- 15 Sep 2022
- Tony Kioussis
- BizAv Market Insight
Brian Foley reflects on the key indicators in the new and pre-owned business aircraft marketplace heading into Fall 2022...
The law of averages are beginning to prevail in the Business Aviation industry. The pendulum has swung too far from equilibrium for a variety of different BizAv metrics, and are slowly returning to more typical states. We’ll look at a few of those metrics here...
Business jet utilization growth peaked in the US over the summer, although there’s still some life in non-US regions for the time being. The US had been leading the recovery by around six months, so it’s thought that utilization in the rest of the world will also temper by year-end.
It’s anticipated that US utilization will continue its downward trend towards more traditional levels throughout the fall, as active summer leisure travel gives way to a more restrained business travel season.
While, during the past two years, leisure travel had shown a lot of strength during fall and winter, it’s now believed that many first-time private aviation users will have since been spooked by breath-taking fuel surcharges, strengthening charter pricing, unexpectedly high operating costs, inflation, and recession uncertainty.
Thus, while many charter providers and OEMs at one time indicated that upwards of 20-40% of their business was coming from first-time users, the number of newbies who actually remain in the fold will probably net out to 10% or less.
This exodus of new users back to United Economy Plus is expected to have the effect of causing negative utilization growth in the coming months, but when all is said and done should still remain a healthy 10% above 2019 levels.
The sizzling used aircraft market over the past couple of years has also started coming back down to earth. The percentage of the fleet for sale has come off its low water mark of 2.4%, and has now risen to 4.5%, according to AMSTAT.
Still, this is a far cry from the 10-12% of the fleet for sale which is more typical. It’s predicted that the percentage of the pre-owned fleet for sale will continue to increase through year-end into the 5-6% range, and continue to increase further throughout next year.
Pre-owned pricing has also seen double-digit gains lately, which is reminiscent of the recent real estate boom. But just like housing, it takes time for prices to catch up with the reality of a slowing market. Therefore, aircraft price increases should continue, but soon peak and flatten in the first half of 2023.
Analogous to homebuyers no longer skipping the home inspection and paying handsome sums above the asking price, aircraft buyers will go back to requiring a pre-buy inspection and asking for a discount off the asking price.
The number of pre-owned transactions will subside from previously unsustainable levels too.
New Aircraft Production
With delivery lead times now pushed to 2025 and beyond for some models, there’s an acute supply and demand imbalance in the new aircraft market that will only be further exacerbated by manufacturers being unable to ramp-up production due to supply chain issues, labor availability, and various internal factors. This will have the effect of finally firming up prices.
The heyday of ever-increasing pre-owned unit sales is over for now. The number of transactions will drop, even as the supply of used aircraft increases. While pricing will continue to rise in the near-term, that too will stabilize and eventually soften back to more typical levels.
Utilization growth has been gradually decaying, and is expected to stay around 10% above 2019 levels (as opposed to the 16% of today). Lack of new aircraft availability will become the next significant market anomaly and will worsen as buyer demand continues to outstrip supply.
This will eventually conspire to motivate OEMs to produce more aircraft, which could push worldwide business jet deliveries to 900 by 2025, compared to the 700-per-year average we’ve seen for over a decade now.
Global Flight Activity Update
According to WingX Advance, market demand tilted downwards as the summer wound down. Here’s the data for August...
In the first 29 days of August 2022, business jet and turboprop activity was still a fraction ahead of the same timeframe in 2021, and 11% above activity three years ago. But the momentum has slowed, somewhat.
Year-to-Date (YTD), global business jet flights were up 20% compared to same period last year. Meanwhile, global scheduled airline activity failed to hit the predicted summer recovery.
For the whole of August, business jet activity in North America trended up 1% compared to August 2021, and was up 13% compared to 2019. But in the week ending August 28, business jet departures were down 4% compared to the preceding week.
YTD, the overall North American region had notched up record flight activity, with almost two million business jet sectors flown, up 18% on last year. As of August, the US had a 23% gain on comparable YTD 2019, while both Canada and Mexico continued to trail their pre-pandemic activity levels.
Destinations like Puerto Rico, Costa Rica and US Virgin Islands boasted at least 30% gains over January-August 2019, while most of the Caribbean has also seen record flight activity (the exceptions being Cayman, Bermuda and Barbados).
Across Europe, bizjet departures were approximately 6% below August 2021, but 18% ahead of August 2019. In the week ending August 28th, flight activity was 7% below the same week in 2019, however, with the AOC market (covering charter operations) slumping 10% Year-on-Year (YoY), slightly worse than the 8% downward trend in the last four weeks.
Indeed, most of the leading BizAv airports in Europe saw a slowdown compared to the exceptional August activity of last year.
