What is the condition of the Business Aviation market as we roll into the summer months? And what are the key factors influencing it? Rollie Vincent, editor, Market Indicators reviews…
Early indications of the state of the business aircraft sales market point in decidedly different directions – at least based on evidence from Q1 2019 earnings calls for publicly traded companies, aircraft sales databases, and presentations and conversations from various industry conferences.
New aircraft sales appear to have got off to a good start in the first three months of the year, with four of the big five OEMs reporting book-to-bill ratios well above 1-to-1. Those same four manufacturers report a total of 113 new business jet deliveries in Q1 2019, up 8.7% Year-over-Year (YoY).
Embraer deliveries were flat YoY in Q1 2019, while Bombardier was off a little from Q1 2018 as it prepares for production ramp-up of the Global 7500 in H2 2019.
All told, these results were in line with our forecasts, while net new order activity was boosted by several fleet orders and by the availability of well-priced ‘whitetails’ built in 2018 but held in unsold finished goods inventory at the end of last year.
Slowing Used Jet Market
After a record number of used business jets were sold to end-users in 2018, sales in Q1 2019 have been decidedly slower to date, down 20% YoY. JETNET recorded more than 2,850 used business jet transactions in 2018, up about 3% YoY from 2017’s record performance.
Transaction volumes in 2018 were up an impressive 29% over the pre-financial crisis total in 2007, while days on market for aircraft that sold slipped 9% YoY to about 285 days. There were about 2,100 business jets listed as for sale in JETNET’s database at the time of press, representing about 9.5% of the in-service fleet.
Fully 43% of for sale business jets were initially delivered to customers more than 20 years ago, limiting the attractiveness of much of the inventory to both buyers and sellers.
Growing Comfort With Older Jets…
Tellingly, customers for business jets have become quite comfortable owning and operating older aircraft. Fully 85% of the more than 500 respondents to JETNET iQ’s Q4 2018 survey, representing owners and operators in 60 countries operating almost 5% of the world business jet fleet, indicate that they are comfortable flying aircraft that are greater than 10 years old.
North American owners/operators appear to be the most comfortable flying older aircraft compared with the other major world regions, no doubt linked to the relatively high density of MRO facilities and maintenance talent that sustains high levels of aircraft operational readiness.
Buyer ADS-B Awareness is Necessary
With ADS-B Out mandates looming at the end of the year in the US and in mid-2020 in Europe, the time to identify a desirable asset, schedule and execute a pre-buy inspection, isolate and schedule required maintenance, address any compliance issues, identify and engage all of the transaction players, negotiate deal terms and structure the transaction, and get the aircraft and the principals and their checkbooks to closing are as challenging as ever.
With thousands of fixed-wing turbine business aircraft unlikely to be ADS-B Out compliant at the bell on New Year’s Eve of 2019, it has never been more important for a prospective customer/aircraft buyer to engage a highly experienced aircraft broker/dealer who has the market savvy and experience to navigate the complexities of today’s marketplace.
MRO Market Difficulties Ahead (for Some)
Another hot/cold market has emerged in the business aircraft maintenance, repair, and overhaul (MRO) segment, with OEMs investing organically in their aftermarket services businesses with the construction of new facilities and the addition of service locations.
Many MRO shops are working around the clock to meet their customers’ requirements, whether for ADS-B Out and the ever-popular cabin Wi-Fi upgrades, or simply to keep up to date with regularly scheduled maintenance.
In what is no doubt a coup for Dassault Aviation, the company has recently signed deals to acquire MRO networks from leading providers ExecuJet and TAG, which following regulatory approval will vastly expand the company’s service and support footprint in established and emerging markets across the vast European, Middle East, Africa and Asia Pacific regions.
For smaller repair shops and others that have recently lost their OEM-authorized service facility status, the times are likely to get tougher before they get better, especially after the ADS-B Out waves have worked their way through the system.
Against a backdrop of international trade tensions and tariffs, gyrating stock markets, the unresolved Brexit divorce, an early and noisy start to another contentious US Presidential election, and potential aircraft certification delays in the wake of the Boeing 737 MAX accidents, the stage is set for more uncertainty – one cold or hot blast at a time.
In our view, these are amongst the headwinds that prevent an even more vibrant market for business aircraft sales.
Flight Activity Trends – North America
TRAQPak’s review of Year-over-Year (YoY) North American ﬂight activity (April 2019 vs. April 2018) indicates an increase of 1.8% in April 2019. Compared to March 2019, April activity was down by 1.7%.
