Business Aviation Market Overview - October 2021

In an upbeat piece of news for the industry, Business Aviation is expected to defy the soft business travel forecast this Fall, notes Brian Foley…

Brian Foley  |  04th October 2021
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Brian Foley
Brian Foley

Brian Foley formed Brian Foley Associates (BRiFO) in 2006 to assist aerospace firms and investors with...

An ultra-long-range Gulfstream private jet


While summer’s business aircraft leisure travel volume exceeded the most optimistic of estimates, all eyes have been turning to the fall business season, which is when corporate ‘road warriors’ take to the skies.

The 2020 season had been a flop, with business people trading-in their seat upgrades for premium subscriptions to Zoom. Within the industry there is some trepidation that curtailed business travel this fall could send BizAv back into a tailspin; after all, it is called Business Aviation for a reason.

Let’s dissect these fears, and see if there’s a genuine cause for concern…

Background

Winding back the clock, just about everyone in our business felt the effects surrounding the uncertainty of the pandemic in early spring 2020. Lockdowns were prevalent; the future was unclear; and business aircraft sales and activity ground to an abrupt halt.

Soon, though, a best-case scenario began to unfold. Seasoned private jet travelers as well as newcomers began to appear, only this time in significant quantities. For the rest of 2020 pre-owned aircraft sales activity skyrocketed, while overall flight activity made an appreciable comeback.

Whereas airline flights had recovered to a paltry 40% of pre-pandemic levels at one point, Business Aviation exceeded 80% of its former level, and was still climbing. 

The only laggards in 2020 were the new jet manufacturers, who – through a combination of supplier issues, factory lockdowns and overly-cautious buyers – delivered 20% fewer jets than the previous year.

The recovery continued into 2021 with continued strength in pre-owned sales, as well as flight activity which is now approaching record levels not seen in well over a decade.

The year has also seen a measurable uptick in new aircraft sales, with manufacturers reporting book-to-bill ratios of 2:1, meaning that for every airplane delivered to a customer there have been two new orders. Over time this will have the benefit of increasing order backlogs, reducing the risk of OEMs having unsold inventory, and provide a long-awaited increase in pricing power and margins.

Airline Fall Business Travel Outlook

As the airlines were clobbered last fall, Business Aviation continued to make gains with pre-owned aircraft sales transactions soaring to new records, and the charter, fractional and services segments clawing back a good deal of lost ground.

Today the airlines report that corporate travel has returned to just 40% of pre-pandemic levels during the summer, and that business traveler surveys suggest upwards of 60% of them would be postponing upcoming business trips.

On August 31, the US reported the lowest number of airline passengers going through airport turnstiles since May, suggesting a noticeable lull will be seen in the near future for the commercial air carriers.

BizAv Defiance

Business Aviation is on a different trajectory. Pre-owned sales, while down from all-time highs, are still very active. Any slowdown in transactions would be more of a function of lack of inventory than a decrease in demand.

New jet OEMs continue to have their highest sales activity in many years. And there are no signs of slowing for business aviation travel. Charter and fractional providers are seeing a surge in business, driven in part by upwards of 20% of their business coming from first-time customers. (Some fractional providers have temporarily ceased sales of jet cards to provide adequate service to their existing customers, and charter operators see activity exceeding 2019 levels.)

Moreover, Fixed Base Operators and Maintenance Repair and Overhaul service providers report brisk business with the increase in flight activity.

Thus, while there may indeed be less business travel this fall, the effect on our industry should be a relative non-event. Perhaps counter-intuitively it’s expected that many segments will actually see a strengthening in their businesses through year-end.

While time savings, security and the deteriorating airline experience have always been primary industry sales drivers over the years, we can now add health concerns, which have bumped the addressable market into a new paradigm.

MI www.brifo.com

Global Flight Activity – August

According to WingX Advance, worldwide BizAv activity finished August 10% ahead of August 2019 – a more modest growth than July, with some slowdown showing later in the month. Year-to-Date, activity was up 41% on 2020, to almost exactly where it was two years ago.

European business jet travel has rapidly closed the gap on 2019, thanks to a very robust summer of activity. At the end of August, the deficit compared to 2019 was less than 5%. Russia, Turkey, and Greece have been busier business jet markets post-pandemic than pre-pandemic throughout this year. In Western Europe, Spain has seen 7% more activity than in 2019.

August was a record-breaking month for almost all European markets, including laggards such as France and the UK, which saw business jet departures up 20% and 10%, respectively, compared to August 2019.

