At the halfway point in the calendar year, Rollie Vincent, Editor, Market Indicators, assesses the current state and direction of the Business Aviation market.
As usual, we rely on a healthy combination of data, sprinkled in with a little hearsay, some hype and our own analyses to come up with our best estimates and insights as to where we stand at the halfway point of 2018.
Flight utilization continues to increase in the key markets of North America and Europe, a sure and steady indicator of a gradually improving market. Increases Year-over-Year (YoY) in the low- to mid-single digit percentages are welcome developments, growing somewhat faster than the underlying fleet, with newer aircraft leading the pack.
Used business jet sales, another dynamic bellwether indicator, reached almost scorching heights in 2017 with over 2,700 retail sales and leases being recorded by JETNET, an unprecedented level of activity and up a very healthy 9% YoY.
The year 2017 ended with about 2,350 business jets on the market, representing about 11% of the worldwide fleet. In 2018, sales through the first five months of the year were off about 4% (versus the same period in 2017), as overall inventory availability slipped.
At the end of May 2018, business jet inventory had slipped to 1,985 aircraft, or 9.2% of the fleet, with only about 135 jets aged five years or newer on the market.
Fully 45% of the ‘For Sale’ jet fleet currently is more than 20 years old, as the shift from a buyer’s market to a seller’s market becomes more apparent. As Guardian Jet’s Mike Dwyer has pointed out this month, buyers with exacting requirements need to be prepared to act very quickly – preferably with check-book (or better yet, cash) in hand if they want to acquire a specific and pedigreed aircraft in today’s market.
To cite some specific examples from the increasingly strong Large-Cabin segment:
- There was just one Falcon 7X delivered new in the last five years that was listed ‘For Sale’ at press time.
- There were just three Global 6000 and three Gulfstream G550 aircraft of similar vintage on the used market.
The tightening of young, used inventory has been one of the most important market developments in the last several months, and portends better days ahead for business jet OEMs, who have become accustomed to the flat, “steady as she goes” conditions of the last several years.
Surging Market Optimism
Optimism amongst business aircraft owners and operators as to the state of the Business Aviation market is currently at its highest point in 7.5 years, based on results from the Q2 2018 JETNET iQ Survey.
Customers who believe that the Business Aviation industry is past the low point in the current business cycle (those we call ‘optimists’) outnumber pessimists by a factor 4.5-to-1.
Encouragingly, sentiment amongst Large-Cabin business jet owners and operators appears to have rebounded, at least based on the most recent survey results, which include responses from more than 50 countries.
Does all this suggest that we are “out of the woods and into the summer sunshine” at the mid-point in 2018? It certainly looks that way. Nevertheless, unwelcome storm clouds are billowing on the horizon, in the form of back-and-forth trade spats and tariffs between the United States and most of its key trading partners.
Here’s hoping that these tempests are localized and that they will give way to warm, dry breezes and friendlier skies sooner than later.
Flight Activity – North America
TRAQPak’s review of Year-over-Year North American flight activity indicates that May 2018 recorded an increase of 2.2% over May 2017. Activity was also up 4.2% over April 2018.
Year-over-Year (YoY), results by operational category were all positive with Part 135 activity leading the way. The aircraft categories were also all positive with Light jets posting the largest gain over May 2017.
May Business Aviation flight activity posted an expected MoM increase to finish up from April 2018. Results by operational category were all positive for the month, with the Part 135 segment posting the largest monthly increase, and the aircraft categories were mostly positive as well. Turboprops lead the way, though Large jets posted a MoM decline during May.
June Activity Forecast
Looking ahead to June, TRAQPak analysts estimate there will be a 1.9% increase in overall flight activity YoY.
Flight Activity - Europe
There were 79,601 Business Aviation departures in Europe in May 2018, representing a 1% increase YoY. Activity lagged the YTD trend of 2.3% and last year’s growth of >3% primarily due to a slump in Piston traffic.
