Survey index improves 19% off November low; we forecast flattish deliveries in 2020 Indicator at 47: our Barclays business jet indicator (BBJI) came in at 47 in January, 19% Higher than our prior survey in November (39). Each cabin class index improved with Our small⁄mid cabin indices higher than large. Even so, our composite index below 50 Continues to indicate slightly weaker market conditions. Our straight up measure of Overall business conditions also improved to 6.0 (0-10 Scale), although this remains Nearly 15% off its late 2018 high. 

Election year overhang: respondents are cautious on the outlook with 55% of Respondents expecting the upcoming U.S. Presidential election cycle to overhang the Market. See pages 13-15 for additional commentary from industry professionals, who Generally noted relatively strong Q4 activity, but continued pricing declines and Heightened uncertainty for the market in 2020. 

Component scores: all components (customer interest, pricing, 12-month outlook, inventory level, willingness to increase inventory) of our BBJI came in well above our prior survey. However, our pricing score remained significantly below 50, indicating weaker pricing continues. Meanwhile our customer interest and inventory scores Continue to hold in best, near 50, indicating stable customer interest and normal used inventory levels. 

View on market: given deterioration in our survey indicator, used inventory levels and Bizjet utilization we forecast flattish industry deliveries in 2020 (despite new product). However, we think GD/TXT reflect this trading at ~30% discounts to market, the Bottom end of their historical ranges, on our below consensus 2020 EPS estimates. Fie Have reduced our Q4 2019 EPS estimate for TXT to $1.07 From $1.11 (Full year to $3.70 From $3.75) To reflect lower Cessna deliveries.

Key Takeaway
Our eighth semi-annual business jet survey indicates some optimism, though the sales growth outlook among brokers is for a 3.5% decline y-o-y in 2020. From last November to January 2020, we received detailed responses from >70 business jet brokers globally. The sentiment index moved down by 1 point to 5.7 on a 10-point scale vs a 6.7 rating in our July 2019 survey and a 5.6 rating in our Jan 2019 survey.

Brokers Assume Unit Sales Decline in 2020. The average expected decrease for 2020 is 2.5% for new deliveries, according to our respondents. This compares to 2019E deliveries for the major OEMs up 12% y-o-y, which is the first up year since 2014. Our survey found only 20% of respondents expected an increase in unit sales volume for 2020 versus 2019, while about half had flat expectations and 33% have accounted for a 2020 volume decline. As we consider the reasons for the lack of an upturn in aggregate demand for business jets, we note that respondents cited global macro uncertainty (26%), excess used inventory (26%), and decline in residual values (23%) as shown in Ex. 6.

Cessna Generates Highest Customer Interest. 41% of respondents selected Cessna as the product line with the most customer interest, vs 21% in the July 2019 survey (Ex.16). Gulfstream and Bombardier followed with 28% and 14% of respondents this survey (vs
42% and 16%, respectively, in our last survey). This is a sizable change from our last several surveys.

Heavyweight Competition. Respondents were mixed on the Longitude w/ comments on pg. 11. In terms of the heavyweight competition, brokers respondents were equally divided on the Global 7500 while others believe the Gulfstream brand and performance will allow the G650 to continue to prosper. The initial reception on the G700 suggest cannibalization. The Global 5500/6500 appear lackluster.

New Model Interest. 27% of respondents believe the G600 is best positioned for success. The second most popular new model was the G500, according to 23% of respondents. The G500 offers new technology vs the Global 5500 and is in the market several years
earlier than the Dassault 6X. New market opportunities include Gulfstream's potential to have a jet between the G280 and G500, in the $30MM range.

Steeper Discounting on Used Aircraft. The average weighted discount of responses was 14%, this is in line with our July survey. Approximately 46% of brokers stated that the avg discount between a new and used jet is 11-15%. In terms of new models experiencing
price weakness, the Legacy 500, Legacy 450, and Global 7500 were cited by 33%, 19%, and 15% of respondents, respectively.

Jefferies Biz Jet Delivery Forecast: Flat in 2020. We forecast business jet unit deliveries of 658 units in 2020, up from the 651 we expect to be delivered in 2019 (Ex. 31), driven by growth from Embraer and Gulfstream

Summary

Overall, resale retail transaction activity during the first half of 2019 underperformed the same period in 2018. 4.0% of the Business Jet fleet and 3.5% of the Turbo‐Prop fleet turned over during this period versus 4.9% and 4% during the first half of 2018. Further, the overall inventory of aircraft, expressed as a percentage of the active fleet, has increased over the last 12 months. Today, 9.4% of the Business Jet fleet is for sale, up from 9.1% a year ago. The inventory of Turbo‐Props is also up from 7.2% in July 2018 to 7.5% today.

Resale Retail Transactions by Age Segments

In the Heavy Jets, Resale Retail Transaction activity (as a percentage of active fleet) in all age segments underperformed in the first half of 2019 versus the same period in 2018. The greatest year‐over‐year slowing was in the Mid‐Age (11‐20 years) segment, where 6.1% of the fleet sold in the first six months of 2018 versus 4.0% in the first half of 2019. By contrast the Newer segment (<=10 years) saw first half performance slow from 3.7% of the fleet selling in January through June 2018 to 2.9% for the same period in 2019.

As with the Heavy Jets, all Medium Jet age segments saw a lower percentage of the fleet transacting in the first half of 2019 as compared to the same in 2018. The greatest slow down was in the Newer age segment, where 3.6% of the fleet sold in the first half of 2018 versus 2.3% during the same period in 2019.

At the Lighter end of the Jet market, the Newer segment fared better than its newer larger sized compatriots. 4% of the Newer segment turned over between January and June of 2019 essentially flat versus 4.1% for the same in 2018.

In the Turbo‐Prop market the Older and Mid‐Age segments under performed in the first six months of 2019 versus the same in 2018. By contrast the Newer segment saw 3.5% of the fleet turn over between January and June. This was even with performance in the same period in 2018.