Business Jet OEMs: Where are the Product Gaps?

Although deliveries of new jets slowed in 2020, they are unlikely to remain in the doldrums for long. The leading manufacturers are undoubtedly hopeful of tapping into some of the new interest in Business Aviation generated by the Covid pandemic. But which markets are they most likely to target? René Armas Maes explores...

Momentum gathered over the last year for pre-owned aircraft sales – particularly with many first-time buyers entering the market.

Both businesses and individuals took a more insightful approach to how they could fly more productively after many of the global airlines retrenched to their hubs, largely abandoning non-stop services to Tier 2 and Tier 3 destinations. The focus for the airlines has been to optimize load factors and profitability during the Covid-19 pandemic.

In contrast to the uptick in pre-owned aircraft sales, deliveries of new jets have regressed. Whereas between 2017 and the end of 2019 the ‘Top Five’ OEMs (namely Gulfstream, Dassault Falcon Jet, Bombardier, Embraer and Textron Aviation) delivered an average 606 business jets per year between them, in 2020 they delivered just 493. That’s a drop of 19% on the recent average.

While scheduled airline services have regained approximately 60% of their pre-pandemic capacity, Business Aviation charter operators, jet card providers, aircraft management companies, and fractional ownership operations are reporting higher than usual demand.

Despite the drop in shipments during 2020, business jet OEMs may be hopeful of benefiting from this enhanced customer exposure, and may well be feeling upbeat about the future growth of their businesses.

An Important Time for Refreshing Product Lines

With many new entrants to the Business Aviation market, and with a scarcity of inventory for pre-owned aircraft, some buyers may refocus on the new aircraft market. 

This could be an important time for the launch of some new, clean-sheet platforms. These would help refresh the various product lines with greener, quieter, more fuel-efficient engines, cabin updates, and more.

Not only would this help incentivize futures sales, and encourage existing customers to upgrade to the next product level, but it would increase product line competitiveness, and strengthen profit margins and aircraft portfolio billings.

Essentially, planned development programs help to boost innovation (and an aircraft OEM’s brand) for years to come.

New Aircraft Case studies

Between 2017 and 2019, Gulfstream introduced its new G500 and G600 Ultra-Long-Range Jets, while Bombardier did the same with its new Global 7500 flagship. In the Mid-Size segment, Embraer launched its Praetor 500 and 600 series, and Textron Aviation introduced the Cessna Citation Longitude.

Though Dassault had hoped to bring its Falcon 5X to the market, the company had to cancel that product after problems with the Snecma Silvercrest engines.

An analysis of the period reveals that Dassault was the only OEM with a negative product portfolio billing Compound Annual Growth Rate (CAGR), at -8.3%. By comparison, Gulfstream performed best with a CAGR of 6.2%.

Though Dassault is now making excellent progress towards certifying the Falcon 6X, the setback with the Falcon 5X cost Dassault during the timeframe, negatively impacting its billings.

Chart A shows how the introduction of a clean-sheet platform can help OEMs optimize billings. Note: Textron Aviation data is not shown since the company only reports total billing (including pistons, turboprops and business jets) to GAMA.

CHART A: New Platform Launch and/or Product Refresh (2017-2019)

Source: GAMA Shipment Reports, 2017-2019; consultant analysis

New Aircraft: What can we Expect in the Next 3-5 Years?

Today, the considerations being discussed in the OEMs’ boardrooms undoubtedly include:

• How to most efficiently preserve liquidity.
• Whether or not to adjust production rates.
• Whether the market’s newcomers will drive much of the growth in the coming years.
• The segments that will prove more resilient to economic downturns.
• Where to aggressively put resources, optimizing revenue.
• How to maximize Return on Invested Capital (ROIC).
• How to capitalize on growing segments.
• How to contain costs and optimize margins to get through the crisis.

With the scheduled airlines evidently not expecting business travel to resume anytime soon, and adding more domestic and regional capacity than long-haul routes, many OEMs will be asking themselves if business jet owners and prospects might favor Large Cabin and Ultra-Long-Range products in today’s environment.

Drawing on the details highlighted in Chart B (and in my opinion), we could see the following strategies deployed by some of the leading business jet OEMs in the next 3-5 years…

• Gulfstream: There is room for a new product replacing the Gulfstream G450 and offering a range in the region of 4,250-4,750nm. This could come via a brand-new platform, launched for the Large Jet segment.
  -    Product upgrade/refresh opportunities: Current in-production types will be refreshed according to market demand.
  
  
• Dassault: New product development of an aircraft in the 7,500nm range (i.e. the Falcon 9X or similar) that is able to compete head-to-head with the Gulfstream G700 and Bombardier Global 7500. Moreover, a shorter-cabin version of the Falcon 6X with de-rated engines could potentially replace the Falcon 900LX.
  -    Product upgrade/refresh opportunities: Falcon 2000 line and Falcon 7X/8X jets.

How good was the author's prediction? Read about the Dassault Falcon 10X.

• Bombardier: New product development replacing the Challenger 600 platform, which has served the company well for 40 years. A new platform could capitalize on the technological advances of the Global 7500.
  -    Product upgrade/refresh opportunities: Challenger 350 and the Global 7500 in few years’ time, to stay ahead in the Ultra-Long-Range category.
  
  
• Embraer: New product development could come if Embraer pushes forward with a clean-sheet Super Large Jet. In case such a decision is delayed, the company could re-focus on the Large Cabin segment to compete with other OEMs – particularly if the other OEMs proceed with new platforms for their next generation of products.
  -    Product upgrade/refresh opportunities: Current production types will continue to be refreshed as necessary (similar to the Phenom 100EV).
  
  
• Textron Aviation: New product development would likely focus on a 4,000-4,500nm jet, helping Textron compete in the Large Cabin market. Two previous attempts have been announced, with one (the Columbus) cancelled, and the other (the Hemisphere) on hold.
  -    Product upgrade/refresh opportunities: Having recently refreshed its CJ4 product, Textron could announce upgrades and refreshing of its Mid-Size products, before moving down to the Light Jet segment later.

CHART B: OEM Product Portfolio – Potential New Platforms/Refresh Opportunities

Note: Symbol GEN2, NG or + represents a potential refresh opportunity.

In Summary

The strategic decision behind product upgrades/refreshing, and the launch of new private jet platforms will be key as many OEM continue looking at how to optimize production rates and strengthen new aircraft pricing and residual values.

I predict the Large cabin segment - jets within the 4,250nm to 4,750nm range - to be the most keenly contested in the next 3-5 years among the leading business jet OEMs.

If Gulfstream decides to launch a new product in the segment later this year or next, it could push other OEMs to expedite development. However, this is not a decision that is taken lightly. Misinterpreting demand could put an OEM at a higher risk of liquidity, lowering their market position, branding and competitiveness.

Ultimately, going forward, the way OEMs position themselves in terms of new private jets and product refreshing may impact how quickly they recover from this pandemic, strengthening book-to-bill ratios in the process.

• Note: In the days following this article, the 7,500nm Ultra-Long-Range Dassault Falcon 10X was announced.

Read More About: New Jets to Market