Bizav sales disparity shows big jets holding, small jets struggling

By Richard Aboulafia
VP, Teal Group

The bottom and top halves of the business jet market diverged in 2009. This was the first time we’ve seen this divergence, and it looks like a persistent trend.

Finally, fractional exposure plays a significant role in the divergence between the 2 halves of the market. According to UBS, of the 235 jets delivered to fractional providers in 2007–08, 211 were bottom-half-market jets. (The remaining 24 included a mix of Challenger 605s, Gulfstream G450/550s, Falcon 2000s and a Falcon 7X.)

Due to the financial challenges faced by NetJets and other key fractional players, deliveries to this market have fallen off to a trickle, and this has primarily impacted Cessna and Hawker Beechcraft products. Clearly, big jets are now the big market driver.

This is ironic, given the tremendous hopes accorded to the many VLJ developments proposed or delivered over the past decade. The big question, of course, is: How permanent is this situation? After all, if both the top and bottom halves (or what used to be halves) recover and then grow at the same rate, the market will look very different.

Two years into this downturn, it’s clear that the market continues to favor top-end aircraft. Pricing in this segment has generally held up better than in the lower and middle segments. Anecdotal information points consistently to a generally healthier sales outlook for top-half jets.

Utilization of high-end jets (defined by FAA as long-range jets) held up better in 2009 than for smaller jets, falling by just 15%, compared with 19% and 20% for short and medium-range jets, respectively. Used aircraft availability numbers reflect this too.

As of Aug 2010, just 10.2% of heavy jets were up for sale, compared with 14.5% for medium jets and 16.7% for light ones. Most importantly, the 2nd-year drop in new deliveries shows no signs of reversing this bifurcation.

While we can only estimate final 2010 deliveries, current projections show a further 17.8% drop by value (from 2009 levels) for jets costing less than $25 million, with only a 7.4% drop for jets priced above $25 million. The bizjet market will recover to its 2008 high point. This will be a slow process, and it likely won’t begin until 2012.

But the most notable lasting legacy of this downturn will be a structural shift toward the high end of the market. What was once the top half of the market by value will in future be the top 60–65%.

Richard Aboulafia is VP Analysis at Teal Group Corp, an aviation and defense market intelligence and consulting company. He has tracked the business aircraft market for over 20 years.



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