Measuring Year-over-Year the results by operational category were mixed with Fractional activity posting another substantial increase. Part 91 activity also showed strong growth, while Part 135 activity declined for an eleventh straight month.
By aircraft category, while all recorded positive results Mid-size Jets posted the largest increase from 2018.
April Business Aviation ﬂight activity posted an expected Month-over-Month decrease to ﬁnish down on March 2019.
Results by operational category were all negative for the month, with Part 135 activity posting the largest monthly decrease. Aircraft categories were also all in the red for April with Large Jets posting the largest decrease.
May Flight Activity Forecast
Looking ahead to May, TRAQPak analysts estimate a 1% increase in overall ﬂight activity, Year-over-Year.
Flight Activity Trends – Europe
According to WingX, there were 66,165 Business Aviation departures in Europe during April. Though similar to March, the figure represents a 3.1% decline in activity compared to April 2018.
The past 12-month activity is trending at just under 1% growth, WingX notes. Specifically, business jet activity recorded a heavy decline this month with 5% fewer flights YoY and an 8% decline in privately-filed flights. Declines of at least 10% YoY in France, the UK and Switzerland were logged in the Small and Medium Jet segments.
France had the biggest fall in overall Business Aviation activity during April with flights down 7% YoY. The UK, Spain and Switzerland were also well down, and of the ‘Top 5’, only Spain still has YTD growth in flights.
Most of the decline was for flights within Europe (down 4% YoY). Flights between Europe and the Middle East, and Asia-Pacific also continued to decline in April. However, flights from Europe to North America and to Africa increased.
“Business Aviation activity slowed further this month, reinforcing the impression that European demand has stalled since Q4 2018,” summarized Richard Koe, Managing Director, WingX.
“Business jet activity is slowing across all the top regional markets, especially in the light aircraft segments. Business jet charter flights were well down YoY… Broader macro issues are clearly affecting the industry, with London flight activity down by 5% this year.
“One exception to the negative overall picture is Ultra-Long-Range activity which is trending up, primarily in fractional and charter activity,” he concluded.
Q1 2019 Avionics Market Report Summary
According to AEA’s Q1 2019 avionics market report, in the first three months of the year, total worldwide Business and General Aviation avionics sales amounted to just over $724m. That’s a 13.2% increase in total sales compared to Q1 2018 (~$639m).
Of the >$724m Q1 2019 sales, 53.6% came from the retrofit market while forward-fit sales amounted to 46.4%.
According to the companies that separated their total sales figures between North America (US and Canada) and other international markets, 76.1% of Q1 sales occurred in North America.
"While it is likely that ADS-B installations in the US are a contributing factor to the increase in YoY sales as we get closer to the FAA's equipage deadline, those are fairly straight-forward installations," said AEA President and CEO Mike Adamson. "Our member repair stations report that they are also doing an increasing number of full-panel retrofits.
“Installations of new electronic flight displays, digital autopilots, engine monitor systems, in-flight connectivity and other technologies are keeping the shops extremely busy, and the ongoing work has helped drive an increase in Year-over-Year sales for nine-straight quarters."
ADS-B Equipage Rate Hits 71%
According to FlightAware, which updated its ADS-B equipage report to include data through April 2019, 71% of turbine-powered business aircraft registered in the US are now equipped in advance of the January 1, 2020, deadline.
The equipage rate is up from 69% from the March 2019 report. The FlightAware report also includes a current breakdown of equipage by aircraft type. The company intends to update and publish the report monthly moving forward.
FAA Publishes Aerospace Forecast
FAA's recently unveiled Aerospace Forecast for fiscal years 2019 through 2039 shows the active General Aviation fleet is expected to hold steady with 211,800 aircraft in 2039, compared with 212,885 aircraft in 2018.
- Fixed-wing turbine aircraft are expected to grow at a rate of 1.8% per year
- Single-engine piston aircraft will decline at a rate of 1% per year
- Rotorcraft are forecast to grow at a rate of 1.7% per year.
In addition, General Aviation hours flown are forecast to increase from 25.6m in 2018 to 30.3m in 2039, an average annual growth rate of 0.8% a year.
Five Year New and Pre-Owned Aircraft Forecast
Jetcraft has released a five-year new and pre-owned Business Aviation market forecast – and anticipates 11,765 pre-owned transactions over the next five years along with 3,444 new deliveries.
