HONEYWELL 2008-18 BIZJET FORECAST

November 2008

Category: Aircraft Sales – Forecasts

Author: Honeywell

Up To 17,000 New Deliveries Through 2018

17th Annual Business Aviation Outlook predicts sales of $300bn.

In its 17th annual Business Aviation Outlook, Honeywell forecasts the delivery of approximately 17,000 new business aircraft from 2008 through 2018, generating expected industry sales of $300 billion.

2008 marks the fifth consecutive year of industry expansion since the last industry slowdown in 2003. Year-to-date, the number of aircraft delivered is up almost 22 percent compared with the same point in 2007, and industry-wide new jet delivery revenues are also up just over 22 percent.

For 2008, Honeywell Aerospace forecasts deliveries of nearly 1,200 new business jets for the first time in history, up from 1,020 in 2007 (or a 15 percent increase) despite an uncertain economy in North America. Deliveries in 2009 are expected to range between 1,300 and 1,400 jets depending on how quickly several new programs are able to ramp-up. “New Aircraft sales have remained at record levels,” explained Rob Wilson, president, Business and General Aviation, Honeywell Aerospace. “2008 will add to the string of record years the industry has experienced and order intake across most business jet categories remains strong, consistent with last year’s forecast. Aircraft backlogs currently equate to nearly three years’ worth of deliveries, so 2008 and 2009 still shape up to be strong years for the industry.”

Year to date new jet orders have risen roughly 20-25 percent over first half 2007 levels, however a sizable portion of these orders are for new models entering service in 2012 and beyond. Honeywell believes that order intake will moderate to more sustainable levels in the second half of 2008 and into 2009. Nevertheless, available measures of total industry book-to-bill ratio are still running at, or over two-to-one so far in 2008.

While the overall outlook for the OEM portion of the industry remains positive, recent data from the FAA and Eurocontrol points to reduced business aircraft flight activity in the U.S. and Europe for the rest of this year and potentially impacting 2009 flight operations. Operators appear to be reacting to economic pressures and unexpected fuel price increases by reducing activity and in some cases putting aircraft up for sale.

Many Flight department budgets for 2008 did not account for substantially higher fuel costs. Some report reduced flying activity or flights at slower cruise speeds to economize on fuel to remain within funded budget levels. 2009 budgets may be adjusted to account for higher fuel costs restoring some ability to increase utilization, but Honeywell also notes that for the first time in a number of years, U.S. survey respondents indicated they intend to use their aircraft less in the near term. Utilization plans reported in the rest of the world are generally more favorable.

Global Purchase Expectations Stable
The 2008 survey indicates record aircraft deliveries will continue into 2009 with a likely peak next year or in 2010. North American purchase expectations improved slightly, but expectations in several other world regions softened to some extent. In total, respondents to this year’s survey said they expect to replace or expand the equivalent of about 32 percent of their fleets over the next five years, within one percent of the level recorded in the 2007 survey.

The stability in overall purchase expectations is supported by the increasingly global nature of the industry. International demand now accounts for about 45-55 percent of the new aircraft purchase plans projected over the next five years. Coupled with very high order rates from non-U.S. customers over the past few years already reflected in the existing backlog, the regional mix of deliveries will continue to reflect this global shift in share.

Purchase expectations trended up in North America and Latin America, declined moderately in Europe and the Middle East and fell more noticeably in Asia. Aggregating all regions, five-year purchase expectations equaled the 2007 levels, and remain well above the 24 percent average recorded for several years prior to 2007.

Between 2009 and 2013, the 2008 survey indicates a demand for 5,200 aircraft globally, excluding demand from fractional ownership or branded charter start-up businesses and piston aircraft owner trade-ups into jet aircraft. The 2008 survey projection represents a 14 percent increase over the five year demand estimated from a year ago.

North America Expectations
In North America, 2008 survey respondents said they expect to replace or expand about 25 percent of their fleets during the next five years. “The improved level of purchase expectations in North America is a pleasant surprise,” Wilson said. “Despite slower economic growth and recent credit and stock market fluctuations, survey purchase plans gained five points over their 2007 levels, reflecting the value and productivity these aircraft deliver in today’s more challenging business environments.”