The Balkan region smashed previous records for business jet activity. Movements in Serbia were up by 50%, and flights to-and-from Croatia and Montenegro soared 70% above previous high points for August.

Mid-size private jet landing at airport

North America

In North America, regional recovery trends dimmed a little during August. Following the 30% bounce in July, the first half of August saw 20% gains. However, the full month’s activity ended 13% up compared to August 2019.

By the end of August, Canada and Mexico had yet to recover to 2019 flight activity levels, and some parts of the Caribbean – notably the Caymans, Aruba, Barbados, British Virgin Islands, and St Vincent – were well below their pre-pandemic activity levels in August.

Meanwhile, business jet activity in the US was up 16% compared to August 2019, the third consecutive record-breaking month.

And other Caribbean countries were seeing substantial gains on 2019 business jet traffic. Arrivals into the Dominican Republic and Turks and Caicos were at twice the normal levels for August.

Relief missions to Haiti following the earthquake there showed, with flight activity up over 300%.

There was growth within the US compared with August 2019 in almost all US States, with strongest growth coming in the South-East, principally Florida, and remote areas of the Western regions, notably Colorado and Nevada. California and New York, where activity was depressed for so long during the pandemic, both saw a big bounce in flight activity.

Rest of the World

Outside the US and Europe, August was a very strong month, relative to August 2020 and August 2019, with business jet flights gaining 38% and 28%, respectively, on those previous periods.

  • Brazil was the busiest market, with over 50% gains over August 2019.
  • Australia was the next busiest, but saw a downward trend, with flights off by 14%, versus August 2019.
  • China also appeared to show the effect of renewed travel restrictions, and flights were down by 13%, versus August 2020.
  • Saudi Arabia, Japan, Indonesia, and Malaysia were other markets which looked more subdued that last year during August.

The overall trend in August for the Rest of the World was righted thanks to massive growth in business jet traffic in Argentina, Ecuador, Nigeria, India, and South Africa.

“The European market had a successive very strong month of business jet activity [in August, with] flights up by a quarter, which must be linked to airline schedules still being down by a third,” Richard Koe, Managing Director, WingX Advance summarized.

“The US market is still setting records for business jet demand, but the second half of August slowed perceptively. In Asia, ongoing virus concerns and travel restrictions are setting back some of the gains made in business jet travel last year.”

MI www.wingx-advance.com

In-Service Aircraft Values & Maintenance Condition

Strong aircraft sales by first-time buyers continue to decrease aircraft availability. One must surely wonder how many inventory decreases are possible. Asset Insight’s August 31, 2021 market analysis covering 134 models and 1,272 units revealed an additional 3.8% decline.

With young, low-time aircraft conspicuous by their absence, today’s market selection for Asset Insight’s tracked fleet is now down 33.5% Year-to-Date (YTD), equating to 640 fewer units, while Year-over-Year (YoY) inventory is 44.2% lower.

Aircraft Values

Young, low-time aircraft, whether publicly listed for sale or not, are achieving transaction values close, if not equal, to the seller’s Ask Price, while older models are taking longer to sell. The tracked fleet’s average Ask Price decreased 12.4% to a 12-month low figure during August, primarily driven by Large and Medium Jets. Ask Prices have now tumbled 12.5% YTD, and 13.3% YoY.

Asset Insight Business Aircraft Fleet Maintenance Condition - August 2021

Inventory Fleet Maintenance Condition

As might be expected, buyer preference for the limited higher quality assets negatively impacted the remaining fleet’s Quality Rating, although Maintenance Exposure did improve. Specifically:

  • Quality Rating decreased 0.5% to post a second consecutive 12- month low (worst) figure at 5.238. The Rating dropped the fleet into ‘Very Good’ territory from the previous month’s ‘Excellent’ range on Asset Insight’s scale of -2.5 to 10. The decrease statistically points to more near-term maintenance events for the listed fleet.
  • There was some positive news with respect to Maintenance Exposure (defined as an aircraft’s accumulated/embedded maintenance expense), as it improved (decreased) 1.9% to $1.464m in August. The figure was just below (better than) the 12-month average, signaling upcoming maintenance event completion expense for inventory units will be somewhat lower, although that cost will also be 3.3% higher compared to 2020.

Maintenance Exposure to Ask Price (ETP) Ratio

After decreasing for two consecutive months, Asset Insight’s tracked fleet’s ETP Ratio rose to 72.9% from July’s 71.9%, but still managed to maintain a figure that was 0.1% better (lower) than the 12-month average.

