2005 BUSINESS JET SALES OVERVIEW (PART TWO)
Category: Aircraft Sales – Forecasts
Author: Richard Aboulafia
The importance of being large.
Five major players control the business jet sales market. Bombardier, Cessna (Textron), Dassault, Gulfstream (GD), and Raytheon, have 100% of 2005 deliveries. Our notional VLJ makers (and possibly Sino-Swearingen) look set to get a tiny fraction (1.1%) of the aircraft sales market in our forecast period. This big player dominance will continue, as will the bias against new start-ups. The big companies have the resources and critical mass to develop ever-important new models, and to withstand market downturns.
The aviation industry eschews new guys. Fun fact: since 1960, only one all-new market entrant -Embraer - has succeeded in delivering more than one jet plane per month on a sustained basis. And speaking of Embraer, they’re the big question mark in this private jet sales market. They’re the only potential new private jets for sale player that would not be a start-up - they’re already a major plane builder, and they’ve sold several dozen Legacy business versions of their ERJ family. They have just announced plans for the development of a VLJ and Light Jet to add to their product range.
Bombardier: After The Dark Times
The Bombardier Empire comprises the Lear and Canadair product lines. The former is active in the middle of the market (various Learjets) and the latter is in the upper end (Bombadier Global Express for sale, Challenger airplanes for sale, and the SE corporate version of the RJ). Shorts and de Havilland Canada help out with subcontracts, particularly on the Global Express and Learjet 45 business jet for sale.
Bombardier is the last manufacturer determined to keep its own fractional concern, which is in some ways a good thing (it helps with asset management) and in some ways a bad thing (other fractionals seem reluctant to buy Bombardier jets).
FlexJet also has problems of its own. Bombardier’s market share will average 23.5% in our forecast period, making it the second biggest player. This is a decline from the 25.7% garnered in 1995-2004. This market share decline is due to a new emphasis on profitability. The manufacturer spent much of the upturn focused on market share, resulting in lots of excess planes and mediocre pricing.
Since the situation came crashing down in 2002, the company has made a respectable recovery, although if the company stupidly commits resources to its C-Class jetliner family, the business jet for sale side could be starved for new product development money. Why would anyone transfer cash from a higher margin segment to a lower margin one?
Cessna: The Newest Models
Thanks to its unparalleled ability to mix and match fuselages, wings and engines, Cessna unit continues to have the strongest product line of any bizjet manufacturer after Bombardier.
With the Bravo, Citation Excel business jet for sale, Citation V, Citation Ultra for sale, Citation X airplanes for sale, CitationJet, Citation CJ2 and Citation Encore aircraft for sale all coming on line in the past decade, and the Cessna Citation CJ3 business jet for sale, Citation Sovereign for sale, and Citation Mustang aircraft just arriving, the company need not worry about heavy product development spending for some time. Corporate parent Textron is playing a growing role in the unit’s strategic planning, so we could see some changes in direction.
If Textron’s Bell unit is any example, Cessna might find itself with even greater resources in the coming years. Cessna’s other great strength is its customer base and aftermarket presence. Citations for sale comprise over one third of the world’s private jet for sale fleet, or just over 4,000 planes. This presence will be key in using the Mustang to sideswipe any new start VLJ contenders.
The only weakness is Cessna’s lack of any high end products. While fast, the Citation X business jet is not big enough to compete with the top-of-the-line planes. Yet Cessnas for sale have been excellent, and the company will have a good ten years ahead, with its market share improving slightly (20.2% in the next ten years, up from 19.2% in the last ten).
Dassault: The Last Big Spender
Dassault’s Falcon series did a good job of recovering from some very rough times. As the original twinjet Falcon 10/100/200 series ended production, deliveries fell from 46 in 1988 to a mere 15 in 1993.
Since then, the new-technology 2000 has successfully arrived, and the Falcon 50 for sale and 900 trijets have been rejuvenated by EX variants (an appellation also extended to the 2000). Deliveries recovered to 69 in 1999 and 73 in 2000. They fell with the broader aircraft for sale market, but there are good reasons to be bullish on the company’s market standing. As the only integrated fighter/bizjet manufacturer, Dassault enjoys strong marketing advantages in many export markets. It is also uniquely well placed to develop a supersonic business jet, if the market arises (this prospect is discussed below).
Yet this could change—there is a chance that the company will find itself in different circumstances as France restructures its aerospace industries. Falcon Jet could become a semi-independent US-based company.
If offered for sale, it would fit nicely with Raytheon or Cessna. Alternatively, it could ally with a French-dominated Embraer, to develop new models.
