- 06 May 2022
- Brian Foley
- Market Insight
With several new jet announcements in the past 24 months, René Armas Maes shines a spotlight on the 4,200nm to 4,750nm-range jet sector (Large Cabin Jets), with a view on how Gulfstream’s new G400 could impact OEM activity…Back to Articles
To remain competitive and meet their customers’ needs, the leading business jet Original Equipment Manufacturers (OEMs) need to anticipate changes in customer demand. To stay ahead of the game, they must continuously develop and design new products, improve existing products and services, and develop new technologies to capitalize on market opportunities.
However, introducing new products and technologies requires a significant commitment to Research and Development (R&D) investment.
Operating in a highly competitive environment, OEMs are exposed to the constant risk that more innovative products, services, or technologies could be developed by competitors. Even after a new jet is introduced to the market, there’s no guarantee it’ll be successful – especially at times customer demands and preferences are changing, or if a new product hits significant turbulence en route to certification.
Timing is also crucial – for example, reaching the market before a competitor’s jet does, or in relation to an older model becoming obsolete.
In short, the long-term growth, competitiveness, and continued profitability of business jet OEMs are dependent on their ability to anticipate and adapt to changes in the markets, and reduce the costs of producing high-quality products – while continuing to develop products and portfolios that align to worldwide market opportunities.
Over the following pages, we’ll explore what new products the ‘Top Five’ OEMs will offer in the 4,200nm to 4,750nm range in the next 24 to 36 months. This is a sector that, until more recently, was contested by older models. But with the recent announcement of Gulfstream’s G400, it’s a sector that could feasibly see some further developments as the leading market competitors vie for their share of the pie…
It could justifiably be argued that in the 4,200nm to 4,750nm segment Bombardier needs a new business jet to replace its ageing Challenger 600 platform, which has served the company well for more than 40 years.
A new platform could allow the company to capitalize on the technological advances introduced in the Bombardier Global 7500, as it plans to do on the recently introduced Challenger 3500 (due to enter service later this year).
Looking specifically at Bombardier’s investment in new product development, US$101m was invested in 2021, compared to $147m in 2020. As a percentage of revenue, that’s 1.7% and 2.3% respectively. Meanwhile, additions to aerospace program tooling was $84m in 2021 and $127m in 2020, while R&D expenditure reached $17m in 2021 and $20m in 2020.
Based on the numbers, it appears unlikely Bombardier will invest in a new platform for at least for the next 12-24 months. However, high success for the Gulfstream G400 may increase Bombardier’s appetite for this market.
On the other hand, Bombardier may decide to concentrate its investment into refreshing its Global 7500 in a few years’ time, keeping it ahead of the game in the Ultra-Long-Range Jet segment.
As the Dassault Falcon 6X development program moves towards flight testing and certification later in 2022, and as the French OEM continues to invest in development of its future Falcon 10X flagship (planned for service-entry in 2025), it’s very unlikely that the company will invest in a new product in the 4,200nm to 4,750nm segment in the next 36 to 48 months.
Further down the line, however, there’s the potential for a refresh of the Falcon 2000LXS platform, providing improvements to the interior, and especially the performance as Dassault seeks to remain competitive in the segment.
Whether that comes in the form of a Falcon 4X or 5X will be interesting to see.
In terms of R&D costs, Embraer invested US$43m, $30m, and $49m in 2021, 2020 and 2019, respectively. The company has invested significantly in new business jet products over the past 10 years, simultaneously developing and enhancing its engineering and technological capabilities.
The Embraer Praetor 500 and Praetor 600, introduced in 2018, are upgrades on the Legacy 450 and 500, respectively, and offer more range. However, its recent financial statements imply Embraer is currently focusing on military, eVTOL, and a possible new regional turboprop aircraft.
The most profitable aircraft in Embraer’s portfolio is the 1,970nm Phenom 300 Light Jet, which represented 60% of its jet deliveries in 2021, and 58% in 2020. Ultimately, it is unlikely Embraer will launch a cleansheet business jet product in the 4,200nm to 4,750nm segment within the next 24 to 36 months.
In the meantime, there’s a need to develop sales of the Embraer Praetor 600. According to AMSTAT, in April 2022 the active Praetor 600 fleet stood at 49 units. That compares to an average of 115 jets for Bombardier and Dassault products within the segment.
As with Bombardier, if Gulfstream’s G400 attracts large numbers of new and existing customers, Embraer may be forced to revise its strategy in this segment since it’s unlikely that it can develop the Praetor 600 to offer a range far beyond 4,200nm.
Until the announcement of the Gulfstream G400 in October 2021, the factory-new Large Cabin jet segment was primarily contested between the Bombardier Challenger 650 and the Dassault Falcon 2000LXS, with the Embraer Praetor 600 being a relatively new market entrant.
Previously, Gulfstream enjoyed significant market success within the segment with the Gulfstream GIV and GIV-SP, and later with its G450. Expected to cost $34.5m (2021 price), the Gulfstream G400 is competitively priced compared to the Bombardier Challenger 650 ($32.4m, 2021 price), Dassault Falcon 2000LXS ($35.1m, 2021 price), per Aircraft Bluebook.
As the only manufacturer to enter the 4,200nm to 4,750nm business jet segment in the past two years, other OEMs will be watching how the order book stacks up very carefully.
Textron Aviation invested US$619m in R&D during 2021, an increase of 13% compared to 2020. This, of course, includes R&D activities at Beechcraft, Bell Helicopter, and Cessna which has recently added three upgrades to its Cessna Citation line-up (the Citation XLS Gen2, CJ4 Gen2 and M2 Gen2).
Cessna twice attempted to enter the 4,000nm-plus segment with the Cessna Citation Hemisphere and Citation Columbus. The 4,500nm Citation Hemisphere was announced in November 2015 and was expected to fly in 2019, but the program was canceled in April 2018.
The 4,000nm Citation Columbus was launched in February 2008 and cancelled one year later, due to unfavorable market conditions, but not before Cessna had spent $50m on tooling, facilities, and other related costs.
A new, larger product than the Longitude in the 4,500nm range is unlikely within the next 24 months while Cessna continues to strengthen sales of its new aircraft through product enhancements. However, Cessna may be a step ahead of the game if it does choose to launch a new product in this arena, following its two earlier attempts, in response to other OEM activity within the segment.
While product development and R&D investments need to be carefully looked at by top management, taking too much time over a new product development decision could put a competitor in a favorable position - which seems to be what’s happening with the recently-launched Gulfstream G400.
Which OEM will follow suit and develop a product in the 4,200 to 4,750 nautical miles segment? It’s unlikely to be Bombardier, Dassault, and Embraer (at least in the next 12 to 36 months).
In Textron’s case, the company may want to grow earnings in the currently bullish Business Aviation market and deliver strong free cash flow numbers in order to build capital allocation flexibility to invest in new programs.
For now, though, Gulfstream appears to have stolen an advantage for at least the next two years. And that could easily extend to four years, given the time it takes for market research, product development, board approval, certification, and aircraft entry into service to happen.
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