Home TRENDS Envisioning the future
0

Envisioning the future

73
0

This year looks positive for aviation. These are the developments forecast for 2020 and beyond.


Aircraft deliveries between 2020 and 2029 will total some 7600 units worth approximately $248 billion. Long-range bizjets will account for more than 70% of the total value.
By David Ison
Professor, Graduate School Northcentral University

Visions of a new year typically involve resolutions, changes, and recovering from the agitation of a busy holiday season. It also marks the time for predictions and forecasts about a varied number of things, from sports teams to economies.

Considering that significant financial decisions, both public and private, teeter in the balance based upon such data, their importance cannot be overestimated.

Thankfully, the consensus is for 2020 to provide a hospitable environment for the business aviation sector. While there is a wide range of issues that may affect or change this fact, some of which will be discussed here, the overall outlook for this subset of aerospace is favorable. Let’s look at what may be in store over the near term for business aviation.

In order to place sector trends into perspective, it makes sense to take a look at the economic landscape, both globally and regionally. According to the International Monetary Fund (IMF), the global average “real” gross domestic product (GDP) increased by 3.0% in 2019, a retraction from slightly higher averages in recent years. Global GDP is expected to increase to 3.4% in 2020, with the recovery being mostly thanks to a resurgence of emerging economies.

On the other hand, growth in the world’s largest economies (China, US, Japan, and Europe) is expected to taper. Beyond 2020, the global economy is predicted to increase its growth to levels above 3.4%. Within the US itself, GDP growth for 2019 was 2.4%, slightly above expectations, with the growth most densely isolated to the Southwest, Washington state, and Alaska.

The weakest states were found in the Great Lakes region, including Maine, as well as Georgia. US GDP is forecast to grow at 2.1% in 2020 and slow to 1.6% through 2025. Continued economic growth across the globe is good news, as is domestic growth, even if it’s slower than many would like. But, hey, it’s better than a recession.

Business aircraft trends

For aviation, and specifically for business aviation, the forecast is a mixed bag, depending on your perspective. According to Honeywell, between 2020 and 2029, the world will need some 7600 business jets worth $248 billion. Considering that aircraft performance (eg, fuel efficiency) was rated as the main factor for stakeholders, new aircraft purchases are expected to go up 5%, while replacement purchases will drop by about 3%.

Interestingly, large and long-range aircraft are expected to make up 71% of expenditures. In North America, new jet deliveries are predicted to shrink by 2%, although used aircraft acquisitions will jump to 11%. Part of this is due to a 26% drop in used aircraft prices, as well as a change to tax laws that modifies 1st-year ownership exemptions.

Obviously, low used plane prices are good news for some and bad news for others. Respondents to Honeywell’s survey indicated that 1/3 of operators expected a need to replace or supplement their fleet over the next 5 years.

Asia is theorized to expand its bizav sector by 3%, while Latin America will continue to shrink, but only by 1%. Trends in Europe, the Middle East, and Africa are uncertain, with the UK Brexit plan adding ambiguity until resolved.


US GDP growth. Percentage change in real GDP by state from Q2 2019 to Q3 2019.

Bizjet manufacturers

Aircraft manufacturers are beginning to adapt to changing economic conditions and stakeholder requirements. For example, Bombardier, after Airbus acquired its commercial aircraft segment, is refocusing on business aircraft.

Embraer is also ramping up its business aircraft emphasis after Boeing snapped up most of the company. Gulfstream, meanwhile, is focusing on fewer and smaller aircraft, which, unfortunately, has come with typical downsizing ramifications such as job cuts.

Textron has seen the light concerning its inability to effectively penetrate the large jet market, and the company will instead focus on mid-sized aircraft, such as the Longitude, as well as on turboprops.

Among aircraft developments, expect rapid adoption of electric and hybrid engines, as well as more use of geared and non-geared higher-bypass turbofan powerplants, all of which seek to reduce fuel consumption and environmental footprint. In terms of actual aircraft that are likely to have a bright future, a few models coming to market in 2020 are likely to have a significant impact.

There is a range of revolutionary advances that will begin to surface within the vertical takeoff and landing (VTOL) marketplace. Part of this will come at the hands of the rapid progress being made in the world of urban air mobility (UAM), in the form of passenger drones from Airbus, Bell, Uber Elevate, and many other companies.

