Experts Bullish On Business Aviation Despite Potential Market Slowdown
Experts are “bullish” on business aviation for 2023, although they expect a more balanced market following an influx of new entrants.
All sectors of the industry—charter, fractional and the used and new aircraft business aviation markets—have experienced an upswing spurred by the onset of the COVID-19 pandemic, which led to the perception of business aviation as being more safe and convenient than commercial air travel. That is unlikely to change in the near future, experts say.
- First-time-buyer numbers are declining, but the pool is still bigger than average
- Aircraft deliveries are up
- FAA workforce shortage is stymieing responsiveness
A surge in new wealth creation also boosted the market, becoming one of the biggest drivers of the uptick. That demand has led to record low used aircraft inventory and strong orderbooks for new aircraft.
In 2021, for example, 41% of Embraer business jet customers were first-time buyers, up from the historical average of 10-12%, says Michael Amalfitano, Embraer Executive Jets president and CEO. During the first eight months of 2022, the number of first-time buyers declined to 25%, although that level is still double that of pre-pandemic figures.
“The pie has gotten bigger,” Amalfitano says. Besides orders from new customers, a good portion of the backlog includes orders for replacement aircraft. In addition, corporate flight departments are working to “right-size” their fleets, moving from ultra-long-range jets, for example, to smaller aircraft as travel requirements change, he says.
While industry experts expect the number of new entrants to temper, new users indicate they plan to continue to fly privately rather than return to the airlines. In a survey conducted by Private Jet Card Comparisons of subscribers new to private aviation, 94% say they intend to stay, although a smaller number—43%—plan to fly regularly, down from 55% a year ago.
At least one Wall Street analyst is predicting permanent shifts in business aviation. “We’ve seen starts and stops over the last 10 years and have called acceleration in the past—and in many cases we’ve been wrong,” Greg Konrad, Jefferies senior vice president for A&D equity research, said at the Corporate Jet Investors event in Miami in November. “But this cycle definitely feels real, looking from outside.”
Rising order backlogs for new jets have led to planned production increases, although supply chain challenges are limiting the number of aircraft that manufacturers are able to produce. That may be a benefit in the future.
“Of course, [manufacturers] would love to increase production to capture more of that demand,” Ford von Weise, Citi Private Bank director and global head of the global finance group, said during a September JetNet Summit in New York. “But at the end of the day, I think that’s going to be the savior for the industry two years down the road,” in the case of a future economic downturn.
“So, I’m bullish,” von Weise said. “I’m not saying that . . . this industry is going to continue to grow at the rate it’s growing. I think we’re going to level off. But do I think we’re going to see a major contraction over the next few years? No.”
Manufacturer Outlooks
During the first nine months of 2022, manufacturers delivered 1,841 business aircraft, up 6.7% over the same period a year ago, with all segments—pistons, turboprops and business jets—posting an increase, according to the General Aviation Manufacturers Association (GAMA).
“Deliveries are converging on and in some cases surpassing the levels we were experiencing prior to the pandemic, which is a testament to the strength of our industry and the importance and utility of general and business aviation,” says Pete Bunce, GAMA president and CEO.
Order backlogs at the world’s five largest manufacturers totaled about $47.8 billion at the end of the third quarter of 2022, up from $38.8 billion at the end of 2021 and $27.3 billion at the end of 2020, according to JetNet data. Aircraft values and pricing have risen as well, meaning manufacturers are seeing better margins and healthier businesses (page 94).
Bombardier’s order backlog, for example, has grown to $15 billion, more than a 30% increase over the past year. The company’s book-to-bill ratio, or orders compared to deliveries, has grown to 2-to-1 or more over the past 18 months, depending on the model. That is up from 1-to-1 or 1.5-to-1.
That means buyers must wait 18-24 months to take delivery of a new aircraft.
“If they want to get into a new aircraft, that’s really the only way they can go—they have to wait,” says Michael Anckner, Bombardier vice president of sales for U.S. corporate fleets, Latin America and Bombardier Defense. “There has been quite a bit of conversation around interim lift, and it’s a challenging topic right now for all of us.”
Anckner says he expects the market to “normalize” toward the end of 2023 with a book-to-bill of closer to one, or one order to one delivery. He also predicts a strong 2023.
“Do I think it’s going to be as crazy as it was for the last months? Maybe not, but we do see it staying at this level for some time,” Anckner says. “We’re very bullish about this year.”
“The market’s doing well,” says David Rosenberg, Textron Aviation senior vice president and chief financial officer. “Because of the nature of our industry, we do have a tendency to have reflexes that [say], ‘Well, when is that going to end?’”
