- 05 Oct 2022
- Brian Foley
- BizAv Market Insight
Some of the leading business jet manufacturers are temporarily missing out on the 2022 shipment surge. Brian Foley investigates...Back to Articles
While the last several years have been a boon to used business jet sales, new jet sales have been somewhat late to join the party. This all began to change within the past year or so, with 2022 proving to be a particularly stellar year for new jet sales, so far.
Despite this, not all manufacturers have been in a position to capitalize on the increased activity. At least, not yet...
New sales across the board have undeniably been going very well. As a whole, the manufacturers have been reporting book-to-bill ratios of around 2:1, meaning that for every airplane delivered to a customer, two more were sold to others. This has the cumulative effect of swelling backlogs, helping to build a future book of business and allowing cushioning against any future downturn.
A few of the reasons for this uptick can be chalked up to things like the dearth of any pre-owned business jet inventory, worldwide wealth creation, and first-time users of private aviation.
The momentum is expected to continue through year-end and into next year despite a topsy-turvy economic and geopolitical climate.
Some manufacturers have already turned up the production spigot. The Foley Forecast predicts that 2022 Embraer deliveries will rise 10 percent over 2021, while Textron Aviation will deliver 15 percent more. The supply chain and labor shortage are the only pacing items keeping these figures from being even higher this year.
Large Jet OEMs Hampered
In contrast, the manufacturers of large cabin business jets will only deliver about the same number of aircraft this year as last, which limits their ability to fully participate in what would have been a delivery surge for them this year. This is not a phenomenon unique to the large cabin market, but rather each company has its own peculiar circumstance limiting its ability to ramp production up this year.
For Gulfstream, an unfortunately timed project to move wing production in-house has limited its ability to increase manufacturing just yet. This was compounded by certification delays for the G700 as well as some G500 and G600 customers deferring delivery for a software bug which has since been rectified.
In Canada, Bombardier’s overall output this year has been affected by the shuttering of its Learjet division. This may have been compounded by efforts to manage its debt conservatively, since boosting production of the remaining Global and Challenger lines would require an investment in advance procurement and labor.
Dassault had its product strategy upended with the cancellation of its new Falcon 5X, due to engine issues, a few years ago. It must now wait until next year for the Falcon 6X replacement, which has also experienced certification delays. Its Falcon 10X flagship won’t arrive until 2025 at the earliest. These missing family members contribute to the constrained shipment lull.
These issues have limited the large cabin jet makers’ ability to fully capitalize on what would have been a 2022 delivery spike for each. While the ability to increase production has simply been deferred until next year, it’s arguably always nicer to have money in the bank for the current year, rather than endure the risk of waiting until subsequent years.
Once 2022 is behind us, the skies will be clear for increased production for all, peaking at over 900 industry business jet deliveries by 2025 (compared to the previous decade’s 700-or-so shipments annually).
Worldwide deliveries are anticipated to decisively increase next year by nearly 10 percent in our forecast, including the large cabin jets.
In a strange twist, a modest economic slowdown may benefit business jet OEMs, buying them more time to get their supply chain issues in order while simultaneously staffing-up to match the increase in production.
Regardless, all boats rise with the tide, and the peculiar production capacity constraints faced by large cabin jet manufacturers in 2022 will soon become a faded memory.
September Business Aviation Activity Review
Just over 470,000 business jet and turboprop sectors were operated globally during September 2022, which was 4% more than in September 2021...
Focusing on business jets, global flight activity was up 3% compared to September last year, and was 20% ahead of September 2019.
Business jet activity in North America in September was 5% ahead of last year, and 18% ahead of 2019. Most remarkably, Ultra-Long-Range Jet sectors were up nearly 30% compared to their September 2019 activity.
Hurricane Ian’s impact on the US coastline was an obvious cause of disruption (across the United States week 39 business jet sectors dropped 9% compared with week 38). Unsurprisingly, Florida took the biggest impact, with departures down 25% compared to the previous week.
Elsewhere, the hurricane’s effect was also obvious in the Bahamas, the Dominican Republic, and Puerto Rico.
Business jet activity in Europe in September 2022 was down 8% compared to September 2021 but remained 18% above September 2019 flying.
Rest of the World
Business jet activity outside of North America and Europe continued to trend upwards.
Activity in September was 60% above where it was in September 2019, and 20% above September 2021.
