WORLDWIDE BUSINESS TRIP
Category: Global Markets for Corporate Aircraft
Author: Andrew C. Bradley
Worldwide Business Trip:
Private business jets - a global perspective.
As we head into the Dubai Air Show this month we are reminded of how truly global our industry has become. Over the past eight years the Dubai Air Show has seen a tremendous acceleration in growth, nearly doubling in size during that time. Almost 900 exhibitors from fifty countries attended last year’s MEBAA in Dubai despite it coming on the heels of the 2008-2009 Global Recession.
Only a decade ago, the general Business Aviation industry centered upon the United States, and to a lesser extent Europe. The Asia-Pacific Region, the Middle East and the continent of Africa were distant afterthoughts.
These were indeed vast regions with future growth potential, but they left many with the perception that this growth potential was years off in the distance. The economic and financial meltdown of 2008-2009 painted a different picture. Whereas in years past investors, businessmen and government officials around the world would closely examine unemployment reports, growth statistics and other economic indicators making US news headlines, those same organizations now scour each and every economic report out of countries like China, India and others in the Middle East.
China especially was looked upon as the beacon of light from which the global recession would emerge: The Dow Jones Industrial Average suddenly gyrated not with the news reports coming out of Washington, but out of Beijing.
The shift in the operation and ownership of private business jets on a global scale has taken rapid flight over the past five years; so much so that as of 2011 nearly half of Gulfstream’s booked orders on the G450, G550 and G650 models are coming from overseas (nearly two-thirds of those orders from Asia-Pacific or the Middle East). In 2006 sales of Gulfstream business jets consisted of over 60% within North America. Now nearly 70% of Gulfstream’s sales are outside of North America.
The prevailing theme at this year’s annual National Business Aviation Association (NBAA) held in Las Vegas was China. Three years ago China had less than 50 registered private business jets, but now has nearly four times that number. Expected deliveries of business jets according to industry experts is forecast to grow to nearly 1,000 within China over the next decade. Several large Chinese leasing corporations including Minsheng bank among others have placed large orders with OEMs - Bombardier, Dassault, Gulfstream (and very recently Embraer) among them - and these orders vary in size for up to 70-plus aircraft.
While China is the 800-pound gorilla in general Business Aviation, we can’t overlook the fact that other regions are playing an equally important and rising role on the global stage.
IT’S A TRULY GLOBAL GAME
Over the past three years nearly 60% of Avjet’s sales and acquisitions of large-cabin private business jets have been overseas to the Middle East, South Africa, Asia-Pacific and other emerging market regions. Last year alone, aircraft were sold into China/Hong Kong, the Philippines, Brazil, Nigeria, New Zealand, Indonesia and many other foreign countries.
The globalization of our industry, much like others (computers, autos, banking among them) has meant shifting trends and patterns from what we considered the “norm” previously. The Middle East, for example, has long been a market for large commercial variant aircraft converted to VIP configurations or ordered as such from the factory brand-new. Popular aircraft include Boeing 747, 757, 767 and 737 aircraft as well as purpose built VIP aircraft such as the Boeing Business Jet, Airbus ACJ and others. These cover long distances of 5000+ nautical miles, carrying anywhere from 20 to 80 passengers in lavish comfort.
For shorter distances or lower passenger payloads used on domestic routes or within the Middle East, customers have chosen a wide variety of aircraft from Hawkers to large cabin Gulfstreams. With regard to the Asia Pacific region (and more specifically China), the buying characteristics are quite different. The Chinese focus has been first-and-foremost on speed and range rather than passenger-count.
Another unique characteristic of these buyers is the requirement that aircraft be either new or nearly-new. To the prospective buyer based in the US or Europe, a G550 with 500 hours of total time - and possibly a year or two old - is still considered a new aircraft for all intents and purposes. To the Asian buyer anything more than a year old, or with more than 200 hours clearly fits into the “pre-owned” category.
The Asia-Pacific buyer - and more specifically the Chinese buyer - is also unique in that they are first-time buyers contemplating a purchase of the newest, fastest and largest private business jets that money can buy. These are not the traditional move-up buyers who graduate from a light or mid-size jet to the large-cabin segment.
While the focus always seems to be centered upon China, other areas in the region also show strong economic fundamentals leading to expansion of business that translates into a boom for private jet sales. Indonesia, for example, has a sound banking system, a friendly business climate, and a rapidly-growing middle class. Growth in Indonesia has averaged 7% over the past few years and a solid banking system along with a strong currency has attracted businesses from all over the region.
