Business aviation may be better prepared the downturn caused by the Covid-19 pandemic than it was for the 2008 financial crisis, according to analyst Brian Foley.
In a report issued on 25 March, he said that in a matter of days the industry has moved from optimism over a promising start to the year “to a state of bewilderment, uncertainty and anxiety”.
While it is difficult to predict how business jet sales and usage will fare over the coming months “based on the recent avalanche of negative financial news”, Foley says “the industry is arguably in better shape to weather this downturn than it was going into the pummelling 2007-2008 financial crisis”.
Foley attributes this optimism to the strength of the US market, which he describes as “the epicentre of business aviation”, with 63% of the worldwide fleet based in the country – equivalent to around 14,200 “active jets”.
Before the coronavirus outbreak, US stock markets had been at ”all-time highs that were 67% above 2007 levels, with quarterly corporate profits around a third higher”, he notes.
Manufacturing was improving, job growth strong, consumer strength was “meaningful” and business investment healthy. “The most important economy to the industry was clearly in better shape before this downturn than it was in the last crisis,” he says.
Added to this, reforms to the financial system following the financial crisis have required banks to hold greater reserves and to adopt tighter lending standards, providing added liquidity and reduced credit risk. “For those who need to finance or lease a jet, rates are significantly lower than they were back then,” he adds.
While the business jet manufacturers’ backlogs are smaller than in the late 2000s, they are not “stacked” with as many speculators: “Some manufacturers put added teeth in their contracts since the last downturn, aimed to keep airplane flippers out of their books,” he says.
While there will inevitably be some cancellations and deferrals during this crisis, he notes, “the current order books are stickier”.
Year-on-year business jet deliveries climbed by a “solid” 15% in 2019, after a being “essentially flat” over the past decade. Much of the increase was due to the introduction of new aircraft, he notes, “which tend to stir up sales, and will do so into the future”.
There are admittedly some “weaknesses” in 2020 compared with the previous crisis, notably international markets such as China, the Middle East and Russia, will not provide the ”safety net” for the industry they once did, due to their fragile economies.
“As it was in 2007, the new jet market is still oversupplied with too many models chasing a finite number of buyers,” Foley notes.
However, he believes few in the in business aviation community will escape the “impending downdraft” of the Covid-19 crisis.
New and pre-owned sales will all be impacted as buyers wait for some semblance of normality to return. Reduced business jet utilisation will ultimately impact fuel sales and maintenance activity, which in turn will hit the fixed-base operator and MRO markets.
While there has been a recent spike in charter activity, driven largely by a demand for repatriation flights, that too will taper off, says Foley, as fewer onsite meetings occur.
“The industry will undeniably be impacted after 10 years of relatively clear sailing,” Foley says.
While business aviation is a cyclical business, “the speed and intensity” of the Covid-19 outbreak has caught many in the industry off-guard.
“Although there will be casualties, the majority of players have been here before and are survivors, having adapted their businesses to swings in the past,” says Foley.