POSITION & HOLD
an editorial opinion
Bizjet market flows at top and continues to stagnate at bottom
By Richard Aboulafia
VP, Teal Group
Global Express 7000. The 7000/8000 series represent Bombardier's ambitious response to Gulfstream's ultra high-end G650, which enters service this year.
The bifurcated downturn, and uncertainties about the recovery of the industry's different segments, complicates efforts to understand future prospects for individual business aircraft companies.
Broadly speaking, business aircraft manufacturers can be divided into 3 categories—top-end (or total market) companies, bottom-half companies, and niche players.
First of all, it should be noted that all the established manufacturers felt economic pain in 2008–11. All of them watched revenues fall, although newcomer Embraer managed to achieve growth by going from no position in the market in 2008 to 3.2% in 2011.
New variant of the CJ family, the M2 represents a welcome return to new product development by Cessna, which has been hit hard both by market conditions and the arrival of Embraer as a new competitor.
Two of the 3 top-end players—Gulfstream and Bombardier—were still dragged down by falling revenues in the bottom part of their product line ranges (falling 14.9% and 13.9%, respectively).
But both were still strong enough to continue with their plans to develop new ultra-high-end products—Gulfstream's G650 and Bombardier's Global 7000/8000.
Dassault, the only pure top-half manufacturer, held up very nicely through 2010.
But the market's downward gravitational drag finally caught up with the manufacturer in 2011 as its opening Falcon 7X order book was built down, and the company finished 2008–11 falling 7.4%. Dassault felt compelled to defer its supermidsize Falcon SMS, although it may be relaunched with considerably different characteristics and components.
The 2 legacy bottom-half manufacturers—Cessna and Hawker Beechcraft—suffered predictably dismal times. Cessna's newbuild business jet deliveries fell by 63.4% between 2008 and 2011, while Hawker Beechcraft's fell by 65.5%.
Both were forced to delay or cancel new product developments. Cessna killed its supermidsize Citation Columbus. Hawker Beechcraft killed its Hawker 450 and delayed its Hawker 200—an upgrade of the Premier I.
The Hawker 200—an upgrade of the Premier I—has been shelved due to severe financial difficulties at Hawker Beechcraft, which has suffered from the collapse of the bottom half of the market.
Burdened with a heavy debt load and the prospect of imminently declining military aircraft revenue, Hawker Beechcraft is emerging as the manufacturer most vulnerable to a dissolution, with individual product lines sold or shut down depending on the market.
Cessna, by contrast, has resumed new product development, albeit in a limited way.
Last year it launched the Citation M2—a new light jet just a notch below its Citation CJ series—and the Citation Latitude—positioned between the Citation XLS and Sovereign. Both are efforts to compete with new Embraer products (Phenom 100 and Legacy 450, respectively).
If our recovery forecast is correct, and all segments make progress at a roughly equal pace, there's a chance that our industry can pull through the crisis in its present shape. But the odds are at least equally good that there will be some kind of restructuring ahead, particularly if a new player succeeds in joining the bottom part of the market.
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.