Asset Insight Business Aircraft Fleet ETP Ratios - August 2021

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’ (DoM) 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 Q2 2021, assets whose ETP Ratio was 40% or higher were listed for sale nearly 89% longer (on average) than aircraft whose Ratio was below 40% (281 versus 530 Days on Market). August’s market analysis also revealed that 49% of Asset Insight’s tracked models, and over 59% of its tracked fleet, posted an ETP Ratio greater than 40%.

Market Summary

Corporate operators continue to represent a smaller percentage of buyers than in years past. While first-time purchasers have stepped in to create today’s buoyant sales figures, they also negatively impact availability as they have no aircraft to re-market.

Approximately 6.5% of the active fleet was listed for sale at the end of August, compared to 10.5% on the same day one year ago. Statistically, current availability epitomizes a sellers’ market. The problem is that too many sellers are offering assets whose technology and age make them unappealing to prospective buyers, while some models have reached their financial obsolescence.

Consider an aircraft whose market value has decreased to, say, $500k, and whose ETP Ratio is 150%. That means the aircraft has an additional $750k of accrued/embedded maintenance that a buyer must find some way to justify.

Even if the aircraft were available for $250k, the new owner would be acquiring an asset whose liabilities equate to three times the asset’s value.

Asset Insight Large Jet Fleet Maintenance Condition - August 2021

Large Jets:  Availability is hovering in the mid-5% range for the 43 models Asset Insight tracks. YTD inventory has decreased 33.4% (144 fewer units), with the YoY decrease equating to 42.4%.

As proof that buyers preferred assets of higher caliber, the Quality Rating posted a second consecutive low figure, worsening another 1.3% to 5.483. This effectively dropped the fleet’s Rating into ‘Excellent’ territory from the previous month’s ‘Outstanding’ range.

Maintenance Exposure improved (decreased) by 0.9%, edging the group below July’s 12-month high (worst) figure. Ask Price was this group’s tallest hurdle, with the figure tumbling 44.0% in August, resulting in a 14.7% YTD decrease, and 14.4% YoY. The Ask Price decrease negatively impacted the ETP Ratio, raising it above the 12-month average to 63%, following two consecutive monthly improvements (decreases).

Availability is, and will continue to be, a significant issue for this group. Accordingly, whether you are a buyer or a seller, we continue to recommend you start your search as soon as possible if you wish to close before the end of this year.

Asset Insight Mid-Size Jet Fleet Maintenance Condition - August 2021

Mid-Size Jets: Asset Insight’s 45-model tracked fleet posted another 7.7% inventory decrease in August (-40 units), and is now down 38% YTD (198 units) and nearly 50% YoY. Buyers appeared to prefer lower quality assets in August, raising the Quality Rating for the remaining inventory 1.4% to 5.280.

That propelled the group’s rating into ‘Excellent’ territory, even though the figure was only marginally better than the 12-month low Rating. Maintenance Exposure improved by 2%, as well as 1.5% YoY, with the figure standing near the group’s 12-month low/best.

As a result of these favorable changes, the ETP Ratio improved (decreased) to 65.3%; a 12-month low (best) figure. The bad news came in the form of a 12.1% Ask Price decrease that established a 12-month low figure – a YTD decrease equal to 16.7%, and a YoY decrease of 21.3%.

These somewhat conflicting statistics are one reason we strongly recommend forming a knowledgeable team to help you sell or buy one of these assets.

Asset Insight Light Jet Fleet Maintenance Condition - August 2021

Light Jets: Just when we thought Light Jet inventory statistics were about to show some marked improvement, the figures for August proved us wrong. The Quality Rating for Asset Insight’s 29 tracked models decreased 1.2%, to a score worse than the 12-month average (but within the ‘Very Good’ range). Maintenance Exposure increased (worsened) 3.5% from July’s 12-month best (lowest) figure.

Surprisingly, Ask Price increased 4.7% following last month’s 12- month low figure, but that still left YTD pricing down by 10.8%, a YoY drop equating to 13.7%, and an average Ask Price that is still lower than that of the tracked Turboprop fleet.

Following two consecutive monthly improvements, the ETP Ratio jumped to 115.3% from July’s 110%, providing additional proof that inventory is primarily comprised of aging assets. Still, sales created another decrease in availability, with 6.5% of the fleet listed for sale as August closed, compared to 10.4% one year earlier. Inventory is now down 202 units for the year (36.5%) and 46.4% YoY.

