EBACE Convention News

A Slow Climb for the European Business Aviation Market

 - May 18, 2015, 11:45 AM
Despite a rocky start to 2015, industry officials believe that the business aviation market remains on track to slowly improve this year in Europe.

Despite a rocky start to 2015, industry officials believe that the business aviation market remains on track to slowly improve this year in Europe.

The year began with pockets of momentum, with the number of flights increasing in Western Europe and business jet deliveries turning around after a plunge in 2013. “Market activity stabilized last year, and would have recovered, had it not been for the Ukraine/Russia effect,” said Richard Koe, managing director of business aviation market research specialist WingX Advance.

WingX reported flight operations in Western Europe picked up 3 percent in 2014. Europe-wide, flight operations were down on the year 0.5 percent, but that reflected the drop from the Ukraine and Russia.

The European market share of business jet shipments, meanwhile, had an unexpected turnaround last year following the drop in 2013, according to Jens Hennig, vice president of operations for the General Aviation Manufacturers Association. Only 15.6 percent of 2013 business jet shipments went to Europe, the lowest level since GAMA began tracking the regional data in 2007. This was down from 26.3 percent just five years earlier. But in 2014, business jet shipments in Europe turned up, accounting for 19.5 percent of the global deliveries.

Honeywell also found a rebound in purchase expectations last year as it surveyed operators for its 2014 Business Aviation Outlook. Honeywell noted expectations had returned to levels from before the market stumbled in 2013. “European operators are still contending with sluggish growth and increased political tensions. Within the current setting, the buoyancy of operator attitudes is surprising,” the company had reported.

Despite the positive indicators in 2014, the market took another turn in the first couple of months of this year. Operations dropped by about 5 percent in the first quarter. The conflict in the Ukraine took an increasing toll on business aviation operations in the early part of the year as well. “Combined with the uncertainty of Europe’s fragile economic recovery, flight activity in Western Europe has also been dragged back, especially in Germany and France,” Koe said.

European Business Aviation Association CEO Fabio Gamba said business aviation officials had anticipated a stronger first few months. “We were surprised to see January and February fall,” he said.

The turn in the early months may cause EBAA to slightly revise its outlook for the year, but Gamba said he believes enough indicators support optimism for growth in the market this year, even if it will be at low levels.

While turmoil and economic uncertainty in countries such as Ukraine and Greece play a role in operations, he noted they are relatively small contributors to the overall business aviation market in Europe.

“The forecast is still positive because…the economy is going in the right direction.” This is particularly true in the southern economies, such as Spain, Portugal and Italy. Gamba also sees lower fuel prices helping to spur activity and encourage growth.

Hennig agreed. “Is there cause for alarm? No, not necessarily. Business aviation tends to closely follow the economy and the degree of confidence in the economy,” he added.

Koe shared this view. “The Ukraine/Russia market is not going to recover any time soon but probably doesn’t have that much further to fall,” he said. “Meanwhile, barring further external crises, such as Grexit [Greece exit from the Eurozone] or escalation of the stand-off with Russia, the EU economy’s weak cyclical recovery will be supported by low oil and cheap money, and its acceleration should begin to catalyze investment in and use of business jets.” Further, operations have remained up in the first few months in the United Kingdom, by about 3 percent, he added.

Both Koe and Gamba had predicted a slight recovery of just less than1 percent in 2015. This recovery is being driven by gains in corporate and private flying, Koe said. “In the U.S., the market’s recovery was heralded by a much stronger recovery in charter, which has percolated through to fractional and now full ownership [private operations],” he said. “But in Europe we don’t expect much upside in charter, at least at the aggregate level. “ The customers that are returning more likely are the big corporations and high net worth individuals.

This points to a shift in the business aviation market, Gamba said. “We see non-commercial operations growing little by little.” Commercial business aircraft operations once accounted for two-thirds of all operations. But as Europe has recovered from the downturn, that has shrunk to about 60 percent.

But like the U.S., new aircraft delivery growth is first occurring with the large, long-haul aircraft, Koe said. “Throughout the recession there has been growth in ‘ultra-long-range’ jets, with increased activity reflecting increased ownership,” Koe said. “This trend will continue, with no shortage of aircraft in production attracting customers to this market.” He cited the Gulfstream G550 and G650 competing against Bombardier’s Global lines and new Dassault Falcon family as examples.

Gamba noted the increasing globalization of European businesses. European companies are looking to buy aircraft to fly to regions outside of Europe, he said. This is beginning to be show up in operational data, Gamba added, noting that in recent years the average length of a flight has increased and the number of long-haul flights has trended upwards.

At the same time, the used market continues to put a damper on new light to midsized aircraft sales. “The still-downward direction of pricing in the pre-owned market will give very little stimulus to the heavy-mid/mid/light jet segments, where there are clearly too many new models competing for a diminished appetite for new aircraft,” Koe said. Customers of midsize and smaller aircraft will instead lean toward the “fantastically low” prices of the relatively young used aircraft available, he said.

Also feeling the effects of a slower market turnaround are turboprops. The European market share of turboprop deliveries fell from 21.9 percent in 2008 to just 7.7 percent last year. “The shrinkage in the turboprop market share for Europe has also been consistently occurring in each year at a rate of 1-2 percentage points,” Hennig said. He noted that the turboprop market may see some benefit from the upcoming rule to permit commercial single-engine turbine operations in IMC, but he believes that the European economies will be the underlying driver of growth in the turboprop sector, as well as in the lighter business jet segments.

Industry leaders remain cautious, however, knowing the market faces other pitfalls beyond macro-political and economic forces. Gamba pointed to other factors, including access to ground and air infrastructure, shortage of skilled business aviation workers and both government and public perception of the industry.