Rest of the World
Outside North America and Europe, YoY growth in business jet activity stood at 21%, with a 52% increase over August 2019. Business Aviation in China continued to flat-line due to prolonged Covid measures, with January-August 2022 records down by 47% compared to last year, and down 37% compared to 2019.
Meanwhile, YTD growth in business jet flights remained impressive in Australia, Brazil, India and Nigeria (where departures from Abuja were down 18% compared to 2021, but were still up by three times compared to 2019).
“Business Aviation activity was on the slide as August ended, most evidently in Europe, although this also reflected an unseasonably strong August 2021,” said Richard Koe, Managing Director, WingX Advance. “For the Year-to-Date, business jet activity held at around 20% above last year. “The big question is whether flight demand can weather the start of Fall, and a swiftly deteriorating economic outlook in the next few months.”
In-Service Aircraft Maintenance Condition & Marketability
Asset Insight’s tracked 134-model fleet posted its largest monthly increase this year during August, as availability rose 5.6% (46 units) with all three jet groups benefiting. Year-to-Date listings are now down 2.6%, but remains 48.8% below the June 2020 peak...
Excepting April, the average Ask Price of Asset Insight’s tracked fleet has escalated each month this year. In August, the figure increased 3.3% to post the fourth consecutive 12-month high volume.
The latest increase equated to a 64% increase Year-over-Year (YoY), and nearly 77% YTD. As has been the case throughout this year, values for young, low-time units are still strong, but as we reported last month, more listings are beginning to demonstrate signs of value stabilization.
Inventory Fleet Maintenance Condition
The Quality Rating has remained fairly stable since February, while Maintenance Exposure has been reflecting the increasing average age of the listed fleet.
Maintenance Exposure to Ask Price (ETP) Ratio
For the third consecutive month, the ETP Ratio set a 12-month best/low figure in August (54.6%). That compares to July’s 54.9%. The decrease/improvement was fueled by the ongoing increase to the average Ask Price, which overcame a worsening Maintenance Exposure figure.
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%.
During Q2, assets whose ETP Ratio was 40% or higher were listed for sale nearly 156% longer (on average) than aircraft whose Ratio was below 40% (183 versus 469 Days on Market). During August, 38% of Asset Insight’s tracked models, and nearly 42% of the listed fleet, posted an ETP Ratio above the 40% excessive mark.
Although availability has now increased for five consecutive months, each of the last four months have also resulted in an Ask Price increase. While many are hoping to capitalize on this phenomenon, aging aircraft sellers may not be as fortunate, based on the steadily increasing ‘Days on Market’ for veteran assets.
As was the case in July, three of the four groups set new all-time high Ask Prices. And yet, some sellers appear to be struggling a bit, judging by the ‘motivated seller’ and ‘next to sell’ advertisements that continue to appear. Experienced buyers are continuing to exercise caution and restraint.
However, any prospective purchaser wishing to secure the enhanced bonus depreciation available under US tax law should already be actively exploring available opportunities. Supply chain issues, including maintenance facility capacity, will once again impact the time required to close a deal, come the industry’s traditional Q4 transaction frenzy.
Large Jets: In August, inventory increased 7.4% (13 units) for the 43-model tracked Large Jet fleet. Availability is now up 12.5% YTD, but only half as many aircraft are listed for sale compared to the June 2020 peak.
August’s fleet mix change lowered the Quality Rating by 0.4%, but the figure was nearly 2% better/higher YoY. The month’s 5.587 Rating was equal to the 12-month average, keeping the group within ‘Outstanding’ territory. Maintenance Exposure worsened, increasing 3.1% for August, and 1% YoY.
Following last month’s 2.6% decrease, average Ask Price rose 0.5% to remain above the 12-month average. The figure was also 25.8% higher YTD as well as 64.3% higher YoY. The increase in Maintenance Exposure negatively impacted the ETP Ratio, increasing it for the second consecutive month to 37.9. That compares to July’s 35.5% and June’s 12- month low 34.1%. It should be noted that the group’s ETP Ratio has now been below 40% for the past six months.
Mid-Size Jets: Recording an impressive availability increase of 11.1% for the 45-model tracked fleet in August, Mid-Size Jet inventory is now up 3.9% YTD, but remains 52% lower than the June 2020 peak.
The group’s Quality Rating also rose 1.8% to 5.158 during the month (2.2% worse YoY), keeping Mid-Size Jets within the ‘Very Good’ range.
Maintenance Exposure decreased/improved 1%. Average Ask Price rose for the fourth consecutive month, and the 14.3% increase set a second consecutive monthly all-time high value. The Mid-Size Jet group’s average Ask Price has now increased 125.3% YoY, and 169.5% YTD.
