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Business Aviation Market Overview – January 2020

With a New Year started, what can the industry expect in the coming months? Rollie Vincent presents and analyses a selection of trends, indicators and forecasts that emerged over the past few weeks...

Rolland Vincent   |   3rd January 2020
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Rolland Vincent Rolland Vincent

With 35+ years in the aviation industry, Rolland Vincent, president, Rolland Vincent Associates...
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As the New Year begins for many Business Aviation professionals, Rollie Vincent takes stock of some key market indicators that provide situational awareness and indications of the path ahead...
 
First, the ‘facts’ as far as we can see them: Business jet flight activity is flat to down, inventory ‘for sale’ is up, and pre-owned sales are down. Prices have generally softened, the jet fleet is growing modestly, and the OEMs collectively had a year of solid sales, certification, and delivery performance in 2019.
 
Business Jet Flight Activity
 
Business jet flight activity throughout most of 2019 was muted in key markets reflecting slower economic activity, lower international trade and business travel, reduced business confidence, and a plethora of other factors that have collectively muddied the waters and darkened the skies for Business Aviation.
 
In the US, business jet flight cycles (one take-off and landing) were up just 0.3% on a year-to-date (YTD) basis through the end of September, despite underlying fleet growth.
 
In Europe, flight cycles were down 1.8% YTD through the end of November, as several key national economies teeter on the brink of recession.
 
Although consolidated regional data are very limited and therefore subject to variation, Asia Pacific business jet activity was down sharply through the middle of 2019 Year-over-Year (YoY), dragged down by slower economic expansion, trade tensions and tariffs with the US, weaker currencies relative to the US dollar, significantly fewer new business jet deliveries, and a shrinking fleet in China.
 
Business Jet Inventory

Worldwide, business jet inventory for sale trended upwards throughout 2019, with 2,230 jets representing 10% of the in-service fleet registered ‘for sale’ on the JETNET database at the beginning of December 2019. This compares with 2,058 jets and 9.4% of the fleet for sale in December 2018.
 
While this change may seem inconsequential in the grand scheme of things, the details – as in most things – are both interesting and more revealing. Young inventory increased (as evidenced by the fact that jets on the market that were delivered new in the past five years were up by more than 45% in H2 2019 versus June 2019).
 
This occurred against a backdrop of generally lower preowned retail jet sales, which were 16% fewer after the first ten months of 2019 compared with the same period in 2018.
 
Business Jet Price Trends

The all-important – and invariably difficult to isolate – metric of aircraft pricing appears to be sequentially lower, at least in the pre-owned markets. Much like asking a group of ten economists to provide a forecast on the state of the economy, we believe that asking ten broker/dealers what’s happening with prices would generate at least 15 different opinions. And all would have at least some element of truth to them…
 
The analytical work of the good people at Asset Insight, which includes an on-going assessment of asking prices relative to existing maintenance condition and cost exposure, is particularly illuminating on this topic (see below).
A buyers’ market [as if it ever went away] is in force, at least in our assessment of the state of the business.
 
Business Jet Fleet Growth

JETNET records through the end of November suggest that the worldwide business jet fleet grew by approximately 350 aircraft in 2019 (about 1.6% YTD). While this is a relatively modest growth rate, it’s slightly lower but basically in line with our outlook for the industry, at least for the next 10 years.
 
We expect fleet growth to slow – perhaps measurably so – in 2020 as the fleet is screened and cleaned of models that are not compliant with ADS-B Out mandates and/or those older jets that are long overdue retirement.
 
New Business Jet Shipments

New business jet shipments, reported through the General Aviation Manufacturers Association (GAMA), were up an impressive 15% YTD through Q3 2019 versus Q3 2018. That’s a solid performance that puts the industry on track for its highest output levels on a ‘units’ and ‘dollar value’ basis in the post-2008/2009 crisis period.
 
Oder backlogs at the ‘Big Five’ OEMs (Bombardier, Dassault, Embraer, Gulfstream and Textron) were up about 5% in value through the end of Q3 2019 and will surely be up even more when Q4 results (including strong NBAA-BACE sales announcements from Embraer and Gulfstream) are registered. That would be the first general increase after a seemingly unending ten-year post-crisis doldrum.
 