A recent article in the Financial Times observed that right after the 1997-1998 Asian financial crisis it would have been hard to spot a private business jet at Halim airport. Expansion of the private jet market has since led to expansion of a new private terminal and hangar to house upwards of two dozen private jet aircraft based there.
The same article outlines the number of billionaires doubled in the past few years, and collectively the wealth of the forty wealthiest individuals in Indonesia ballooned by over $30 billion leading to over $250 million in new orders for all the major OEMs. According to the National Air Transportation Association, Indonesia will move from the 16th busiest aviation market to 9th within the next two years.
MIDDLE EAST ADVANTAGE
Returning to the Middle East, the region enjoys many strong advantages over some of the newly-emerging global markets emanating from a long-standing history of operation and ownership of private business jets along with a very robust aviation infrastructure to support general Business Aviation flight operation.
Unlike the Asia-Pacific or South African markets where infrastructure is still in its infancy and racing to catch up with the demand for new business jets, the Middle East already has a burgeoning aviation infrastructure to accommodate business jets.
The characteristics of commercial aviation do not lend themselves well to businesses and private, wealthy individuals needing air travel. Commercial carriers within many of the emerging regions tend to be oriented around international long-haul flights (far more so than between many of the large Middle- Eastern cities and hubs which also tend to be very spread-out over long distances).
Further, the Middle East’s vast expanse of oil and natural gas fields, located sometimes hundreds of miles from civilization, necessitates the use of private jets to gain quick access to business operations. All of this has not been lost on regional based Middle East airlines:
• Qatar Airways recently formed a private jet division serving the elite private jet traveler or business with a growing fleet of Bombardier aircraft.
• Saudi Private Aviation a unit of Saudi Airlines will have four Dassault Falcon 7X aircraft in its fleet by the end of this year to facilitate private air transport in the region.
Dassault has already sold over fifteen large-cabin aircraft into the region with another fifteen to twenty aircraft backlogged to be delivered by 2014. Gulfstream already has over 100 business jets operating in the region. Embraer has made steady inroads into the Middle East with its Legacy 600, 650 and its Lineage 1000.
SOUTH AMERICAN TRANSFORMATION
Finally, we cannot forget the emerging growth economies of South America. Ten or fifteen years ago this region was beset with both political and financial instability (a trend that had infected the region for nearly fifty years prior). Unstable political regimes coupled with shaky banking systems and constant currency/debt crisis created an environment that was largely ignored by Business Aviation.
How times have changed! In Brazil and Mexico, the banking systems are in better shape than their US and European counterparts - and business regulation, a long-time drag on economic growth has been lifted in recent years. This has all created strong growth in Brazil, Mexico and smaller South American countries.
Gulfstream recently announced the number of its aircraft has doubled there within the past two years, with more than one-third of these aircraft being ultra-long range/large cabin variants. Overall, throughout all of Latin America, Gulfstream has over 30% of the private jet market and over 40% in Brazil alone. Growth in Gulfstream aircraft is up over 140% in the past five years while sales in the US and Europe have stagnated.
The globalization of private jet ownership and operation is heralding in large shifts for our industry. Growth is clearly coming from beyond our shores, and buyers are as diverse a group as ever.
Chief among the consequentially changing trends is the drop in demand for older aircraft (especially pronounced among the small and mid-size cabin aircraft which have limited range for international operation and are costly to maintain). These aircraft—many of which are at least 20 years old or more — have no markets left for their use.
We are also seeing large price discrepancies between early serial numbers of a specific model and new delivery positions. Two such examples are the Global Express XRS and Gulfstream G550 markets where the gap between an early model and brand new has at times widened to as much as $20 million.
With this in mind, our industry will continue to thrive due to the diverse group of buyers and their own distinct buying characteristics which will ensure that our industry will reach all corners of the globe and continue to thrive regardless of what happens in any one particular region. Competition, though fierce for everyone, is good - and it will continue to develop the best and brightest in our industry to design faster, larger, more efficient general Business Aviation aircraft of the future.
Despite all the economic and political headwinds we face as an industry this is still an exciting time be a part of Business Aviation heading forward!
Andrew C. Bradley is senior vice president, Global Sales & Acquisitions at Avjet Corporation, an international provider of aircraft charter and management solutions. The company is headquartered in Burbank, California, and maintains a global presence in Washington D.C., Seoul, Dubai, Abu Dhabi, Moscow and other locations around the globe. To learn more about the company, visit www.avjet.com
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