With both Maintenance Exposure and Ask Price moving in the right direction, the effect on the ETP Ratio was a reduction to 51%, the group’s fourth consecutive monthly improvement, and the third consecutive 12-month low/best figure. The ongoing increase in availability, especially with aircraft that are more marketable, will undoubtedly aid both buyers and sellers.
Light Jets: Listed assets for the 29-model tracked Light Jet fleet increased 3.5% in August (nine units), bringing the YTD figure just 0.7% below the number available on December 31. While that was still 51.2% below the June 2020 peak, the increase is encouraging.
What is not encouraging is the Quality Rating for the latest fleet mix, as it dropped 1.4%. Although, at 5.195, the figure is better than the 12- month average and reflects a 1.1% YoY improvement, regrettably, it also drops the group into ‘Very Good’ range, from last month’s ‘Excellent’ territory.
Maintenance Exposure was also not favorable, increasing 8.4% in August, and 5.2% YoY, to post a 12-month high/worst figure.
Apparently, sellers didn’t read the memo, as Ask Price increased for the second consecutive month, recording a second consecutive all-time high figure through a 1.4% increase that was also 54.2% higher YoY, and 81.7% higher YTD. That was sufficient to propel the ETP Ratio to a second consecutive 12-month low figure (79.8%).
While the average Light Jet may be ‘statistically’ more marketable, sellers of aging aircraft are unlikely to experience much, if any, improvement.
Turboprops: The number of Turboprops listed for sale did not change in August (the fleet is still down 36.3% from the June 2020 peak), and the inventory mix change resulting from sales left the Quality Rating virtually unchanged at 5.058 (compared to July’s 5.055), keeping the group in ‘Very Good’ territory.
On the other hand, Maintenance Exposure worsened for the second consecutive month, this time through a 4.1% increase that was also 1.9% worse/higher YoY.
Following a dip in January, the group’s Ask Price has risen every month since, with August’s 2.3% increase equating to a second consecutive monthly all-time high figure, as well as an increase of 27.6% YoY and 31.2% YTD. While that was insufficient to overcome the Maintenance Exposure increase and lower the ETP Ratio, the group’s 37.6% was better than average, and was the group’s fourth month below the 40% ‘excessive’ demarcation point.
The latest ETP Ratio also reflected the second consecutive month that Turboprop marketability exceeded that of Large Jets, while the group’s 9.5 units per model, based on our 17-model tracked fleet, maintained the widest asset selection available to buyers among the four groups.
GAMA Q2 2022 New Airplane Shipment Analysis
The recently released new airplane shipment report from the General Aviation Manufacturers Association (GAMA) covering H1 2022 was one of the most positive we’ve seen in a very long time. Mike Potts works through the specifics...
Airplane deliveries totaled 1,174 units worth $9.1bn, up from 1,068 units worth $8.6bn in H1 2021. That represented an increase of 9.9% in unit deliveries and 5.2% in billings. In case you’re wondering, it’s also the strongest H1 for deliveries since 2008. Every segment enjoyed gains over the previous year:
Part of what makes these numbers so good is their relative balance. None of the segments is wildly up or down compared to the others, indicating a market stability that we have not seen recently, and one that bodes well for a period of sustained, balanced growth.
It also gives us reason to hope this might turn out to be a record year – conceivably the best since 2008. Considering the overall strength of the business aircraft market so far this year, one might reasonably wonder if we’re looking at a record year for jet deliveries. The answer, so far, appears to be “probably not”.
The best recent finish for jet deliveries was in pre-pandemic 2019 when the total was 809. That year, by the end Q2 jets totaled 333 units, well ahead of the 289 we’ve had this year.
In fact, 289 units is actually rather weak compared to historic mid-year marks. Since 2010 only four years (2011 – 265; 2013 – 283; 2020 – 244, and 2021 – 264) have not been better. Nevertheless, while we may not be headed for record jet deliveries this year, the market is very solid, and definitely seems to be on the upswing.
Business Jet Market Specifics
Looking at the specifics of the jet market we see that for H1 2022, five of the 10 companies reporting have better numbers than H1 2021, while four are down and one is even. In Q2 alone, six of the jet OEMs are ahead of Q2 2021, while two are down and two are even.
Leading the jet market by a wide margin is Textron’s Cessna unit with 87 deliveries for H1 and 48 in Q2 2022. That compares with the 72 and 44, respectively, reported for the comparable periods in 2021.
The race for second place was close, with Bombardier edging out Gulfstream by 49 to 47 in deliveries for H1 2022. Neither OEM matched their H1 2021 totals when Bombardier shipped 55 units, and Gulfstream 49. For just Q2 Bombardier was down one unit in 2022 (29 versus 28 in Q2 2021), while Gulfstream was ahead by a single unit (22 versus 21).
