Is the mix changing? Aircraft purchase trends in US and Non-US business jet markets. New business jet deliveries for 2007 lead all segments of general aviation with record setting numbers. These impressive delivery schedules look set to go on- but just how long can this record setting pace- which started in 2003- continue? As seen in Chart A (right-See PDF)- the most recent build-up occurred over a 10-year period from 1992 to 2001. New Business Jet deliveries grew steadily in 1992 at a 6.4% ...
Is the mix changing?
Aircraft purchase trends in US and Non-US business jet markets.
New business jet deliveries for 2007 lead all segments of general aviation with record setting numbers. These impressive delivery schedules look set to go on- but just how long can this record setting pace- which started in 2003- continue?
As seen in Chart A (right-See PDF)- the most recent build-up occurred over a 10-year period from 1992 to 2001. New Business Jet deliveries grew steadily in 1992 at a 6.4% average annual rate until 1995. Then in 1996 deliveries took off- averaging an annual double digit rate of 20.2% until 2001. The U.S. economy slowed in 2002 and 2003- and new Business Jet deliveries fell off rather sharply for these two years following 9/11. Interestingly- the exact same number of 517 deliveries in 2003 was also recorded in 1998- and was only slightly below the previous record of 578 set in 1981.
Three major factors influenced this double digit growth from 1996 to 2001. They were:
1) Strong economic growth-
2) Introduction of new Business Jet models- and
3) Aircraft Orders from the fractional aircraft market.
If history repeats itself- this current record setting delivery pace could continue for four more years and take us into 2012.
Now that the final numbers for 2007 are in- let’s take a look at the New and Preowned side of business aviation for Business Jets and Turboprops for sale deliveries and see just how this year compares to previous years.
NEW BIZJET & TURBOPROP DELIVERIES
The new aircraft delivery numbers shown in Chart B (right-See PDF) are from the annual shipment reports from GAMA for Business Jets and Turboprop aircraft and show strong yearover- year growth since 2003. As indicated in this chart- new Business Jet deliveries grew 28.4% over 2006 and Turboprops continued to improve by 11.4%.
PRE-OWNED BIZJET & TURBOPROP DELIVERIES
We’ve considered the ‘New’ market- but how about the pre-owned market? We expect that the pre-owned market will continue to see record levels sold because of the lift demand created by the backlog.
Pre-owned aircraft delivery numbers (sold transactions) offered by JETNET are represented in Chart C- and reflect year-over-year growth for pre-owned business jet and turboprop aircraft since 2003. The two pre-owned market segments actually saw almost the same year-over-year growth rates in 2007 at 5.9% for pre-owned business jets and 6.0% for pre-owned turboprops.
FUTURE TRENDS INCLUDING THE VLJ AIRCRAFT
The Single-Engine Piston was the only aviation segment to show a decline in 2007: -3.8% in the year-over-year comparison as reported by GAMA. Business Jets showed the highest percentage growth year-over-year even without the new VLJ deliveries (143 total; 98 Eclipses and 45 Mustangs) compared to the other aviation segments- as represented in Tables A and B (left-See PDF). However- it is interesting to note that of all the aviation segments (Business Jets- Turboprops- and Pistons) the total percentage growth would have been reduced from 5.4% to 1.9% without the deliveries from the new VLJ market- as shown in Table B (See PDF).
Is this record setting pace likely to last 10 or more years? Several factors may lead us to believe that this could happen. The New VLJ OEMs- having completed their first year in production- will continue to deliver aircraft to work off their high backlog of orders. An estimate of the VLJ backlog is at 3-400+ aircraft with the majority coming from Eclipse- followed by the Cessna Mustang- and the Embraer Phenom 100. However- it should be noted that not all of this backlog currently stands as firm orders.
Will the new VLJ “air taxi” market be a major contributor? The fourth quarter of 2007 delivery numbers for Eclipse and Mustang combined indicated a total of 70 aircraft as reported by GAMA. Using the GAMA 4Q numbers could translate into at least 280 new VLJ aircraft deliveries in 2008. According to industry forecasters- this minimum delivery number is expected to be much greater but could be affected negatively by the U.S. economy- higher fuel prices and lack of a surge in Air Taxi demand.
Other factors contributing to the continued record-setting pace include an assumption that new aircraft orders are not expected to grow in 2008- but level out. This assumption is made on the anticipation that the aircraft Original Equipment Manufacturers (OEMs) will continue to gear-up production to reduce this record backlog that has been building since 2003. Currently the “traditional” business jet backlog is estimated to be over 3-300+ aircraft which does not include the backlog of orders from the VLJ market.
