Honeywell forecast predicts market downturn will be brief

NBAA Convention News » 2008
September 30, 2008, 6:30 AM

Despite the financial shockwaves emanating from Wall Street, engine and avionics manufacturer Honeywell Aerospace sees a strong appetite for business airplanes in the next 10 years based on results of its newly released 17th annual market forecast.

The Phoenix company’s near-term outlook calls for record deliveries of around 1,200 new business jets this year, up from 1,020 last year. The prediction represents a 15-percent year-over-year increase, but it is still below last year’s prediction that more than 1,300 airplanes would be delivered.

Year to date, the number of aircraft delivered is up nearly 22 percent compared to last year, with industry-wide new jet revenues increasing by the same percentage. According to the report, deliveries next year could reach 1,400 business jets depending on how quickly some new programs ramp up.

Even taking into account the most recent upheaval on Wall Street, the forecast calls for deliveries of up to 17,000 new jets worth approximately $300 billion in the next decade. “New aircraft sales have remained at record levels,” said Rob Wilson, Honeywell’s president for business and general aviation. He added, “2008 will add to the string of record years the industry has experienced, and order intake across most business jet categories remains strong, consistent with last year’s forecast. Aircraft backlogs currently equate to nearly three years’ worth of deliveries, so 2008 and 2009 still shape up to be strong years for the industry.”

For the first half of this year, business jet sales have risen 20 to 25 percent over the same period last year, further padding OEM backlogs, with many of the orders for new aircraft models entering service in 2012 or later.

Despite the positive outlook there are some signs of softening within the industry due to increasing fuel costs. Many indicators are pointing to a decline in business aviation flight hours, a trend Honeywell said it has taken into account in its forecast. “Usage is off slightly, most definitely,” Wilson told NBAA Convention News. “The FAA data show we’re anywhere between 6 to 10 percent off in hours.” He said the company is seeing utilization of smaller and older airplanes declining by 8 to 10 percent. However, he continued, “When you look at newer airplanes and long-range and ultra-long-range, [the utilization rates have remained] relatively flat. We don’t see a drop in usage at all.”

Based on operator responses, the results from this year’s survey show record deliveries will continue through next year, with a drop off in 2010. Honeywell’s forecast, which is a blend of survey responses from flight departments combined with production data from OEMs and market analysis, calls for a delivery peak in 2009, with the market growth cycle resuming in 2012.

International Market Strength

In a global perspective, respondents to Honeywell’s survey said they expect to replace or expand about 32 percent of their fleets over the next five years. “I would say that one of our biggest surprises from this survey is exactly how strong the expectations are for the business aviation customer to buy either fleet replacements or additions,” Wilson said. “In fact, probably most surprising in our data is the strength of the North American market.”

Last year the survey showed a dip in the purchase expectations in North America, he continued. “We see that this year gained five points over the 2007 levels, even in spite of the fuel costs, and even in spite of the economy. That’s five points up in the purchase expectation over just last year, and I think this really reflects the value and productivity that the customer base sees in business aviation.”

In other areas, the results in this year’s forecast were varied. Asia, which had purchase plans in last year’s survey of nearly 80 percent, saw that number drop this year to just over 50 percent, yet expectations still remain high compared to other regions. According to Honeywell, the difference this year was reflected in a decline of fleet expansion plans rather than replacement aircraft. Confidence in the region was reflected in a strong interest in large-cabin, long-range aircraft.

Purchase expectations also dipped in the Africa/Middle East region, where 44 percent of survey respondents had plans to purchase new aircraft, compared with last year’s record 50 percent. As with Asia, replacement plans remained virtually unchanged while operators expected less fleet expansion.

In Europe, the survey called for a decrease of 7 percent compared with last year’s record prediction of 48 percent fleet replacement or expansion plans. That still equals eight consecutive years of strong purchase intentions in Europe, which has enjoyed recent currency advantages over the U.S. dollar. The report cautions that a rebound by the dollar could negatively affect the strong forecasts seen from this region.

Besides North America, the only other region to experience an upswing over last year is Latin America, where operators reported stronger levels of purchase expectations in 2008. Nearly 45 percent of respondents expected their fleets to be added to or replaced in the next five years, an increase of 6 percent over last year’s results.
Honeywell credits the rise to the positive effect felt by regional economies such as Mexico, Venezuela and Brazil due to increases in oil revenues.

Reasons for the need to replace aircraft remain consistent with the company’s previous surveys, with aircraft age, cabin size and range being cited among the most crucial. A desire for modern avionics and powerplants was also mentioned.

Used Jet Prices Dip

The survey also looked at purchase expectations for used jets, which have been at high levels for the last several years. This year’s results show that trend changing as the asking prices of pre-owned airplanes have decreased as the number available for sale increase. “If you look at used aircraft as a percentage of the total fleet, that inventory is rising but if you start to get really selective and look at airplanes less than five years old, that inventory is not rising dramatically,” Wilson told NBAA Convention News.

Based directly on 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 among most jet segments. Through 2013, medium and medium-large aircraft such as the Citation Sovereign or Challenger 300 will account for the largest share with 29 percent of the projected demand. Honeywell’s forecasters call for more than 4,500 of those airplanes to be delivered over the next 10 years. Light and light-medium aircraft such as the Hawker 400XP and Embraer Phenom 300 make up the next largest segment over the next five years, with 23 percent of purchase plans accounting for more than 4,400 new aircraft predicted between 2008 and 2018.

Strong interest in long and ultra-long-range aircraft, including the Gulfstream G450 and Dassault Falcon 7X, continues as the group earned 21 percent of the projected purchases. Honeywell envisions more than 2,300 of the type being delivered over the next 10 years, a demand reflected in the need for aircraft with transpacific capabilities. Large business jets–a class that includes the Falcon 2000 family and the Legacy 600–are expected to see deliveries of approximately 1,400 over the forecast period, with a dip in output between 2012 and 2015. The survey includes a new category this year for “ultra-high-speed” airplanes like the Gulfstream G650.

In the segment of light jets such as the Citation Mustang, Phenom 100 or Beechcraft Premier I, the forecast calls for a dramatic increase in deliveries as production levels ramp up. Total deliveries for the class are expected to exceed 4,000 by 2018.

While the Honeywell survey typically excludes the personal jet category, this year forecasters considered those airplanes– which Honeywell considers to include aircraft such as the Eclipse 500, Adam 700, PiperJet, Diamond Jet and Cirrus SJ50. Based on owner-pilot survey data combined with corporate flight department interest and ongoing developments from the airframers, Honeywell predicts the total demand for this class to be in the vicinity of 4,000 to 5,000 aircraft through the end of the survey period.

The current survey also does not explicitly include aircraft in the Business Liner class–aircraft based on commercial passenger aircraft such as the Boeing Business Jet, the Airbus Corporate Jet  and the Embraer Lineage 1000– but purchase expectations for these aircraft were noted as well.  The forecast calls for more than 250 deliveries of aircraft in this class through 2018.   

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