What Is The 2015 Outlook For The Business Jet Market?
May 18, 2015
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  • General aviation was on a roll in 2014, with business jet deliveries up 6.5%, according to the General Aviation Manufacturers Association (GAMA). Even though turboprop deliveries declined 5.5% and new turbine rotorcraft shipments dropped 22.4%, the total number of business airplanes in service grew 2.6% compared to 2013, in spite of a sag in the fractional ownership fleets.

    The business aircraft divide continues with the upper end of large jets enjoying strong sales, robust profits and plush margins, and the middle and lower ends of the market struggling.

    But the outlook is brighter for 2015, if business aviation rides on the rising tide of a resurgent U.S. economy, as it has during previous recoveries. Jeff Mortimer, director of investment strategy for BNY Mellon Wealth Management, notes that U.S. small, medium and large market capitalization equities all were up significantly in 2014, along with bonds, global real estate investment trusts and managed commodity futures. He believes that the country’s gross domestic product (GDP) will grow by 3.0% in 2015 and the S&P index will grow by 125 to 200 points.

    Inflation remains relatively flat, so the U.S. Federal Reserve Bank is likely to nudge interest rates only slightly during 2015. The record increase in U.S. domestic oil and natural gas production, contributing to the global glut of petroleum, is helping to suppress the cost of crude and therefore help hold the lid on inflation. Crude oil used to flow from Galveston, Texas, to U.S. refineries. It now flows from Galveston to tankers, awaiting shipment to other countries. Low wage growth in other sectors also is a contributor to low inflation, note BNY Mellon economists.

    That bank’s forecasters believe that the cost of crude will remain at historically low levels for the remainder of 2015 and perhaps into 2016. They also believe that U.S. gas fracking and oil shale extraction technologies will be used by China and other nations to exploit their enormous reserves in the coming years, causing OPEC and other energy cartels to lose even more leverage over their customers. Lower prices at the pump result in more disposable income. All of that should have a positive impact on those who buy and operate business aircraft.

    Bombardier Aerospace analysts note that industry confidence, corporate profits, aircraft utilization and billings all were up in 2014, while used aircraft inventories declined to historic average levels.

    The Montreal-based airframer believes “that the long-term market drivers of growth for the business jet industry, such as GDP growth, globalization of trade, fleet replacement, new aircraft programs and growth in non-traditional markets, remain solid. The continued wealth creation in major non-traditional markets, coupled with aviation infrastructure development, is expected to accelerate the use of business aircraft dramatically from levels seen today.”

    General aviation manufacturers now are riding the wave of the improved economy. Billings increased to $24.5 billion and deliveries exceeded 2,400 airplanes. And although shipments are still significantly below the 4,300 aircraft delivered in 2007, there are now close to 200,000 aircraft in the general aviation fleet.

    As noted, manufacturers of large cabin business aircraft are faring well, with Gulfstream leading all general aviation manufacturers in revenue, posting nearly $7 billion in 2014 when the Savannah, Georgia, firm delivered 150 aircraft. This year we’ve added the G650ER to the Handbook. The G650 variant costs $2 million more than the original and offers 500 nm more range. And Gulfstream is plowing sizable chunks of its profits into new product development, such as the 5,000-nm range G500 and 6,200 nm range G600. Both aircraft will cruise as fast as the G650. Mach 0.85 long-range cruise is the new norm at Gulfstream.

    Bombardier actually delivered more units than Gulfstream, but it continues to juggle its product development budget, especially in light of the financial burdens associated with bringing its CSeries regional jets to market. It was forced to take a $1.4 billion write down for the “pause” it its Learjet 85 development program. It has also discontinued production of the Learjet 60XR, an aircraft that traces its roots to Learjets of the mid-1960s. And the 7,300-nm range Global 7000, originally slated to enter service in 2016, has yet to roll out, let alone begin flight testing. The 7,900-nm range Global 8000 was scheduled to earn certification in 2017, but meeting that deadline is dependent upon getting the Global 7000 flight test program underway.

    Dassault’s deliveries were flat in 2014, but they are likely to improve significantly once it begins deliveries of the 6,450 nm range Falcon 8X. The Falcon 7X derivative is making its first appearance in the Purchase Planning Handbook this year. Dassault has long needed an aircraft that could compete with Bombardier Global 6000 and Gulfstream G550, and Falcon 8X promises to do just that, having more range than Global 6000 and better fuel efficiency along with a lower cost than either the Bombardier aircraft or the G550.

    In addition, when the Falcon 5X deliveries start in 2017, Dassault also should enjoy increased deliveries and higher earnings.

    The super-midsize segment remains strong. It’s a bright spot for market leader Bombardier Aerospace. The Canadian firm delivered 54 Challenger 300/350 aircraft, while Gulfstream shipped 18 G280 jets and Embraer delivered the first three Legacy 500 airplanes, according to AMSTAT and GAMA records. Embraer also delivered 18 Legacy 650s, jets that offer a super midsize cabin cross-section along with the cabin length and range of a large cabin business aircraft.

    Embraer further bolstered its position as a business aviation powerhouse by delivering 73 Phenom 300 mid-light jets and 19 Phenom 100 entry-level jets. Within several months, it expects to earn certification for the Legacy 450, a truncated, shorter range version of the Legacy 500 that will offer operators an aircraft with midsize jet range and a super midsize jet cross-section.

    The light jet deliveries remain flat. And competition in that struggling segment is about to increase as deliveries of HA-420 HondaJet begin in midyear. In addition, Cirrus Design is entering the segment with its $1.95 million, single-turbofan SF-50 Vision. The new jet is also appearing for the first time in the Handbook, promising to be the most affordable, new production entry-level turbofan aircraft.

    Mindful of the ever-increasing competition, Textron Aviation’s Cessna division is taking the offensive by lowering prices, enhancing the appeal of existing models with upgraded avionics and interiors and developing new models, such as Citation Latitude (See theLatitude Pilot Report on page 40 of this issue.) Garmin G3000 and G5000 integrated avionics systems steadily are replacing Honeywell and Rockwell Collinsequipment in the Cessna Citation line-up, offering more features, lighter installed weights and ease of use features wanted by pilots. Garmin avionics are among the lowest cost systems available to OEMs and Cessna is passing the savings on to its customers. Cessna’s sales and delivery numbers are improving as it wins back market share from Embraer. The upcoming 4,000 nm range Longitude will provide a tempting move-up product for Citation loyalists who need larger cabin, longer range jets.

    In recognition of a new alternative for aircraft buyers — that is, significantly upgraded legacy aircraft sold with full warranties — this year’s Handbook includes listings for Cessna’s Citation X Elite and Nextant’s 400XTi and G90XT. When Textron brings the Hawker 400XPR to market, we’ll add it as well. Obviously, such aircraft differ fundamentally from new production models, and we’ve tinted their listings to signal that fact to readers.

    For now, the uptick in business aircraft sales seems secure. Market predictions from Embraer and Honeywell, among other firms, indicate steady growth through the rest of the decade. But flat sales in the light to mid jet segments are going to make it harder to compete without those manufacturers offering a broad spectrum of larger models. B&CA