In the 18th edition of its annual Business Aviation Outlook issued at the NBAA convention this week, Honeywell forecasts delivery of about 11,000 new business jets from 2009 through 2019, generating estimated sales of $200 billion.
For 2009, Honeywell Aerospace forecasts deliveries of 750-800 new business jets, down from 1,139 in 2008. Deliveries in 2010 are expected to drop below 700. Based on survey responses, long-term buyer interest has increased, however new purchase plans are timed later in the five-year planning window, which strongly suggests that by 2011-2012 there will be significant pent-up demand that will improve the outlook for order intake and new jet deliveries.
“Offsetting this near-term contraction, Honeywell’s surveyed operators said their new purchase plans were less affected during the five-year horizon in key international markets within Europe, Asia, Africa and the Middle East,” said Rob Wilson, president, Business and General Aviation, Honeywell Aerospace.
“The relatively stronger levels and timing of international purchase plans suggests that pent-up demand will improve both order intake and new jet delivery rates by 2011-2012, similar to what the industry experienced in the last cycle,” Wilson said. “Despite some program cancellations and delays, there is still a solid pipeline of new high-value models supporting long-term growth and our survey indicates that international demand will remain significant.”
2008 marks the end of an unprecedented five-year industry expansion that began in 2003. After peaking in 2008, new jet deliveries are projected to decline roughly 30% in 2009 followed by a 10- to 15% decline in 2010 before starting a recovery in 2011.
Honeywell’s 2009 purchase expectations survey is based on interviews conducted in the second and third quarters of 2009 encompassing a random sample of more than 1,200 corporate flight departments worldwide. Overall, world purchase plans improved over 2008 levels despite the economic turbulence encountered in the last year.
North American purchase expectations declined slightly, but expectations in several other world regions improved to an unexpected extent. Globally, respondents to this year’s survey said they expect to purchase new aircraft equivalent of about 40% of their current fleets over the next five years, exceeding 2008 survey results by about eight points. This includes aircraft to be purchased for replacement as well as those for fleet expansion.
“The improvement in overall purchase expectations is remarkable and indicative of the increasingly global nature of the industry and of improved outlooks for economic recovery in a number of regions outside North America,” Wilson said.
International demand now accounts for more than 50% of the new aircraft purchase plans projected over the next five years.
The survey indicates a potential demand for more than 5,000 aircraft globally during the 2010-2014 period, excluding demand from fractional ownership or branded charter start-up businesses and piston aircraft owner trade-ups into jet aircraft. The strong survey results are welcome, however a sharp recovery in deliveries is less probable, since this potential demand has to be translated to orders, and in turn to increases in production, which will take some time to implement if purchase intentions remain solid. “Clearly operators around the world are looking beyond the current economic climate and anticipating a return to improved business conditions. The level of optimism varies somewhat by region, but it is certainly behind the stronger purchase plans reported this year,” Wilson added. “While these results appear remarkably upbeat, it should be noted that the timing of planned purchases in the five-year window is heavily shifted in most regions to the post-2010 timeframe.”
In North America, survey respondents said they expect to purchase aircraft equal to about 25% of their existing fleets for replacement or expansion during the next five years.
“The level of purchase expectations in North America is encouraging,” Wilson said. “Despite negative economic growth in the U.S. and some adverse domestic publicity, the survey indicates that purchases over the five-year period will maintain at levels similar to those reported in our 2008 survey, reflecting the value and productivity these aircraft deliver.”
“We are hearing increased concerns about the Large Aircraft Security Program (LSAP) plus other TSA regulations, user fees, and carbon emission regulations and the associated costs of reporting and complying within the U.S., coupled with the weak economy, there is more uncertainty in the timing of new aircraft purchase in the five-year window in this year’s survey,” Wilson said. “A great deal of stated plans are shifted out into 2011 and subsequent years. Despite these concerns, overall buying plans in the region remained stable, with replacement plans increasing while plans for fleet expansion declined by an offsetting amount.”