Dassault’s market presence should grow, especially with the company’s ambitious plans to develop an all-new high-end model, the 7X. As noted above, it is the manufacturer with the least exposure to equities markets, so Dassault will have a relatively easier time finding the cash for other new products. We expect it to use the 7X as the nucleus of a family of variants.
The new 2000EX and other product improvements should help too. Dassault’s 1995-2004 market share of 16.7% will rise to 18.7% in our forecast period.
The General Dynamics Family
GD’s acquisition of Galaxy, coupled with Bombardier’s troubles, catapulted the Gulfstream for sale to the number one spot. We expect its market share to average 25.3% through our forecast period. When it acquired the company, GD said it could enhance Gulfstream’s market standing and profitability. It seems to have done well, despite the challenging market environment, and should be able to extend that success to its Israeli-built mid-sized family. If nothing else, Gulfstream should be able to increase sales to the government and military segments, especially for special mission applications. Of all the bizjet manufacturers, Gulfstream has the best exposure to the important US defense market, and to export clients who emulate this airplane sales market. This is good for 6-12 planes annually, although the ACS loss hurt.
Gulfstream’s next step is model improvements, coupled with an effort to blanket all price points. The G550 was first, along with the G300/G350 and yet another G400 enhancement, the G450. The G150, and probably some kind of G250, are in the pipeline.
One final note: as of 2003 GD/Gulfstream no longer breaks down aircraft deliveries by individual models. This lamentable move away from transparency adds an element of uncertainty to our forecast.
Raytheon for sale: The Weakest Major Player, But Recovering Raytheon is the weak fifth player, but it is making a recovery as its new jets belatedly come on line and as profitability improves. Deliveries in 2002 gave the company only 9% of the total market. Despite these new models, the lack of a high-end machine will restrict Raytheon’s market share growth, giving it an average share of just 11.2% in our forecast period. Even if the shelved Hawker 450 gets going again, it would only add a few percent, at most. On the positive side, the company is now under much better management, compared with the horrors of the late 1990s. And the airplane sales department seems to have been revitalized, with a notable success last year when NetJets replaced its Citation CJ3 business jet order with Hawker 400s (the new Beechjet designation). The company’s long-term prospects greatly depend on its parentage— the unit had been on the market, but the asking price was unrealistic. General Dynamics/Gulfstream would have provided an excellent fit, but that hope is gone. A Dassault combination would make the most sense, but that would be terrifically complicated. And now that Raytheon is healthy and profitable again, Raytheon Corporate seems to be rethinking the very idea of a sale.
Good Old Reliable Turboprops
Raytheon/Beech dominates this market segment, with its King Air series. Some of these go to the US and other militaries (the US Army alone uses about 300), but the majority goes to business and other private users. Still, they are not included in our forecast numbers, which, again, are restricted to jets.
The King Air completely dominates the twin business turboprop aircraft for sale market now that the high-tech planes are dead (see below), but the size of this market is shrinking due to the new inexpensive entry-level bizjets (again, see below). Also active here are the Socata TBM 700 for sale and Pilatus PC-12 single business turboprops for sale, but a lot of these, especially the PC-12, are ordered for utility, and now, even airline roles.
Designer Planes: They Seemed Like A Good Idea At The Time When Piaggio’s Avanti and Beech’s Starship arrived in the late 1980s, these weird planes represented the futuristic utopianism (and corporate avarice) which aviation often promises. Sadly, the planes were total failures.
In early 1995 Beech built its 53rd and last Starship. Piaggio delivered just over 30 Avantis, and the company went bankrupt. It has successfully returned to life, and has cut the Avanti’s price tag, but its best hope is to remain a niche player. The Starship, we expect, will be a collector’s item in a few years (like the DeLorean car). The fates of these aircraft ought to serve as a warning to others seeking to develop high-tech planes. But some, like Advanced Aerodynamics & Structures (AASI), continued to think they could get it right. Until 2002, AASI pressed ahead with a line of aircraft with the pusher prop and canard design that is now practically an aerodynamic cliché. However, AASI has reinvented itself as Mooney, and is no longer interested in techno designs.
Why did the techno-planes fail? The designs were a great sensation in the late 1980s, when high-tech was in vogue, and flaunting wealth seemed fashionable. But they entered the market in the rather different 1990s, and floundered. In addition to the cultural and economic change between the decades, the market proved a lot more conservative than expected. Composite aircraft have their own maintenance problems. And corporate officials were reluctant to spend money on aircraft that looked like very expensive toys from a Sharper Image catalog. While all of these are valid reasons why the technoprops failed, the above was merely written to satisfy a desire to write social criticism. The most important reason is far more mechanical. The FJ44 turbofan arrived. That leads us to the next topic.