Mixed trends were found in the biggest Business Aviation markets, with France down by -2%, UK and Switzerland flat, departures from Italy down by -4%, but activity in Spain up 7%. YTD, flights from Spain are up 5%, ahead of Germany (+4%).
Among the smaller markets, activity fell -5% in Austria, -3% in Russia and -15% in Turkey, accelerating long-term decline in demand. Greece had another month of robust growth (+15%) contributing to a 2018 trend of +20%.
In May, all top ten markets slowed in Large jet activity. Growth came from among the Small and Midsize jets, notably in France and Spain, while Switzerland saw a 10% growth in Turboprop activity.
AOC/Charter activity had one of its weaker months since its growth run started back in 2016, with May 2018 <1% up on May 2017. Charter growth for business jets was slightly stronger, comprising 67% of all jet sectors and growing by 2% YoY. Much of the AOC/Charter growth came from Spain and Greece this month, with contrasting declines in Switzerland and Italy.
“Business Aviation growth trends continued to slow this month, with muted recovery in leading markets such as France and the UK, and Italy’s recovery now in danger of reversing,” summarized Richard Koe, Managing Director, WingX.
“Spain is an exception, maintaining strong growth, and Greece continues its bounce-back in demand. Growth is being sustained in the Midsize and Small jet sectors, notably Light jets. May’s activity was characterised by high profile calendar dates in the South of France, and in Ukraine. All these events show strong YoY growth in business jet activity.”
Mike Dwyer, Guardian Jet
Guardian Jet Discusses Market Trends
“There’s an incredible amount of activity in both the new and pre-owned business jet market, and it’s a dynamic market,” says Mike Dwyer, Guardian Jet managing partner.
“We’re seeing a lot more transactions and price increases in airplanes with a great pedigree, from the Pilatus PC-12 through the Gulfstream G650,” Dwyer adds.
He discussed several key aircraft market trends as a panellist during the EBAA International Aircraft Transactions Seminar. Among the trends discussed were the following observations:
- Buyers are cautious about Brexit. Despite encouraging signs in the European Business Aviation market and a US-led global resurgence in general, uncertainty over the UK’s looming exit from the EU has impacted owners’ long-term planning.
- The highest-pedigreed airplanes are selling quickly. Many of the best, low-time airplanes that are five years and newer are not even reaching the marketplace before they're sold.
- US buyers are traveling further to purchase. Due to rising competition and fewer desirable jets available across the US, aircraft brokers are traveling farther afield, from Malaysia to China, from Saudi Arabia to France, to purchase aircraft from regions they likely wouldn’t have considered just two years ago.
- There's a bifurcated marketplace. “The best high-end airplanes with great pedigrees and low-time (less than 10 years old) are increasing in value,” according to Dwyer. “That's a real split from the low-end market, where we aren’t seeing price increases, and we don't see that changing soon.”
- Buyers must be nimble, ready to buy. “We believe in patience when you're buying an airplane, but now we're also saying, ‘let's be nimble,’” Dwyer commented. “When we identify the right aircraft, we want to have the ability to move quickly, and that's where we're finding the best airplanes and the best deals for our customers.”
These trends also demonstrate that buyers in this dynamic and highly-competitive global aircraft marketplace must have the latest information readily-available to help them purchase the right business aircraft for their mission needs. Guardian Jet seeks to revolutionize this process with the international debut of Vault 2.0 at the recent EBACE in Geneva.
How Millennials see the Future of Flying
Environmentally-friendly aircraft, ride-sharing and the ability to fly when and where you want: these are the expectations of Millennials when it comes to flying, according to a new survey published by EBAA...
The survey, ‘Expanding Horizons: How Millennials see the Future of Business Aviation’, was published in cooperation with ThinkYoung and released at EBACE2018 in May. It asked young people between 18 and 25 in four key European countries – Germany, France, the United Kingdom and Switzerland – about mobility, Business Aviation and the future of sustainable personal air transport.
