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As has become its annual tradition- Honeywell helped kick off the National Business Aviation Association’s annual convention with a presentation of its Business Aviation Outlook – the much anticipated Honeywell Forecast – on Saturday- October 4. The announcement- made by Honeywell’s Rob Wilson- president- Business and General Aviation- Honeywell Aerospace- came on the heels of a turbulent financial ...

Mike Potts   |   1st November 2008
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Mike Potts Mike Potts

Mike Potts is a writer and consultant who has been involved in aviation for more than 30 years....
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Honeywell Keeps Faith In Forecast: 17-000 bizjets forecast for delivery between 2008-2018.

As has become its annual tradition- Honeywell helped kick off the National Business Aviation Association’s annual convention with a presentation of its Business Aviation Outlook – the much anticipated Honeywell Forecast – on Saturday- October 4.

The announcement- made by Honeywell’s Rob Wilson- president- Business and General Aviation- Honeywell Aerospace- came on the heels of a turbulent financial week that saw the U.S. Government struggling to craft a $700 billion rescue plan designed to head off a potential catastrophe in the nation’s financial markets. Wilson acknowledged that events of the previous month – which included the collapse of U.S. investment banking institutions Bear Sterns and Lehman Brothers- and an $85 billion bailout of insurance giant USAIG – could have a profound impact on the Forecast- and said Honeywell executives had considered postponing its release in light of the unprecedented financial situation.

Ultimately- however- Wilson said Honeywell decided that it has faith in the long-term foundation of its data and its capacity to forecast broad market trends over an extended period of time- notwithstanding short-term financial trends- so Honeywell decided to go ahead with releasing the Forecast.

Simply put- Honeywell’s view of the future is very optimistic. In fact- it is 21 percent more optimistic than what it showed last year. During the period 2008 to 2018- Honeywell expects to see deliveries of 17-000 business jets. Last year it forecast 14-000 between the period 2007 to 2017. For much of the past decade- the forecasts for the business jet market have predicted a cooling of the market around the 2009–2011 period. In Honeywell’s latest forecast- this expectation of a market adjustment is unchanged.

Honeywell is predicting a record year in 2008 – a virtual certainty since what we already know about the first three quarters of the year – to be followed by yet another record year in 2009. Afterward- however- there will be a downturn in the years 2010 and 2011- to be followed by a steady increase in sales extending through to 2018 and perhaps beyond. By the end of this period of business jet prosperity- Honeywell believes annual unit deliveries will have topped the 2-000 mark.

Expressed in constant 2008 dollars- Honeywell is forecasting that annual sales volume will reach nearly $40 billion by 2018 – nearly double where we are today. If this scenario proves to be accurate – and Honeywell’s track record for accurate predictions over the past two decades is excellent – the next 10-years are going to be a very good time to be in the business jet manufacturing industry.

In fact- over the past five years- Honeywell’s predictions have actually turned out to be on the conservative side. Generally speaking- the market has grown faster and expanded more quickly than Honeywell expected.

No update- but Rolls-Royce concurs
In previous years- Rolls-Royce also has issued a forecast at NBAA. The two forecasts- Honeywell and Rolls-Royce- covered different time-frames – Honeywell’s was a 10 year prediction while Rolls-Royce extended its outlook for 20 years – but despite using different methodology and a different survey base- their forecasts have tended to be quite similar. Rolls-Royce changed its pattern last year- and issued its annual forecast at the European Business Aviation Convention and Exposition (EBACE).

Ginny Person- Rolls-Royce communication manager for its Civil Aerospace division that issues the survey- noted that the forecast her company issued last May at EBACE postulates a market of similar size to what Honeywell is now predicting. Specifically- Rolls-Royce’s EBACE forecast is predicting the sale of 39-000 jets over the next 20 years. This compares with Honeywell’s forecast of 17-000 new jets by 2018. Given that the sales rate Rolls-Royce is predicting is higher in the second half of its forecast period- it’s easy to view these numbers as being effectively identical.

Rolls-Royce is predicting a shallower recession than Honeywell foresees for the jet manufacturing industry in the 2010 – 2011 timeframe. In fact- Rolls-Royce sees the coming downturn as more of a leveling-off- rather than a downward trend. Looking forward- Rolls-Royce is also predicting a reduction in annual demand in the period 2015-2016 and another reduction in the 2022-2023 timeframe. Honeywell’s chart shows a steady upslope through 2017 once the current financial situation has passed. Neither of these differences is likely to be significantly meaningful.

Rolls-Royce did not issue an updated forecast at this year’s NBAA- and Person would not say whether one would be forthcoming at the upcoming EBACE.

