Honeywell Aerospace expects the world’s business jet manufacturers to set a new delivery record next year and establish a strong precedent for a 10-year forecast period in which the industry will ship more than 12,000 airplanes worth $195 billion.
“Industry growth is moving into unprecedented territory,” said Rob Wilson, president at Honeywell Aerospace. “[This year] has already shaped up as a record year for the industry. If current growth projections for the global economy hold, 2007 should be even better.”
Carrying backlogs approaching 2,500 airplanes, the industry hasn’t seen much better times in its history, as so far this year business aircraft manufacturers delivered 26 percent more airplanes than they did during the same period last year. Honeywell forecasts deliveries this year of some 850 new business jets, compared with 737 last year. It projects next year’s deliveries to top 1,000 for the first time ever.
Honeywell bases its predictions on a survey of global purchase expectations, which showed an improvement in North America this year after a noticeable drop last year. Overall, respondents to this year’s survey said they expect to replace or expand the equivalent of about 26 percent of their fleets over the next five years, up from about 23 percent in the 2005 survey.
Although less dominant than in the past, the North American market segment will still account for about 61 percent of new aircraft deliveries over the next five years, according to the survey. Honeywell expects Asia to account for up to 13 percent of total business jet demand in the next five years, placing it in a virtual tie with Europe. Latin America follows at 10 percent, while the Middle East/Africa region remains steady from last year at 4 percent. Europe remains flat at 12 percent. Overall, the survey forecasts demand for 3,600 to 4,000 aircraft globally over the next five years, not including demand from fractional ownership operators.
In North America, survey respondents said they expect to replace or expand about 21 percent of their fleets over the next half decade. “The improvement in purchase expectations in North America is encouraging,” said Wilson. “Like last year, we heard from a number of surveyed operators that they had recently ordered or taken delivery of new aircraft so they were not expecting to purchase another new aircraft in the next five years. In addition, there is a background level of concern with escalating aircraft operating costs, which is likely still influencing U.S. purchase expectations. Just like last year, we heard concerns about rising fuel costs, taxes and ease-of-use issues such as temporary flight restrictions and TSA measures in the United States.”
In Europe, a purchase expectation rate of 25.3 percent held fairly steady compared with 2005 and remains in line with the 25-percent-or-better levels that have prevailed since 2001. The strength of the euro against the dollar certainly proves an incentive to buy new aircraft, said Honeywell, as does the increased wealth and business expansion anticipated in Eastern Europe and Russia.
The Asia/Africa/Middle East region once again ranks as the area with the highest purchase expectations, growing for the fourth consecutive year to a record level exceeding 50 percent–the highest reading in the history of the survey. Middle East and selected African economies continue to benefit from higher oil prices. Confidence in Asian economic growth continues to boost interest in longer-range aircraft.
In Latin America, respondents reported a rate of replacement or equipment additions equivalent to 30 percent of today’s fleets over the next five years, representing a drop in the record 2005 level by seven points. Nevertheless, interest remains high in historical terms, exceeding all prior survey levels except last year’s, and sometimes-contradictory factors influenced purchase plans. The region still reflects the positive impact of elevated energy prices on regional economies, including those of Mexico, Venezuela and Brazil. However, concern about political instability partially offset the positive effects of economic gains and delayed buying plans in some cases. Respondents also cited currency weakness as a concern more often than in the recent past.
The chief reasons cited for replacement of aircraft remain consistent with past surveys. In every region but Europe, aircraft age led the list, followed by a desire for increased range. European operators listed more spacious cabins as their most important reason for replacing aircraft followed by a need for longer range.
Independent of the purchase expectation survey, global economic indicators point to continued industry growth through 2016, notwithstanding projections for a slowing of U.S. GDP growth over the next six to seven quarters. Regional economic growth rates all generally point to a favorable environment for the business aircraft industry, especially within Central Europe, Asia, the Middle East and Sub-Saharan Africa.
Value Perception on the Rise
Meanwhile, Honeywell’s “Customer Benefit Index,” which tracks the perceived value offered by business jets to fleet owners and operators, continues to trend upward. “There is no doubt world economic conditions underpin a large part of business jet expansion, but the industry is also realizing the benefits of steady gains in aircraft value to the operator and passenger,” Wilson said.
Owners of fleets serving fractional shareholders and jet card purchasers continue to provide a substantial portion of total industry demand, Honeywell said. Fractional fleet operators still account for about 30 percent of the backlog for business jets. New deliveries to fractional fleet operators should range between 85 and more than 120 aircraft annually through the forecast period, it added. While sales of new ownership shares have flattened significantly since 2004, sales of jet cards–which offer business jet access in smaller blocks of flight hours without a long-term financial commitment or equity stake–remain quite strong. Furthermore, new branded charter operations have begun placing sizable aircraft orders, especially for new very light jets (VLJs).
Based on its survey results, Honeywell projects fairly balanced demand growth across most business jet segments over the next five years. Medium and medium-large aircraft together account for about 30 percent of the projected demand through 2011, according to the survey. Light and light-medium aircraft consist of about 25 percent of projected five-year demand, followed closely by long-range and ultra-long-range aircraft at 21 percent. The strength in the long and ultra-long-range segment reinforces last year’s findings and reflects increased need for aircraft capable of transpacific flights, as well as the growth in demand in the Latin America, Asia-Pacific and Middle East regions, Honeywell said.
Optimism within business aviation circles about the prospects for the emerging VLJ category remains strong, and Honeywell didn’t buck the consensus in its forecast. According to the Phoenix company, VLJ deliveries will accelerate rapidly off a base of about 100 units by the close of this year. It projects that starting next year through 2016 VLJ builders will deliver on average nearly 250 aircraft per year.
For the second year running, Honeywell also included an analysis of the general aviation jet segment, populated with very light aircraft such as the Eclipse 500, Adam 700, Diamond Jet, Cirrus and others not normally covered by its annual business aviation forecast. Based on general aviation or owner-pilot survey data collected last year and corporate flight department interest reflected in this year’s purchase expectations survey, Honeywell placed total demand at some 4,000 very light personal jets over the next 10 years. The projections do not account for demand for fractional ownership or from emerging “air-taxi” operators, which, according to Honeywell, might build their fleets around such airplanes.