In other regions, five-year purchase expectations were mixed. In Europe, purchase expectations equal to nearly 59% of the current fleet were up sharply to an all-time high and are well above the 25% -or-better levels that prevailed between 2001 and 2006. “Nine consecutive years of strong purchase intentions in Europe, despite the current economic contraction, is evidence of the value operators in this region place in using business jets,” Wilson said.
The resurgent strength of the Euro, Pound, Swiss Franc and Ruble against the dollar acts as a purchase incentive for new aircraft, as does the outlook for a resumption of strong rates of growth and business expansion expected in Eastern Europe and Russia after 2010. Strengthening of the dollar against these currencies earlier in the year during the highest period of economic instability has reversed. The potential for a weaker dollar will remain in place for some time as interest rates remain low and deficits increase. This trend should help support new aircraft demand from the region as economic growth resumes.
Purchase plans are timed predominantly in the 2010-2012 period, demonstrating a more confident posture than seen in the North American responses. A great deal of interest in moving into larger, longer range and more efficient or lower cost models was reported by European respondents.
The Asia, Africa, and Middle East regions still rank as the areas with the highest purchase expectations despite the effects of the global recession. Purchase expectations of 55% recorded in Africa/Middle East were up more than 10 points from 2008, setting a new record high.
All the increase in purchase plans came from the fleet replacement category. Fleet expansion demand fell by about three points compared to last year. Middle East and selected African economies continue to benefit from improved oil prices and burgeoning trade with China and Asia, and operators in these regions expect to be active buyers. Operator plans to buy are timed sooner than in Latin America, North America and Europe. But fleets in these areas are relatively small so even high planned purchase rates yield smaller absolute numbers of new jet purchases until the fleets expand at a future time.
Asian purchase plans had posted a nearly nine-point gain in the 2008 survey versus the year earlier, and they remain high compared to other regions and from a historical perspective. Total replacement and expansion plans are just over 58% for the region in the 2009 survey after approaching 50% last year.
Since the fleets are relatively small in this region, more volatility is to be expected. As in the other regions, the majority of the change came from improved plans for fleet replacement rather than from expansion plans.
In Latin America, operators reported slightly lower levels of purchase expectations in the 2009 survey. Operators in this region report plans to purchase new aircraft equal to more than 40% of current fleets for replacement or expansion over the next five years.
Purchase plans declined from the 2008 survey by about five points, though interest is still high in historical terms, matching or beating survey levels from 2007 and prior.
Latin American purchase plans were influenced in the 2009 survey by a somewhat less positive outlook on rapid resumption of economic growth than was present in other regions outside North America. Latin American operators appear to be taking a more cautious view of the recovery with very few new purchases intended prior to 2011. Range and more efficient aircraft were leading reasons for replacing existing models. Fear of trade restrictions in Venezuela and U.S. security regulations were the top concerns voiced by operators in Latin America.
Chief reasons to replace current aircraft remain relatively consistent with prior surveys; with age, cabin size and range improvement all listed as important criteria in every region. As might be expected in the current economic climate, a desire to replace current models with more efficient or lower operating cost models gained prominence this year. New technologies in avionics and engines are also leading reasons for aircraft replacement in every region.
“Customers tell us they want aircraft that are both economical and deliver efficiencies of flight. Technologies for the Next Gen flight environment are entering the marketplace today and are actively being pursued by every manufacturer to meet these desires,” said TK Kallenbach, vice president, Marketing and Product Development. “Capabilities such as RNP and WAAS-LPV, teamed with improved cabin comfort, extended range, broader mission capability and safety systems will produce business jets that are highly productive, cost-efficient assets. These innovations are available now for both existing and emerging business aircraft OEMs.”
The used jet environment remains challenging in the near-term. Over the last year, asking prices have begun to slide rapidly – first for older used models, but more recently newer model jets have begun to see significant price erosion.
Average pricing is estimated to be 15 to 18% lower than a year ago after several years of gradual increases. The 2009 survey recorded a further decline in planned used-jet purchases over the next five years, which may add continued pressure to pricing of older less economically attractive models.
For more information: Honeywell.com