Honeywell is expecting the total business jet market for 2008 to be up by 15 percent over last year- in spite of the developing uncertainty in the North American market – traditionally the world’s strongest region for business jet sales. It notes that current industry backlogs amount to years of production- and so is expecting the market to continue growing even as flight activity begins to tail-off in response to growing fuel costs and other economic pressures. Honeywell noted that- for the first time in several years of gathering data for the Forecast- U.S. operators are saying they may use their aircraft less frequently than in the past – mostly in response to rising operating costs.

The trend toward increasing globalization of the market is slowing somewhat- Honeywell reports. It forecasts that 45 percent of new aircraft bought over the next five years will go to customers outside the U.S. Previously it had been thought that this number would be closer to 55 percent- and while it could still go that high- that isn’t what Honeywell expects to happen. Purchase expectations are up in North America and Latin America- but off moderately in Europe and the Middle East- and are down more markedly in Asia.

In raw numbers- Honeywell expects 55 percent of the new jets bought over the next five years to go to North American customers. Europe will account for 20 percent; Latin America 12 percent. Asia and Oceania will combine for 10 percent of the market and Africa and the Middle East will get the remaining three percent.

The strength of the Euro and other European currencies against the U.S. dollar is helping to drive some of this growth- Honeywell noted. It said recent strengthening of the dollar could adversely affect sales in some European and other markets- and noted that if this trend were to continue there could come to be some market pressure on the forecast.

A significant segment of the demand in the market is coming from fractional operators. Honeywell estimates that 10 to 12 percent of the current backlog is earmarked for fractional shareholders or Jet Card purchasers. This segment has seen significant growth in the past five years- but that demand has begun to flatten over the past years. Nonetheless- Honeywell is expecting that 10 to 11 percent of deliveries will continue to go to fractional ownership and Jet Card buyers.

Honeywell says demand is fairly evenly distributed among the various categories of business jets- with medium and medium large aircraft expected to be the best selling categories over the next five years. Collectively these two segments are expected to account for 29 percent of the unit deliveries between now and 2013.

The light and light medium segments are expected to total 23 percent of the sales over the next five years- while large and ultra long-range aircraft will make up another 21 percent of the market.

New segment
An all-new segment of very-high-speed and ultra-long-range airplanes is expected to emerge beginning about 2012. These airplanes will include the new Gulfstream G650- and other competing models expected to emerge. Honeywell believes this new segment will account for 500 or more deliveries by 2018.

The balance of the market is expected to come from the very light and personal jet categories- with both segments being driven by the emergence of new products. In the very light category- the introduction of the Embraer Phenom 100 and the re-introduction of the Sino Swearingen SJ30- recently re-named the Emivest SJ30- will help to drive demand in this segment.

The Personal Jet category is likely to have even more new entrants in the next three to five years- including the Diamond D-Jet- CirrusJet- PiperJet- and the new HondaJet- as well as the revival of the Adam 700 and resumption of production for the Eclipse 500- which invented the category.

Previously Honeywell had not included the aircraft in the Personal Jet category in its forecast- as it did not initially believe these constituted business aircraft- but these are now blended into the data. The emergence of this segment has been somewhat delayed- Honeywell noted- by “financial and execution issues-” that have beset some of the market entrants.

Also not included in Honeywell’s forecast numbers in previous years are the airplanes in the business liner category. Like personal jets- this is a segment that is growing with the introduction of both new models (Airbus now offers four choices) and new manufacturers – Embraer joined Boeing and Airbus in competing for business liner buyers this year. Honeywell still separates this group of airplanes from the rest of its forecast- however.

The business liner category is not large in terms of volume – it is only expected to add about 250 units to the delivery total over the next 10 years- but its financial impact is disproportionately large because the airplanes are more expensive than most traditional business jets. As a result- the segment is expected to account for $18 billion in sales over the coming decade.

In conclusion- Honeywell is expecting both 2008 and 2009 to set records for business jet deliveries- but the 2009 figure is expected to be riding on some of the backlog that has been built up over the past several years- and it will mark the apex in sales for a few years to follow.

International demand is significant- but softening somewhat. The introduction of new high-value higher-performance aircraft will drive expanded market growth after 2012.

Flight activity is off a little- and operators are concerned about fuel costs and the potential for a slowing economy around the world- triggered by a U.S. slow down. Overall- however- the prospects for growth in the business jet segment are excellent- and the market should experience steady growth over the next 10 years- particularly in the years after 2012. This year marks the 17th time that Honeywell has made the findings of its forecast public. The company has been gathering data and developing a forecast for 22 years- but during the first five years Honeywell shared its findings only with its customers.

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