In this realm, electric VTOL (eVTOL) aircraft are a pivotal component of the UAM business model. Another VTOL game-changer coming soon is the Leonardo AW609. Bell’s Model 525 is also expected in 2020 or soon thereafter, adding another capable helicopter to the VTOL market. Textron will also have a few aircraft up its sleeves in the coming year or so.

The company’s SkyCourier, for example, may upend the cargo world by providing an alternative to the Caravan. There are 50 orders for the upcoming plane already, compliments of FedEx. The other model, the Denali, presents a potential competitor to single-engine turboprop manufacturers such as Pilatus and Daher. Although the Denali has seen more than a few setbacks, it appears close to release in 2020.

Bell Nexus

Labor

Aviation interests around the globe have been struggling with recruiting and retaining talented employees. Unfortunately, 2020 will not provide any relief. With 15,000 to 18,000 airline pilot retirements on the horizon in the US alone, coupled with lower ATP production, we are far from being out of the woods on the pilot shortage.

Business aviation will continue to get hit hard by this predicament, as pilots seek higher pay, better retirement benefits, and more of what they perceive as improved job stability. The number one reason why pilots jump ship from business aviation to airline flying is schedule constancy and predictability. Increasingly, too, aircraft technicians are leaving, for similar reasons as pilots.

Oddly, many opt for working in places such as amusement parks, to be sure they know when they will be home and for a fatter paycheck. For business aircraft operators to compete, something will need to be done to address the disparities enticing employees to leave.

Costs

Tied directly to the aforementioned, labor costs are only going to increase this year. There are few other options where a pilot can literally earn twice as much elsewhere (or even triple abroad). Jet fuel will also put a damper on things as it is expected to rise in price by 10¢ a gallon. In typical globalization-interconnectivity fashion, new rules for low-sulfur diesel for shipping vessels has affected jet fuel supply, leading to a minor pinch in pricing.

Because of the ample supply and production capabilities of the oil industry, it is expected that these changes can be absorbed easily without causing havoc for aviation. With this said, jet fuel prices are up 23.6% from the previous year, although price movement appears to have stabilized.

The long-range forecast is showing pricing markedly lower than the spike experienced between 2012 and 2014, but nowhere near the lows experienced at the end of 2015.

Airbus Vahana

Sustainability and other developments

Not surprisingly, aviation has not been isolated from the drive toward sustainability and mitigation of the impact industries have on the environment. In Europe, where there is high social pressure toward adopting sustainable business practices, authorities have implemented what has been called a carbon tax.

However, in the US and elsewhere, more financially-driven decisions have been made to reduce fuel consumption and lower emissions. Sustainability practices have included development and implementation of sustainable alternative jet fuels (SAJF), as well as development of more efficient engines. Expect more movement toward being environmentally friendly.

As a perhaps curious result of a changing climate, there has been a boost in aviation activity recently, the more extreme weather having resulted in increased rescue and supply missions. More such events are expected, so this could provide some cushion to the industry if other predictions falter. Other developments to become more influential this year include flight shaming, the rise of Uber-like on-demand charters, and continued low interest rates.

Flight shaming is when people or companies are degraded for flying on private aircraft, not only because of its cost, but also because it fails to leverage more sustainable forms of transportation. Recently, for example, Prince Harry was flight shamed into taking commercial for a royal visit outside the UK.

In order to avoid flight shaming, individuals and corporations may move to expand the use of charter services or fractionals, escaping “detection” while enroute. Another related trend is that the fractional business model will continue to do just fine, but that non-membership and no-investment options will grow. These circumvent being tied to a specific service or having to pay fees or deposits.

In short, users are not out any money until they complete their travel. Lastly, low interest rates continue to pervade worldwide and are not expected to change significantly in the near future. This will help companies finance new and replacement aircraft, as well as provide more flexibility to fiscal decisions of flight departments.

Conclusion

While no outlook can be assumed to be entirely reliable, 2020 looks like a positive year for aviation. The wild cards of the 2020 election in the US, Brexit, and possible unrest in the Middle East or on the Korean peninsula add some uncertainty to things. While the first 2 aforementioned items are going to be resolved one way or another in the next year and in a (most likely) peaceful manner, the last 2 could play havoc on fuel prices.

Yet aviation has been enjoying a long, positive run, and business aviation looks to continue growing at varying rates over the near to medium term. No doubt, 2020 will be an interesting year for all.


David Ison, PhD, has 33 years of experi­ence flying aircraft ranging from light singles to widebody jets. He is a professor in the graduate school at Northcentral University.

(73)