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Business Aviation Market Overview – November 2019

View a medley of the latest trends, observations and analyses from around the Business Aviation industry, all in one place...

Rolland Vincent   |   4th November 2019
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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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With NBAA-BACE behind us, the focus becomes getting as much business done as possible before the end of the year. Rollie Vincent assesses the state of the market entering the final months of 2019…
 
The lights have been turned off, the carpets and underlay have been rolled up, and the elaborate exhibition booths and associated infrastructure have been disassembled.
 
Expense reports and newly-received business cards duly filed, travellers to last month’s 2019 NBAA-BACE extravaganza in Las Vegas, Nevada have returned to their real jobs once again, fully focused on closing out the remaining business that can still be done in the time remaining before the clock strikes midnight on December 31.
 
Talk of ‘bifurcated markets’ - all the rage in the aftermath of the 2008 financial crisis when sales of Large Cabin business jets continued to climb while Mid-size and smaller jet transactions turned markedly down – filled the halls of the Las Vegas Convention Center and Henderson Executive Airport static. This time, however, the market bifurcation was the diverging fortunes of those engaged in new aircraft deals versus those in the pre-owned segment.
 
New Aircraft Market

Aircraft manufacturers and their key suppliers are the proverbial 800lb gorillas at trade shows like NBAA-BACE, EBACE, Paris Air Show, and Farnborough in particular. With exhibit booths, static display chalets, aircraft demonstrators and dozens – if not hundreds of on-site staff, they are the envy of almost anyone in the hall with even the vaguest of understandings of a “marketing events” budget.
 
In 2019, OEMs across most business aircraft segments have been enjoying solid sales success, with Year-over-Year (YoY) increases in net new aircraft orders driving up firm order backlogs.
 
Through H1 2019, we estimate that US$-denominated backlogs at the five largest business aircraft OEMs [Bombardier, Dassault, Embraer, Gulfstream and Textron] were up about 7% YoY, and by perhaps 10% YoY through August, based on strong Falcon orders in July and August. (Clearly, not everyone in France was sipping fine rosé by the seashore this summer).
 
Product launches – always a highlight at trade show gatherings – were a key feature of NBAA-BACE 2019, with the launch of highly anticipated aircraft that bracket the market. Two of the most notable are the new top-of-the-line Gulfstream G700 and the re-engined Pilatus PC-12 with single power lever controls.
 
Both of these derivative aircraft build on the impressive track record of their bloodlines, with the dual advantages of lower investment costs and quicker ROI/speed to market for the manufacturers, their investors, and other key stakeholders.
 
Pre-Owned Aircraft Market

While all that glittered in Las Vegas may have indeed looked golden for the OEMs, the pre-owned business aircraft market has certainly enjoyed better days. Retail pre-owned business jet sales and leases were down 19% in volume from January through September 1 this year compared to the same period last year, with the for-sale inventory on the increase once again, reaching 9.6% (or ~2,150 jets) as we went to press, according to JETNET.
 
Inventory appears to have bottomed out about the same time that the industry gathered about a year ago for NBAA-BACE 2018 in Orlando, Florida, when just less than 9% of the in-service fleet was listed for sale.
 
ADS-B is Nearly Here…

With a hard deadline of December 31, 2019 looming for aircraft to be US-operationally compliant with the ADS-B Out mandate, thousands of aircraft owners and operators, and thousands of business aircraft will have less to celebrate as the New Year’s bell drops in New York’s Time Square.
 
Duncan Aviation, one of the world’s premier independent MRO providers, recently estimated that about 5,500 US-registered business jets and turboprops would not make the deadline, representing a remarkable 25% of the combined in-service fleet of almost 22,000 aircraft.
 
In-compliance charter operators and under-employed ferry pilots (a very rare species) are sure to be in strong demand in the months and even years to come as owners/operators grapple with the real-world headaches of trying to skirt the rules and request one-off flight permits in the NAS post-2019. One can only surmise that the expression “How’s that working for you?” will take on new meaning in the New Year.
 
The FAA and other regulators cannot be faulted for anything except maybe giving too much notice of the impending ADS-B Out changes. Deadlines, especially if they are perceived to be real and looming from the get-go, have a lovely way of focusing the mind and the pocketbook on what needs to get done.
 
Ongoing Turbulence

Speaking of priorities, business aircraft customers and their Business Aviation product and service providers certainly have no shortage of turbulence to deal with today and in the year to come, from the seemingly never ending cauldrons of political power.
 
It has already been three years since “Brexit” and “Trump” became the topic of near-daily world news headlines, a time when the sentiment of business aircraft owners and operators fell to a low point that has not been matched since JETNET iQ surveys were launched in late 2010.
 