There are good values available within this group, but finding them will require detailed analytics.

Asset Insight Turboprop Fleet Maintenance Condition - August 2021

Turboprops: For the third time this year, inventory for the tracked 17-model fleet increased, although the figure amounted to only 0.5% (two units). For the year, Turboprop inventory is down 23.6% (-96 units) and 36.3% YoY, while 5.5% of the active fleet is listed for sale, compared to 7.4% in August 2020.

Sales of higher quality asset lowered the Quality Rating by 0.7%, but maintained a ‘Very Good’ ranking with a figure of 5.078. Maintenance Exposure improved (decreased) a nominal 0.4%, reflecting an improvement over July’s 12-month high (worst) figure, and the changes in fleet mix worsened the group’s ETP Ratio slightly.

However, at 41.9%, the Ratio is certainly quite respectable, and the group continues to offer value-based transaction opportunities for both buyers and sellers.

MI www.assetinsight.com

GAMA Q2 2021 New Airplane Shipment Analysis

The Covid-19 crisis put a damper on business aircraft sales last year, but based on the latest report issued by the General Aviation Manufacturers Association (GAMA), things appear to be picking up. Mike Potts assesses the details.

GAMA’s Q2 2021 new airplane shipment report, released in September, shows all categories of aircraft, including business jets, turboprops and pistons, to be significantly up compared to a year ago. Total aircraft deliveries for H1 2021 numbered 1,050 units, up 16.8% Year-over-Year (YoY). Billings reached US$8.6bn, a gain of 9.4% from $7.9bn in H1 2020.

  • H1 2021 business jet deliveries stood at 264 units, up 8.2% from 244 in the same period last year.
  • Turboprop gains led the industry by a wide margin, up 45.4% in H1 2021 (221 units, up from 152 in H1 2020).
  • Pistons also performed strongly, totaling 565 units, 12.3% ahead of the 503 piston-powered aircraft delivered a year ago.

Noting that the industry has not yet fully returned to pre-pandemic levels, GAMA President and CEO Pete Bunce said his organization is working to address supply-chain issues, strengthen the workforce, and enhance environmental stability in support of the ongoing recovery.

Cessna Citation M2

The Business Jet Market

The market for business jets appears to be gaining strength for the first time in a while. The 8.2% pickup we’ve seen so far this year represents the first time since before the pandemic that the jet segment has showed upward movement of more than a percentage point or two in any one quarter.

The jets have lagged while the other segments were starting to build strength. Now the jet segment finally appears to be moving upward too.

Looking to the specifics, we see that five of the 10 jet makers had better results in H1 2021 than a year ago, and six of the 10 enjoyed a better Q2 than in Q2 2021. Some of the bigger players in the jet market, however, including Gulfstream, Pilatus and Cirrus did not equal their prior year first halves. Recovery in the jet market is clearly not yet fully developed.

Leading the jet market by a wide margin was Textron’s Cessna unit with 72 deliveries in H1 2021, up from 46 in H1 2020, an improvement of more than 56.52%. In just Q2, Cessna reported 44 jet deliveries, up from 23 in Q2 2020 – an even more remarkable gain of 91.30%.

Second place in the jet market went to Bombardier, with 55 deliveries in H1 2021, up from 46 the year before (a gain of better than 17.39%). For just Q2, Bombardier reported 29 units, up from 20 in Q2 2020, or a gain of 45%. 

Gulfstream, which had been in second place, saw its YTD total drop slightly, at 49 units, down from 55 in H1 2020. For Q2 alone, Gulfstream was down from 32 units in 2020, to 21 this year. A few months ago, I thought that Gulfstream could conceivably accelerate into first place, so its falter in Q2 2021 was unexpected.

Embraer captured fourth place in the jet race with 33 units for the year, up from 22 in H1 2020, or a gain of 50%. Embraer also performed strongly in Q2 2021, reporting delivery of 20 units, up from 13 in Q2 2020 (up 53.85%).

Cirrus came fifth, reporting 23 delivered in H1 2021 – down from the 31 units delivered in H1 2020, although Cirrus’s Q2 this year was ahead of Q2 2020 by 16 units to 13.

Sixth place in jet deliveries went to Pilatus, with 15 units shipped in H1 2021 down slightly from the 16 delivered in H1 2020. For Q2 alone, Pilatus was 33.33% ahead of last year (12 versus nine shipments).