Light Jets Change The Game
Take a moment out of your busy day to consider the Williams International/Rolls-Royce FJ44 turbofan, an impressive little device derived from a cruise missile engine. The FJ44, which offers small, economic thrust levels for small, economic bizjets, is transforming the entry-level bizjet market. Swearingen’s SJ30 was the first to be developed around this engine, but Cessna’s CitationJet business jet aircraft for sale arrived first, and the SJ30-2 might not make it.
Both sell for around $5 million. They have been joined by Raytheon’s Premier I, the most up-market light jet design. This largely composite aircraft sells for $5 million and arrived in 2001. Our Class One segment, by the way, consists of these planes, plus Raytheon’s Hawker 400 (formerly Beechjet).
While these planes have had a profound effect on the low end of the market, they haven’t destroyed the turboprop segment. Nor have they destroyed the Hawker 400. Instead, they grew the total private business jet sales market, which shows what good technology can do as a market stimulant.
Will Light Jets Get Even Lighter?
All of the usual business jet market trends, the desperate search for business jets for sale market expansion, the bias against start-up companies, and the increasing difficulty of new product launches can be seen in the controversy over VLJs. For years, this exciting new concept has waited patiently. But the next few years will be crucial in determining if they have a chance.
Noting the success enjoyed by Cessna’s CitationJet family and other Williams International FJ44-powered jets, numerous designers proposed even smaller planes, powered by single engines, and in some cases, two smaller engines. The 1997 NBAA show saw a bewildering number of these designs. Visionaire displayed its single JT15D-powered Vantage, but the company was liquidated in 2003 after blowing through $110 million. Century proposed its $2 million CA-100 Century Jet, which almost received backing from Taiwan. The hapless Promavia Jet Squalus trainer was reinvented by Canada’s Alberta Aerospace as the Phoenix Fanjet, another FJ44 single.
Williams International, meanwhile, has developed a smaller turbofan, the 550-700 lbst FJX/EJ22. It built a prototype FJX-powered twinjet, the V-Jet 2, made entirely of composites. New Piper began looking at a single FJX design. Williams has also launched the FJ33, a new 1,200 lbst engine.
Since that 1997 NBAA show, most of these proposals have floundered or stagnated, but the following programs are still active, or at least technically alive:
* Aviation Technology Group’s Javelin: A two-seat personal jet. Who wouldn’t want their own junior fighter? Israel Aircraft Industries is backing the trainer version.
* Adam Aircraft’s A700: FJ33-powered design selling for $2 million. Non-conform ing prototype flew in July 2003, certifica- tion is possible early 2006. We respect Adam’s very reasonable production expec- tations— they say 50 per year would make a profitable program.
* Avocet ProJet: Dependent on Israel Aircraft Industries, or some other benefactor. The Projet is aimed at the air taxi market, with high utilization design objectives.
* Diamond Aircraft’s D-Jet: Single engined (FJ33) and all composite, from Austria. Sells for under $1 million, and could fly in October 2005.
* Eclipse Aviation’s Eclipse 500: The Great Friction Stir Welded Hope. Just $1.4 million for disruptive technology; Pratt PW610 engine; Great marketing concept - go make it happen! Certification is due in 2006.
* Embraer: Recently confirmed its intention of doing something in this segment. Initially priced at $2.75 million, the un- named VLJ will use 1.615 lbst PW617F powerplants.
* Eviation: The reborn Vantage, trying very hard to make it this time.
* HondaJet: Honda built this in conjunction with a new engine, which could be devel- oped with help from GE. If an air taxi con- cept has any chance, perhaps a quality- conscious car manufacturer can make it work. This would be the ultimate vertical approach—powerplant, aircraft, air taxi network, and maintenance all provided by the same company.
* Safire Aircraft’s Safire Jet: FJ33-powered airplane that sells for $1.4 million. Cash dried up in 2004, with few hopes of revival. Meanwhile, in 2002, Cessna launched the Mustang, with certification scheduled for 2006. At $2.6 million, the Mustang is the lowest cost business jet for sale yet offered by any of the five big manufactur- ers. P&WC’s PW615 has been selected as the powerplant, with each engine rated at 1,350 lbst.
