Business Aviation Market Overview – April 2020

With COVID-19 impacting vast swathes of the world, what is the impact on Business Aviation, and how can business aircraft actually help users safely travel at this time? Rollie Vincent, editor, Market Indicators reflects….

Rolland Vincent  |  31st March 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 Empty Airport Ramp

Rollie Vincent takes stock of the new COVID-19 ravaged Business Aviation market landscape. Hold on. Tighten your seat belts. Breathe. Locate the overhead oxygen mask compartment. Take the time to read the safety card and listen to the people who are primarily there for your safety...

The turbulence we had been anticipating has arrived, and it is at all flight levels. There is no escaping this unprecedented storm. COVID-19 is already the Black Swan of swans, relegating the 737 MAX crisis to a quarter-panel story on page 19. As if the State of Washington did not already have enough to deal with – the Boeing crisis, crumbling infrastructure, climate change, high housing prices and tax rates, digital economy “Google” taxes, and homelessness - coronavirus has arrived.

The good news is that the lifecycle of the virus looks to be measured in months. The bad news is that it appears to spread indiscriminately like wildfire. As a critical agent of global trade and travel, civil aviation has been once again thrust to the frontlines of attention as governments desperately seek to contain the invisible menace.

With a new lexicon emerging of near-empty “ghost flights” at major airline hubs and blacklists of would-be air passengers guilty of nothing more than being born in the suddenly-searched “Schengen Area” (spoiler alert: it’s most of Continental Europe), the energies spent finger-pointing and blaming will be judged one day by how effective they were at helping us focus on life-critical matters at hand.

The Silver Lining for Business Aviation

Despite the COVID-19 pandemic, it is ironically at times like these that one of the true values of Business Aviation, providing a safe and secure alternative for those who must travel over long distances, shines through the storm clouds. Individuals, their families, and their organizations who may have been sitting on the fence about aircraft acquisition should seriously re-consider the value equation of a Business Aviation solution.

Yes – it is expensive to acquire, own, and operate an aircraft, and a buyer’s eyes should be as wide open as their wallets when doing the math. But for many, chartering before (or instead of) acquiring remains a hands-down smart option. These customers can “keep their powder dry” for other investments considered to be more essential and income generating.

We would suggest that it may be high time for customers to re-do their math, allocating a much higher valuation to the time, safety and security benefit line item in the big spreadsheet (if in fact they had even included such a line item in their original quantitative assessment).

It seems especially prudent and respectful today to do what we can to help customers find the time and space to re-think, re-imagine, and re-set their air travel priorities. And what better place than in the privacy, comfort and connectivity of their own cabin aboard a private aircraft to that must-attend meeting or destination.

Actual flight demonstrations are, like food samples at Costco stores, a time-honored hook that are almost sure to generate the desired lip-smacking. For those who have yet to experience a private aircraft flight, now is a really good time to do so.

Private and Business Aviation service providers - from charter and fractional ownership programs to FBOs and aircraft management companies – have been upping their game with thoughtfulness and attentiveness to ensure that they deliver experiences that distinguish them from the rest.

Now is an especially good opportunity for them to demonstrate how they can become not only nice-to-have service providers, but trusted, mission-critical, and quality-of-life-enhancing air travel partners.

None of this commentary is meant to minimize the absolute shock of COVID-19. In fact, around the world many economic and societal activities are grinding to a shuddering halt, in what is for many a once-in-a-lifetime disruption of near-gargantuan proportions.

Shuttered schools, empty sports arenas, cancelled corporate gatherings and conferences, quietened airport terminals, parked aircraft, work-from-home professionals with limited day care solutions, and the emptiness, fearfulness, and even angst that comes when someone nearby does so much as sneeze. All of these are now daily features of a new and hopefully temporary world.

COVID-19 Impacts on Market Activity

It is simply too early to know with much specificity how to think about what this change might mean for business, and for Business Aviation. New aircraft order activity from prospective buyers of new business aircraft is almost certainly down already, with the unconvinced considerably outnumbering those who recognize an emergent buying opportunity.

Soon to be at the epicenter of the coronavirus health crisis, the United States is beginning to draw upon the best and the brightest minds (and lessons learned from other parts of the world) to fight an unusual foe.

Moving silently and with no radar signature, this coronavirus is a storm cloud that is unlike any other we have thus far entered. Words can barely describe the vital importance of the US to stakeholders across the Business Aviation industry.