Cirrus and Embraer battled closely for the number four slot, with their half-year totals separated by a single unit. Cirrus reported 30 deliveries for H1 2022, up from 23 the year before. In Q2 2022 alone, Cirrus shipped 19, up from 16. Embraer, meanwhile finished the half with 29 deliveries, down from 33 in H1 2021. For just Q2, Embraer had 21, up from 20 in 2021.
Pilatus finished sixth in jet deliveries for the half (19 units, up from 15 in H1 2021). For just Q2, Pilatus had 12, matching its 2021 total. Dassault was in seventh place with 14 deliveries in H1 2022, up from six in H1 2021.
Honda enjoyed had a strong finish to the half, with 10 deliveries overall, up from six the previous year. For Q2 alone Honda had six deliveries, up from one in Q2 2021. In the airliner-based bizjet segment, Airbus is emerging as the market leader with four units in H1 2022 and H1 2021. In Q2 2022, Airbus made one delivery, down from two in Q2 2021. Competitor Boeing has reported no deliveries so far in 2022, compared to one in 2021.
At half-time in 2022 shipments, we’re looking at a good, but not yet great, year in business jet deliveries. To turn 2022 into a record year for jet shipments, we would need to see a strong upturn in performance from the companies not yet matching their prior-year totals – including Bombardier and Gulfstream.
We’d also need to see some of the newer companies step up with improved numbers. Due to the nature and comparatively low cost of its product, it seems reasonable to think Cirrus might see a strong upturn in the H2 2022. The market seems poised for a strong finish, so perhaps it is not unreasonable to think that those things might conceivably occur.
In the category of jet billings, Gulfstream narrowly edged out Bombardier for the number one position with $2.581bn, while the Canadian company reported $2.431bn. That’s a difference of ‘just’ $15m.
Cessna is almost certainly third, but its jet billings are unknown since the numbers are combined with the company’s turboprop and piston income for a total of $1.396bn.
It seems reasonable to assume, however, that at least two- thirds of this number is derived from jet sales, which would put billings close to $1 billion, well ahead of Dassault’s $738.4m — which places the French OEM in fourth place.
Business Turboprop Market Specifics
The turboprop segment is showing the biggest gains over a year ago, using GAMA’s measurement. Deliveries are ahead of last year’s by 11.8%. But these numbers reflect the agricultural aircraft which GAMA includes in the turboprop mix.
Looking at just the traditional business turboprops, deliveries for H1 2022 total 140 units, up 10.24% from the 127 units delivered in H1 2021, which is still the biggest percentage gain among the market segments.
As in the jet market, individual results among the traditional turboprop OEMs are mixed. Based on the half-year numbers, six OEMs are ahead of 2021 numbers, two are down, and one is even. Looking at just Q2, three are up, three are down, and two are even.
The margins between gain and loss for many of the manufacturers are narrow in this segment, and perhaps because of this the leading positions were reshuffled yet again. At the close of last year, the order was Pilatus, Beechcraft and Cessna. At the end of Q1 2022, it was Cessna, Beechcraft and Pilatus. Now, at the mid-year point it’s Cessna, Pilatus and Beechcraft, with first and second place separated by a single unit.
An all-new turboprop model entered the market during Q2 2022 with Textron Cessna reporting the maiden delivery of its SkyCourier. Cessna led the turboprop segment with 36 units in H1 2022, up from 24 a year ago (a gain of 50%). For just Q2, Cessna was up from 17 to 19. Whether ‘new model bounce’ will keep it ahead during the remainder of the year will be worth watching.
Close behind Cessna was Pilatus with 35 deliveries in H1 2022, up from the 33 shipped in H1 2021. For Q2 alone, however, Pilatus was down from 26 units in 2021 to 21 in 2022.
Textron’s Beechcraft unit claimed third place with 30 deliveries in H1 2022, up from 23 a year ago (+30.44%). For just Q2, Beechcraft was down slightly from 16 units to 15 in 2022.
Piper scored a somewhat distant fourth place for turboprop deliveries with 20 units in H1 2022, up from 17 the year before. In Q2 alone, Piper had 13 shipments, up from 11 in 2021.
The next three positions were also close, with Daher’s Kodiak unit in fifth place (seven units), Epic in sixth place (six units), and Daher’s TBM unit in seventh (five units). If combined, total Daher deliveries of 12 units would put the company in fifth place among the turboprop OEMs.
The Daher Kodiak unit was well off its 2021 pace when it saw 21 deliveries. The TBM unit also lagged, down from eight shipments in 2021. Epic, meanwhile, was well ahead of its 2021 pace when it was just getting started with one unit delivered in H1 2021.
Piaggio finished in eighth place with a single delivery, which also came in Q2. That put it ahead of its H1 2021 pace when it didn’t ship any units. New Zealand’s Pacific Aerospace occupied ninth place with no deliveries in H1 2022 or 2021.