So far, the Mustang has been the only VLJ launched by one of the big five players. This is for a good reason—the arguments against smaller bizjets are daunting. In addition to the usual safety concerns, this is a very conservative airplane sales market. And how many business operators will really want such small planes? Even the SJ30 people had to scale their design up, allowing space for a few more passengers. Looking at it from the other end, how many private pilots can afford to upgrade from a Beech Bonanza to a jet? To succeed, the new light jets have a choice of two different paths to take. First, they can seek to be part of a new air taxi service partner (like Nimbus, proposed for the Eclipse 500). Yet this is a difficult prospect. Any such service would need to start with hundreds of planes and scores of bases to avoid flying money-losing "deadhead" flights—non-revenue producing flights incurred by the need to fly clients to locations where there wouldn’t necessarily be another client waiting for a plane. Also, as noted in our fractional ownership assessment last month, the purported air taxi market inhabits the neck of the economic "hourglass." Society is increasingly bifurcated between two extremes of cost-sensitivity—people who opt for private aviation, and people who fly coach. Assuming elaborate air taxi networks don’t work out, the second option is for VLJ manufacturers to re-align their cost assumptions with the more modest owner-operator market. But if they pursue that path, some will find that their advertised prices would rise considerably. The current prices for Eclipse and some of the others assume mass production, which is unachievable with a reliance on just owner-operators. The $1 million-$2 million segment is historically a no-man’s land—most customers either need a real business jet for sale (starting at around $5 million) or are hobbyists, owning part shares of $180,000 Skyhawks. The segment in between these figures—the high-end owner-operator aircraft sales market—is quite modest. Each year sees deliveries of a few hundred PC-12s, TBM 700s, Caravans, and a few others. Many of these go to cargo and air ambulance markets where light jets would not be wanted due to their insufficient cabins.
The bottom line? We thinkVLJs will not provide the next revolutionary stimulant that transforms the industry. Unless the unlikely air taxi concept becomes explosively popular, the market is good for about 200 planes per year. Cessna’s Mustang will definitely go ahead because it was proposed by one of the established manufacturers, and because the price—$2.5 million—makes no assumptions about mass production. This leaves room for just one or two other players.
We’ve inserted a "weasel" line, New Light Models, feeding into the Very Light segment of our forecast and calling for production of 665 planes in our forecast period. If none of these new planes go ahead, the numbers can be applied to the Mustang, with a few going to turboprops.
Something To Worry About
The most vulnerable segment is the upper middle. Historically, this niche of not-quite-big intercontinental machines, costing between $14 million and $23 million, has been relatively small. At the low end, Dassault’s Falcon 50 is the longest-lived player, and in the 1990s it was joined by Raytheon’s Hawker 1000 and Cessna’s Citation X. The former was a failure on the market, while the Citation X aircraft for sale has been a modest success.
But all of the manufacturers then assumed that this segment was the future, as (in theory) the vast bizjet middle class traded up. Three of the manufacturers (Cessna, Raytheon, and pre-GD IAI) also regarded this segment as a natural path to product line expansion.
As a result, the number of new models recently entering service in the upper middle segment is remarkable. GD (formerly Galaxy/IAI) was first, with Galaxy (now G200) deliveries beginning in late 1999. It has been followed by Bombardier’s Challenger 300, and then by Raytheon’s Horizon. NetJets’ order for 50 Horizons at the 1999 Paris Air Show looked set to establish that plane as the dominant model in this segment, although there have been serious delays with this program, and there are still uncertainties about customer reaction.
Meanwhile, Bombardier has begun delivering large numbers of Challenger 300s, but this is a less innovative airplane. This upper-middle segment is extremely vulnerable to a segment downturn, due to the number of competitors entering a historically uncertain market.
The New High End
The GV (now G500/550) and Bombardier Global Express business jet for sale represent a terrific new enhancement to the high end market, in terms of capabilities (and costs). But a threat to these new models has emerged over the past few years. In 1996, Boeing announced a long-range business version of its new 737-700 jetliner, and at the 1997 Paris Air Show, Airbus retaliated with its A319CJ.
The first two of these were delivered in 1999. Boeing claims around 80 firm orders, while Airbus has about 30. These numbers are in our jetliner overview, not in the "traditional" part of our bizjet forecast. These modified jetliners mostly cater to a different market, one that does not usually buy traditional bizjets: heads of state, and folks who simply want personal jetliners. There are nearly 150 converted jetliners currently operated by these private users, and the Airbus and Boeing products could replace many of them. Boeing has targeted the head of state market in particular, but there are other segments. For example, in early 1999 Saudi Aramco ordered five Boeing Business Jets for sale(BBJs) to replace its fleet of 737-200s.