Demand came from private flight departments, which were flying 36% more than they were at this time last year.
“Hurricane Ian was one of the most powerful storms in history, so it’s little wonder that business jet traffic, particularly in Florida, was significantly down in the last week of September,” noted Richard Koe, Managing Director, WingX Advance.
“Meanwhile business jet demand in Europe is well off its 2021 highs, although these were one-off spikes. After nine months of 2022, flight activity was still up more than 10% on 2019 but is probably now trending towards a full year on a par with 2021.”
Jetcraft Five-Year Pre-Owned Market Forecast
Jetcraft released ‘Ever Forward’, its Five-Year Pre-Owned Business Aviation Market Forecast in September, identifying significant market opportunities and global trends.
This year’s report predicts that, after stabilizing in the wake of a post-Covid surge, pre-owned transactions should maintain their new higher base and growth rates, reaching 10,921 transactions valued at $66.6bn over the forecast period (2022-2026).
2021 was a record year for Business Aviation, with an annual total pre-owned transaction value of $14.5bn, a near 40% increase on 2020, principally driven by Large and Mid-size Jet purchases. Despite an equally strong performance in early 2022, Jetcraft predicts the market will soften with normal depreciation levels resuming in 2023.
Ever Forward’ has identified international growth areas for the sector, with the UHNWI population in Asia-Pacific set to increase by 33% over the next five years, suggesting significant potential for pre-owned Large Jet transactions in the region.
The Jetcraft study also reports the share of pre-owned Jetcraft buyers under 45 has risen by 20% in the last five years. Further, these buyers are driving a trend toward larger aircraft purchases, with their average transaction price hitting $25m, a 31% increase in comparison to their more mature counterparts.
In total, nearly a quarter (24%) of pre-owned jet buyers in Europe are younger than 45, with this figure rising to 38% in the Middle East and Africa.
“Our data shows that the profile of a typical pre-owned jet buyer has shifted internationally in recent years, with younger buyers making up a sizeable proportion of the market,” said Chad Anderson, President, Jetcraft.
“This younger buyer persona offers real lifetime value to our industry, while the predicted growth of the UHNWI population also underlines the potential for the future of the sector.”
Jetcraft’s report also predicts a much more rational market over the next five years when compared with the 2004-2008 boom, with average purchase prices returning to pre-pandemic levels.
According to Jahid Fazal-Karim, Owner and Chairman of the Board, Jetcraft, “We are now entering a post-pandemic business cycle from a new, higher starting point, with a predicted steady upward trajectory fuelled by more, and younger first-time buyers entering the market, alongside strong demand for larger jets and a growing UHNWI population.”
Pre-Owned Market: When Will the Bubble Burst?
Unprecedented demand for business jets continues. Is there any sign of a return to normality? Hagerty Jet Group shares its observations and advice on today’s marketplace...
The last 12-18 months in the pre-owned business jet market quickly shifted from a Buyer’s market to a Seller’s market.
2021 witnessed the highest transaction levels of pre-owned business jets in history. Inventory levels have subsequently fallen to record lows. For example, supply for most Gulfstream models are below 2% when the average was previously 8-10% of any mature fleet for sale.
Most aircraft brokerage firms are low on inventory and loaded with prospective buyers with little-to-no inventory to choose from. Demand is being driven by factors including increased demand for private travel, airline cancelations, low interest rates, and (for US buyers) the end of 100% bonus depreciation in January 2023.
Deals are happening in many shapes and forms. Many of the recent transactions were “Off Market”. In some cases, banks are selling their aircraft returning from leases directly to their preferred customers. We’ve seen a lot of handshake deals between friends, relatives, and partners. And we see an increasing trend of “dealers” buying inventory to flip for profit.
Management companies with private equity investors who want to build their charter fleets are competing to buy aircraft. Large fractional companies are also buying pre-owned jets to supplement their fleets. One fractional company bought six G650s in the last 12 months.
The OEMs have rebounded quickly in H2 2021 and their backlogs are pushing out accordingly. Most large cabin models have a lead time of no less than two years, regardless of the make or model.
What Lies Ahead for the Market?
We’re in a bubble, but unless there’s another major economic shift on the near horizon, Hagerty Jet Group believes the market will remain strong through 2024. Hagerty expects the demand in 2022 from buyers seeking 100% bonus depreciation to push prices higher and hold inventory low for the remainder of the year.