The previous peak of business jet order backlog in 2001 was at 2-700 aircraft with approximately 50% of the orders coming from the fractional providers. The fractional providers in 2002 and 2003 either canceled or deferred deliveries after the market quickly fell which resulted in a backlog of 1-200 aircraft by the end of 2003. Today it is estimated that fractional providers only hold approximately 10% of the order backlog which is a significant percentage change from the previous backlog peak.
As revealed in Table C (left-See PDF)- Owners and Operators do not want to wait from two to four years to take delivery of their new aircraft so OEMs can no longer continue to respond to the demand as they have in past cycles. These high wait times force owners to make interim plans for their corporate and private travel needs until their new aircraft arrives.
The interim plans can include pre-owned aircraft purchases and leases- additional charter hours- and possibly fractional share considerations. Some buyers are shifting their orders to OEMs that offer earlier delivery positions - so the competitive edge goes to the one with the shorter lead time.
NEW INTERNATIONAL DEMAND
Higher fuel prices and a slowing US economy may alter this record setting pace as it has in previous cycles. There is a market shift going on with more of the backlog coming from Non-US markets- which we will discuss next.
Historically- the percentage mix of US to Non-US “New” Business Jets deliveries has been roughly 72% to 28% as shown in the Table D (left-See PDF). The order backlog mix of US to Non-US started changing in 2006- becoming very pronounced in 2007- and now it averages over 50% for the major OEMs. The Non-US order mix change is being led by Europe. New orders from two of the major OEMs are reporting Non-US orders ranging from 73% to 75% of their backlog.
PRE-OWNED BUSINESS AIRCRAFT FOR SALE
The number of aircraft “For Sale” (displaying data sourced from JETNET) continues to decline compared to the peak years of 2002. Table E (top right-See PDF) shows the number “For Sale” and the percentage compared to the number of aircraft in-operation as of February 2008.
It is interesting to note that the average number of pre-owned business jets “For Sale” decreased slightly in 2007 to 1-662 from 1-714 in 2006 and are still under the peak numbers of 2002 and 2003 when nearly 2-000 aircraft were “For Sale”. All “For Sale” categories of Business Jets- Execairs- and Turboprops continued the same downward trend in 2007 as owners and operators hang on to these assets. This trend usually forces prices upward as the inventories of “For Sale” aircraft shrink.
Will the mix of Pre-Owned aircraft “For Sale” and “Sold” change as a result of a larger percentage of new aircraft orders coming from Non-US markets? Historically- the percentage mix of US to Non-US Pre-owned Business Jet and Turboprop “Sold” transactions have averaged 78% to 22% and 75% to 25% as shown in Tables F and G (above-See PDF). We will continue to report on any future changes in this percentage in anticipation of more Non-US ‘New’ Business jets being ordered.
We may just have to wait and see if this Non-US demand is strong enough to counter any US drop-off in the business aircraft market for both New and Pre-owned aircraft.
For more information:
• Michael Chase is president of Chase & Associates- and can be contacted at 1628 Snowmass Place- Lewisville- TX 75077; Tel: 214-226-9882; Web: www.mdchase.aero.
• Marj DeLong is president of MarketLift- Inc. and can be contacted at P.O. Box 595036 Dallas- TX 75359; Mob: 214-862-8992- Web: www.market-lift.com.
• JETNET can be contacted at 101 First Street- Utica- NY 13501; Tel: 800-400-2298; Web: www.jetnet.com or www.avdatainc.com
Will the New Aircraft Order ‘Bump and Run’ Continue?
Expectations for 2008 and 2009
■ This upward trend that started in 2003 is expected to continue with new business jet aircraft deliveries into 2008 and 2009. New Business Jet Deliveries may exceed the 1-300 mark for both years and will be greatly aided by the New VLJ market and other new aircraft models entering the mix.
■ The record delivery levels are expected to help burn off the high level of order backlog- which is estimated to be 3-300+ for ‘Traditional’ business jet aircraft and 3-400+ VLJ aircraft.
■ However- new aircraft orders are not expected to grow in 2008 and may even decelerate modestly.
■ Pre-owned ‘For Sale’ aircraft are expected to remain at the same levels with the number ‘Sold’ showing growth at higher prices for both Business Jets and Turboprops in 2008.