The pre-owned transactions are projected to equate to $61bn in value, and the new deliveries will represent $90.5bn, Jetcraft says. Moreover, by 2023 it is expected that industry value will reach nearly $30bn per annum.
“This is the first forecast to precisely analyze both new and pre-owned business aircraft transactions over a five-year period,” notes Jahid Fazal-Karim, Owner and Chairman of the Board at Jetcraft.
“The findings show that our industry will continue to grow in size and scale…"
“New aircraft unit deliveries are predicted to stay flat throughout the forecast period while generating higher revenues, due to the increase in large aircraft transactions. Meanwhile, the pre-owned market is forecast to grow at a proportionally faster rate than new.”
Pre-owned business aircraft transactions are expected to outpace those of new deliveries four to one by 2023, according to the forecast.
“Buyers who in the past exclusively bought new aircraft are now more willing to consider pre-owned if it suits their mission, partly due to better opportunities for aircraft refurbishment and increasing MRO capabilities,” Fazal-Karim suggests.
Jetcraft’s forecast also maintains the clear shift towards large aircraft, both in pre-owned and new unit deliveries and highlights that the average retirement age of a business aircraft is 32.
JETNET Q1 2019 Used Aircraft Market Update
JETNET’s Q1 2019 results for the used aircraft markets (vs Q1 2018) show that inventories are generally down across the board, except for Piston Aircraft.
Lower inventories are certainly good news, but a pronounced decline in Q1 retail sales and leases were also recorded. For all fixed- and rotary-wing aircraft combined, an overall 25% reduction in sales for Q1 2019 vs. Q1 2018 was recorded.
Looking at the specifics, a 19.9% decline was noted for business jet retail sales. “These figures could prove to be fluid as notice of a few late quarter transactions may yet trickle in,” JETNET qualified.
“Still, it must be acknowledged that the late-year stock market correction and prolonged US government shutdown (December 22 through January 25) had a deleterious impact on the pre-owned market.”
Across all aircraft sectors, there was a total of 6,138 or 1.9% fewer aircraft for sale in the quarterly comparison.
That’s a difference of 120 fewer aircraft and helicopters for sale. Interestingly, fleet for sale percentages for business jets showed the same 9.3% for 2019 and 2018 in the quarterly comparison.
Total full sale transactions were down by 620 aircraft and helicopters. Though business jet full sale transactions decreased, they took less time to sell (21 fewer days) than last year. However, business turboprops showed a decrease of 9.6% in sales, but remained unchanged in terms of average days on the market.
Speaking generally of the used aircraft markets in Q1 2019, older aircraft (those aged 31 years and over) saw increases in retail transactions. ‘Younger’ aircraft (those aged under 30 years) saw declines in the number of business jets sold.
The youngest groups (0 to 5 years and 6 to 10 years), while representing only 19% of the total of 510 sold transactions, declined by 50 business jets sold in the quarterly comparisons.
April Aircraft Values and Maintenance Condition Trends
Asset Insight’s April 30, 2019 market analysis covering 96 fixed-wing models and 1,684 aircraft listed for sale, revealed a 1.7% inventory increase to the tracked fleet.
Large Jets experienced the greatest percentage inventory increase (a 4.6% gain), followed by Small Jets (3.5% inventory increase). Meanwhile Medium Jet and Turboprop inventory decreased 0.5% and 1.1%, respectively.
Average aircraft value for the tracked fleet increased just under 1% to post a figure just over $60k higher than the record low value.
While Medium Jets posted a 12-month high figure and Small Jet values remained above their 12-month average, these increases could not overcome ask price decreases posted by Large Jets and Turboprops.
Fleet Maintenance Condition, April 2019
Inventory Fleet Maintenance Condition
Fleet asset quality improved nearly 1.2% in April while Maintenance Exposure also improved 1.4%. Overall, the tracked inventory posted the following:
- Quality Rating was below the 12-month average, but it did manage to skirt into the ‘Excellent’ range, increasing from 5.191 in March to 5.251 for April, on Asset Insight’s scale of -2.5 to 10.
- Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense), although below the 12-month average, improved (decreased) to $1.4m from March’s $1.42m.
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.
‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s time for sale on the market increases, usually by more than 30%. During Q1 2019, assets whose ETP Ratio was 40% or more were listed for sale over 62% longer (on average) than aircraft whose Ratio was below 40% (i.e. 237 days versus 384 days on the market).