Dassault and Honda were tied for seventh place, each reporting six deliveries. For Dassault, that was down from 16 a year ago, while Honda was also down from nine. For just Q2, Honda reported a single unit, down from two a year ago, while Dassault only reports half-yearly.

The airliner-based jet segment was also more active than usual. Airbus captured ninth place with four deliveries, including two in Q2. Airbus’ YTD total represented a gain over the prior year, when Airbus reported three deliveries. Meanwhile, the company’s Q2 totals were level. Boeing finished H1 2021 in tenth place with a single delivery, up from the year before.

It’s reasonable to assume that the jet market recovery will continue to expand in the months ahead to include those companies that have not yet benefitted so far. If that happens the market should be on the way to a strong recovery by the end of this year.

Pilatus PC-12 NGX

The Turboprop Market

Recovery is already beginning to flourish in the turboprop segment. Five of the eight companies manufacturing business turboprops reported gains for both YTD and in Q2 alone, two more were even for both periods, and only one was down.

Within the Q2 report, the total business turboprops delivered in 2021 stood at 127 units, up from 89 in 2020, or a gain of approximately 42.70%. You will note that the 127-unit total differs from the 221 units in GAMA’s report. The difference owes to GAMA’s number including single-seat agricultural aircraft (82 from Air Tractor and 12 from Thrush).

It is our position that these agricultural airplanes are not traditional business aircraft, thus, we remove them from the turboprop total to present a more accurate picture of what is happening in the market for aircraft actually used in Business Aviation.

In the business turboprop market, the leader in deliveries at the mid-point in the year was Pilatus, with 33 units shipped during H1 2021, up from 29 a year ago. Pilatus experienced a very strong Q2, with 26 deliveries, up from 18 last year.

Daher was not far behind in second place, with 29 units (including 21 of its TBM models and eight Kodiaks) during H1 2021. Daher’s deliveries were up 93.33% from H1 2020, when it reported 13 TBMs and two Kodiaks.

Third place in turboprops was hotly contested, with Textron’s Cessna unit narrowly edging out its corporate brother Textron Beechcraft with 24 units to 23 during H1 2021. Both Cessna and Beechcraft had a strong Q2 in 2021, with Cessna delivering 17 aircraft in the period while Beechcraft delivered 16. Both were up from a year ago, when Beechcraft delivered 20 aircraft in H1 2020 and Cessna shipped 11 units.

Fourth place in turboprop deliveries is a very unfamiliar position for Beechcraft, which, since the 1960s, has led the turboprop market in most years and only rarely had to settle for the number two position.

Piper finished fifth in the turboprop race, with 17 units during H1 2021, and 11 in Q2 alone. That was a gain of more than 54.54% over last year when Piper reported 11 deliveries in H1 2020.

The remainder of the turboprop market consisted of Epic Aircraft in sixth place with one delivery, down from three last year, and Pacific Aerospace and Piaggio Aerospace tied for seventh, each with no deliveries in either period.

The turboprop market is clearly on a roll right now, significantly outperforming both the jet and piston segments. It will be interesting to see how long this pattern of growth continues. I would predict that by the end of the year the turboprop growth numbers will be more in line with what we are seeing in the other segments.

Pistons and Summary…

The piston-powered market continues to hum along, with deliveries running 12.3% ahead of the previous year. The 565 units delivered include 509 single engine, and 56 multi-engine aircraft.

Of the 16 single-engine piston manufacturers currently reporting to GAMA, nine had gains over last year for H1; five lagged their 2020 results, and two were even. As in the jet segment, improvements in the market have not reached all of the players, but a majority are definitely on an upswing.

If this trend across all markets continues for the remaining two quarters of the year, perhaps we can proclaim full recovery as we move into 2022. At this point, I am cautiously optimistic that things are going to continue to improve.

MI www.gama.aero

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Brian Foley

Brian Foley

Editor, Market Intelligence

Brian Foley formed Brian Foley Associates (BRiFO) in 2006 to assist aerospace firms and investors with strategic research. In addition to his work as Market Intelligence Editor, AvBuyer, he is a regular contributor for Forbes.com and his views are published in the media worldwide.

Currently, Brian serves the Transportation Research Board as a member of the Business Aviation, helicopter, commercial airline and UAV system subcommittees, and he previously served on the Wall Street financial firm Board.

Before starting his consultancy business, Brian was marketing director at Dassault Falcon Jet for 20 years, and started his career at Boeing. He is an instrument-rated private pilot.


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