The business aviation community will converge on Orlando, Florida, from 1 to 3 November for the industry’s largest annual showcase, the NBAA Business Aviation Convention and Exhibition (BACE).
It is fitting that the USA – home to the world’s largest population of business aircraft owners and manufacturers – has played host to this vast, iconic show since its conception 69 years ago.
The importance of the US market cannot be understated. Flight Fleets Analyzer records an installed base of around 18,000 business jets and turboprops, which represents 60% of the global fleet.
The region consistently accounts for more than half of new aircraft deliveries each year, with small and midsize-category models making up the bulk of the shipments.
Analyzer records a year-on-year hike in turbine aircraft deliveries to US customers since 2012, from 445 units to 580 in 2015. While this is significantly down on the 2008 market peak of nearly 930 units, the US is faring better than the rest of the world, where only 394 aircraft were shipped in 2015.
“The USA has all the ingredients for a thriving aviation market, not least a vast customer base and a robust infrastructure to support the fleet,” says Peter Bunce, chief executive of the industry trade body General Aviation Manufacturers Association.
STUBBORN DOWNTURN
While the US business aviation market is doing well by international standards, Bunce says the stubbornly persistent financial downturn and fragile economic climate continue to pose significant demands. “The economic challenges are refusing to go away,” he cautions.
He says three consecutive quarters of 3% GDP growth are typically a bell-weather for a recovery, “but the US market isn’t hitting that.”
“We have been growing at 1-2% a quarter, which is a pretty tepid recovery and not enough to really stimulate the market.”
What is holding it back?
Aircraft manufacturers are chasing new sales in a sector where inventory of second aircraft for sale is stubbornly high at over 11.5%.
In a “healthy” business aviation market this fleet should not be greater than 10%. “New and upgraded aircraft offerings are helping to stimulate demand,” says Bunce. “But with so many good deals on used models, this has become a buyer's rather than a seller's market. The impact on residual values has been hefty.”
His views are borne out by FlightGlobal’s Ascend Consultancy.
Its data paints a picture of plummeting aircraft values across the sector. A super-large Bombardier Global 5000 bought new in 2010 for $35 million has a market value of around $23 million in 2016. Similarly, 2010-build Cessna Citation XLS+ acquired for $11.4 million has a value of around $6 million today.
Dismal residual values are hitting owners’ pockets and manufacturers’ profits as their quest to shift new designs in a squeezed market have sent margins spiralling.
Gulfstream’s G150 became the latest casualty of the bloated used aircraft market in September. Plummeting demand for the midsize type, poor residual value for pre-owned versions – a new build bought for $14 million in 2010 is worth less than half that amount today – and increased competition in its niche sector, persuaded Gulfstream to call time on the twinjet after a 10-year production run. The last unit will be delivered in 2017.
“We are all going after the same piece of pie,” says Phil Krull, managing director of Embraer Executive Aircraft. “It’s really tough out there, and companies are having to offer very attractive incentives to sell their aircraft.”
The USA’s dominance of the business aviation market convinced Embraer to establish a manufacturing facility in the country in 2008 for its Phenom business jet family. Its plant in Melbourne, Florida opened in 2011 and is now the sole producer of the entry-level Phenom 100 and 300 light twin. “We have produced over 200 at the plant to date,” says Krull, with over 70% of these units delivered to US-based owners.
The superlight Legacy 450 is now being produced in Melbourne as well as at Embraer’s São José dos Campos headquarters in Brazil. The midsize aircraft will join the Florida assembly line early next year. “We have the capacity to built up to eight Phenoms and six Legacys a month, but we won’t get there for a while.”
Buyer confidence is the key obstacle to a flourishing market suggests Bunce, and while there are signs of optimism, too many uncontainable factors are stifling growth.
GLOBAL SETBACKS
“We have gone through market downturns before, but it is very different this time,” says Bunce. “There are so many global issues that are influencing US buyers.”
He points to the slump in oil prices. “The energy economy stimulated growth, but the good days of the oil boom are gone for now,” Bunce says. He cites the once bustling airfields in North Dakota and Alaska – home to large US oil fields – to illustrate his point. “There was tremendous number of fixed-wing aircraft and helicopters there in the boom times, but not any longer,” Bunce adds.
Global geopolitical instability and economic uncertainty are also causing jitters across the US market with unrest across the Middle East and the impact of the UK’s exit from the European Union (Brexit) being key concerns.
“The UK and North American aerospace industries have close ties,” Bunce says, citing as an example Bombardier’s factory in Belfast, Northern Ireland, which supplies major parts for its Learjet, Challenger and Global business jet families. The Belfast-based company also has strong ties with many European suppliers.
“How are we going to be regulated in the future? How will Brexit impact the free flow of parts between our countries? There are so many uncertainties that this could go on for some time.”
Closer to home, the outcome of the US presidential election is also creating uncertainty. While the country is now in the final throes of the bitter Clinton/Trump election campaigns, US industry will be hoping whoever is chosen as the next Leader of the Free World on 8 November 2016, will value business aviation’s contribution to the US economy.
Industry is justifiably cautious. Shortly after his election in 2008, outgoing President Barack Obama projected an anti-business jet sentiment. This was triggered by the national recoil at the apparently casual use of corporate aircraft by the leaders of the major US motor manufacturers when they travelled from Detroit to Washington DC to plead for a state bail out for their companies following the financial crash.
Obama’s reaction triggered a period of negative publicity for the industry, which it hasn’t shaken off completely, despite a wave of positive campaigns designed to boost the image of business aviation. “Thanks to the class-warfare style politics practised by Obama in his first administration, the scrutiny continues today,” says Bunce. “While businesses still fly private aircraft, there is still a lot of corporate pressure from shareholders.”
“Many companies have the funds to purchase a new aircraft, but many are choosing to spend it on other things, such as cybersecurity. This is now a critical issue for business,” says Bunce.
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Source: Flight International