April’s analysis also noted that 55% of all tracked models and nearly 63% of the tracked fleet posted an ETP Ratio above 40%.
Our tracked fleet’s ETP Ratio posted another improvement in April, decreasing to 63.6% from March’s 66%.
- Turboprops posted the lowest (best) ETP Ratio at 54.9% (although that reflected a worsening from last month’s 52.9% and a 12-month worst figure;
- Large Jets improved from 62.2% to 60.2%;
- Small Jets improved from 62% to 61.5%; and
- Medium Jets improved from 79.5% to 72.9%.
April 2019 Tracked Business Aircraft Fleet Exposure to Ask Price Ratios
The continued increase to the inventory fleet must be worrisome for Large Jet sellers as final transaction values have shown a noticeable drop during the past few weeks.
Small Jets also experienced an increase to the fleet for sale, but the impact on their pricing has not been as dramatic… at least, not yet.
Large Jets April Market Summary
Large Jet inventory increased by another 16 units, with April’s fleet mix change seeing a large number of higher quality assets enter inventory.
Better asset quality ought to command higher pricing, but that does not appear to be the case as values are under supply pressure and there is an apparent desire by many sellers to transact while the trading climate is still favorable.
Ask Prices decreased another 2.5% in April and are now down 8.2% for the year. While the group’s ETP Ratio improved due to higher quality assets entering the fleet for sale, the improved selection is creating downward pricing pressure.
Medium Jets April Market Summary
Inventory for the tracked fleet decreased by three units in April, and asset quality improved an impressive 3.7% while Maintenance Exposure improved (decreased) 2.1%. If you combine those figures with a 4% price increase in April (a 12-month high figure and a 7.5% increase for the year) the result is an ETP Ratio of 72.9%, the group’s best figure since July 2018.
Buyers and sellers are clearly finding common ground and, since 11.6% of the tracked inventory fleet is listed for sale, Asset Insight believes the traditional 10% transition point between a buyer’s and seller’s market may be shifting to a higher number.
Small Jets April Market Summary
Inventory increased by another 18 units following March’s 16-unit increase. Changes to the inventory fleet mix marginally improved asset quality and slightly worsened Maintenance Exposure. However, pricing improved 2.6% in April and the group’s ETP Ratio fell slightly to post a 12-month low (best) figure at 61.6%.
While many aging aircraft are the ones seeking a new home, buyers and sellers have obviously found common pricing ground, and with only 9.7% of the active fleet in play, they should continue to do so.
Turboprops April Market Summary
Inventory fell by three units, the same number as it increased in March. Asset quality decreased for the fourth consecutive month, while Ask Price is only a sliver higher than the 12-month low figure.
With Maintenance Exposure increasing 2.6% to a figure not exceeded since August 2018, the group’s ETP Ratio posted a 12-month high (worst) figure that was just under the group’s record high.
All this may sound negative but what it really shows is that quality assets are the ones trading and at prices that account for their maintenance condition.
GAMA Q1 2019 Shipment Analysis
The General Aviation Manufacturers Association’s Q1 2019 new airplane shipment report was the most optimistic seen in a very long time. Mike Potts drills down into the numbers…
Continuing the trend at the successful completion of 2018, the jet and turboprop segments finished ahead of where they were in Q1 2018. Q1 2019 jet deliveries totaled 141 units, up 6.8% over the 132 recorded in Q1 2018. Turboprops were up 7% (123 units versus 115 in Q1 2018).
More importantly, the underlying softness characterizing the market generally and the jet segment specifically over the past five years seems to be dissipating. For the first time since 2014, the market is exhibiting signs of a recovery that looks like it has legs.
The Business Jet Market
Turning to the jet market specifics, seven of the 11 jet OEMs reporting matched or bettered their results from Q1 2018. Four of the companies are ahead while three still lag. The remaining company (Dassault) does not report in Q1 and Q3. Notably, this year the size of the gains are more significant than they were a year ago.
Looking at the specifics of the jet market, Cessna is the leader in deliveries by a wide margin, recording 44 units, up 22.2% from the 36 shipped in Q1 2018. Moreover, Cessna’s new Latitude model is tied for the lead in jet deliveries with 14 units, matching the total recorded by the Cirrus SF50 Vision Jet.