Business aircraft customer sentiment started to rebound steadily, beginning in late 2016, and had been on a general increase since that low point, peaking again about a year ago at NBAA-BACE 2018. With economic uncertainty and international trade tensions on the rise, however, the mood of business aircraft owners and operators around the world has deteriorated with concerns building of the possibility of recession in key national economies where Business Aviation is prominent.
 
In Summary

Business aircraft OEMs have been bolstered by a nice uptick of orders for their newest models, all of which were under the bright lights of big city Las Vegas. Less conspicuous are orders for so-called legacy models that made up the majority of the 50-or-so turbine-powered in-production models on display at NBAA-BACE 2019.
 
While the southern Nevada skies were bright all week, the wise are monitoring their radars and remaining diligent about the evolving state of the Business Aviation market.
 
MI www.navigating360.com
 
Flight Activity – North America

According to ARGUS TRAQPak’s review of year-over-year (YoY) flight activity (September 2019 vs. September 2018), September 2019 recorded an increase of 2.4%. Month-over-month a decrease of 4.4% was recorded in September vs August…
 
Year-over-year, the results by operational category were all positive, with Fractional activity posting the largest yearly increase. Part 91 flight activity followed, while Part 135 activity reported the smallest increase.
 
The aircraft categories were also positive with Light Jets posting the largest increase over 2018. Mid-size Jets also recorded another strong yearly gain.
 
North American BizAv Flight Activity - September 2019
Month-over-Month

Month-over-month (September 2019 vs August 2019), results by operational category were all negative, with fractional flight activity posting the largest monthly decrease, and Part 135 activity not far behind.
 
Aircraft categories were all negative, with Turboprops posting the largest decrease. Mid-size Jets followed, then Light Jets. The Large Jet decrease was comparatively nominal.
 
October Flight Activity Forecast

Looking ahead to October’s results, TRAQPak analysts estimate a 0.8% increase in overall flight activity, YoY, in October 2019.
 
MI www.argus.aero
 
Flight Activity - Europe

According to WingX, there were 80,113 Business Aviation departures in Europe in September 2019 – up slightly on August 2019, but down 2% compared to September 2018. Three quarters of the way through 2019, overall market activity is down by 2%...
 
There was some growth in flight activity during September in France, but that was offset by some big YoY drops in departures from Germany and Spain. YTD, activity has been flat in France, the top market, and has declined the most in Germany.
 
Small and Mid-Size Jet activity slipped 3% in September, with sizeable declines in Germany and Austria. Some growth was recorded in the UK for business jet activity, while in France the growth came from turboprop activity. Overall Large Jet activity was down 1% this month.
 
Private Jet Waits to Take-Off
 
Flights within Europe were down YoY during September 2019 by 2%. In contrast, flights from Europe to North America increased by 9% YoY and are up 3% YTD. And departures from Europe to Asia-Pacific have been down 11% so far in 2019.
 
“September’s flight activity shows the continuation in steady erosion in Business Aviation demand compared to 2018,” Richard Koe, managing director of WingX says.
 
“Across the fleet, the pattern is uneven, with Small and Mid-size Jet activity taking a battering, especially from the largest markets in Western and Central Europe.
 
“This drop-off appears to align with the manufacturing slump in the Eurozone. There are still some bright spots in the flight activity analysis, not least Farnborough’s continued stellar growth as its ownership passes to new hands.”
 
MI www.wingx-advance.com
 
2019: Bumper Year in New Jet Deliveries?

After AvBuyer went to press with the Q2 2019 GAMA shipment analysis, new and significant numbers were issued by the General Aviation Manufacturers Association, as outlined by Mike Potts…
 
The new numbers published by GAMA relating to its Q2 2019 shipment report indicate we are headed for a bumper year in jet deliveries. If the trends continue, jet totals could reach 750 units or more for the first time since 2010.
 
That’s because GAMA released an amendment to its report, filling in missing shipment numbers from Dassault. With the addition of Dassault’s numbers it becomes clear that the jet market is growing faster this year than it has during any year in the past decade.
 
Dassault reported 17 deliveries for H1 2019, an increase on the 15 it shipped a year prior. The addition of those 17 units reveals that jet deliveries are up 18.5% over H1 2018, at 333 units versus 281.
 
The last time jet deliveries exceeded 333 in the first six months of a year was in 2010 when the mid-year total was 355 and the year-end total reached 763 (a number not achieved since). The best mid-year total this decade was in 2014 when 318 new jets were shipped. That year ended with a total of 722 jet deliveries, the strongest in this decade. That will be surpassed in 2019 if the pace continues…
 
MI www.gama.aero
 
Could Uncertainty Extend BizAv’s Lost Decade?