Three key Findings
- Millennial views on transport are closely linked to concerns about the environment: 40% said that climate change is the megatrend that will have the biggest impact on the development of sustainable personal air transport. Artificial intelligence and digitisation come next. They also expect most research on innovation in aviation to focus on making air transport more sustainable.
- Millennials say the best thing about Business Aviation is the freedom and flexibility that it offers: 62% believe that the main benefit of Business Aviation is its ability to take people where they need, when they need.
- Millennials believe that while technology will find solutions to mobility questions, there will still be concerns about cost, trust and safety: 60% of Millennials are ready to use ride-sharing air services, but only 46% are ready to use automated ride-sharing air services.
“Integrating the Next Generation into our industry is paramount for the sector to master the transition into the next age of aviation,” said EBAA Chairman Jürgen Wiese. “This report shows how this can be done and is just a starting point for many more encounters to follow.”
Avinode Sees Strong Charter Market in Europe
Charter information specialist Avinode says it has “continued to see an ongoing improvement in the European market” having finally turned the corner last year...
Oliver King, Avinode MD, said, “A year ago it felt like we had come through an uncertain period. But there is no mistaking now that we’re in a great period for growth in Europe, which we’ve not seen for a number of years. The core markets continue to grow. Even Sweden saw 8% growth last year, although it’s a small market and not material on the wider European stage.”
King said among those using Avinode there had been growth of 13% YoY from 2016-2017. “There’s not many times we’ve talked about double-digit growth. It’s been a great year.”
He added that previous years had seen a drop in activity in Spain and Italy, but now “We’ve seen it come back, especially at the lighter [aircraft] end.”
The size of chartered aircraft has remained “very stable” after the shift toward lighter aircraft a few years ago (from midsize), while the heavy end “remained almost untouched,” King said, adding that the light end is “the most price-elastic and also it’s the end that’s attracting the new customers."
(Article courtesy of Ian Sheppard and AIN)
2018 to be a Turning Point?
According to Flight Ascend Consultancy, this year may signal that the market turning point has been passed…
Deliveries may have only increased by 1% in 2017, to 667 business jets, but the airframers have certainly come to terms with the new dynamics – streamlining their product offerings and bringing some genuinely exciting new types to market. At the smaller end some 10% of all new deliveries came from market entrants Honda and Cirrus, something that incumbents cannot ignore.
Light & Medium Jet Activity
The light segment saw a second year of falling deliveries, with fewer shipments of the popular Embraer Phenom 300 and the Cessna Citation CJ4. Embraer delivered the first Phenom 300E in April: an upgraded version of the aircraft including a new cabin.
The light aircraft segment became more competitive with delivery of the first Pilatus PC-24. More than 20 are expected to be delivered in 2018, and Pilatus is reopening the orderbook after taking more than 80 launch orders.
Midsize deliveries also saw a drop (of 9%). Among the most recent introductions, the Citation Latitude was the only type to increase, with the Embraer Legacy 450 staying flat.
The super-midsize category is one of the most competitive, and there was a second year of falling deliveries in this segment, too. Deliveries of the Bombardier Challenger 350 fell and the Legacy 500 and Dassault Falcon 2000LXS/S also fell.
Deliveries of the Challenger 650 were flat, while Gulfstream G280 deliveries increased. This segment will become further crowded with the service entry of the Citation Longitude later in 2018.
Long Range Activity
There was good news in the long-range sector, with a 4% increase in deliveries, reversing two years of falls as oil prices impacted demand for larger cabin, higher value machines.
The market-leading Gulfstream G650 increased (albeit offset by fewer G450s and G550s deliveries), with the former ending production in early 2018. Gulfstream is busy testing its new G500 and G600 programs, with certification due this year.
There were mixed fortunes for the other aircraft manufacturers. Bombardier delivered fewer of its Global family but is introducing a new cabin for the 6000 as well as commencing deliveries of its new Global 7500 – the longest range model available – in 2018.
Dassault increased its deliveries as the stretched Falcon 8X ramped up and replaced development of the 5X with a slightly larger 6X for 2022.
