Professional Pilot, October 2016

POSITION HOLD an editorial opinion Bizjets continue seeing under demand on top and oversupply at the bottom Teal Group doesnt expect to see significant turbine aircraft market recovery until 2019 with the 2008 peak not reached until 2020 Happy times for bizav during 2008 NBAA Convention in Orlando with sales of both jets and TPs booming Static display at Showalter ORL Orlando Exec is stuffed with aircraft for sale from Airbus CJ Boeing BBJ Bombardier Cessna Citation Daher TBM Embraer Gulfstream Hawker Beech HondaJet Pilatus Piper Advantages of business aircraft are too good and too many for bizav to go away but the current market is overloaded T he business jet market continues to stumble After falling last year 63 by value from 2014 itself no great year 1st half 2016 deliveries fell by 11 by value from the 1st half of 2015 according to the General Aviation Manufacturers Association GAMA Teal Group now expects an 85 market decline this year The 2 problems faced by this industry can be briefly summarized as 1 weak high end demand and 2 a chronic and growing problem with overcapacity at the bottom And theres little hope for further industry rationalization The high end Is it worse than feared The business aircraft market downturn is currently focused on the high end of the market which last year declined by 82 GAMA numbers for the 1st half this year show this trend continuing total unit shipments dropped by just 45 which means that much larger 85 value decline was driven by large jets Causes of this problem are clear economic pain in emerging markets and low oil prices which hurts demand from energy companies and oil producing countries The ongoing anticorruption campaign in China has hurt demand from the only BRIC Brazil Russia India China country where demand had been holding up nicely Whats less clear is when we will see the deliveries floor Last years production cuts and warnings from the 3 top tier producers Bombardier Dassault and Gulfstream saw 2016 output guidance fall significantly Most notably 14 PROFESSIONAL PILOT October 2016 Bombardier Global series output is falling from 73 last year to about 50 this year But in August the company announced that it would pause Global output for an unspecified period in 2017 Another problem with the top tier market is something of a downward cascade effect The segments problems have been exacerbated by the arrival of hundreds of ultra high end Gulfstream 650s which have served to make used jets in the G550 Global 6000 class more affordable to customers who had formerly been looking for jets in the Gulfstream 450 Global 5000 Falcon 900 class This has served to make jets in this class more affordable pressuring demand for jets in the class below It has gotten to the point where demand for the Gulfstream G280 is being impacted by heavily discounted new and used G450s There should in theory be an 18 million difference between the 2 aircraft in terms of new list price The last time the market saw the arrival of hundreds of new jets at a completely new high price point was in the mid 1990s when Gulfstreams GV and Bombardiers Global Express arrived But in many ways the business jet market was still in its infancy back then Even though dedicated business jets had been around for 3 decades the market had never risen above 7 billion in 2016 dollars until 1997 Clearly when those transformational Gulfstream Vs and Global Expresses arrived the market had plenty of room to grow to absorb any aircraft that were sold as buyers moved up Thats not the case at all today Even this years depressed market is worth 3 times as much as output in 1997 Teal Group expects 2016 deliveries of dedicated business jets to come to 201 billion 235 billion including all other business aircraft By Richard Aboulafia VP Teal Group Photo by José Vásquez