Summary
1) A brief historical review will show any casual observer that new jet deliveries lag wider economic recovery by some 12 months. 2) Demand heading into the current downturn was already dominated by international demand. 3) What most forecasts fail to highlight is who the winners will be as the business jet market recovers. Unlike prior cycles, some demand sources will be late to the party, and demand will not be evenly distributed across all OEMs and service providers.
Analysis
Thirty years of reviewing forecasts has taught me that they have limited use. Most are based upon backward-looking regression models, which do a sub-par job as predictors of future market volume, or the timing and magnitude of downturns. Segment-specific breakdowns are usually based upon buying intentions surveys that provide a limited, short-term, view of where demand might flow. These forecasts are even less reliable when surveying users in emerging markets (where historical trading data is sparse) and usually fail to break segment-specific demand into delivery projections for individual aircraft models. As someone who got Bombardier into the forecasting arena, and launched all of the defining research for the Challenger 300, these comments are based upon many years of new aircraft program development, and detailed discussions with most of the leading forecasting organizations. The current crop of forecasting models would be an order of magnitude more useful if they could be used to accurately predict market, segment and model-specific activity.
Many datum points suggest that business aviation has bottomed-out. There are risks, however. Firstly, we have an unusually large number of late, low-time, used aircraft available, the sheer volume of which will undermine the sale of new versions of these same models, for some time. In this regard, the new aircraft market has been undermined by the unusually high rate of business jet deliveries in 2007 and 2008. Secondly, many used aircraft owners have withheld their aircraft from the market because transaction prices are unacceptably low, or because they are upside-down with their financing. As values recover, we are likely to see another wave of aircraft swell used inventories, further undercutting demand for new jets. Thirdly, fractional providers are holding some 175-200 used aircraft in their fleets, over and above any core fleet requirements. If they choose to retain most of these used aircraft - the most likely scenario - new aircraft deliveries to fractional providers will be greatly reduced for several years. Total cumulative net share sales did not reach 200 aircraft over the last seven years, combined. Finally, many aircraft buyers are struggling to get attractive financing for their new aircraft, a problem that is likely to undermine new aircraft sales efforts. Competitive, readily-available, financing from players like Cessna may prove to be a thing of the past.
Looking at the major manufacturers - Cessna (Textron), Gulfstream (General Dynamics), Bombardier, Hawker Beechcraft, Dassault & Embraer - we have seen very significant product proliferation over the last five years, and the entry of a new, and potent, player in Embraer. All major business jet segments are now far more competitive than ever before. The Bombardier Challenger 300, for example, enjoyed little serious competition during the last market upswing, resulting in delivery rates that very few $20 million aircraft have ever achieved. However, the Hawker 4000 and Gulfstream 250 represent serious threats, and are going to erode market share for the Bombardier product in the years ahead. Other new programs, like the Embraer Phenom 100 & 300, Legacy 450 & 500, Learjet 85, Falcon 7X and Gulfstream 650 will all change the balance of power in key market segments.
Looking forward, market forecasts will be interesting indicators of potential total market volume, though with some important caveats. However, the real skill will be in breaking-down demand at the segment and product level. Without such detailed information, it will be impossible to accurately assess how the major manufacturers will perform, regardless of overall market activity.