Sentiment for the business jet market has taken a step back from June “as perceived economic risks impact a market that benefits from certainty and stability,” Citi Research reported, based on its quarterly business jet broker panel…
 
From a broker’s perspective, Citi said, “It was always going to be tough to repeat a strong 2018…but summer 2019 was slower than normal.” The financial firm also warned that pre-owned business jet supply and demand imbalances could re-emerge.
 
Last year, Citi brokers were having trouble finding aircraft for buyers, but now “the pendulum appears to be swinging the other way, with the used market again offering attractive value versus new”. This could result in OEMs needing to cut prices to make sales, it noted.
 
“So it’s still tough to get confident about the business jet market through the second half [of 2019] even as we’re approaching the end of what we’ve called the ‘lost decade’,” Citi said. “Economic/trade concerns could tease it out a bit longer.”
 
MI www.citibank.com
 
Private Jet Pilot
 
Pilot Shortage Could Affect Bizjet Sales

As many as 2,500 new Business Aviation pilots will be needed in the UK, and 98,000 globally over the next 19 years, business aircraft broker Colibri Aircraft projects...
 
Pilots shortages are creating operational challenges for owners and even risking the sale of some business jet types, Colibri elaborates. Therefore, the company is advising against clients hiring only one full-time pilot and relying on contract crew to fill the right seat.
 
Business Aviation pilots are exiting the sector in growing numbers to fly for airlines.
 
They’re attracted by more predictable schedules, Colibri adds, noting that the commercial aviation sector’s focus on recruiting Business Aviation pilots will only intensify as the world’s passenger and freight aircraft fleet is expected to more than double between now and 2038.
 
“The Business Aviation sector is struggling to compete with the airlines in recruiting pilots,” said Oliver Stone, managing director, Colibri Aircraft. “This means commercial airlines are not only recruiting existing Business Aviation pilots, but are also getting the pick of newly qualified pilots.
 
“This issue is increasingly impacting the sale of some private jets, and we expect it to continue.”
 
MI www.colibriaircraft.com
 
Decoding What’s Next From Cagey BizJet OEMs…

What would be the logical next move for the major manufacturers in the business jet manufacturing market? Writing WITHOUT the benefit of hindsight of October’s NBAA-BACE, here’s what Brian Foley projected…
 
Gulfstream Aerospace

It’s logical to think that General Dynamics’ Gulfstream division would be motivated to build a successor to its aging G650ER flagship for two compelling reasons.
 
From an aircraft capability standpoint, Gulfstream hasn’t historically allowed any competitor’s product to have a meaningful edge for long. But Bombardier’s brand new Global 7500 does exactly that, outshining the maximum distance the G650ER flies.
 
More importantly, because it’s a generation older, manufacturing techniques for the G650ER are more inefficient and antiquated compared to Gulfstream’s latest G500 and G600 models, which take fewer labor hours and parts to build. By ditching the old G650ER and replacing it with a longer-ranged derivative of the new G600, the company would improve margins while optimizing commonality with G500/G600 parts and tooling.
 
You can read about Gulfstream’s response to the Global 7500 in our Gulfstream G700 Review.
 
Embraer

Any near-term new product announcement would be a surprise since Embraer just announced an improvement last year with its Praetor line, a branding and performance update to its previous Legacy 450 and 500.
 
This, coupled with the dust still settling from Embraer’s sale of a majority stake in its commercial airliner division to Boeing, would seemingly keep any business jet announcements at bay for now.
 
Bombardier Global 7500
 
Bombardier Aerospace

In dodging financial ruin, Bombardier announced its exit from a number of its business lines, but doubled-down in rail transportation and Business Aviation, suggesting the bizjet announcement pipeline should become more active going forward.
 
The top-of-the-line Global division has already received a makeover with the Global 5000 and 6000 becoming the 5500 and 6500, and the all-new Global 7500 just starting deliveries.
 
Bombardier’s middle-sized aircraft, the Challenger 350 and Challenger 650, are both overdue for other than incremental improvements.
 
When jet buyers can’t distinguish brand new aircraft from used, there’s less incentive to pay the premium for new. With a heritage going back to the 1970s, the Challenger 650 is arguably most due for a makeover.
 
An even bolder move for Bombardier would be to announce an all-new Challenger replacement, and not just another incremental engine and avionics tweak that would only bore the market and limit sales.
 
