Business Aviation Market Overview - July 2020

As we enter a time of year when the business aircraft sales market is traditionally quieter, Rolland Vincent considers the state of play with the added burden of COVID-19, highlighting a number of positives to take into the second half of 2020…

Rolland Vincent  |  03rd July 2020
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    Rolland Vincent
    Rolland Vincent

    With 35+ years in the aviation industry, Rolland Vincent, president, Rolland Vincent Associates (RVA)...

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    Gulfstream private jet parked on Australian airport ramp

    July is typically a month of high-profile air shows, and this year was to be no exception. In a coincidence that seems perplexing, both the Farnborough International Airshow 2020 and AirVenture were set to begin in the same week in July.

    These two must-attend industry gatherings — one focused on military and commercial aerospace, and the other on experimental and homebuilt designs with a sprinkling of warbirds and military flight demonstrations — have been cancelled in response to the global coronavirus pandemic.

    In the previously unheard-of and now commonplace Zoom town-hall virtual meetings, we have quickly become acclimatized to the new online way of meeting and greeting. While saving millions of tons of airborne carbon and probably our sense of hearing, the aerial displays of Farnborough and Oshkosh will be dearly missed this year.

    The Greatest Recruiting Shows on Earth will no doubt return on another day to awe the young and the young-at-heart, and hopefully they will come back on a staggered schedule to allow aficionados to attend both glorious events.

    There is Some Good News

    July, the preferred vacation month for many in the Northern Hemisphere, is typically a relatively sluggish period for pre-owned business jet transactions, and the Year 2020 will be no exception.

    With April 2020 jet sales off by a stunning 50% YoY and the May data well down (and still being counted), most sales professionals may want to consider enjoying the sun before worrying too much about that unachievable sales plan that was budgeted sometime late last year.

    The good news (and there’s lots of it) is that transaction and activity levels have already begun to rebound off of the April 2020 floor, while inventory ‘for sale’ has increased only modestly in the wake of COVID-19.

    With 10.3% of the worldwide fleet for sale at press time, there has been no apparent “rush to the exits” from current business jet owners as was witnessed in the aftermath of the Global Financial Crisis (GFC) of 2008/2009. 

    In fact, of the 2,300 business jets listed for sale (per JETNET) at the time of press, only 9% (~200 units) were delivered new since 2015.

    This presents relatively modest competition to the OEMs looking to secure fresh sales in today’s quieter-than-planned marketplace.

    Until travel and border restrictions are lifted and we collectively return to some semblance of normalcy in the world of business aircraft sales, the simple things we took for granted – like salespeople actually meeting with customers; customers actually kicking tires and taking demo flights; dealers, brokers and appraisers actually examining the aircraft and logbooks on-site – are difficult at best.

    Is it any wonder that anxieties to return to normal and to move unsold inventory are peaking just as the heat of the Northern Summer builds?

    BizAv is Relatively Untarnished

    While market conditions have swung demonstrably in the past few months, with pessimists now outnumbering optimists by a significant margin in the latest Q2 2020 JETNET iQ Global Business Aviation Survey, the image of Business Aviation in mid-2020 is relatively untarnished. This is a far cry from the situation the industry faced post- GFC.

    In a word, it is smart to own and operate a business aircraft. It’s what successful companies, individuals and their families do. 

    It’s how they ensure safety, security, and connectivity for the most important people in the world – their families, friends, and colleagues.

    While we expect overall sales of new business aircraft to remain subdued for the time being, new and nearly-new models remain in demand, and the spectrum of pre-owned business aircraft models available on the market offers enticing features and high performance at attractive price points.

    Although we expect sales to recover noticeably by year-end, the deal-making that we always associate with year-end can’t come quickly enough in 2020 to satisfy our collective thirst for brighter skies and better days ahead.


    Flight Activity – North America

    TRAQPak’s review of year over year (YoY) flight activity, measuring May 2020 against May 2019, showed another significant decline, down 49.2%. However, a significant increase was recorded in May compared to April 2020, with activity rising by 84%... 

    Measuring Year-over-Year, the results by operational category were all red with Fractional activity posting the largest yearly decrease from 2019, and Part 91 activity not far behind. By aircraft categories Large Jets recorded the largest YoY drop in flight activity.