The market may soften in 2023 when 100% bonus depreciation goes away, but in 2024 new aircraft deliveries should increase, which will add more pre-owned supply to the market.
If your flight department is planning to upgrade aircraft in the next 12-24 months, Hagerty recommends creating a strategy with your broker now, finding the replacement aircraft prior to selling the existing one. And when selling aircraft, Hagerty Jet Group notes great success with a Sealed Bid process.
In-Service Aircraft Maintenance Condition & Marketability
Posting its sixth consecutive monthly increase, Asset Insight’s tracked 134-model fleet rose 2.3% in September, although the 20-unit increase was lower than any one of the previous five months, and did not equally affect all four groups...
Year-to-Date (YTD) listings are now down only 0.3% (-3 units) and are 47.6% lower than the June 2020 peak. The figures brought the active fleet’s overall availability up to 4.0%, compared to last year’s figure of 5.5%.
Irrational as it might read, the tracked fleet’s average Ask Price increased for the fifth consecutive month; the 10% increase equated to the fifth consecutive 12-month high figure.
September’s rise reflected increases of 8.9% for Q3, 53.8% Year-over-Year (YoY), and 75% YTD. Asset Insight believes value stabilization is continuing as higher Ask Price figures correlate with the inventory fleet’s improving asset quality.
Inventory Fleet Maintenance Condition
The listed fleet’s Quality Rating and Maintenance Exposure figures improved during the month as higher quality assets replaced sold aircraft. Specifically...
Quality Rating: The listed fleet’s Quality Rating improved 1.0% to 5.303 from August’s 5.250, on Asset Insight’s scale of -2.5 (low) to 10 (high). The Rating pushed available aircraft further into the ‘Excellent’ range, while it was virtually unchanged for the quarter, and 1.1% better/higher YoY. The figures signal that fewer maintenance events will be due in the near future.
Maintenance Exposure: The cost of embedded/accrued maintenance for the listed fleet improved/decreased 2.3% during the month, remained unchanged for the Quarter, but increased/worsened 3.4% YoY. Compared to one year ago, upcoming maintenance for listed assets will be more costly to complete.
Maintenance Exposure to Ask Price (ETP) Ratio
The ETP Ratio has now set a 12-month best/low figure during each of the past four months, decreasing to 52.7% from August’s 54.6%. The improvement resulted from continuing Ask Price increases for three of the four groups, as well as Maintenance Exposure decreases to all but the Large Jet group.
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’ (DoM) 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%.
Assets whose ETP Ratio was 40% or higher during Q3 were listed for sale nearly 89% longer (on average) than aircraft whose Ratio was below 40% (175 versus 331 Days on Market). In September, over 34% of Asset Insight’s tracked models, and more than 39% of the listed fleet, posted an ETP Ratio above the 40% excessive mark.
Third quarter sales decreased 22.7% YoY (419 versus 542), and while Q3 sales in 2021 were slightly higher than that year’s Q2 sales (542 vs. 539), transactions for this year’s Q3 were substantially lower than Q2 (419 vs. 523).
Year-to-Date, sales for the tracked models are running quite a bit lower than 2021 figures (1,358 vs. 1,504). This would mean that, for 2022 to match 2021 sales figures, 733 transactions will need to close during Q4. That figure poses a high hurdle for all concerned.
On a slightly brighter note, the average ‘Days on the Market’ figure has decreased steadily during the past three quarters, with the 24.6% drop in Q3 (227 vs. 301 during Q2) equating to nearly a 50% decrease YTD.
As we have previously stated, any prospective buyer wishing to secure the enhanced bonus depreciation available under US tax law should already be active in the market, having secured the help of an experienced aircraft broker.
Large Jets: The group’s Q3 transaction figures (90 units) appeared to be more in line with sales figures generated during Q3 of 2020 (86 units) and 2019 (74 units), the peak of the pandemic, as opposed to the 128 transactions generated during Q3 2021.
Partly due to the unexpectedly low sales figure, Large Jet inventory increased 12.2% (23 units) for the 43-model tracked fleet, and availability is now up 26.2% YTD, but still down 25.4% YoY and 43.3% from the June 2020 peak.