The future of Bombardier’s small-cabin Learjet division is a question mark, with its last all-new Learjet 85 development project being cancelled and the remaining tired product line delivering just four units during H1 2019.
 
HondaJet

One might reason that HondaJet’s recent 82,000sq.ft. facility expansion telegraphs a new announcement. Manufacturers need to have a family of aircraft to have a meaningful market presence, and step-up products for their existing customers.
 
When exploring the company’s online job board, the call is out for engineers with expertise in wing, fuselage and systems design; all indicative of an active in-house skunkworks. Thus, either an all-new product or acquisition of an existing program such as Bombardier’s Learjet division are conceivable.
 
Dassault Falcon

After cancelling the brand-new Falcon 5X program and subsequently launching the Falcon 6X replacement, it’s a fair bet that any new products will be derived from the 6X wing and fuselage, eventually replacing the older generation Falcon 900 and Falcon 2000 series.
 
As with Gulfstream, having designs based on a modern airframe lowers labor time, parts cost and provides tooling commonality.
 
Textron Aviation

Textron Aviation's Cessna has its hands full with three all-new, simultaneous development programs: the recently certified Citation Longitude business jet, SkyCourier package delivery plane and Denali single-engine turboprop.
 
If there were to be pending new announcements it could be enhancements to the decade-old Citation CJ4 and XLS+ (call them the CJ4+ and XLS++).
 
MI www.AvStrategies.com or www.brifo.com
 
Helicopter in the Sunset
 
Improving Conditions: Q3 Pre-Owned Helicopter Market Trends

Aero Asset has released its Q3 2019 analysis of the used helicopter marketplace, revealing an improvement in the condition of the market…
 
According to the company, “a total 37% of pre-owned twin engine helicopter buyers were in this territory Q3, up from 31% in Q2”. Year to date (YTD), 85 twin turbine helicopters “closed to retail buyers” (across all weight classes) and twin engine supply for sale is down nearly 20% (to 230 aircraft).
 
Drawing on its proprietary intelligence and close knowledge of the market, Pre-owned Heli Market Trends reviews Q3 and YTD performance of twelve twin engine models in the light, medium and heavy categories, from Airbus Helicopters H135 to Sikorsky’s S92.
 
Airbus Leads Light Twin Market

The EC135/145 market continues to dominate re-sale activity, especially in the 2006 to 2014 year of manufacture segment. Much of the demand is driven by US air ambulance appetite for Pratt & Whitney Canada powered SP-IFR machines. The report highlights six EC135 and seven EC145 deals pending at the end of Q3.
 
Light twin helicopter supply is down 17% year-over-year (YoY) and so is trading volume equating to a stable absorption rate.
 
Leonardo AW109 markets suffered a substantial drop in Grand & GrandNew pre-owned transaction activity. In contrast with YTD sales volume, though, Q3 is clearly an anomaly. The Power model retail sales volume remains stable.
 
Lower pricing triggered increased demand for the Bell 429, with three retail trades in Q3. However, a total of four retail trades YTD means the Bell 429 absorption rate remains higher than competing markets.
 
AW139 Dominates Medium Twin Market

The Leonardo AW139 leads the pre-owned medium twin market, with five retail sales in Q3 (and ten YTD). Supply continued its decrease YoY to 22 aircraft for sale at the end of Q3. This equates to an absorption rate of just 14 months. Absorption rate has seen a significant drop YoY, which is good news for Leonardo, which recently delivered its 1,000th AW139.
 
The Bell 412 market remains soft with zero transactions in Q3 and only three YTD. Supply in the Airbus H155 market doubled in Q3 and absorption rate remains high with three years of supply at Q3 trade levels.
 
The sales volume in the Sikorsky S76C+/C++ market was flat in Q3. Oversupply continues to hamper the C+ and the utility segments of this market.
 
Increased Activity in the Heavy Twin Market

The H225 saw one sale per quarter YTD. This consistent sales volume suggests a better market outlook. With sixteen units for sale however, absorption rate remains high at four years of supply at Q3 trade levels. Five deals are currently pending.
 
The S92 market saw its first pre-owned transaction in five years and supply in this market continued to decrease in Q3, down 50% YTD.
 
MI www.aeroasset.com
 
In Service Aircraft Values & Maintenance Condition

On September 30, Asset Insight’s monthly market analysis closed out Q3 reviewing 96 fixed-wing models, comprising 1,752 aircraft listed for sale. The figures revealed a 2.2% inventory increase, rising 10.1% since December, 2018…
 
By category, Large Jet inventory remained stable, Medium Jets increased 3.7%, Small Jet inventory expanded 4.8%, and Turboprops were the only group to post an inventory reduction, decreasing 2.4%.
 
