Business aircraft manufacturers are enduring another torrid year, with deliveries likely to fall again, backlogs tighter than in the wake of the global financial crisis, and continuing fierce competition as an increasing number of aircraft types vie for sales.
That is the troubling picture painted by Flight Ascend Consultancy, which delivered its outlook for the industry in a 16 May webinar just ahead of EBACE. Ascend predicts that deliveries will decline by 3.7% to just under 650 units in 2017, and that a surfeit of models on the market is causing a softening of prices and putting several types on notice.
“It appears that in 2017, the word ‘oversupply’ will be commonly used as the market continues to pressure OEMs into further production rate cuts,” says senior valuations analyst Dan Hall. “Despite being a closely guarded secret, it is now understood that most manufacturer backlogs are at near record lows – even lower than during the aftermath of 2008.”
Hall notes that with almost 40 models on offer in the market from 10 manufacturers, “intense competition remains”.
Ascend suggests that seven models – three light jets, two medium-sized types and two heavy aircraft – are “twilighting or phasing out altogether”. It highlights the example of the Cessna Citation Mustang very light jet, which ended production in the past few weeks.
Although Ascend foresees a slight uptick in deliveries to just under 700 in 2018 and to just over 700 the following year, it has revised down its 10-year forecast by 7.3% to fewer than 8,000 jets.
But it is not all gloom. The light jet market continues to prosper with shipments up 8% in 2016 – a bigger increase than from 2014 to 2015 – thanks in part, says Ascend, to new models such as Honda Aircraft’s HondaJet and Textron Aviation’s Citation Latitude. With sales of close to 330 units last year, the segment is now responsible for half of all aircraft delivered.
On the other hand, the highest-value portion of the market, the large-cabin sector – not so long ago the industry darling as new customers from the likes of the Middle East, China and Russia jumped straight into top-end types – remains “very soft”, Ascend states. Deliveries of large jets up to airliner-sized types have fallen by almost 32% since 2014.
Despite a slight revival last year in deliveries of medium and midsize jets, shipments fell again in 2016 to 157, just under the 2014 level of 161. Competition in this space “has reached new heights”, says Ascend, with the Cessna Longitude joining an already crowded segment later this year. “Manufacturers have battled to retain market share, competing – in many ways by price – for limited new buyer interest,” says Ascend.
Although deliveries of new business aircraft in the first quarter are up on the first three months of 2016, Ascend warns: “We wouldn’t pop the champagne just yet”, forecasting a challenging rest of the year.
“The market is likely to remain soft with no clear indicators of any immediate pick-up,” it says. “Indeed, OEM guidance has never been clearer; perhaps the strongest affirmation that a much more realistic take on the market prevails. The largest market, the USA, still has uncertainty with the new administration yet to boost corporate confidence or make any legislative changes to favour business aviation.”
Despite 2017 being what it calls a “transition year” with three new models – the Pilatus PC-24, Longitude and Gulfstream G500 – due to enter service late in the year, any boost to the market will only be reflected in 2018 delivery figures, says Ascend.
However, despite the competition in the midsize and ultra-long-range segments, Ascend says “there are still opportunities”, with a “relative dearth in new products available for a buyer willing to spend $30 million to $40 million… at least until the Cessna Hemisphere comes along”.
In terms of market values, Ascend notes that in January there had been an 11.6% decline year-on-year across the more than 100 types and variants it assesses – although it adds that values have been stable so far in 2017 and that anecdotal feedback in the industry has been positive. The large and ultra-large segment – fought over by Bombardier with its Global family, Dassault’s 7X and 8X and the Gulfstream G450, G550 and G650 – remains “soft” and “on watch”, says Ascend.
The midsize sector is “on very close watch”, it adds, as rivalry for new aircraft sales is mirrored in the used market. It says five types have seen market values fall by more than 20% – the Bombardier Challenger 605, Dassault Falcon 2000 (classic and EX), Gulfstream G200, Bombardier Learjet 75 and Embraer Legacy 650.
In fact, in Q1 2017 compared with Q1 2016, market values for most major types fell by more than in previous 12-month periods, says Ascend. A notable exception was the Gulfstream GV, whose market value held steady. The Falcon 2000EX, by contrast, saw its market value drop an average of 35%.