“However, we continue to hear concerns about high fuel costs, taxes, user fees, noise regulations and ease-of-use issues such as Temporary Flight Restrictions in the United States. Despite these concerns, overall buying plans in the region posted an increase, with replacement plans increasing while plans for fleet expansion remained flat. Honeywell’s baseline forecast assumes lower than two percent U.S. Gross Domestic Product growth this year and in 2009. Should the U.S. economy outperform those estimates purchase expectations could strengthen further.”

Regional Purchase Expectations
“In other regions, five-year purchase expectations were mixed,” added Wilson. “In Europe, purchase expectations of 41 percent were off about seven points compared with record levels posted in 2007, but are well above the 25 percent-or-better levels that have prevailed between 2001 and 2006. Eight consecutive years of strong purchase intentions in Europe is evidence of the value operators place in using business jets.”

The strength of the Euro, Pound, Swiss Franc and Ruble against the Dollar are acting as purchase incentives for new aircraft, as does the increased wealth and business expansion enjoyed by Eastern Europe and Russia. Recent strengthening of the Dollar against these currencies adds some risk to the forecast. Honeywell believes a sustained stronger Dollar will place some pressure on maintaining strong sales rates in these regions.

Overall, European operators maintained a healthy desire to replace their existing fleets compared to 2007 findings. Reduced plans for fleet expansion provided the majority of the reduction in buying plans versus last year. A great deal of interest in moving into larger and more technologically advanced models was reported by European respondents. Concerns voiced closely correlated to those expressed in North America, polarising on operational and noise regulations, plus cost of operation including fuel and taxes.

High Hopes - Asia, Africa and Middle East
The Asia, Africa and Middle East regions still rank as the areas with the highest purchase expectations despite some reductions compared to 2007. Purchase expectations of 44 percent recorded in Africa/Middle East were off just under six points from the 2007 record high of nearly 50 percent. Nearly all the decline in purchase plans came from the fleet expansion category. Replacement demand was virtually unchanged compared to last year.

Middle East and selected African economies continue to benefit from high oil prices, burgeoning trade with China and Asia, and expect to be active buyers.

Asian Purchase plans posted the largest drop in the 2008 survey, but remain high compared to other regions and from a historical perspective. Total replacement and expansion plans totaled just over 50 percent for the region in 2008 after approaching 80 percent last year. Since the fleets are relatively small in this region some volatility is to be expected. As in the other regions, the majority of the change came from reduced plans for fleet growth rather than lower replacement plans. Confidence in Asian and Middle Eastern economic growth in the long term remains high, boosting interest in larger, longer-range aircraft with state-of-the-art avionics.

Latin America
In Latin America, operators reported stronger levels of purchase expectations in 2008. Slightly less than 45 percent of current fleets are expected to be replaced or added to over the next five years. Purchase plans improved from the 2007 level by six points, and interest is still high in historical terms, exceeding all recent survey levels. Latin American purchase plans were influenced in the 2008 survey by continued reflection of the positive impact of elevated energy prices on regional economies, including those of Mexico, Venezuela and Brazil.

Stronger currencies have added purchasing power in the area as well. Typical concerns cited by operators again echo those in Europe, North America and the other global regions and center on taxes, cost of operation and operating restrictions.

Fleet Replacement Drivers
Chief reasons cited for the replacement of current aircraft remain relatively consistent with prior surveys, and age, cabin size and range improvement were all listed as important criteria in every region. Asian and Middle Eastern operators listed more spacious cabins as a primary reason for replacement aircraft followed by longer range. State of the art technology in avionics and engines also continued to gain prominence as leading reasons for aircraft replacement in every region.

“Advances in technology are being pursued by every manufacturer. Improved cabin comfort, extend range, broader mission capability and advanced Avionics and Safety systems produce business jets that are highly productive, cost-efficient assets. These innovations are coming from both existing and emerging business aircraft OEMs,” Wilson observed. “Gains in new aircraft capability and flexibility, incremental demand from fractional ownership and jet cards, airline use of business jets, branded charter operations and special mission applications, and a global economy are all contributing to business jet demand.”

Factoring in projected record aircraft deliveries in 2008 and the generally strong levels of global purchase expectations noted above, this year’s Business Aviation Outlook forecasts another record-setting year in 2008. Beyond 2008, the outlook remains strong, with annual deliveries expected to run in the 1,300-1,500 range for the next five years, with only modest cyclical variability.