There is also industry speculation about a new Gulfstream product launch to challenge the Global 7000.
In its 2018 forecast, Flight Ascend Consultancy is predicting some 7,500 deliveries will be made over the next decade – valued at $208bn (in 2018 dollars) and based on full-life base values.
The long-range category will continue to dominate both in aircraft numbers (29%) and value (61%).
In-Service Aircraft Values and Maintenance Condition
Asset Insight’s market analysis of May 31 revealed a 1.1% increase to its tracked fleet. Large jets led the way with a 4.6% increase and Small jets increased 1.5%…
The tracked fleet covered 92 fixed-wing models and 1,633 aircraft listed ‘For Sale’. Average Ask Price decreased another 4.6% in May to register a fourth consecutive record low monthly figure and a total decrease of 7.5% Year-to-Date.
By individual grouping, Large jet Ask Prices decreased 7% last month, while Medium jets posted a new record low figure by decreasing 5.2%. Small jets and Turboprops were a different story, as their Ask Price increased 0.7% and 3%, respectively.
Inventory Fleet Maintenance Condition
Large and Medium jet asset quality improved in May, Small jet quality fell, while Turboprops registered virtually no change. Maintenance Exposure fell (improved) for Medium jets and Turboprops, while Large and Small jets suffered an increase.
The tracked fleet’s Quality Rating remained unchanged, retaining its ‘Excellent’ figure at 5.257 on Asset Insight’s scale of -2.5 to 10. Average Maintenance Exposure (an aircraft’s accumulated/ embedded maintenance expense) increased (worsened) 2.3% to $1.411m but was better than the fleet’s 12-month average.
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%. Current analysis revealed nearly 54% of all tracked models and over 64% of all units listed ‘For Sale’ posted an ETP Ratio above 40%.
The tracked fleet’s ETP Ratio worsened for the third consecutive month to 64.8%, from April’s 63.5%. Turboprops once again posted the lowest (best) ETP Ratio at 49%, Large jets followed (62.6%), Medium jets were next (67%), while Small jets registered 72.8%.
Large Jets: Inventory aircraft increased by 15 units. For the twelfth consecutive month, the tracked fleet retained its ‘Excellent’ Quality Rating, improving slightly to 5.371, but the group’s Financial Exposure worsened 2% as more than half of the fleet additions were of below average asset quality.
While the group’s Ask Price is only marginally above its 12-month low figure, it is worth noting the number is only 0.5% below the December 2017 value. With asset quality as high as it is, this is probably one of the best times to pursue an acquisition.
Medium Jets: If you are in the market for a Medium jet, your timing could not be better. The group posted a record low Ask Price in May, while asset quality improved 0.25% and Maintenance Exposure improved 1%.
Medium Jets have maintained a ‘Very Good’ rating for quite some time.
The challenge for sellers continues to be the large number of assets listed ‘For Sale’, even though the tracked fleet’s inventory decreased by another five units in May.
Small Jets: Inventory increased by seven units. The mix of aircraft leaving and joining the ‘For Sale’ fleet decreased asset quality by 0.89% and increased (worsened) Maintenance Exposure by 1.2%. The group retained its ‘Excellent’ Quality Rating, and even posted a 0.7% increase to last month’s record-low Ask Price figure.
Identifying good values within this group will take some work. However, the low Ask Price and better than average Maintenance Exposure should make such research financially worthwhile for buyers. Sellers, on the other hand, definitely need to consider how their aircraft is positioned relative to its competitors to achieving a decent transaction value.
Turboprops: The group maintained its ‘Very Good’ Quality Rating, as the figure remained virtually unchanged at 5.04. Maintenance Exposure improved a nominal 0.4%, and Ask Price increased 3%.
With the group’s ETP Ratio and the Ask Price hovering at their 12-month average, buyers should be able to identify some good values, assuming they conduct an appropriate level of due diligence. However, Turboprop sellers might actually be in the driver’s seat for a change…