    May’s Business Aviation flight activity did, however, post the largest month over month increase on record when compared to April. Unsurprisingly, results by operational category were all positive for the month, with Fractional flight activity posting an astounding triple digit increase.

    The aircraft categories were also positive for the month, with Mid-size Jets posting a triple-digit monthly increase, and Lights Jets almost hitting triple digits, too.

    June Activity Forecast

    Looking ahead to June’s activity, TRAQPak analysts estimate there will be a 26.6% decrease in overall flight activity Year-over-Year.


    Flight Activity – Worldwide Trends

    Global Business Aviation activity trailed by 51% when comparing May and the first few days of June 2020 with the same period in 2019, says WingX Advance. Unsurprisingly North America was the most robust region, with activity recovering to 49% of normal levels…

    Starting May with a rolling 7-day average of 3,800 daily ‘sectors’, North America ended the month at around 6,200, an improvement of 63%. In the US, sectors flown in the week that included Memorial Day were down only 3% compared to the same dates in 2019.

    After North America, the bulk of Business Aviation activity operated out of Europe, with trends still ~60% below normal. Oceania has recovered the most with traffic only 25% below normal, and South America is now running 27% below par. In Asia, flight activity since the start of May was down just over 50%, year on year.

    At the start of the May, only half the normally-active worldwide fleet was operational, but by the end of the month fleet employment was down only 20% on normal.

    By country, Business Aviation demand appears to be most robust in Australia and Sweden, with jets and turboprops operating 20% below the comparative period in 2019. Germany was the busiest country in Europe, but flights were 44% below usual levels.

    Flight activity in Russia and France was down 53% and 63% respectively, while the countries seeing the largest negative impacts remain the UK, Spain and Italy where flight activity was reduced by 70% or more.

    “The US market appears to be entering a faster recovery phase, with holiday travel in the last week seeing close to normal activity for the end of May,” says Richard Koe, managing director, WingX Advance.

    “Generally, aircraft management companies have the strongest overall trend, although some charter operators have almost regained usual levels. Europe was still lagging, with Business Aviation traffic down by 60%, though this was still much better than the scheduled airlines.”


    Large Business Jet Sales Cool

    As the last decade commenced, the world had an insatiable appetite for the biggest of corporate jets. More recently though, that love affair has broken up, says Business Aviation analyst Brian Foley…

    Last decade, the large jet category was still a relatively new jet segment with demand outstripping supply. Impatient buyers were known to have paid multi-million dollar premiums to existing order holders to jump to the front in the line instead of waiting for their new airplane like everyone else.

    During the financial crisis of 2007-2008, these jets proved to be recession-proof too. As the lower end of the business jet market collapsed (partly due to buyers not having the financial wherewithal to weather the storm), large business jet order-holders stood pat, having their own sources of financing to keep their orders intact.

    Today, the demand drivers that seeded this wave of orders have waned, however. Emerging markets, once a primary purveyor of long range jets, have fallen victim to lacklustre stock markets, geopolitical instability and a dive in natural resource prices.

    Other factors resulting in less big cabin buyer interest include a relatively strong US dollar, which when converted to local currencies magnifies lofty list prices.

    While one may naturally assume plunging oil prices would be a boon for fuel-thirsty large aircraft, quite the opposite is true. Some analysts postulate that up to one in five big corporate jets sold are either directly or indirectly dependent on the health of the oil industry, which has recently seen prices fall from over $60/barrel into the $20s.

    Smaller-End Activity Growing

    Field intelligence from brokers of used business jets is that most of their activity has been on the smaller cabin end. This is corroborated by AMSTAT, showing that Large Jets are now accounting for a fifth of all pre-owned transactions, down from a fourth.

    When splitting new bizjet delivery statistics provided by GAMA into cabin sizes, the percentage of new, large aircraft delivered has steadily declined from half of all 2013 deliveries to less than a third in 2019.

    The sales sag may also be presenting itself as workforce cutbacks. Gulfstream announced 699 layoffs this month on top of 446 employees let go in October. Other large jet OEMs have mostly gone the rolling furlough route, at least for now.

    Future Pendulum Swing?

    Longer-term, the pendulum will swing back towards an improvement in Large Cabin sales. There is a plethora of brand new large business jets now available or coming in the next couple of years, which should stimulate sales. Emerging markets and oil prices won’t be downtrodden forever, and when they do return there’s the added interest of flying internationally in a more germfree environment.