Used Jets and Flight Operations Levels
Five-year purchase expectations for used jets slackened several points below 2007 levels. Interest in used aircraft has been at relatively high levels for several years, resulting in firm prices and a declining inventory of late-model jets. That environment is now changing. Over the last year, increases in asking prices have drifted lower and lower, with average price levels now heading into negative territory. At the same time, supply as measured by share of active fleet for sale has trended upward, gaining momentum more recently and moving in line with the 2008 survey results.

Recent inventory increases have been particularly strong with lighter jets pushing up the levels. Current average pricing is running about even with levels from the same period a year ago after posting several years of gradual increases. The 2008 survey recorded mixed signals regarding operators planned usage rates of current Business Jets in the near future.

North American and Asian operators reported clear intentions to cut utilization to some extent. These actions are already being implemented, based on reduced jet cycle counts recorded by the FAA in the U.S. so far in 2008. Declines in the level of flight activity have been reported in various media and are consistent with Honeywell’s own analysis indicating a five-to-six percent business jet cycle reduction overall through the first half of 2008.

Flight activity declines are largest in absolute terms in Light Aircraft; however most aircraft segments are posting reductions in the four-to-twelve percent range over 2007 levels of activity. Long range and VLJ activity levels are notable exceptions with both classes showing cycle growth so far in 2008. Obviously a contributing factor in these classes is the surging fleet growth in the VLJ segment and the strong recent levels of demand for Long range models at the top end of the spectrum.

Honeywell also monitors broader measures of Business and General Aviation activity in Europe and while monthly flight counts are still growing, the trend for the past 18 months has been toward slower rates of increase. This trend is well aligned with the more ambivalent European survey findings in which the respondents were split with a number planning more utilization and a number planning less usage.

Latin America was the only region in which the survey found unambiguous intent to fly more in the near future. The implications of these Used Aircraft and Jet utilization trends are significant for service providers and dealers. Economic and operating cost concerns are clearly affecting the desire to own and operate older jets as extensively as in the past. The most pronounced effects appear to be more prevalent in the smaller classes of Jets and extend down into the general aviation segments.

“World economic conditions are a key component of recent global business aviation expansion, but steady gains in aircraft value offered to operators also support industry growth,” Wilson said.

“Value to the operator takes the form of improved aircraft reliability, mission flexibility, cabin productivity, comfort and convenience,” said TK Kallenbach, vice president, Marketing and Program Management. “For many years Honeywell Aerospace’s Business Aviation Outlook has noted that increases in purchase plans and subsequent aircraft deliveries tend to be highly associated with the introduction of new aircraft.

“Manufacturers help stimulate demand with new models incorporating advances in aviation technology within the larger global economic framework. Improved engines, safety systems, cockpit avionics and cabin information and comfort improvements along with advances in aerodynamic design continue to deliver compelling gains in value to fleet operators, pilots and passengers. The desire for those improvements is reaffirmed every year in the survey findings we capture, emphasizing the strong influence those factors have in the new aircraft purchase plans of the operators.”

Long-Term Growth Favored
Economic factors impacting demand for business jets are mixed, but tend to support positive though somewhat slower industry growth in the near-term. Estimates of growth in U.S. gross domestic product have weakened from a year ago, with current projections calling for very slow growth over the next 18 months, followed by a resumption of stronger growth in 2010.

Regional economic growth rates remain generally favorable for the industry, especially within Central Europe, Asia, the Middle East and Sub-Saharan Africa. Another positive factor is the large order backlog of Aircraft already in place. Finally, Honeywell Aerospace’s ‘Customer Benefit Index’, a key component of the long range forecast, which tracks the perceived value offered by business jets to fleet owners and operators, also has a favorable trend based on many new production models and development programs in the pipeline.

“Evaluating these factors along with the purchase plans from the 2008 operator survey still supports a positive outlook for the industry,” Wilson added.

Fractionals
Owners of fleets serving fractional shareholders and Jet Card purchasers continue to provide a substantial portion of total industry demand. Fractional fleet operators still account for about 10-12 percent of the backlog for business jets but have seen inroads made in their overall share of backlog and new deliveries by the large number of orders placed by traditional operators and Charter providers over the last several years.