The group’s Quality Rating improved/rose 0.8% in September, 1.6% for the quarter, and 3.3% YoY. Meanwhile, the 5.632 Rating was better than the 12-month average, pushing the group further into the ‘Outstanding’ range. Maintenance Exposure rose/worsened a slight 0.1% for the month, and 1.0% YoY, but improved/decreased 0.9% during the quarter.
Ask Price rose for the second consecutive month, and August’s 6.7% increase resulted in the highest value since April. It was also 4.4% higher for the quarter, 34.2% YTD, and 53.6% higher YoY.
The increase in Maintenance Exposure may have been slight, but it was also sufficient to increase/worsen the ETP Ratio for a third consecutive month, and the 41.3% figure represented the first time since February that the group’s Ratio was above the 40% ‘excessive’ mark.
Mid-Size Jets: Transactions for Q3 were down to 132, from 158 sales during Q2. They were also lower than the 168 transactions completed during Q3 2021. Following August’s 24-unit increase, availability rose by only two assets in September.
Inventory for the 45-model tracked fleet is now up 4.8% YTD, while still nearly 19% lower YoY, and 52% below the June 2020 peak. The group’s Quality Rating rose another 1.8% to 5.251 during the month. The figure equated to an increase of 0.9% for the quarter, but it was lower YoY by 0.1%. By the slightest of margin, Mid-Size Jets entered the ‘Excellent’ range.
Maintenance Exposure was a slightly different story. Although September posted a 2.9% improvement/decrease, the figure was 4.6% worse for the quarter and 9.5% worse YoY.
Following four consecutive monthly increases, Ask Price decreased 10.8% from August’s second consecutive monthly all-time high value. For the quarter, Ask Price still rose 6.9%, and is up 60.2% YoY, and 140.3% YTD. The effect on the ETP Ratio, based on the new fleet mix, was an increase to 53.5%, following four consecutive monthly improvements, and three consecutive 12-month low/best figures.
Light Jets: As with the two other jet groups, Q3 transactions decreased compared to Q2 (112 vs. 130), as well as compared to Q3 2021 (112 vs. 158). Listed assets for the 29-model tracked fleet decreased a slight 0.8% in September (two units). YoY availability is down 17.6%, as well as 51.6% lower compared to June 2020.
The Quality Rating improved 1.2% for the month and 0.7% YoY, but degraded 0.1% during the quarter. At 5.259, the Rating raised Light Jets into ‘Excellent’ territory from August’s ‘Very Good’ range. Maintenance Exposure improved 8.3% during September, 4.8% for the quarter, and 1.0% YoY.
Rising 5.5%, Ask Price resulted in the Light Jet group posting its third consecutive all-time high figure that was also up 11.9% for the quarter, 67.6% YoY, and 91.8% higher YTD. The ETP Ratio responded favorably to all these figures, by setting the group’s third consecutive 12-month low figure, this time at 72.5%.
Turboprops: Year-over-Year Turboprop transactions did not experience as dramatic a drop as any of the jet groups, but sales for the quarter stood at 85 when September closed, compared to 88 during Q3 2021.
Compared to Q2, transactions decreased by ten units, from that quarter’s 95 sales. The number of units listed for sale decreased by three, or 1.8%, representing a 24.8% decrease YTD, 43.3% YoY, and 37.4% since June 2020.
The Quality Rating posted a slight 0.2% improvement for the month, and 0.4% YoY to remain within the ‘Very Good’ range. But the Rating worsened almost 3% during the quarter. Maintenance Exposure followed a similar path, improving 3.3% for September and 0.1% YoY, while increasing/worsening for the quarter by 3.7%.
Ask Price has been rising every month since February, and September’s 2% increase represents the group’s third consecutive monthly all-time high figure. Turboprop pricing increased 12.3% during Q3, 33.6% YoY, and 33.8% YTD.
The Maintenance Exposure improvement and Ask Price increase combined to favorably impact the ETP Ratio, lowering it to 36%, only slightly worse/higher than April’s 12-month low (35.2%). It was also the group’s fifth month below the 40% ‘excessive’ demarcation point, as well as the third consecutive month that Turboprop marketability has exceeded that of Large Jets.
Lastly, Asset Insight’s 17-model tracked Turboprop fleet continues to offer the largest per-model aircraft selection among the four groups, followed by Light Jets, Mid-Size Jets, and Large Jets.