In this JETNET >>KNOW MORE analysis Mike Chase and Marj Rose assess the nine months year-to-date market trends for New and Used Business Aircraft for Sale, comparing 2015 to 2014.
Two years ago we noted a market trend that showed owners were choosing to fly their aircraft beyond their ‘normal’ upgrade cycle. We concluded that this fact could be the case until market prices improved and a new cycle of business jets entered the market. At that time 16 new or derivative business jet models were either entering, or soon arriving on the market.
Fast-forward to today, is this trend still the case? In addition, would now be a good moment to review the status of these new and derivative business jets?
If original owners have been keeping their business jets longer since the downturn began in 2008, perhaps that trend would help explain why the used business jets for sale inventory has remained at such a high level…
New Business Jet Deliveries
New business jet deliveries by OEMs over the past seven years are reflected in Table A. For the first nine months of 2015 new business jet deliveries are up 4.1% compared to the first nine months of 2014. Activities by OEM show that the ‘Top Three’ (Bombardier, Gulfstream and Cessna) have each changed position since 2009, with Bombardier currently leading the pack. Overall, new business jet deliveries are lower today compared to 2009 but inching closer to the level recorded in 2010.
The good news? Deliveries after nine months of 2015 are at their highest level (479 units) since 2010. The intervening years are showing nearly the same level of deliveries across the first nine months of each year. We thought that 2011 (427) was the inflection point, however the year 2013 (421) is the new inflection point.
Pre-Owned Full Sale Transactions
Used business jet deliveries (by OEM) during the first nine months of the past seven years are reflected in Table B. Results for the first nine months of 2015 are down -2.8% compared to the same period in 2014. As reported, 2014 was a record year for used business jet full retail sale transactions and the first nine-months of 2015 is only slightly off that record-setting pace.
The largest declines in Pre-Owned sale transactions are from Textron Cessna Jets models, when the first nine months results for 2015 are compared to the same period for 2014. Gulfstream, Embraer and Eclipse (highlighted in orange) are showing the most positive changes compared to all the other OEMs for the comparative period.
Average Length of Jet Ownership
The average length of business jet ownership has shown growth from 2006 to 2015 across all makes and models, as reflected in Chart A. We believe owners have held on to their aircraft because of the difficult economic times that started toward the end of 2008.
Several knock-on effects have resulted in the growth in average length of ownership, including:
• The difficulty of securing new financing;
• The loss of value retention in the aircraft;
• High ‘For Sale’ inventory levels;
• Longer ‘days on the market’ average; and
• (Positively) Better reliability and upkeep of business jets.
Over a 10 year period – 2006-2015 – during which we compare trends for the first nine months of each year, the Average Length of Ownership has continually grown for ‘New’ business jets from 3.8 years to 5.1 years and for ‘Pre-Owned’ from 2.3 years to 3.3 years.
According to JETNET, owners of new Dassault aircraft have the highest average length of ownership (5.8 years) compared to others currently. Cessna aircraft and Bombardier Challenger owners follow at 5.2 years.
New Business Jets in Development
Table C offers a summary of the the major business jets that were in development in 2013 and in 2015. Note: there are three newly announced business jets, the Falcon 8X and the Gulfstream G500 and G600 jets, along with the cancellation of the Learjet 85 program and suspension of the Diamond D-Jet.
New Business Jet Orders from Frax Providers
Summarizing the status of new business jet orders from the fractional providers by firm orders and optional orders, JETNET data reveals 380 and 640 orders, respectively, divided between four companies (NetJets, Directional Aviation, PlaneSense and Jetfly Aviation). 370 of those firm orders are from NetJets and Directional Aviation as are all of the optional orders. There can be no doubting the significance of these fractional orders to the business jet industry as we move from recession towards recovery.
How many of these orders will replace existing, high-time fleet aircraft as the fractional fleet average age grows, and how many will contribute to fleet growth?
In recent years the market for fractional aircraft and fractional shareholders has been in decline. Before the downturn, all providers purchased an average of 10-15% of the new business jets delivered annually.
NetJets accounts for the highest number of new business jet orders and options of the providers listed. Table D shows the number of NetJets firm and optional orders by business jet model including the expected delivery date of the first. The last column is the number of orders filled through November 2015 as reported by JETNET. Note the delay from 2017 to 2H 2018 for the Global 7000 and 2019 for the Global 8000. This is already having its impact on the fractional providers which are seeking alternatives.
Historically, the business jet market has been stimulated by new aircraft introductions coupled with improving economic conditions. For example, the strong upturn in the market in 1996 was accomplished by several key factors including a strong US economy, new aircraft deliveries and the introduction of fractional ownership. We believe this generalization will continue to characterize the market.
With each new aircraft model built, a ‘bump-and-run’ delivery cycle occurs. The bump comes with first deliveries of a new model and is generated by market excitement for the new model and what it has to offer. This in turn creates a backlog of orders which tapers off over time (the run), as the OEM ramps-up production to fill that new demand.
With the annual NBAA Convention scheduled immediately after this article was submitted, we’re staying alert to announcements for any new or derivative business aircraft models. These new aircraft announcements (in our opinion) will continue to help stimulate our industry and provide the anticipated growth we’re all looking for in the business jet marketplace.
Of course, US and global GDP growth must be stronger, and lower jet fuel prices can do nothing but help. These factors hold the key to picking up the pace in the pre-owned and new business jet markets.
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