New deliveries to fractional fleet operators should range between 90 and 150 aircraft annually through the forecast period. Sales of new ownership shares have flattened significantly since 2004. While 2007 saw strong net share gains, 2008 year to date activity has been flat to slightly negative on a net basis. Sales of jet cards, which offer business jet access in smaller blocks of flight hours without a long-term financial commitment or equity stake appear solid and continue to augment the demand for new aircraft from this segment.

New branded charter operations also continue to place sizable aircraft orders adding to total aircraft demand. Honeywell estimates that Charter operations account for an additional 10-11 percent of current jet backlog levels.

“Shared ownership and charter fleets likely should continue to have higher utilization rates than traditional corporate operators in this environment,” Wilson said.

Replacement demand for new aircraft contributes significant share of new jet purchases in the fractional segment. Higher utilization and the desire to maintain consistent passenger experience and hold down operating costs leads to fractional aircraft replacement rates at shorter intervals than typical for many traditional operator groups.

Near-Term Demand Well-Distributed
Based on new jet models mentioned by survey respondents, the 2008 Business Aviation Outlook projects fairly balanced demand growth across most business jet segments over the next five years.

Medium and medium-large aircraft together account for about 29 percent of the projected demand through 2013, with the medium-large segment interest up several points over the 2007 share. Light and light-medium aircraft make up about 23 percent of projected five-year demand. The next largest grouping is in long-range and ultra long-range aircraft at 21 percent.

Sustained interest in the long- and ultra-long-range segment has been present for several years and reflects increased need for aircraft capable of trans-Pacific flights, as well as the growth in demand in other regions requiring more long-range operations as trade and economic growth flourishes.

North America is expected to account for about a little less than 55 percent of business jet deliveries over the next five years, continuing the lower-than-proportional share of global demand seen in recent outlooks and continuing to reflect somewhat slower growth in the region and the very high levels of purchase expectations in all other areas.

Honeywell has reported on this trend for several years and the survey is tracking with observed shifts in orders and deliveries very closely. Modest gains in North American buying plans this year might indicate that operators in the region are beginning to expect some economic gains in the next 18-24 months after two-plus years of sluggishness.

Asian demand through 2013 based on the survey slipped back to around 10 percent of the total on lower purchase plans aimed at fleet growth. European demand share held relatively stable at 20 percent of the world total despite some reductions in fleet expansion plans. Latin America follows at 12 -13 percent and The Middle East/Africa region remained steady over last year at three to four percent.

While these percentages shift somewhat each year, the overall demand pool has grown so individual regions are still absorbing significant numbers of new aircraft into their fleets, even if percentage share slips a few points.

Demand Trends by Aircraft Segment
The 2008 Business Aviation Outlook provides the following estimates of demand trends by aircraft class:

Long-Range and Ultra Long-Range: Deliveries of aircraft in these segments are projected to top 2,300 in the forecast period. Deliveries might range as high as 240 aircraft and should average over 200 per year over much of the forecast period. Aircraft in this category include the Bombardier Global Express and Global 5000, Challenger 850, Gulfstream G450, G500 and G550, Falcon 900EX, Falcon 900DX and the new Falcon 7X.

A Very High Speed segment of Ultra Long Range Aircraft has also been launched with the advent of the Gulfstream G650 and other potential entrants. This segment adds another 500-plus aircraft to the demand for ultra Long range aircraft through 2018.

Large: Honeywell Aerospace forecasts delivery of around 1,400 large business jets over the forecast period. Near-term, deliveries are expected to run around 120 aircraft in 2008 through 2012 then trend down slightly through 2014 before increasing again in 2015 and beyond. Aircraft in this category include the Citation Columbus, Challenger 604/605, Gulfstream G350, Falcon 2000, Falcon 2000DX and EX, the Future Super-Midsize Falcon and Embraer Legacy 600.

Medium and Medium-Large: Combined, new aircraft deliveries in these segments are forecast to reach 300 units in 2008 and average around 300-350 units annually for several years. Deliveries for the forecast period should total more than 4,500 aircraft. Jets in these segments continue to enjoy increased operator interest in the survey, strong backlogs and broad global appeal.

Growth in these segments is also being fueled by the introduction of a number of new models, both near-term and in the later years of the forecast period. Among the newer and emerging aircraft in these segments are the Embraer Legacy 450 and 500, Learjet 85, Gulfstream G150, Hawker 900XP, Hawker 850XP and Hawker 4000.