Book-to-bills appear to have finished 2019 above 1-to-1 across all major OEMs (a welcome development that was juiced by orders for all-new and substantially new models).
 
Production ramp up is underway at several of the OEMs to convert these valuable backlogs into much-needed additional cash flow that’s attractive to investors and provides the means to pay back large investments in engineering, facilities and production tooling.
 
As a group, most OEMs are certainly in a better financial and business position now than they have been for some time. Amidst the good news about new aircraft certifications, entry-into-service milestones, and sales of new or recently upgraded models, however, reductions in workforce have been quietly underway at several OEMs, with most of the cuts reportedly focused on “non-essential” and non-production personnel.
 
Workforce adjustments, a common theme in the historically topsy-turvy aircraft manufacturing business, reflect an ongoing desire on the part of leadership to stay lean while managing transitions from high-investment aircraft development to higher-return production.
 
To Summarize…

What does all this mean? For potential buyers of new and pre-owned aircraft, the times remain good, with additional and attractive young inventory for sale and willing sellers eager to do a deal, whether they’re OEMs or owners of preowned aircraft.
 
We’re monitoring multiple metrics indicating that buyer interest is especially focused on the super Light through Super Mid-size Jet segments; categories of aircraft that offer performance, cabin, and technology levels to meet the vast majority of customer needs and mission profiles, as well as significant value for the dollar.
 
Here’s hoping that 2020 will be a good year ahead!
 
MI www.navigating360.com
 
Flight Activity - North America

ARGUS TRAQPak’s review of North American flight activity in November 2019 revealed a year-over-year (YoY) decrease of 2.5% (November 2019 vs November 2018). November also recorded a 9.4% decrease in activity compared to October 2019…
 
Year-over-Year, the results by operational category continued their mostly negative theme, with Fractional flight activity being the exception. Part 91 flight activity saw the largest decline, compared to November 2018.
 
The aircraft categories were all down in November 2019, with Large Cabin Jets posting the largest yearly decrease. Light Jets had the smallest decrease in activity for the month.
 
North American Flight Activity - November 2019
 
Month-over-Month

The Month-over-Month (MoM) decrease was not unexpected by TRAQPak analysts. Unsurprisingly, results by operational category were all negative in November, with Part 91 flight activity posting the largest monthly decline. The aircraft categories were also all in the red for the month, with Light Jets posting the largest decrease.
 
December Forecast

TRAQPak analysts estimate a 1.4% increase in overall flight activity YoY in December 2019.
 
MI www.argus.aero
 
Flight Activity – Europe

November 2019 saw an acceleration in the trending decline in flight activity in Europe. There were 3.2% fewer Business Aviation departures compared to November 2018, according to WingX Advance. Year-to-date 2019, flight activity in Europe is down 1.8%.
 
There were significant falls in activity in UK and Germany where flight departures declined more than 6% YoY and are down 5% YTD. There was some increase in activity from Russia, Italy, Turkey and Spain during November, however.
 
In France, Germany and the UK, the Small and Mid-size Jet sectors were most affected. Meanwhile, Large Jet activity was down by 3% overall, although it was up 6% in Spain and 3% in Switzerland. Germany, Sweden and Turkey saw a 5% decrease in Charter activity, while the UK registered an almost 10% drop, YoY in AOC operations.
 
Flights within Europe fell 3% YoY. By comparison, flights from Europe to North America were down 5% (although they are still up 1.9% this year compared to last year).
 
“Long-term trends in all business jet segments are heading south following the relatively brief rally in 2017/2018,” notes Richard Koe, Managing Director, WingX. “It’s clear this year that the downward impetus is coming from owner flights – there were 8% fewer YoY in November 2019. Particularly on the older platform aircraft, in the lighter and entry level category, owners are flying much less.
 
“The sensitivity of business jets to the climate agenda may well exaggerate this trend next year,” he projected.
 