Latitude deliveries were up from 12 units a year ago, but the growing solidity of the market is reflected in Cessna’s other results. Four of its six jet models besides the Latitude were ahead of last year and none lagged last year’s results.
Gulfstream, which has occupied third place in jet deliveries in recent years, moved up to second in the Q1 2019 report with 34 shipments; a gain of 30.8% over the 26 reported in Q1 2018.
Slipping into third place is Bombardier with 24 units. Deliveries fell 22.6% from the 31 units shipped this time last year. Despite the softer market for Bombardier products this quarter deliveries started for the Global 7500. Meanwhile, Challenger 350 deliveries were down from 12 units to nine compared with last year, but the Challenger 350 was still the third best-selling business jet in the industry in the past quarter.
Gulfstream’s strong performance made it an easy winner in the billings race with a total of $1.836bn, nearly twice the $927m of its closest billings competitor, Bombardier.
Cirrus captured fourth place in jet deliveries with 14 units, a gain over the 10 reported in Q1 2018. Occupying the number five position in jet sales for Q1 2019 is Embraer, the same spot it occupied in Q1 2018. Embraer reported 11 jet deliveries in Q1 2019, the same as a year ago.
Honda is sixth with seven shipments, down from 12 a year ago. The influx of new jet OEMs in recent years has had the effect of significantly roiling the middle portion of the jet market, contributing to Honda’s repositioning. Seventh spot goes to Pilatus with five units, up from two units last year.
Deliveries of Pilatus PC-24 jets are slowly accelerating, so it would not be surprising to see the Swiss manufacturer move further up the rankings eventually.
Airbus is in eighth place with two deliveries, up from none reported last year. And the last two companies on GAMA’s jet list are tied with no deliveries. Boeing reported four deliveries in Q1 2018, while One Aviation failed to deliver any jets a year ago. In fact, the last time One reported deliveries to GAMA was back in 2017.
This quarter marks the first time Airbus has reported deliveries to GAMA since 2015. It’s a reasonable assumption that Airbus has made international deliveries without reporting them to GAMA in the interest of maintaining client confidentiality.
The Turboprop Market
Turning to the turboprop market we find results that are even better than in the jet market. By my count, business turboprop deliveries are ahead of last year by fully 12.7%, though you won’t find that number in the GAMA report, which shows the turboprop gain at 7%.
The reason for this discrepancy is that GAMA includes agricultural turboprops in with the traditional business aircraft numbers. Clearly the purely business turboprop view makes for a much more optimistic way to see the market today.
Focusing only on business turboprops we see a market that totaled 80 aircraft in Q1 2019, up from 71 units in Q1 2018. That’s a very strong performance in my view. Of the nine business turboprop OEMs GAMA lists in its report, seven enjoyed equal or improved results over a year ago, while two had negative results.
Leading the turboprop market, as usual over the past three decades, is Textron’s Beechcraft unit with 23 units, up 35.3% from the 17 shipments reported last year. Following closely in second place is Textron’s Cessna unit with 21 deliveries, up from 12 last year.
For Cessna that’s a phenomenal increase of 75%, and clearly at this point it would take only a small market shift for Cessna to overtake Beechcraft.
Textron’s aviation unit has an absolute lock on the turboprop segment, with no one else coming close to those top two positions.
Pilatus took third place in shipments with 12 units, which exactly matches its Q1 2018 total. No other turboprop OEM reported double digit deliveries in Q1 2019.
Although the numbers are smaller, the middle of the turboprop market is hotly contested among three OEMs, including Daher, Piper and Quest:
- Daher reported eight deliveries in Q1 2019, matching results for the same period last year.
- Piper shipped seven airplanes in Q1 2019, down from 10 a year ago.
- Quest matched its Q1 2018 total with seven shipments in Q1 2019.
Bringing up the rear of the turboprop segment were Pacific Aero with two (matching its Q1 2018 result); AVIC which made no shipments this year or last; and finally Piaggio which also made no shipments in Q1 2019, down from three in Q1 2018.
Q1 2019 Shipment Reflections
On balance both the jet and turboprop markets appear to be stronger than they have been in the recent past. Coming, as we did, from a particularly strong year-end performance at the end of 2018, I was expecting that Q1 2019 might experience some softness as a result of companies working particularly hard to finish the year strong and thereby cutting into the next year’s Q1 2019 performance.
Clearly that didn’t happen, and we seem to be moving into 2019 on a stronger footing. We can be hopeful that this trend will continue as the rest of the year unfolds.