Established platforms include the Citation Sovereign, Bombardier Challenger 300, Citation X, Gulfstream G200, Falcon 50EX, and Learjet 60.

Light and Light-Medium: Honeywell Aerospace anticipates deliveries of roughly 4,000 jets in these segments between 2008 and 2018, building further on increases in potential demand for aircraft in these segments reported in last year’s Business Aviation Outlook.

As previously noted, the light and light-medium segments continue to be one of the larger areas of operator new jet purchase plans in the 2008 survey. Aircraft in these segments include the Hawker 400XP, Hawker 750, Citation Bravo, Citation Encore+, CJ3, CJ4, Citation XLS, Grob spn, Embraer Phenom 300, Lear 40 and Lear 45/45 XR.

Very Light: Deliveries of business jets in this segment will continue to build momentum off a base of around 250 units in 2008. Deliveries are forecast to increase dramatically in 2009 and beyond, averaging around 400 aircraft per year for the latter portion of the forecast period. The rapid increase in projected demand reflects the introduction and rapid production ramp up of new very light jets, such as the Embraer Phenom 100 and Cessna Citation Mustang, both of which continue to enjoy strong order backlogs.

Also entering the segment is the recently announced HondaJet. Total deliveries of very light jets for the 2008 to 2018 period are expected to approach 4,000. Other production and announced aircraft in this segment include the Cessna CJ1+ and CJ2+, Beechcraft Premier I and Sino-Swearingen SJ30.

Personal Jets: The 2008 Business Aviation Outlook provides an updated look at the emerging General Aviation jet segment. This portion of industry demand has centered on the emergence of very light aircraft such as the Eclipse 500, Adam 700, Diamond D-Jet, CirrusJet, PiperJet and others not normally covered by the Business Aviation Outlook. As has been widely reported, several of these programs have suffered financial and execution issues delaying, or in some cases, suspending their progress to market.

Honeywell projections are based on general aviation or owner-pilot survey data collected several years ago, blended with corporate flight department interest reflected in the 2008 purchase expectations survey and tempered by close monitoring of ongoing OEM developments.

Total demand potential over a 10 year period is estimated to be in the range of 4,000-5,000 very light personal jets. When combined with new-generation low-cost aircraft carried in the Very Light segment of the Business Aviation Outlook, the total deliveries range from 7,000 - 8,000 aircraft from 2008-2018 and remains within the range predicted by earlier Honeywell survey research.

The projections now factor in demand from fractional ownership companies, branded charter and some emerging “air taxi” operations that have ordered ultra-light jets as the core of their fleets.

Business Liners: The current Business Aviation Outlook does not explicitly include aircraft in the Business Liner class (typically well over 100,000 pounds takeoff weight and based on transport airframes). However, purchase expectations are recorded for these models in the survey. Forecast deliveries of aircraft in this class total over 250 through 2018 and should average more than 20 aircraft per year in the forecast period.

Aircraft represented in this segment include the Boeing BBJ series, the Airbus Elite A318 and Airbus Corporate Jetliner as well as the Lineage 1000 from Embraer, plus corporate versions of twin aisle aircraft. This segment comprises an additional $18 billion of business aircraft sales.

The Honeywell Aerospace Business Aviation Outlook and the purchase expectations it summarizes are a snapshot of expected business aircraft sales at a point in time and reflect fleet operators’ views of current events, such as political and economic conditions, fuel costs and changes in regulations, taxes and user fees that would affect expected sales in the near term.

Honeywell Aerospace has produced its Business Aviation Outlook for 22 years and has shared the findings publicly for the last 17 years. This year’s Business Aviation Outlook is derived from interviews with over 1,800 corporate flight departments around the world that operate roughly 14 percent of the world’s turbine-powered fixed-wing aircraft. The Outlook is also shaped by information from aircraft manufacturers, other industry sources and Honeywell Aerospace’s analysis of the impact of various economic indicators on industry demand trends. Honeywell’s Business Aviation Outlook tracks purchase expectations for business jets with gross take-off weight (GTOW) of less than 100,000 pounds. This release contains forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934.

More information from www.honeywell.com

Comment

120 readers liked this article. Did you?

Log-in to comment . . .

Print & Share

Share this article this article online

Print the plain text version

Search for aircraft now

Aviation Directory

Search our global directory of aviation products and services.

AvBuyer.com The Aircraft For Sale Market Online

User Login