainable for years to come,” said the forecast authors.

North America remains the strongest and largest business jet market, and operators say they will replace or expand the equivalent of about 24 percent of their jet fleets with new aircraft during the next five years. In Europe, new jet purchase expectations recovered strongly to virtually the same levels reported in 1999. Replacement of current aircraft figures more prominently in the European recovery than plans to expand fleets. Western Europe should provide nearly 14 percent of the total business jet demand for the next five years in this year’s survey, up 2 percent from last year.

Lackluster economic conditions, high fuel costs and currency weakness against the dollar were frequent concerns reported by Latin American operators who held the recovery in purchase expectation down in the region. Despite these issues, operators reported plans to replace or expand the equivalent of 18 percent of their current fleets with new jets during the next five years. This is in line with the 18-percent rate averaged over the last five years.

The near-term projection for operations in Asia is an overall 7- to 8-percent annual business jet fleet growth rate through 2006 based on the relatively stable near-term economic outlook within the region. Political instability and the strong U.S. dollar were listed by some operators as issues affecting their purchase plans. Asian operators also noted that political strife in other regions actually increased their interest in long-range aircraft purchases to bypass trouble spots.

Bizav Market Outlook

• Long-range and ultra-long-range: Deliveries of these aircraft are expected to stabilize at roughly 130 units this year. Honeywell said this market has achieved a near-term peak as initial pent-up demand for this class of jets is satisfied and stable production rates are maintained. Between 2002 and 2011, Honeywell forecasts worldwide deliveries of nearly 1,392 long-range and ultra-long-range jets. In the second half of the decade, annual deliveries will again begin to grow, reaching rates of more than 160 units per year as product upgrades and new aircraft models enter these segments. (Aircraft in this category are the Falcon 900C/EX, Gulfstream IV-SP, Global Express and Gulfstream V/V-SP).

• Large: Honeywell forecasts deliveries of nearly 890 jets in this category (Falcon 2000/2000EX and Challenger 604) between 2001 and 2011 at annual rates ranging from 85 to 95 units. Fractional-ownership programs are contributing significantly to aircraft demand in this segment, said Honeywell.

• Medium and medium-large: Honeywell forecasts deliveries of 2,340 jets in this class by 2011. Strong steady growth is projected based on the service entry of several new designs. Annual delivery rates will grow from current levels of around 170 units to about 280 per year by 2011. The medium-large or “super midsize” class aircraft include the Continental, Falcon 50EX, Hawker Horizon, Citation X and Gulfstream 200 (formerly the Galaxy). The medium segment includes several models currently in service–the Hawker 800XP, Gulfstream 100 (formerly the Astra SP) and Learjet 60–and new jets such as the Citation Sovereign (which Cessna claims is in the super-midsize category). Many aircraft in this segment also enjoy solid backlogs based on their popularity in the fractional-ownership markets.

• Light and light-medium: Honeywell anticipates deliveries of 2,886 of these aircraft by the end of the next 10 years. Aircraft in this class (Learjet 31A, Learjet 45, Citation Excel, Citation Encore, Citation Bravo, Beechjet 400A and the new Hawker 450) have strong survey interest in all regions. Near-term delivery quantities will lie in the 240- to 260-aircraft range, with rates increasing to more than 340 aircraft per year near the end of the forecast period.

• Very-light: The 10-year demand for this class of aircraft remains strong, according to Honeywell. This segment, which includes the Premier I, Citation CJ1 and CJ2 and the yet-to-be certified Sino Swearingen SJ30-2, offers significant growth potential. As mentioned earlier, order intake has slowed on the lighter jets recently but based on the improved purchase expectation for this class and the strong backlog in place, deliveries will actually grow from more than 100 this year to 140 to 150 aircraft annually within two years. Honeywell forecasts deliveries of 1,430 jets in this class during the next 10 years.

• Micro jets: Emerging micro-jets such as the Eclipse 500, Safire
S-26, the VisionAire Vantage and others, none of which are certified, are not included in Honeywell’s forecast, although the company said these jets offer the “exciting possibility” of ultra-low-cost solutions appealing to the owner-flown, high-end piston and turboprop-single markets.

As noted at the outset, this was Honeywell’s take on the future before the events of September 11.