Summary
The downturn in deliveries for business jets by the major aircraft OEMs, Cessna (Textron), Gulfstream (General Dynamics), Embraer (ERJ), Bombardier, Hawker-Beechcraft, and Dassault-Falcon, in particular, will affect not only these manufactures and their suppliers, but the business jet service industry as well. The service industry is made up of thousands of FBOs, MROs, charter and aircraft management companies, part suppliers, component repair stations, aircraft resale companies, etc.
Analysis
In thinking about the outlook for business jet deliveries and how the major downward direction will affect the service segment of industry, we should look at history. Last year about 1,100 business jets were delivered. This year, estimates range from 500 to 800. The higher number is my count of the OEMs’ latest estimate and does not count an expected downward revision by Cessna. Remember Cessna accounts for up to forty percent of all deliveries. To put these numbers into prospective it is helpful to remember that in the 1990’s, 300 to 400 deliveries was considered a good year. In 2000 OEMs delivered 751 business jets and 785 in 2001. The first 21st century cycle bottomed in 2003 at 518 deliveries.
For the next five years, delivery growth looked like the proverbial hockey stick graph. The factories built capacity in order to try and stay ahead of the curve. Embraer entered the market and all the other OEMs added new models to fill all niches for business aircraft needs. We now have six major manufacturers with excess capacity competing for a much smaller market.
While the estimates for deliveries of business jets in the USA had been predicted to drop before the economic crisis, the growth of international deliveries was projected to fill the gap and actually grow much faster than the USA. Unfortunately the economic crisis is global in scope and international sales are not materializing as projected. Next year should be a critical test for the OEMs.
According to David Strauss who follows this market at UBS, there are signs that the used business jet market is stabilizing. If so, this would be good news as it would ease the pressure off the factories trying to sell into the headwind. The banking industry is beginning to show some signs of improvement, credit markets are beginning to open up, and the stock market has had a six week string of upticks.
It may not be as dark for the business jet service industry. The population of aircraft is continuing to grow. However a number of the major MROs were sucked into the same overbuilding as the OEMs and have cut back plans and had lay offs. This segment may recover before new aircraft sales show positive signs of improvement.