Home to 6-in-10 turbine-powered business aircraft, the American marketplace is where most Business and General Aviation aircraft are conceived, designed, built, certified, bought and sold, financed, trained for, insured and serviced.

With stock markets, oil futures, and business confidence in a freefall at press time – all at the same time as national politics are at their most divisive in memory – navigating through the COVID-19 storm and defeating this real and viral enemy has suddenly emerged as Job #1.

Increased Fuel Sales at US & Canada FBOs

Over half (56%) of US and Canada FBOs surveyed said they sold more fuel in 2019 compared to 2018, according to the annual survey conducted by Aviation Business Strategies Group.

“There’s no question that 2019 proved to be a very upbeat and positive year for the FBO industry,” ABSG principal John Enticknap noted. “The survey showed a continued incremental increase in fuel sales for the fourth year in row for the majority of responding FBOs, with a healthy 19% of FBOs surveyed reporting an increase of more than 8%.”

The percentages of FBOs experiencing >8%, and 5-8% increases were the same as in the previous survey. But the share of FBOs that sold 1-4% more fuel grew by 2%, compared to the previous year, to 24%.

Such incremental increases in fuel sales are consistent with the increases in flight activity and flight hours reported by ARGUS TRAQPak for 2019, ABSG principal Ron Jackson said.

2020 FBO Industry Forecast

As many as 65% of the responding FBOs said they expected greater fuel sales in 2020, while only 10% expected fuel sales to decrease compared to 2019. And a record high 73% of FBOs (up from 61% a year ago) said they thought the economy is moving in the right direction.

Oil and Jet-A Fuel Prices, Sustainable Aviation Fuel

According to ABSG’s forecast, the FBO industry can expect oil prices to be “very turbulent” until the latter half of the year, when it expects pricing to stabilize around $50 per barrel, with Jet A fuel prices predicted to follow the lead of oil prices.

Asked whether they plan to sell sustainable aviation fuel in 2020, only 3% of FBOs polled said they would offer SAF, while 80% wouldn’t. According to ABSG, however, SAF “is here to stay,” and FBOs are advised to plan to add SAF to inventory as more aircraft operators adopt the alternative fuel.

Flight Activity – Europe

There were 57,227 Business Aviation flights in Europe during February, according to WingX. This represents a YoY decline of 0.8%. Adjusting for a Leap Year, the European flight activity decline exceeded 3% in February and YTD trends are down.

The first week of March is showing a 6% decline, and over 40% drop in flights out of Italy. However, in February 2020 Business Aviation flight activity nose-dived in Germany (down 13%). Flights from the UK also well down though a large growth in flights from Italy, Spain, Russia was recorded.

The big February declines in the UK and Germany came primarily from Turboprops flying 20% less. Large Jet activity was also down in Germany. Other jet activity was up 10% in February.

A significant gain in charter activity was recorded in Russia (where 64% of all flights were AOC). Charters was also up in Switzerland and Spain. AOC activity in Germany and UK and Turkey were well down, however.

Flights within Europe fell 1% in February (or more than 4% with leap year adjustment). Flights from Europe to North America were up 6% up in February, while Africa, Asia and Middle East connections were well down.

“February trends were disappointing, coming off a strong January performance, but the effects of COVID-19 are already evident, with business jet arrivals from China down by 30% YoY, and Germany’s market seeing the largest impact of the virus crisis in Asia,” notes Richard Koe, managing director, WingX.

“Within Europe, there was some growth in February, notably in the ski season, with flights connecting Moscow, Geneva, Chambery. Overall, the business jet charter market seems to have done quite well.

“Looking ahead, we can already see the escalating negative effect of virus containment measures in Europe, with the potential repercussions for a significant economic relapse in the region over the next few months, which is bound to depress business jet activity further.”

Year-End 2019 Avionics Sales Update

The Aircraft Electronics Association released its 2019 Year-End Avionics Market Report, and total worldwide Business & General Aviation avionics sales for 2019 showed a 10.2% increase over 2018’s year-end sales.

Of the more than $3bn in sales recorded in 2019, 55.1% 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 44.9% of sales.

According to the companies that separated their total sales figures between North America (US and Canada) and other international markets, 74.7% of the 2019 sales volume occurred in North America (U.S. and Canada), while 25.3% took place in other international markets.