There are few doubts that these airliner bizjets are taking away a few orders from the two dedicated long-range bizjets, but we do not anticipate a major impact on the mainstream business jet aircraft for sale market—airport access remains much better with the traditional products. And used large regional & airliner jetliners for sale are cheap and readily convertible to VIP configuration, which further impacts the competitiveness of the new Boeing and Airbus products. In any event, the long-haul luxury market is proving bigger than expected. When the G500/Global Express battle started, Dassault declined to join in with its proposed Falcon 9000. Their reason: market size—too small for three aircraft, and probably big enough for only one. Alas, they got it wrong—over 400 G500/550s and Global Expresses have been sold, and the future of the segment looks bright. The result is the Falcon 7X, which is very close to the 9000 in size, cost, and capability. Also, the success of the new, heavy $45-50 million-class jets indicates that part of the business jet sales market will pay any price for the best product available. However, again, conversions of used airplanes are a major problem. Boeing has launched the BBJ2, which uses the larger 737-800 fuselage, but only received eight orders. Wisely, the company decided to shelve its proposed BBJ3, which would have used the 757 fuselage.
SSBJ: The Great Fast Hope
In the long run, the entire lux-Obarge market could be transformed by a supersonic business jet (SSBJ). There have been SSBJ projects in the works for over ten years, and Sonic Cruiser or not, it’s likely that we’ll have an SSBJ in another 20 years.
First, the high-end of the business jet sales market has exploded at least as much as the general market. The high end business aircraft—Gulfstream’s 400/450 and 500/550, Dassault’s Falcon 900 and 7X, Bombardier’s Challenger 604 aircraft for sale, Global Express and Global 5000, plus the Airbus and Boeing executive jetliners—now comprise a market worth $40 billion over the next ten years.
Also, as previously mentioned, the very high end of the market seems willing to pay any price. Within a few years, the top of the business jet aircraft for sale market went from a maximum unit price of $24 million to $48 million, with hundreds of orders for G500/550s, Global Express, and jetliners. Clearly, market elasticity is relatively low at the high end of the market. Suddenly, an $80 million SSBJ is a reasonable proposition.
The concentration of private jet aircraft sales users into large fractional ownership providers (and perhaps airlines) will also help the SSBJ. These customers will provide necessary launch orders, probably with considerable risk-sharing money (or just large down payments).
Of course, militaries and government agencies would also have an interest in acquiring the SSBJ, and could help fund its creation by placing orders. Previously, business jet users were predominantly small customers, who could not be counted on for upfront program funding.
Finally, there have been signs of hope that the numerous technology challenges faced by SSBJ designers can be overcome. Several DARPA and government efforts, notably the Quiet Supersonic Platform (QSP), are aimed at solving the two biggest problems—sonic boom-related noise, and the high fuel consumption levels associated with supersonic flight. Their objective is more aimed at creating a long-range strike vehicle, but this is one of the last potential areas of military technology spin-offs that are relevant to the civil aerospace world.
Then again, as Norm Augustine put it, the history of post-Cold War defense industry diversification is "unblemished by success." Creating an SSBJ will take considerable effort, and some unprecedented industrial partnerships. The first proposal emerged in the late 1980s, as a joint venture between Gulfstream, Sukhoi Design Bureau, Rolls-Royce and Lyulka. It went nowhere, but in late 1997 Dassault announced that it was looking at the concept, and doing preliminary design work.
Of the business jet players, Dassault has the most skills and technologies to lead an SSBJ project, but in March 1999 the company shelved its SSBJ project (although in 2004 it confirmed that it was still studying the idea). This is unfortunate, as an SSBJ would be great way to crush the G500/Global Express market segment, from which Dassault found itself largely excluded.
In June 1998, Boeing announced that it too was considering an SSBJ, and was talking with former Gulfstream associate Sukhoi. This sounded like a good opportunity for a trans-Atlantic joint venture with Dassault, but the French company has shown few signs of interest.
In 2004, two new players emerged. One - Supersonic Aerospace International (SAI) - uses a Lockheed Martin Skunk Works aircraft design with a suppressed sonic boom. SAI is led by J. Michael Paulson, the son of Gulfstream’s founder. Second is Aerion, using an aircraft with laminar flow wings. Aerion could bring its product to market quicker, in theory, but it would have a traditional sonic boom, so it could not fly over land.
Both SAI and Aerion are in search of investors and/or industry partners, but Aerion is a company funded by Robert Bass, a billionaire. It’s impossible to say whether either of these planes will be successful. Teal’s view is that the SAI product has a strong advantage, because an aircraft with a sonic boom stands much less of a chance on the market.
But neither of these contenders have any hope of going it alone. We forecast a 60% chance of an SSBJ program launch in the next 10 years, and an 85% chance by 2020. Total numbers? About 250-400, over twenty years of production, depending on price and performance. Thankfully, any SSBJ deliveries are beyond our ten-year forecast period (although again, a program may be launched in this time).
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