    Until then, both new and used smaller business jets will garner most of the attention, a distinction not seen in ages.


    AEA Q1 Avionics Market Report Analysis

    The Aircraft Electronics Association released its Q1 2020 avionics market report recently, and in the first three months of the year, total worldwide Business & General Aviation avionics sales amounted to ~$660.5m, an 8.8% decrease compared to Q1 2019.

    The Q1 2020 AEA report brought an end to a streak of twelve consecutive quarters with reported increases in year-over-year sales. Nevertheless, Q1 2020 sales showed a 3.2% increase compared to Q1 2018, when sales were ~$639.8m.

    Of the reported Q1 2020 sales, 52.3% came from the retrofit market (avionics equipment installed after original production), while forward-fit sales (avionics equipment installed by airframe manufacturers during original production) amounted to 47.7% of sales.

    According to the companies that separated their total sales figures between North America (US and Canada) and other international markets, 75.2% of Q1 2020 sales occurred in North America, while 24.8% took place in other international markets.

    “With the passing of the January 1, 2020, deadline to equip aircraft with ADS-B Out avionics in the United States, the end to 12 consecutive quarters of sales growth may not come as a surprise,” says AEA president and CEO Mike Adamson, adding the impact of COVID-19 is as yet unknown.


    In-Service Aircraft Values & Maintenance Condition

    While the number of aircraft transactions continued to be fewer than normal during May, primarily as a result of buyer uncertainty caused by the COVID-19 Pandemic, assets listed for sale continued to increase – albeit at a slower pace.

    Asset Insight’s May 31, 2020 market analysis of 134 fixed-wing models revealed a 0.7% inventory fleet increase over April, the smallest percentage increase during 2020 and a year-to-date (YTD) rise of 6.5% to the tracked fleet.

    Turboprop inventory led the way through a 2.4% rise in May, followed by Large Jets (1.0%), and Medium Jets (0.3%). Small Jet inventory decreased 0.3%.

    Aircraft Values

    Average Ask Price for aircraft in the tracked fleet decreased 4.4% in May, with all groups contributing.

    • Large Jets lost 6.4%
    • Medium Jets were down 3.9%
    • Small Jets reduced by 1.3%, and
    • Turboprops lost 2.3%.

    Inventory Fleet Maintenance Condition

    After posting a 12-month best (highest) asset quality rating for two consecutive months, May’s ‘for sale’ fleet mix revealed fewer near-term maintenance events, although individual event costs are anticipated to run slightly above the 12-month average. The tracked inventory registered the following figures…

    • Quality Rating: The ‘for sale’ fleet’s Quality Rating remained within the ‘Excellent’ range for 2020, posting a figure of 5.301 in May (versus April’s 5.311) on Asset Insight’s scale of -2.5 to 10.
    • Maintenance Exposure: After last month’s improvement, Maintenance Exposure – an aircraft’s accumulated/embedded maintenance expense – increased (worsened) 0.9% to $1.39m, signaling upcoming maintenance for the latest fleet mix would be slightly more expensive to complete.

    Maintenance Exposure to Ask Price (ETP) Ratio

    The ETP Ratio is a useful indicator of an aircraft’s marketability. It is computed by dividing the asset's Maintenance Exposure (the financial liability accrued with respect to future scheduled maintenance events) by its Ask Price. ‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s time on the market increases, usually by more than 30%.

    During Q1 2020, assets whose ETP Ratio was 40% or more were listed for sale nearly 68% longer (on average) than aircraft whose Ratio was below 40% (246 versus 413 Days on Market). Our May analytics revealed that 51.4% of our tracked models, and 54.6% of our tracked fleet, posted an ETP Ratio greater than 40%.

    May’s fleet ETP Ratio remained unchanged at 69.8%, keeping the figure about half-way between the worst (highest) 12-month figure and the 12-month average Rating.

    • For the sixth consecutive month, Turboprops registered the lowest ETP Ratio at 43.5%, only slightly higher than the group’s 12-month lowest/best figure.
    • Large Jets worsened slightly, but held on to second place at 66.0%.
    • For the second consecutive month, Medium Jets registered a 12-month best (low) figure (71.2%).
    • Small Jets worsened to 88.5%, a figure that approached the group’s 12-month worst Rating.