2019 Percentage of Total Sales by Market

"For the first time, the Business and General Aviation avionics industry has reported more than $3bn in yearend sales," said AEA President and CEO Mike Adamson.

"In addition, the industry has reported an increase in year-over- year sales for three straight years and 12 consecutive quarters. As leaders in product innovation, it's clear that the contributions to the international economy by avionics manufacturers are significant.”

Jetcraft: Strong Market Activity to Start 2020

Jetcraft has reported strong activity at the beginning of 2020 as, according to the company, owners seek faster
upgrades to new or longer-range models.

“The speed with which buyers are upgrading is unprecedented with average ownership cycles now taking 4-5 years, down from the previous 7-10 years,” notes Chad Anderson, president, Jetcraft.

He cites the start of the Bombardier Global 7500 resale market as a key source of activity, adding that energy around the product is building.

“We sold one of the world’s first pre-owned Global 7500 jets at the end of 2019 and closed a second one this past February. We have other 7500 options coming soon, and the more units Bombardier delivers, the more acceptance this flagship seems to receive.”

Trade-in Activity Up

Offering the ability to take in aircraft trades, Jetcraft is seeing a surge in trade-in activity too. “Whether someone is seeking their first aircraft or looking to move to a longer-range model, we’re listening to our clients’ requests,” Anderson adds.

And despite a softening of demand in some regions due to current economic challenges, Jetcraft’s global structure enables buyers from stronger areas such as the Americas to acquire aircraft being sold out of these regions.

According to Chris Brenner, SVP Sales – Americas, “We are experiencing a high velocity of deals in the Americas, as these buyers are capitalizing on aircraft coming out of more challenged countries.

“We expect to see a lot of upgrades happening here throughout 2020, particularly given the US tax law that exists for those who can benefit from bonus depreciation on new or used aircraft.”


In-Service Aircraft Values & Maintenance Condition

Asset Insight’s market analysis on February 28, covering 134 fixed-wing business aircraft models and 2,192 aircraft listed for sale, uncovered a 2.1% inventory fleet increase over January’s figure.

All four groups contributed to the inventory increase, with Large Jets experiencing the greatest unit expansion (5.5%), Turboprops showing a 2.6% increase; Small Jets growing 1%; and Medium Jets expanding 0.5%.

During the month of February, the average Ask Price for aircraft in our tracked fleet increased 0.9%.

  • Medium Jets posted the largest increase (4.4%)
  • Small Jet prices averaged a 1.9% increase
  • Turboprops ask prices increased 0.3%
  • Large Jet ask prices decreased 2.6% (but the figure was still above the group’s 12-month average).

Inventory Fleet Maintenance Condition

The revised model mix Asset Insight has been tracking since the beginning of this year posted an asset quality improvement during February, while the expanded unit availability included aircraft with lower near-term maintenance costs for the fourth consecutive month.

The tracked inventory registered the following figures:

  • The for-sale fleet’s Quality Rating rose (improved) 0.4% in February, from January’s 5.272 to 5.295, representing the second consecutive 12-month best figure within the ‘Excellent’ range on Asset Insight’s scale of -2.5 to 10.
  • Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) posted the lowest (best) monthly figure for the third consecutive month, this time decreasing a slight 0.4% to $1.326m.

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 Q4 2019, assets whose ETP Ratio was 40% or more were listed for sale nearly 84% longer (on average) than aircraft whose Ratio was below 40% (215 versus 395 Days on Market).

February’s analytics revealed that nearly 46% of our tracked models, and over 52% of our tracked fleet, posted an ETP Ratio greater than 40%.

February’s fleet ETP Ratio improved (decreased) to 65.4% from January’s 72%, a figure that bettered the 12-month average, and all four groups benefited.

  • For the third consecutive month, Turboprops posted the lowest ETP Ratio at 42.3% (the group’s lowest (best) 12-month figure for the second consecutive month).
  • Large Jets were a distant second at 62.3%.
  • Medium Jets posted their lowest (best) 12-month figure at 72.8.
  • Small Jets improved to 74.7%, a figure that was worse than the group’s 12-month average.

Market Summary

Average Ask Price for the tracked fleet increased 0.9% in February to set a 12-month high figure. Only two of the four groups, Medium Jets and Turboprops, were the ones positively affected but both posted 12-month high figures.

