The consensus among industry and economic experts here at the EBACE show this week that the business aviation market has stumbled. That leaves many aircraft owners, potential buyers and sellers facing difficult decisions in the face of weakened residual values, as they also weigh possible upgrade options. Additional uncertainty comes from the weakening of the long-robust large-cabin market over the past year, with available used inventory rising and manufacturers now struggling to maintain healthy sales of new aircraft as backlogs dwindle.
Speaking during a State of the Industry panel on the opening day of EBACE, Jean-Christophe Gallagher, v-p of strategy and marketing for Bombardier Business Aircraft, noted that annual deliveries of business jets, once at more than 800 had “clawed back” to about 500 units by last year. But the OEM expects that to decline by about 10 percent, as large-aircraft deliveries are curbed by current political and economic troubles of the world economies.
European bizav movements also are on the decline, continuing a trend that has been ongoing over the past four years, added Claire Leleu, senior forecaster at Eurocontrol. That decline has been reinforced by the economic crisis that started in Russia in 2014, and continued in the Ukraine and to some extent Turkey, Leleu said. She added that markets such as France and Switzerland have not grown as expected.
Teal Groups’s Richard Aboulafia is tracking similar trends. He noted that after the 2009 downturn the market “ripped in half.” Large jets did well thanks, at the time, to emerging markets, but the smallest end of the business jet market “simply died,” he said. But that changed last year, he continued, when “we began to get convergence in an unwelcome way.”
Behind the Drag Curve
The light segment did begin to revive, Aboulafia said, but it would be better if that had been accompanied by continued strength in the large jet market. He pointed to macro indicators that were feeding the softness, including the fact that in 2015, corporate profits ebbed.
Charles Schlumberger, lead air transport specialist for the World Bank, said the industry is being weighed down by world economies that are approaching “stall speeds.” He pointed to the fact that the U.S. debt has “increased massively,” from about $6 trillion in 2008 to close to $16 trillion. Last year, corporate America was using the vast majority of its credit to buy back shares, with far fewer dollars committed to investment.
“The stock market is supported by a massive pouring of buying back shares. That is really, really approaching stall speed,” he said. Meanwhile, the U.S. economy is absorbing far fewer international goods, creating an economic crisis in the rest of the world as the dollar remains painfully strong.
Gallagher, however, said that in the long term, the business aviation market will remain robust and could see a strengthening as early as 2017. He added that emerging markets are expected to improve beginning next year. A return to investment, particularly in infrastructure, could help revive the economies and improve confidence, Schlumberger added.
Buyers’ Market
Concern at the state of the industry going forward prompted Farnborough-based Gama Aviation, which has been very bullish in expanding internationally, to analyze JetNet data. Gama said in a statement issued during EBACE that 12.7 percent of the business aircraft fleet in Europe is for sale (equating to 526 aircraft), and noted that “Anything over 10 percent tends to make it a buyers’ market where those selling have a lot of competition to secure a sale at a satisfactory price.”
In Gama’s opinion it makes economic sense for those hoping to sell aircraft to “have them refurbished, increasing their chances of securing a buyer and achieving a higher sale price,” though it recognizes that residual values are at “low levels.”
Of the 526 private aircraft for sale in Europe, JetNet’s figures break down as 76 in the UK, 72 in Germany, 50 in Switzerland and 46 in France.