Aircraft Values

Ask Prices for our tracked fleet decreased 3% during September, but managed a small 0.4% gain in Q3 overall, with Large Jets posting an Ask Price increase while Medium Jets, Small Jets and Turboprops registered Ask Price decreases during Q3.
 
Asset Insight Fleet Maintenance Condition
 
Inventory Fleet Maintenance Condition

During September, fleet asset quality improved for a second consecutive month (0.7%) and improved 0.4% during Q3. Maintenance Exposure improved too, decreasing a healthy 6% for September, and 4% for Q3. Overall, the tracked inventory registered the following figures:
 
  • The for sale fleet posted an improvement during both August and September, following a 12-month low figure in July. At 5.217, the Quality Rating remained ‘Very Good’ as Q3 closed, bettering the Q2 close of 5.196 on Asset Insight’s scale of -2.5 to 10.
  • At $1.358m, Maintenance Exposure (an aircraft’s accumulated/ embedded maintenance expense) finished Q3 with a 12-month low (best) figure.

Asset Insight ETP Ratio - September 2019Maintenance 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 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).
 
The September analytics also revealed that more than 56% of Asset Insight’s tracked models, and nearly 62% of its tracked fleet, posted an ETP Ratio greater than 40%.
 
As Q3 closed, the tracked fleet’s ETP Ratio improved to 64.9% compared to the 65.4% posted in June. However, this figure followed July’s 68.3% and August’s 66.8%. As was the case at the end of Q2:
 
  • Large Jets captured the top spot by posting a 12-month best ETP Ratio of 51.5%.
  • Turboprops ceded the first place they held in August with a record high (worst) figure for the group of 58.4%.
  • Small Jets followed at 67.3%, reflecting a substantive improvement over the August figure and a notable reduction from June’s 68.8%.
  • As has generally been the case, Medium Jets came last at 74.2%, although that was an improvement over the 75.2% that closed out Q2.
Market Summary

Ongoing increases to the inventory fleet, even if that is not weighted toward newer models, along with continuing decreases to Ask Prices could make for an interesting final quarter to what’s been a year of lackluster transaction figures.
 
Asset Insight Large Jet Market Summary - September 2019
Large Jets: The listed fleet total remained constant, but that is not to say that transactions didn’t take place. Changes in the fleet mix moved this group’s Quality Rating further into the ‘Outstanding’ range for the second consecutive month, with the group posting a 12-month best Quality Rating, Maintenance Exposure figure, and ETP Ratio.
 
It is rare to see this level of alignment, especially going into what has traditionally been the highest trading period of the year. With Ask Price below the 12-month average, buyers and sellers should have little trouble reaching agreement in Q4.
 
Asset Insight Medium Jet Market Summary - September 2019Medium Jets: The picture is not as stellar for Medium Jets, with the group’s Quality Rating dropping nearly 0.7% during September – although the figure still represented an improvement over Q2. Maintenance Exposure posted its third consecutive monthly increase, worsening 1.9% during Q3, while Ask Prices tumbled 2.9% in September.
 
Add to those troubling figures a 3.7% increase to the inventory fleet during September, and an ETP Ratio of 74.2% (although that is actually an improvement over the 75.2% Q2 figure) and you are definitely facing hurdles as a seller. Buyers, on the other hand, have some really good opportunities to create value during Q4.
 
Asset Insight Small Jet Market Summary - September 2019Small Jets: This group’s asset quality improved for the first time in five months to just shy of the Q2 figure. Maintenance Exposure faired even better, improving 2.2% in September and 1.5% during Q3, and the group’s ETP Ratio improved to 67.3% versus 68.8% that closed out Q2.
 
Ask Prices fell 3.8% during Q3, but September’s figure was actually 2.1% better than that posted in August. The primary issue for sellers may well be the group’s inventory level, which increased 4.8% in September, and is now up 19.6% for the year. For buyers, this represents a great opportunity to create value.
 
Asset Insight Turboprop Market Summary - September 2019
Turboprops: This group’s statistics are a real conundrum. During Q3, asset quality improved 2.23%, Maintenance Exposure improved 0.6%, but Ask Price fell 5.5% to post a record low figure, while the group’s ETP Ratio posted a record high (worst) figure at 58.4%.
 
Add to that, this was the only group in September to post an inventory decrease (2.4%), and one can only state the obvious: the odds are against there being a better time for buyers to act…
 
MI www.assetinsight.com
 
 
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Read more about: Business Aviation Market Analysis | Used Aircraft Sales Trends | Helicopter Sales Trends | Rollie Vincent

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