TEAL GROUP BUSINESS AVIATION OVERVIEW (PART 2)
Category: Aircraft Sales – Forecasts
Author: Richard Aboulafia
Teal Group Business Aviation Overview (Part 2)
A closer look at the driving factors.
Looking at the trends (see Part 1 to this Outlook in World Aircraft Sales Magazine, July issue, p64 to recap), and at the current state of the market and the very strong econometric drivers behind it, we have formulated a forecast that makes the following assumptions:
• A market peak in 2008. This is a very unusual event – usually you can see a peak coming. Among all the aerospace markets, business aircraft were hit first and fastest by the downturn.
• A 40% peak-to-trough ratio (by total market value of traditional business jets) in a three-year downturn (2009-2011). The last downturn (2002-2003) saw a 34% peak-to-trough by value, but over a two-year period. The market fell by 39% in 1981-1986, and 53% in 1968-1971. None of these experiences provide adequate guidance, particularly since the economy is in uncharted territory, but we feel that a 40% downturn over three years is a respectable assumption based on the general economic outlook.
• A post-downturn recovery period starting in 2012 with a 10% CAGR over the following five years in our forecast. Past recoveries have generally been faster, so you can regard this as a conservative assumption. The 2003-2008 recovery saw a 17.1% CAGR. The great 1991-2001 market transformation exhibited a 14.3% CAGR. The other growth cycles were much shorter-lived – the 1976-1981 period also saw a 14.3% CAGR, while the 1986-1988 period saw a 12.8% CAGR. Given the remarkable transformation of the market after 1995, and given uncertainties about finance and other factors, we believe that it’s best to be prudent about further growth. The last year of our forecast is flat.
For an interesting guideline, the private aircraft market is now worth approximately one-third as much as the commercial transport market ($21 billion compared with $63 billion in 2008 deliveries). However, the private aircraft fleet now transports approximately 0.1% of the traffic accommodated by the world’s commercial transports. While this ratio is best regarded as an anecdotal metric, it illustrates why business aviation has attracted enemies.
It's an easy target for populist politicians, and user fees and carbon emission costs are readily imposed when there's a small user demographic.
FORECAST CLASSES
The lines between business jet segments in our forecast are imperfect. We had to demarcate somewhere between classes of jets; inevitably competing aircraft were separated. But these are the categories we used to break down the market:
• Turboprops: Single and twin engine planes including the King Air, Avanti, PC-12, and TBM 700/850. Total value in our forecast: $12.4 billion.
• Very Light: Small jets commonly called VLJs, selling for $1-4 million. Players include Cessna’s Mustang, Embraer’s Phenom 100, the HondaJet and multiple new market entrants, none of which really has much of a chance. Total value in our forecast: $7.2 billion.
• Class One: Until recently this was the low-end. Prices are in the $4-8 million range. Players include the Hawker 400, Premier I, CitationJets 1-3, Citation Bravo, SJ30 and Phenom 300. Hawker Beechcraft and Cessna dominate this segment, but Embraer has targeted it as a new entrant. Total value in our forecast: $9.4 billion.
• Class Two: The workhorses. Prices range between $8-18 million. Players include all the Learjets, Hawker 800, Citation Sovereign, Encore, XLS, Legacy 450 and G150. Total value in our forecast: $32.4 billion.
• Class Three: The Upper Middle segment (see further discussion of segments, below). Prices fall between $18-25 million, and the players include the Falcon 50, Falcon 2000, Challenger 300, G200/G250, Citation X, Legacy 500 and Hawker 4000. Total value in our forecast: $25.9 billion.
• Class Four: Priced in the region of $25-37 million, players include the
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