Key Indicators Point To Business Aviation Rebound

The once booming sector has taken its share of economic hits this year, but is on a slow trajectory back

Printed headline: Business Aviation’s Gradual Ascent

During the past year or so, dwindling order intake along with rising cancellations and deferrals caused business jet manufacturers to slash production rates and employment rolls as they strove to protect shrinking order backlogs and navigate through a severe market slump. Dassault’s Falcon 7X entered service in 2007, and the company has a new aircraft in the super-mid-size class in the works.Credit: DASSAULT AVIATION Many in the industry are now asking two critical questions: Has the downturn hit bottom yet, and how long before delivery rates recover to the 2008 level? The answer to the first question appears to be “almost,” while the answer to the second is “not for a while.” Impacted by economic weakness in key geographic regions, the business jet market was already heading into a cyclical downturn when a collapse in U.S. financial markets in the fall of 2008 sent the general economy into a tailspin. Demand for new business jets soon dried up, customers started to defer scheduled deliveries, and, most ominously, cancellations began reducing once-robust backlogs. However, by the end of 2009, signs of economic stabilization and even recovery started to appear, particularly in Asia and Europe. Corporate profitability, a key leading indicator of business jet demand, is slowly and fitfully beginning to improve. Business aircraft utilization is rising, and the used jet market is stabilizing. While all these indices are reasons for optimism, actual improvement in overall business jet production and delivery rates is a couple of years away. Business jet production will be lower this year than in 2009, and probably even a bit lower still next year. Annual production should finally begin to turn upward in 2012, setting the stage for a gradual but potentially long-lasting market recovery. Gradual is the key word, as all signs point to the pace of recovery being quite measured. Annual deliveries may not reach the 2008 level of slightly more than 1,300 business jets until at least 2015. A number of factors are at work here. Economic improvement is expected to continue to be slow. At the same time, market saturation is a problem in the business jet segment. There is simply too much capacity in existing fleets, especially in North America. Prior to the market collapse, large numbers of business jets were delivered to customers who have no immediate plans to purchase more new aircraft. This buyer hesitation is exacerbated by concerns over rising insurance costs, still-high fuel prices and government regulations. The latter include local noise restrictions, the upcoming inclusion of aviation in the European Union’s Emissions Trading Scheme and the possible imposition in the U.S. of user fees to fund FAA activities. The recent economic difficulties have also spurred a backlash against the use of corporate jets, egged on by opportunistic politicians and an often sensationalistic media. This revival of the old image of business aircraft as unnecessary luxury items has led, at many corporations, to increased internal and external scrutiny of executive use of company aircraft. In such an environment, more than a few companies are reluctant to purchase a new business aircraft, no matter how justified. Industry trade groups such as the National Business Aviation Assn. and General Aviation Manufacturers Assn., which have worked effectively to build a perception of the business jet as a productivity tool, must redouble their efforts to again improve the public image of their products. Demand from fractional ownership programs has been a key driver in the business jet market since the mid-1990s and, indeed, fractionals helped soften the severity of the last market downturn in 2002-03. In the current market slump, though, fractionals are taking a beating. Sales of new fractional shares are down and fleet utilization has decreased, resulting in overcapacity in fractional fleets. Fractionals now account for 12% of the backlogs of business jet manufacturers, still a sizable share but considerably reduced from just a couple of years ago. Fractional providers are now faced with the crucial task of adapting their business models to current market conditions. The fractional industry has matured, and its days of robust growth are unlikely to return for quite some time, if ever. Fractionals must now concentrate on lowering the cost structure of their flight operations in order to enhance competitive postures and ensure long-term survival. Fractionals will remain a force in the business jet market, but perhaps more as a stabilizing factor than as a growth driver. In the meantime, through both word and action, business jet manufacturers are displaying considerable confidence about the future of their industry. A number are looking beyond the present downturn by developing new business jets targeted for service entry in the 2012-14 period. Bombardier has launched the all-composite Learjet 85 medium business jet, its first all-new business jet since the Challenger 300. The Canadian company’s next all-new model may be an ultra-long-range jet to battle Gulfstream’s G650, or perhaps a new large-cabin model to replace the Challenger 605. Cessna has aggressively cut production rates nearly across the board in order to better position itself for market recovery. The Wichita, Kan.-based company tends to dominate the lower- and mid-range segments of the market, and engages in a strategy based on product proliferation and detailed focus on customer support. Cessna has shelved plans to develop a super-mid-size model called the Columbus, but it is only a matter of time before the company again sets its eye on extending its product line. Dassault is replacing its Falcon 900EX and Falcon 2000EX models with longer-range, LX-labeled variants. Meanwhile, the company’s all-new Falcon 7X entered service in 2007, and a new aircraft in the super-mid-size class is on the way. Gulfstream last year rolled out two new business jets: the G250 super-mid-size model and the aforementioned G650. The G650 features longer range, a larger cabin and higher speed than any purpose-built business jet, and considerably raises the stakes at the top end of the market. Embraer continues to expand its product line, introducing the large-cabin Legacy 650 last fall. Other products still in the development pipeline are the all-new Legacy 450 and Legacy 500, which are targeted at the light medium and medium segments of the market, respectively. Meanwhile, Embraer is ramping up production of its Phenom 100 very light jet and Phenom 300 light business jet. Hawker Beechcraft has replaced its Hawker 850XP mid-size business jet with the improved Hawker 900XP, and has begun deliveries of the descoped Hawker 750 version that is aimed at the light-medium sector. The all-new super-mid-size Hawker 4000 finally entered service in 2008. The company has announced an improved derivative of the Premier IA light jet—the Premier II—and is working on a follow-on to the Hawker 400XP light jet. Other aircraft used for business purposes include the Daher-Socata TBM 850 and Pilatus PC-12 single–engine turboprops, as well as Hawker Beechcraft’s King Air twin-engine turboprop family and its Baron and Bonanza piston models. Helicopters have also found their way into the corporate market, especially intermediate twin turbines such as the Sikorsky S-76, Eurocopter EC155 and AgustaWestland AW139. Data Snapshot Deliveries of the fourth and largest member of Cessna’s CitationJet family, the CJ4, are set to begin this year. Manufacturer: Cessna Engines: Williams FJ44-4A Max. Takeoff Weight: 16, 950 lb. Takeoff Distance: 3,300 ft. Max. cruise: 421 kt. Range: 1,963 nm.