Large Jets:Our tracked fleet’s inventory increased by 24 units in February. The latest aircraft mix propelled the group’s Quality Rating further into the ‘Outstanding’ range, a standing Large Jets have now held for the last 10 months.

Ask Price decreased by 2.6% but considering last month’s figure represented the group’s 12-month best figure, buyers and sellers appear to have some excellent opportunities to structure valuable transactions, especially with Maintenance Exposure hovering just above the group’s 12-month low (best) figure.

Medium Jets: The group’s Quality Rating finally penetrated the ‘Excellent’ range through a 1.57% improvement, while
Maintenance Exposure dropped (improved) 1.9% to a better-than-average figure. Inventory increased by three units, creating a 4.4% Ask Price increase and leading to the group’s 12-month best.

Considering the ETP Ratio struck a 12-month best (lowest) figure, many sellers will have sufficient statistics on their side to make things work in their favor. Buyers also have an opportunity to structure value-based transactions, assuming they do their homework.

Small Jets: Quality Rating remained within the ‘Very Good’ range for Small Jets, although it did suffer a 0.74% setback. Maintenance Exposure followed suit by increasing a slight 0.2%. All this resulted from a seven-unit inventory increase and a new fleet mix.

Small Jets did post a 1.9% Ask Price increase, although that resulted in a figure below the group’s 12-month average. While all this juggling also led to a slight ETP Ratio improvement in February, the age, availability and price associated with many models will make it difficult for many sellers to be enthused by the offers they’re likely to receive.

Turboprops: Inventory increased by 11 units in February, and it was all good news for both buyers and sellers of Turboprops. The Quality Rating rose 0.6% within the ‘Very Good’ Range, Maintenance Exposure fell (improved) 2.7%, Ask Price improved 0.3%, and the group’s ETP Ratio decreased slightly to post 12- month best figures for all four data points.

As we said last month, Turboprops continue to offer great opportunities for buyers and sellers to structure value-based transactions that benefit both parties.

GAMA 2019 Year End Shipment Analysis

The General Aviation Manufacturers Association (GAMA) announced strong year-end billing and shipment numbers, with total fixed-wing airplane shipments reaching 2,658 units and billings totaling US$23.5bn. Mike Potts analyzes the data…

Overall, billings were up 14.3% over the $20.6bn reported for 2018. Total shipments were up 9.3% from 2,432 to 2,658. The jet market reached 809 units – the best shipments total for more than a decade, and the fifth best total for jet deliveries in the history of the industry.

Those 809 units were up 15.1% over the 703 reported during 2018. The last time jet deliveries were higher was in 2009 (870 units).

The piston segment had an even better year, finishing 16.4% ahead of 2018, with 1,324 shipments in 2019 (compared with 1,137). Only turboprops lagged their 2018 total with 525 units shipped, down 11.3% from 592 in 2018.

It’s common for the industry to experience a Q4 sales surge owing to tax factors and a desire of OEMs to close out inventory before year-end. Typically, about a third of all aircraft sales will occur in Q4, and 2019 proved to be no exception. As much as 34.5% of deliveries this year came between October and December.

The Jet Market Specifics

The jet market’s performance signaled a recovery that’s eluded us since 2014 when jet deliveries peaked at 722 units, only to settle back to the high-600- to low-700-unit range. This year’s breakout marks only the fifth time jet deliveries have exceeded 800 units. It exceeded the 770-to-780-unit range we had predicted for the market in 2019 by almost 5%.

Looking at the specifics of the jet market, seven of the 11 OEMs reporting to GAMA were up for the year while three were down and one was level. Of those that were down only one was down sharply while the other two fell short by just a single unit.

The leading jet OEM was the traditional market leader, Cessna, with 206 units, up 9.57% from the 188 it reported the year before. Included in Cessna’s total were 58 of its comparatively new Latitude models, the best-selling twin engine jet individually identified in the GAMA report.

Also notable were the first deliveries of Cessna’s new Longitude Super Mid-size Jet. Cessna’s total was bolstered by a Q4 surge that totaled 34.47%, very close to the industry average.

Second place in jet sales went to Gulfstream with 147 units (21.49% ahead of the 121 aircraft it delivered the year before). Gulfstream jumped ahead of Bombardier in Q1 2019 and maintained its lead throughout the year. The company’s carefully controlled production rate frequently doesn’t result in a Q4 surge, and this year was no exception as Gulfstream’s 44 deliveries in Q4 comprised 29.93% of its 2019 output.