That question should be put into perspective. Even in the event of an economic downturn or recession, Rosenberg does not predict a return to the Great Recession, during which orderbooks were cut drastically.
“This isn’t 2007 and 2008 . . . because in 2007 and 2008, OEMs were producing 1,300 jets,” Rosenberg says. “Those levels haven’t been seen since then. Best case, they produce half that this year.”
Today, there remains a mismatch between supply and demand, with demand much greater than supply, he notes.
For the pre-owned market, Jay Mesinger, Mesinger Jet Sales CEO and founder, predicts more balance in the market, one that is less of a seller’s market but not a buyer’s market either.
“Right in the middle is great,” Mesinger said at the Miami event. “I think it’s going to come as a result of some supply chain increases rather than demand increases. I also think that some of that supply increase is going to temper some of the valuation on airplanes to at least get us back to a place where maybe we’re starting to see what is the traditional annual residual loss rate, as opposed to a month-over-month increase in the valuation on airplanes.”
Von Weise, with Citi Private Bank, expects a reduced number of pre-owned aircraft transactions in 2023 because of continued low inventory.
“Are we going to see a downturn? No,’” von Weise predicts. “But we’re going to probably see inventory levels rise more to the 8-10% range [of the active fleet] and the number of transactions to come down, but all in all, it’s still going to be a pretty decent year [2023].”
Regulatory Roadblocks
Meanwhile, the business aircraft industry faces a number of threats and challenges in 2023, including flight shaming, workforce and supply chain shortages, as well as FAA issues leading to production and regulatory delays.
Workforce shortages have impacted business aviation manufacturers. “Most of our companies are about 20% down in staffing, including engineers, workers on the factory floor and others,” says GAMA’s Bunce.
The FAA also is facing a severe workforce shortage. “We’re very concerned that 40% of the certification workforce in the FAA has under three years’ experience,” Bunce says. That was as of October. “Now, it’s less than two years’ experience. When you try to analyze how debilitating that is for the industry, it is truly significant.”
This comes at a time when manufacturers are working to advance sustainability goals by developing aircraft more efficient than previous versions.
“If we don’t have regulators that are responsive to us, we can’t do what we need to do on the sustainability front,” Bunce says. “They are hamstrung by a bureaucracy that sends too many things up to the Department of Transportation and falls into a black hole and is lost. Too many things go to the legal office of the FAA, and our return times for something as simple as an issue paper that we will send to an aircraft certification office can have as long as 120 days response time.”
The result? “We can’t do our jobs, and we can’t have this industry thrive with that kind of lack of responsiveness,” Bunce says.
Supply chain shortages have been exacerbated by a move in past years by manufacturers to “just-in-time” parts delivery to avoid large buildups of inventories in their factories and to reduce costs and staffing.
Supply chain shortages have “put us in a bind,” Bunce says. At the same time, large order backlogs have given suppliers confidence to hire additional employees and to upgrade their facilities with additional automation.
Flight Shaming
Another looming threat facing the industry is what is commonly called “flight shaming.”
In November, climate activists blocked airport entrances and held demonstrations in at least 13 countries to protest the use of private jets, including disruptions at Farnborough Airport and London Luton Airport’s Harrods Terminal in the UK, and in Milan, Stockholm, Seattle and Munich.
During the summer of 2022, some celebrities, including Taylor Swift and Kylie Jenner, faced public backlash for using private aircraft.
In September, French Transport Minister Clement Beaune called for restrictions on the use of private jets, while French Green Party leader Julien Bayou called for a complete ban. This movement is growing.
“When six transport ministers over in Europe all get together and say, ‘We’ve got to stop business aviation in Europe,’ that’s a significant threat,” Bunce says. “It’s totally, in my mind, clueless to all of the jobs that are created in Europe, especially if you look at France. The aerospace industry in France is gigantic. There’s not enough emphasis on what those jobs bring.”
While business aviation is an “easy target,” experts say, it contributes just 0.04% of the world’s total human-related emissions. In the past 40 years, they note, the industry has delivered a 40% improvement.
Sector leaders have pledged to achieve net-zero carbon emissions by 2050 with a bold set of climate commitments, including the use of sustainable aviation fuel, carbon offsets and other measures.
The shaming of business aviation overlooks reality, says Curt Castagna, National Air Transportation Association president and CEO.
“The shaming aspect of it is interesting to me because it’s really intended to influence elected leaders in such a way as to be embarrassed about what business and general aviation is,” Castagna says. “I think that’s wrong. General/business aviation is a key component of the movement of goods and services in our industry.”
Molly McMillin, a 25-year aviation journalist, is managing editor of business aviation for the Aviation Week Network and editor-in-chief of The Weekly of Business Aviation, an Aviation Week market intelligence report.