Honeywell’s crystal ball: 11k bizjets over 10 years

NBAA Convention News » 2009
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October 19, 2009, 5:57 AM

As the industry nervously anticipates a tepid buying climate at this year’s NBAA Convention, engine and avionics manufacturer Honeywell sees a serious near-term dip in business jet deliveries but a gradual climb back to the heights reached during last year’s production peak, based on the results of its 18th annual 10-year market forecast.

Despite the more than year-long downturn in usage and the recent scaling back of flight departments, the Phoenix-based company sees signs of optimism in its report and is predicting an uptick in worldwide demand starting in 2011. “The biggest thing is as we look at the five-year purchase plans for new aircraft, the purchase expectation has increased to 40 percent, meaning 40 percent of the existing fleet of operators would indicate that they are going to buy a new or replacement or addition to their fleet in the next five years,” said Rob Wilson, Honeywell’s president for business and general aviation. “It’s tempered by the fact that the people cited their intention to purchase more in the latter part of that five-year horizon. It says people have a positive view but the positive view is more long term in that five-year view, and that there’s still a strong robust demand for business aviation.” 

In last year’s forecast, Honeywell predicted a record 1,139 business jet deliveries for 2008, but even that ebullient estimate proved low as the industry exceeded it with a final tally of 1,313 jets, according to the General Aviation Manufacturers Association. But in light of the economic downturn and the rash of layoffs by OEMs, Honeywell this year expects a 30-percent cut in output to between 750 and 800 jets, while 2010 deliveries are expected to dip below 700.

“If we look back to the 2008 forecast and the 2009 reduction in output, a big piece of that was the availability of credit, which dried up faster than anybody believed,” Wilson told NBAA Convention News. “That left potential buyers with tough decisions regarding stiff cancellation fees, shifting the backlog to the right, canceling or switching to a lower-priced alternative in the used market.”

Honeywell’s latest forecast calls for deliveries of up to 11,000 new business jets through 2019, a rollback from the up to 17,000 predicted in last year’s 10-year window. The company’s survey methodology involves interviewing 1,200 randomly selected flight departments worldwide on their future usage and purchase plans over the next five years. The forecasters then–using production data from OEMs and market analysis–project that out to complete the 10-year outlook. Based on the responses gathered, many operators are deferring purchases and banking on better days ahead, leading to a pent-up demand by 2012.

Good News Overseas
While North and Latin American purchase expectations declined slightly, the purchase expectations from the rest of the world are better, in keeping with the trend that has seen more new aircraft purchased internationally rather than domestically. “Clearly operators around the world are looking beyond the current economic climate and anticipating a return to improved business conditions,” said Wilson. Respondents overall said they expect to purchase new aircraft equivalent to 40 percent of their current fleets over the next five-year time span, including aircraft purchased as replacements as well as for fleet expansion.

In North America, the fact that purchase expectations even remained relatively flat since last year at around 25 percent came as a welcome surprise, according to Wilson, based on the economic and policy concerns voiced by respondents. “Despite negative economic growth in the U.S. and some adverse domestic publicity, the survey indicates that purchases over the five-year period will maintain at levels similar to those reported in our 2008 survey,” he said. The region is expected to account for 48 percent of business jet deliveries over the next five years.

Expectations were much higher in Europe, which logged its ninth consecutive year of strong purchase intentions. Based on the survey results, respondents expected to purchase an all-time high of nearly 59 percent of the current fleet during the survey period. The resurgence of the European currencies against the dollar is expected to act as a strong incentive along with predicted economic growth and business expansion in Russia and Eastern Europe after 2010.

In the Africa, Middle East and Asia regions, purchase expectations are still high, according to the survey, with those in Africa/Middle East increasing 10 points over last year’s response, to 55 percent. While respondents in this region indicated plans to purchase sooner than in other regions, the relatively smaller-sized fleets will yield fewer new jet purchases until expansion is considered. Asian total replacement and expansion plans are just over 58 percent for the region after approaching 50 percent in last year’s forecast.

While purchase plans for Latin America dipped by five points from last year’s survey, they still remained strong at more than 40 percent.

Aircraft By the Numbers
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 Beechcraft Premier I and Emivest SJ30-2, according to Honeywell.  Deliveries in the group are expected to exceed 2,800 over the next 10 years.

Honeywell’s annual forecast also examines aircraft in what it calls the personal jet category, which includes the Eclipse 500, PiperJet, Cirrus SF50, Adam A700 and Diamond D-Jet. Last year, Honeywell’s prognosticators envisioned 10-year deliveries of 4,000 to 5,000 of the diminutive jets, but that number has been downgraded to between 1,000 and 1,500 deliveries by 2019.

Used Prices Slide
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. The survey also noted clear intentions by operators to shift to flat or lower jet usage in the near future.

While the growth of the fractional-share market has been one of the driving forces in the industry’s recent prosperity, Honeywell’s forecast sees the shared ownership model’s demand eroding. “In 2009, we’re probably going to see only about four percent of the total output going to that fractional and jet card customer base,” Wilson noted. “In the longer term, over forecast horizon, we are probably looking at something on the order of 50 to 90 aircraft per year as opposed to the 100 to 120 that we have traditionally seen.”

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