By comparison, third-placed Bombardier delivered 52 aircraft in Q4, which was 36.62% of its 142-unit annual total. Bombardier’s year-end total was 3.65% ahead of the 137 units it delivered in 2018.

Embraer captured fourth place in jet deliveries with 109 units, up from 91 in 2018. The company benefited from a very strong Q4 with 42.2% (46 units) of its shipments coming in the final three months. Cirrus came fifth with 81 units, including 29 (35.8%) of its annual total coming in Q4. Jet sales at Cirrus gained 28.57% over 2018 when it delivered 63 jets.

Sixth place in the jet market was shared by European OEMs Dassault and Pilatus, both finishing the year with 40 units. Pilatus, with 13 units in Q4 appears to have had a typical surge of 32.5%. But a closer look at the numbers suggests this isn’t really what happened.

Instead Pilatus appears to be spooling up production of the PC-24 to a rate of around four units per month, in which case the company’s Q4 total is close to its regular production rate. Pilatus deliveries are up from 18 the previous year, a gain of 122.22%.

Dassault only reports twice a year, but its H2 total of 23 units represented 57.5% of its annual 40-unit total. Dassault’s total was one unit behind its 2018 total. Also down on its 2018 shipment was Honda (eighth place) with 36 units. This, too, was a single unit behind the OEMs previous year’s total.

Next in line in the jet market was Airbus (six deliveries, including three in Q4). The company had reported just one delivery in 2018. Following Airbus was Boeing with two deliveries, including one in Q4. Boeing’s total was down from six in the prior year.

Listed among GAMA’s jet OEMs is ONE Aviation with no deliveries in either 2018 or 2019, but evidently continuing to support the type certificate (a requirement to maintain a GAMA listing).

Interestingly GAMA noted that the North American market accounted for 67.1% of the jet deliveries in 2019. Historically the North American market has totaled around 50%.

The Turboprop Market Specifics

A look at the turboprops reveals the only market that’s not thriving right now. GAMA says the market is off 11.2%. Looking just at the business turboprops (removing agricultural airplanes from the equation), however, the drop is less painful at -8%, from 413 units in 2018 to 380 last year.

The traditional business turboprop market came quite close to the 365-370 range we forecast. We also predicted that the GAMA number would come in between 520-525 which proved to be on target. Sadly, all but one turboprop OEM reporting to GAMA had lower numbers than the year before. The one remaining company was level.

Leading the turboprop market as it has for most of the last 50 years is Textron’s Beechcraft unit with 93 deliveries, down slightly from 94 a year ago.

Second place in turboprops was tied between Textron’s Cessna unit and Pilatus, each with 83 units. Cessna was down from 92 in 2018 while Pilatus’ total was equal to its 2018 total. Pilatus had a strong 37.35% Q4 surge with 31 units.

Daher gained fourth place with 68 deliveries. The company’s numbers now include totals from Quest Aircraft, which it acquired mid-way through 2019. Daher continues to produce the Kodiak 100. With the two company’s numbers combined, the Daher total was 68 in 2019 compared with 73 in 2018.

Piper closed the year in fifth, with 44 units down from 56 in 2018. The OEM did enjoy a healthy surge in Q4 2019 (19 units, or 43.18%).

Filling the last two turboprop delivery positions were Pacific Aero with six units, down from 11 in 2018, and Piaggio with three, down from four.

In another sad note, there is one less turboprop in the market than there was a year ago. After more than 60 years in production, Pilatus elected to stop building the iconic PC-6 single engine turboprop.

Pistons and Summary…

Of 14 companies reporting single-engine piston deliveries to GAMA last year, eight were ahead of their 2018 totals, five are behind and one is even. The market leader, of course, was Cirrus with 384 deliveries, up from 380 the year before.

The piston twin market continues to thrive with 213 deliveries in 2019, including 107 from Diamond. Diamond’s total was up from 86 the year before.

Collectively the piston singles and twins together totalled 1,324 units, right in the 1,300 to 1,325 range we predicted. Notwithstanding the soft performance in turboprops, this is one of the strongest GAMA reports in a very long time. We can only hope jets can sustain the gains and perhaps climb to yet new heights.

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