    Market Summary

    11.3% of the tracked fleet was listed for sale in May, compared to 10.7% in April. The lowest (best) figure was again captured by the Turboprops (7.1%). Large Jets were next (10.7%), followed by Small Jets and Medium Jest (11.4% and 13.1%, respectively).

    Large Jets: Inventory for the tracked fleet increased by five units in May, with the latest fleet mix maintaining the group’s Quality Rating at a record high 5.733 for the second consecutive month to remain within ‘Outstanding’ territory. However, Maintenance Exposure increased (worsened) 1.7% (though that figure was only slightly higher than the group’s 12-month best).

    With Ask Prices decreasing another 6.4%, great values are available for prospective buyers, assuming they carefully analyse their selected aircraft. The group’s ETP Ratio rose to 66.0% in May making some low-pried aircraft poor value for money.

    Medium Jets: For the second consecutive month, little movement was noted for both the group’s Quality Rating and Maintenance Exposure, with the former improving (after worsening for three consecutive months) to remain within the ‘Excellent’ range, while the latter worsened (increased) 0.6%, although bettering the 12-month average.

    Inventory increased by two units, with the new fleet mix posting a 3.9% loss in Ask Price to a figure half-way between the 12-month high and average figures. The group’s ETP Ratio did manage to post a second consecutive 12-month low (best) figure, but with 13.2% of the tracked fleet listed for sale, buyers should be able to locate some good values.

    Small Jets: Inventory decreased by two units in May, but that still placed the listed fleet at 11.4% (an increase of 58 assets YTD). While an improvement from April’s 11.6%, buyers are still in the driving seat. To make things worse for sellers, Asset Quality decreased 1.2% to 5.182 (staying within the ‘Very Good’ range), while Maintenance Exposure increased another 1.1% to post the group’s second consecutive 12-month high (worst) figure.

    Following April’s 3.3% Ask Price increase to a 12-month best figure, May saw prices recede 1.3% and the ETP Ratio increase to 88.5%, just below the group’s worst 12-month figure of 90.2%. As we suspected last month, April’s Ask Price increase was unable to take hold, and the spread between Ask Price and actual Transaction Value is expected to widen approaching the end of Q2.

    Turboprops: Inventory rose by another 11 units in May, increasing the number of near-term maintenance events for the tracked fleet but keeping Asset Quality within the ‘Very Good’ range at 5.01. Maintenance Exposure decreased (improved) 1.8%, and that helped stabilize the ETP Ratio at 43.5% (versus April’s 43.2%), even though Ask Prices fell 2.3%.

    The percentage of the active fleet listed for sale decreased slightly to 7.1% from 7.2% which bodes well for this group, as there is sufficient selection for buyers while sellers continue to see pricing hold above the group’s 12-month average.


    Q1 2020 GAMA Shipment Analysis

    How did COVID-19 impact the market for new business aircraft shipments? Mike Potts assesses GAMA’s latest numbers for Q1 2019 and pieces together the overall picture…

    It’s well known that the COVID-19 pandemic is having a heavy impact on the economy, and based on the numbers issued by the General Aviation Manufacturers Association at the end of May for Q1 2020, the Business Aviation industry is no exception.

    In a terse three-paragraph news release GAMA reported the jet deliveries were down 19.1% (114 units versus 141 in Q1 2019; turboprops were down 41.8% (71 units versus 122 a year ago), and piston airplanes were down 11.7% (219 against 248 in Q1 2019).

    Billings for Q1 2020 totaled $3.4bn, down about 21.3% from $4.1bn last year.

    Coming off the strongest year for business aircraft in more than a decade and with hopes that this year might soar yet higher, this is clearly a major disappointment. Since the pandemic did not sweep through the US until more than midway through the quarter, it is likely that Q2 results will reflect an even bigger downturn. Nonetheless, here is where we are today…

    The Business Jet Market

    Not every business jet OEM finished in negative numbers. Of 10 jet-makers regularly reporting to GAMA, three had improved results, three were even with a year ago, four lost ground and one only reports mid-year and year-end. The general roiling of the market brought about a shift in market leadership, however, at least for Q1.

    Bombardier led the market with 26 units shipped, up from 24 it reported a year ago. In recent years Bombardier has most typically occupied the number three position.

