By David Black
The global business-jet market is finally climbing away from a post-recession low with 10,000 new deliveries worth US$250 billion (Dh918.27bn) forecast for the next decade.
Orders for longer range jets, capable of flying non-stop from Shanghai to New York, are likely to be the new best-sellers, as companies find they need to move larger executive teams longer distances if they want to stay in the global market.
However this recovery is also being driven by a sea change in the forces that drive the business aviation industry, with the United States being left behind by the world’s emerging economies.
Those are the findings of the 2012 Business Aviation Outlook, published yesterday by the US engineering giant Honeywell International.
“Over the medium term, a return to historical growth conditions supported by globalisation, wealth creation in developing nations and new aircraft development should boost orders and support accelerated growth,” said Rob Wilson,the president of Honeywell Business and General Aviation.
“Despite the economic challenges our industry has been dealing with for the past 40 months, we believe progress is being made.”
In its latest survey, Honeywell found that the purchase plans of the Bric countries – Brazil, Russia, India and China – continue to lead the world, and that large cabin jets will account for more than 40 per cent of plans to buy new jets. However, the survey points to continued modest growth over the next two to three years, and that the value of forecast deliveries this year will rise just 9 per cent over last year’s levels.
Honeywell forecasts 2012 deliveries of about 680 to 720 new business jets, also a single-digit increase over levels reported last year.
“Next year’s totals are anticipated to [reflect] the protracted nature of the global economic recovery,” said Mr Wilson. “Any expected gains [will] come from pricing increases and a change in expected business jet mix, which reflects a continued trend toward larger business jet models.”
He put this trend down to the recovery in global markets forcing executives to travel farther to do business. “It’s all about range. To have more range you have more fuel, more fuel requires bigger wings, bigger wings mean bigger fuselage. So you will get a larger cabin with the higher range requirements,” added Mr Wilson. “But when you’re going to be on an airplane for 12 to 14 hours, you need a certain amount of space to prevent you from going a little stir crazy.
“This class of business jet is expected to account for nearly 70 per cent of all expenditures on new business jets. Volume growth between now and 2022 will also be represented by this class of aircraft, reflecting more than one third of additional units and two thirds of additional retail value.”
What will drive the business-jet market beyond the next few years however, is changing, according to the survey.
Sales of corporate jets have traditionally closely tracked growth in corporate profits – when times were good, companies invested in aircraft; when conditions worsened, they pulled back. That cycle played out in the last recession, with orders falling sharply in 2008 and 2009 then steadying, said the survey.
The current wave of third-quarter corporate earnings reports has largely showed a decline in profit among companies in the Standard & Poor’s 500 index, with analysts expecting the group’s collective earnings to fall 1.9 per cent in the quarter, according to Reuters.
Mr Wilson, however, argues that with North America representing just 53 per cent of expected corporate jet demand over the next five years, the correlation between US corporate profits and jet sales may no longer apply. The Brics, with more than 50 per cent, were catching up.
“The linkage to corporate profits may have been more of a hangover from when we saw the market being much more dominated by North American companies,” he said. “With that now being half the market, we don’t see the linkage being as strong, we see other facets globally that drive it.”
The Asia-Pacific region, where many of the industry’s major players have high expectations for long-term future growth, reports 34 per cent of its operators as interested in new purchases. This is lower than the 45 per cent reported last year but remains above the world average.
“Fleets in this region have been growing at double-digit rates throughout the past five years. So we do not believe the 2012 results represent in any way a change in the region’s fundamental underlying growth drivers or commitment to business aviation.” noted Mr Wilson.
The share of projected five-year global demand attributed to the Middle East and Africa remained near the centre of its historical 4 to 7 per cent range again this year. In the region, 32 per cent of respondents plan to buy a jet, down from 38 per cent last year, the survey found.
Despite the fall-off, the portion of respondents planning to expand their fleets in lieu of simply replacing an ageing plane almost doubled. However, operators in the region continue to be influenced by political uncertainty.