MI www.wingx-advance.com
 
Flight Activity – Asia Pacific

During Q2 2019 Asia Pacific experienced a total of 14,422 business jet flights — an increase of 4.9% compared with Q2 2018. However, total flight activities declined by 6% compared to Q1 2019.
 
Q2 saw significant growth in the short-range flight category, while flights in the medium and long-range categories declined. Domestic flights represented a larger portion of the market in Q2, accounting for 58% of all business jet activity.
 
Compared with last year, 2019 Q2 saw significant growth in India and Japan, while Australia and Greater China declines in activity. Flights departing from Australia dropped by 11.4%, attributed to the decreased flight activity from Mid-sized and Ultra-Long-Range Jets.
 
Flights departing from Mainland China dropped 19.5%, greatly attributed to the US-China trade conflict. China-based departures to Southeast Asia and East Asia were up, but domestic flights decreased 31%. Flights departing Hong Kong to neighbouring countries increased, but flights from Hong Kong to Europe and North America fell.
 
MI www.asianskymedia.com
 
Helicopter Market Size to Grow by 2026
 
Helicopter Market Size to Reach $68.36bn by 2026

According to Fortune Business Insights, the global helicopter market size is projected to reach US$68.36bn by 2026, exhibiting a CAGR of 4.47% during the forecast period. However, the market was valued at $48.19bn in 2018.
 
In its report, Fortune Business Insights notes increasing usage of lightweight helicopters for commercial applications is set to boost the Helicopter Market growth during the forecast period.
 
The full report provides:
 
  • Elaborate information about the major Helicopter Market trends, drivers, hindrances and other related challenges.
  • A thorough analysis of several vendors present in the market.
  • Competitive landscape consisting of new product launches, mergers, acquisitions, contracts, and joint ventures.
MI www.fortunebusinessinsights.com/industry-reports/helicopter-market-101685
 
Year-End BizJet Activity a Hedge Against 2020 Uncertainties?

According to Mente Group president and CEO, Brian Proctor, with more aircraft on the market recently, buyers and sellers were seeking to make deals before year-end 2019 to hedge against economic, political and tax uncertainties that 2020 could bring…
 
"We have seen some slight price declines recently that have offset higher prices on a slower volume earlier in the year,” Proctor noted during December, anticipating a busy end to the month. He added that the pre-owned business jet market was balanced with an equal number of buyers and sellers seeking to make deals.
 
"There are a lot of bizjet owners and buyers who are trying to take advantage of the minimum tax environment we are in right now," he explained. Depending on political events in an election year, the currently favorable tax climate could change in 2020, so both buyers and sellers have been trying to lock-in certainty in the past few months, and Q4 has been notably active, Proctor revealed.
 
Several international economies are teetering on recession. Coupled with an upcoming election and ongoing impeachment hearings, these have contributed to profit taking in the stock markets. Looking ahead, Proctor noted that the future business jet marketplace could shift to the advantage of buyers.
 
"With all of this going on…the preowned aircraft market is trying to get ahead of potential changes. As a result, aircraft brokers and lenders have been busy lately.”
 
MI www.mentegroup.com
 
Market Flurry towards Year-End 2019
 
In-Service Aircraft Values & Maintenance Condition

The number of inventory aircraft comprising Asset Insight’s tracked fleet of 96 fixed-wing models increased 0.4% to 1,776 units as November’s market analysis closed. How was the exposure to price (ETP) ratio impacted? Find out here…
 
November’s inventory figure represents a year-to-date (YTD) inventory increase of 11.6%. Medium Jet and Turboprop availability increased 1.5% and 5.4%, respectively during November, while Large and Small Jet inventory decreased 1.8% and 1.6%.
 
Since December 2018, the average Ask Price for aircraft in Asset Insight’s tracked fleet has decreased 2.4%, but that is a bit misleading. The figure is buoyed by a 14.4% increase posted by Medium Jets.
 
All other groups have experienced value decreases in that time, including Large Jets (8.0%), Small Jets (2.9%) and Turboprops (4.1%).
 
