AINsight: The State of the Business Aviation Market

 - October 18, 2019, 5:49 AM

As leaders gather in Las Vegas for the annual NBAA-BACE event, many will be keen to get their first glimpse of the newest technologies and services on offer, while gathering market and competitive intelligence, and even finding the time to share a glass or meal with friends and colleagues. As the largest gathering of business aviation stakeholders under one roof, NBAA-BACE is consistently recognized as the must-attend event and the premier showcase for what’s new in the industry. With near-ideal sunny weather forecasted for the week of October 21, more than 25,000 attendees are expected to crowd the Las Vegas Convention Center and Henderson Executive Airport static display.

With just 74 calendar days until the clock strikes midnight on Dec. 31, 2019, the last weeks and days and hours and minutes of the clock will be racing by as organizations and their people strive to “get ’r done” before year-end.  The fourth quarter is a notoriously busy time for business aircraft OEMs and their suppliers, completions and maintenance centers, aircraft brokers/dealers, lawyers, financiers, and other transactions professionals, and this year’s U.S. ADS-B Out compliance deadline is adding even more excitement to people’s work calendars.

As we predicted earlier this year, thousands of U.S.-registered business jets and turboprops will not be compliant with the ADS-B Out mandate on Jan. 1, 2020; an October 1 report from MRO specialist Duncan Aviation pegged the number at a remarkable 5,500 aircraft. Although the FAA is prepared to allow non-compliant aircraft to operate on a limited basis after the deadline, these flights will be reviewed and approved on a case-by-case basis to allow operators to reposition their aircraft to an ADS-B Out installation center. It is hard to imagine that there won’t be an uptick in aircraft retirements and removals from service in 2020 and beyond, as owners come to terms with the multiple realities of compliance and higher maintenance costs of aging aircraft.

At the beginning of September 2019, JETNET records indicated that about 2,150 business jets were for sale worldwide, representing 9.6 percent of the in-service fleet. The percentage of the fleet for sale has been slowly increasing from the post-2008 crisis floor of 9 percent first reached about a year ago at the time of NBAA-BACE 2018. It is unlikely that the industry will return to that 9 percent for-sale figure anytime soon, especially when considering the recent softening in preowned business jet sales and ADS-B Out-triggered retirements and removals from service.

On a trailing 12-months basis through Sept. 1, 2019, preowned business jet retail sales and lease transactions were down 12 percent year-over-year (YOY), and fully 19 percent on a year-to-date (YTD) basis compared with the same period a year ago. Although some may claim that the lower 2019 sales are simply a reflection of a tough YOY comparable—i.e. higher sales in 2018 driven by excitement around the first full year of the new U.S. tax and depreciation law allowing 100 percent expensing of preowned business jets—transaction paperwork filed with the FAA suggests that 2018 sales volumes were up only 4 percent YOY, probably not enough to encourage anyone to write home to mama (or their friendly neighborhood congressman) about.

Manufacturers' Time To Shine

Meanwhile, business aircraft OEMs and their key suppliers will be basking in the glory of the lights and glitter that only Las Vegas seems to be able to provide, buoyed by a long-awaited rebound in order activity YTD, especially focused on their all-new and recently improved models. Firm order backlog value at the five largest of the OEMs—Bombardier, Dassault, Embraer, Gulfstream, and Textron—was up approximately 7 percent in the first six months of 2019 versus 2018 year-end levels, and by an estimated 10 percent by the end of August. This backlog rebound comes after a seemingly endless period of demand doldrums that has characterized the overall new business jet market for most of the past 10 years.

With some 35 business jet models currently in production, just five or perhaps six are being produced in volumes that are likely to bring smiles to even the sternest CFO's face—including the Challenger 350, Phenom 300, Citation Latitude, Gulfstream G650, and Cirrus Vision Jet. A handful of promising new models—including the Pilatus PC-24, Global 7500, Gulfstream G500/G600, and Citation Longitude—are in production ramp-up. Combined, we forecast that these models will account for about six out of every 10 new business jet deliveries in the next several years. Should a slowdown in orders occur over the next few years with the onset of an economic recession in key business jet markets, it will be time for most OEMs to consider pruning their facilities of slow-selling models that enjoyed better days long ago.

With almost 18,000 respondents from 132 countries to date, JETNET iQ surveys of business aircraft owners and operators have been ongoing since late 2010, providing fascinating insights into the opinions and perspectives of business aviation customers. Market sentiment metrics that we monitor and analyze peaked in Q2 2018 but have fallen off quite sharply in 2019. Lower sentiment is not limited to one or another segment but is apparent across all geographic regions and across all business aircraft size categories, from turboprops through large-cabin jets. In general, many customers indicate that they do not need new and additional aircraft at this time, particularly given purchase and trade-up costs and uncertainty about the economic environment.

Almost nine in 10 business aircraft owner-operators believe that industry leaders and OEMs need to do more to improve the public perception of business aviation. In the interim, about 25 percent of customers surveyed in Q3 2019 indicates that they will seriously consider flying with sustainable alternative fuels (SAF) in the next 12 months, a welcome development and acknowledgment by at least some customers that more needs to be and can be done to protect the environment. On the horizon, a little more than half of the Q3 2019 survey respondents believe that hybrid and electric engines are the next generation of propulsion in business aviation, technologies that will no doubt be on prominent display across the vast halls of the Las Vegas Convention Center and at Henderson Executive Airport.

A question on many people’s minds at NBAA-BACE will be whether new generations of customers will shift away from traditional whole aircraft ownership towards one form or another of shared access, including business models offering fractional ownership, charter, and membership. Based on the Q3 2019 JETNET iQ Survey, almost six in 10 respondents who expressed an opinion believe that there will be such a shift. If true, this could represent a sea change in the ways the industry organizes itself to serve customers in the years and decades ahead.

Our forecast is that the year 2019 will close with about 8 percent higher new business jet deliveries YOY, with delivery value up in the low double-digits on a U.S. dollar list price value basis. We expect 2020 to be an improvement over 2019, with deliveries up a further 3 to 5 percent driven by production ramp-up of recently certified models. Although the crystal ball naturally gets hazier the longer out we look, there is a very real possibility that new business jet delivery volumes will begin to fall back once again after 2020, in line with expectations about the next downturn in the business cycle.

For those traveling to NBAA-BACE, life remains interesting, with no shortage of things to consider in the dash to the year-end finish line in just 74 days!