The 10-year business jet market outlook published on October 20 by pre-owned aircraft broker Jetcraft reflects a marked recalibration of growth expectations once inflated by what has proved to be the industry’s unfounded belief that so-called emerging markets would trigger a supposed golden age of growth.
The report predicts a gradual ascent in new jet deliveries to a new peak in 2021, before a moderate downturn kicks in between 2022 and 2024. Jetcraft sees North America and Europe (together accounting for just over two-thirds of the world market) continuing to dominate the largely flat market.
According to Jetcraft’s analysts, 8,755 new aircraft will be delivered between 2015 and 2024, generating revenue of $271.1 billion. Annual delivery totals are set to rise at a cumulative annual growth rate (CAGR) of 7.4 percent to 1,127 in 2021 from 735 aircraft this year.
Over the 10-year period, the forecast sees 54 percent of the new deliveries going to North America (4,728 aircraft), with Europe accounting for 14 percent (1,225), the Asia-Pacific region 12 percent (1,050), Latin America 9 percent (788), Russia and the CIS 5 percent (438), followed by the Middle East and Africa, each with 3 percent (263 apiece).
But even in the relatively healthy North American economy, old assumptions about aircraft purchasing patterns can no longer be relied on, according to Jetcraft. “We noticed some definite behavior in the current business cycle,” said the U.S.-based company’s president, Chad Anderson. “Customers are tending to shy away from emotional purchases. Companies are allocating some cash reserves to buy back shares [at the expense of aircraft purchase].”
In terms of both numbers of aircraft to be delivered and the revenue they will generate, ultra-long-range jets are expected to command the lion’s share (see charts). Super-light aircraft are seen as the least significant in terms of anticipated deliveries, while very light jets hold this unwelcome distinction in the forecast for revenues. The highest CAGR gain over the forecast period is set to be among midsize jets, with large aircraft expected to achieve the lowest growth.
Commenting on anticipated aircraft production patterns in the coming 10 years, Anderson maintained, “OEMs are developing more widebody models [at the expense of new narrow-body models], crowding the higher segment with multiple offerings.”
In Jetcraft’s view what it calls “the most intriguing aircraft development opportunity” would be for Dassault to launch a stretched version of the new Falcon 5X twinjet as a new ultra-long-range contender.
Bombardier stands to win the largest share of the deliveries, accounting for 24.3 percent of the aircraft and 31.6 percent of the revenue, according to the forecast. Other anticipated winners are Pratt & Whitney Canada and General Electric, which the broker says will soon challenge Rolls-Royce across all market segments. It believes Honeywell will be the leader of the pack among avionics suppliers, alongside Rockwell Collins and Garmin.
The forecast envisions deliveries next year climbing by 8.7 percent to 799 (from 735 this year), but this will be followed by weaker growth of 4.1 percent in 2017 to 832 deliveries. Following the peak in 2021, the numbers will dip again, sinking to just 688 in 2024.
Bracing for a Fall “We are now planning for another dip in the market, and this is not something that other forecasts have anticipated,” Jetcraft chairman Jahid Fazal-Karim told AIN. “We have no agenda with our forecast and produced it simply to work out how to position our company in terms of where we allocate resources and when we need to be aggressive in offloading [aircraft inventory]. So it’s a neutral analysis.”
Jetcraft’s analysts combined classic data, such as economic forecasts and various market growth projections, with their own knowledge of the industry. “There is a bit of subjectivity,” Fazal-Karim acknowledged. “But history is important and we looked carefully at past cycles.”
The Jetcraft founder admitted that he was among those in the industry whose past assessment of market prospects proved to be overly optimistic. “Three or four years ago, I thought the market would be strong by 2015, and even that it would put us back to the glory days, but it’s still not there yet,” he told AIN. “The recovery has proved to be much slower than in previous cycles.” Another disruptor of a more comprehensive recovery has been the fact that the moderate bounce-back enjoyed by the North American economy has been out of sync with other world economies that have still lagged, constraining demand for aircraft as tools of business expansion.
Politics Gets in the Way
In his view, hard-to-predict geo-political changes in key emerging markets have undermined previous assumptions about the drivers of market growth. “No one predicted the war with Ukraine and the economic sanctions that this brought to Russia,” Fazal-Karim commented. Similarly, he indicated that the business aviation industry was caught off guard by a change of government in China that saw old-school Communists take power and introduce policies that effectively have discouraged the use of private wealth to buy aircraft in the name of combatting alleged corruption.
In 2009, 2010 and 2011 when the mature markets were down and the emerging markets were carrying us, the biggest mistake that many of us made was that we looked at these new markets and thought they would act in the same way as mature markets,” he said. “We underestimated the impact of political changes in places like China, Nigeria and Russia.”
More particularly, Fazal-Karim acknowledged that the business aviation industry might have made ill-founded assumptions about how new groups of privately wealthy individuals would spend their money. “In places like China we underestimated how governments can influence the way these people behave,” he said, while adding that the emerging markets, by their inherently unpredictable nature, could yet swing a surprise on the market that could result in a reversal of fortunes.
Jetcraft anticipates that the pre-owned business aircraft market will follow much the same curve as for new models. “The new deliveries will mean more availability of pre-owned aircraft because most buyers are upgrading,” said Fazal-Karim.