    Textron’s Cessna unit, the usual market leader, shared the number two position with Gulfstream, both with 23 deliveries. This represented a stiff downturn for both companies. Gulfstream was off 32.35% from the 34 deliveries reported in Q1 2019, while Cessna was down 47.73% from 44 shipments a year ago.

    In a not terribly distant fourth place Cirrus reported 18 jet deliveries, a gain over last year’s 14. In a more normal economy, however, Cirrus would probably have expected a total in the mid- to high-20s, based on their results in Q3 and Q4 of 2019.

    Fifth position in jet deliveries for Q1 2020 went to Embraer with nine units, down from 11 a year ago. Sixth place resulted in a tie between Honda and Pilatus with seven deliveries each. Honda matched their total from a year ago while Pilatus was ahead of Q1 2019 by two units.

    Bringing up the rear in the jet market were, as usual, the Bizliner OEMs Airbus and Boeing. Airbus reported one delivery – down from two a year ago – while Boeing had none in either period.

    The total new business jet market will actually be a little larger than GAMA’s 114 unit total since Dassault hasn’t reported. In 2019, Dassault reported 17 units in H1. If their result this year were down by the industry average of 19.15%, they probably made between five and seven deliveries in Q1 2020, bringing the total market to about 120 units.

    GAMA continues to list ONE Aviation as an active jet market, meaning ONE continues to support its type certificate. Given the softness of the current jet market it seems unlikely it will re-emerge as an active manufacturer this year, however.

    The Business Turboprop Market

    Turning to the turboprop market we see a much more difficult situation than in the jet market, with only one of the nine turboprop OEMs reporting positive results compared to Q1 2019, while two are even and six are in negative numbers. GAMA reported 71 turboprop deliveries but in fact 36 were agricultural aircraft from builders Air Tractor and Thrush.

    Looking just at traditional business aircraft there were just 35 turboprop deliveries, including 11 twin- and 24 single-engine models. That compares with 80 (23 twins and 57 singles) in Q1 2018. That’s a total market drop of 56.25%.

    Amidst the gloom, however, there is one significant point of light – a new turboprop manufacturer. Epic Aircraft of Bend, Ore., successfully achieved type certification for its all-new single-engine turboprop, the Epic E1000, in December and recorded its first delivery during Q1 2020.

    Elsewhere in the business turboprop market, good news is scarce. In 2019 when jets and piston products had sensational years the turboprop segment lagged, so they weren’t entering 2020 from a position of strength. The current economic crisis is hitting turboprops hard.

    Textron’s Beechcraft unit and Pilatus finished the quarter in a tie for first place with 11 deliveries each. Pilatus was close to the 12 units shipped in Q1 2019, but Beechcraft took a heavy hit of 52.17% fewer shipments compared to the 23 units shipped in Q1 2019.

    In a distant third position was Cessna with just deliveries (down 76.19% from the 21 shipped a year ago). Daher was in fourth place with four deliveries, down from eight deliveries in the same period last year. In addition, Daher’s Kodiak model that it acquired last year had no deliveries, down from seven a year ago.

    Piper captured fifth place in the turboprop segment with three units, down from seven last year, followed by Epic in sixth place with one. Three turboprop OEMs recorded no deliveries, including Pacific Aerospace (down from two), along with Avic and Piaggio which had no deliveries in either quarter.

    Piston Shipment Summary

    Amid all the chaos among the turboprops, the piston market is actually looking pretty good, down just 11.7% from a year ago. The 219 piston units delivered in Q1 2020 included 188 single engine models and 31 twins (comparing with 248 last year, comprised of 214 singles and 34 twins).

    Looking at all the companies collectively the picture isn’t very bright, with just three firms in positive numbers while one is even and 10 have fewer deliveries than a year ago. On the bright side, two of the three with positive numbers are the market leaders, Cirrus and Textron’s Cessna unit, and they represent a significant percentage of the total market.

    In Summary

    The second quarter is likely to look worse than the first, but that remains to be seen. In our view, we need to turn our eyes to 2021 in the hope that it will prove to be the year that 2020 wasn’t. We can know with certainty that the coronavirus pandemic will pass, and there can be little doubt that Business Aviation will play a key role in recovery when it comes. 

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