Asset Insight November 2019 BizAv Fleet Maintenance Condition
 
It is a bit unusual to see the ‘Quality Rating’ and ‘Maintenance Exposure’ drop during the same month, but that is exactly what occurred in November, as the current inventory fleet mix is anticipated to have more near-term maintenance events, although they will be less expensive. Overall, the tracked inventory registered the following figures:
 
  • The fleet for sale’s Quality Rating declined (worsened) 0.4% during November, decreasing from October’s 5.218 to 5.198. Nevertheless, Quality Rating remained within the ‘Very Good’ range on Asset Insight’s scale of -2.5 to 10.
  • At $1.36m, Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) equalled September’s 12-month low (best) figure.
Maintenance Exposure to Ask Price (ETP) Ratio

The ETP Ratio is a useful indicator of an aircraft’s marketability. It’s computed by dividing the asset's Maintenance Exposure (the financial liability accrued with respect to future scheduled maintenance events) by its Ask Price.
 
Asset Insight November 2019 BizAv Fleet ETP Ratio
 
‘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 Q3 2019, assets whose ETP Ratio was 40% or more were listed for sale 76.2% longer (on average) than aircraft whose Ratio was below 40% (218 versus 385 Days on Market).
 
Our November analytics also revealed that nearly 52% of our tracked models, and 58% of our tracked fleet, posted an ETP Ratio greater than 40%.
 
November’s fleet ETP Ratio improved to 64.3% from October’s 70.9%, the lowest (best) monthly Ratio since April.
 
  • Large Jets recaptured first place with the lowest ETP Ratio (53.9%);
  • Turboprops dropped to second position at 54.1%;
  • Small Jets reposted their September figure of 67.3% following last month’s spike;
  • Medium Jets improved slightly to 73.6%.
Market Summary

As we prepare to close out the year, older aircraft pricing is skewing some asset values, especially for aircraft not meeting the January 2020 ADS-B Out mandate.
 
While non-equipped turbine assets will not be ‘worthless’, their values will be negatively impacted and, for many aging assets, this could translate into a figure at, or near, salvage value.
 
Asset Insight November 2019 Large Jet Fleet Summary
Large Jets: The tracked fleet decreased by seven units during November, but inventory was up 30 units YTD. Still, the fleet mix changes improved the group’s Quality Rating for the third consecutive month, keeping it in the ‘Outstanding’ range for the seventh consecutive month.
 
Maintenance Exposure also improved (decreased) 5.2% in November to post a 12-month best (low) figure, while Ask Prices decreased 1.8% to below the 12-month average. For serious buyers, the opportunities are unlikely to get much better than this.
 
Asset Insight November 2019 Medium Business Jet Market Summary
Medium Jets: Medium Jet figures are a bit of a conundrum. While Maintenance Exposure has been rising continuously since June, posting a 12-month high (worst) figure during November, Ask Prices are also at a 12-month peak figure, having risen 14.4% since December.
 
Compared to the rest of our tracked fleet, the group’s ETP Ratio has remained high throughout 2019, although Ask Prices have been keeping it near the group’s 12-month low (best) figure. The one certainty is the number of inventory aircraft, a figure that has risen 11.7%. With ever increasing selection, sellers are not likely to realize some of the Ask Prices posted for their assets.
 
Asset Insight November 2019 Small Business Jet Market Summary
Small Jets: Ask Price remained virtually unchanged for this group during November, while asset Quality and Maintenance Exposure improved, with the latter recovering from the huge spike it posted in October.
 
Our tracked fleet decreased by nine units, but overall inventory is up 18.8% since December – a clear challenge for sellers. What surprises us is that Ask Prices have only decreased 2.9% YTD...
 
Asset Insight November 2019 Business Turboprop Market Summary
Turboprops: Turboprop asset Quality has stayed within the ‘Good’ range since February, while Maintenance Exposure has remained within a narrow band since June. Ask Prices were up 1.4% in November, but inventory increased by 15 aircraft, making it more beneficial for buyers than sellers.
 
Still, this group continues to demonstrate strong resilience, and with pricing below the group’s 12-month average, buyers should be able to identify good values.
 
MI www.assetinsight.com
 
 
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