Business Aviation Market Overview - January 2021

Aviation industry participants have recently proven to the world something they’ve had all along: An uncanny ability to articulate how their respective segments of the market are performing, and what the future trajectory will be...

An avalanche of complimentary Zoom conferences during 2020 have allowed representatives from preowned aircraft sales, private jet charter, aircraft finance, aircraft management, legal, and others to take center stage and eloquently share their views with large, international audiences.

In ‘normal’ times, opportunities for these oracles to share these perspectives are much more limited, with only a handful of key industry conferences scheduled each year and smaller audiences due to the logistics that in-person attendance presents.

Processing these first-hand accounts can assist in making predictions about how 2021 will shape up for the Business Aviation industry, which by the looks of things shouldn’t be too bad…

Utilization

A favorite metric of the industry, utilization measures business aircraft activity, usually by the number of take-offs and landings, or hours flown. This figure is of most interest to those businesses that rely on flight frequency and volume (such as FBOs selling fuel, MROs performing maintenance and charter firms flying clients). It also measures private flyers’ general propensity to fly.

Usage has been hovering around 15-20% below the pre-pandemic levels. It’s safe to say that with a vaccine now on the immediate horizon, 2021 will see an improvement in activity as sports events get back on flight itineraries, holidays are celebrated in groups, and business trips slowly resume.

While it’s possible that some days or weeks coming this year will surpass previous ‘normal’ levels, a full recovery isn’t anticipated before 2022. The work-from-home habit will never completely go away, but should diminish with time.

Pre-Owned Pricing and Inventory

It could be argued that too much time is spent slicing, dicing and making clever observations on the direction pricing and inventory of pre-owned jets for sale is taking. But taking a subjective look at things, the long-term trend has been a fall and flattening in both price and inventory.

From a buyer’s perspective, the risk of prices drastically falling or inventory exploding is unlikely. It’s not believed that the situation will be significantly different a year or two from now.

The ‘downside aircraft value’ risk of buying a used aircraft is unlikely to materially change in the coming months, and dithering over whether to buy will only delay an immediate private air travel benefit.

Pre-Owned Sales

When the final numbers are in, it’s expected that 2020 used transactions will have been on par with 2019, a remarkable accomplishment given the challenges thrown at the industry.

At this point in time there is no reason to believe that 2021 will not be another active year, with things like low interest rates, rising GDP, recovering stock markets, US tax benefits, and new users still wanting to avoid commercial air travel (despite a vaccine) all helping.

New Sales

While new business jet deliveries are expected to have ‘cratered’ 25-30% in 2020, my 2021 forecast anticipates 15% more deliveries than last year.

While this is normally one of the more conservative forecasts in the industry, it may have to be revisited by observing the healthy activity in the pre-owned arena. Usually a rising tide lifts all boats, and what was good for pre-owned sales should consequently translate to more robust new aircraft sales, eventually.

MI www.brifo.com

Jetcraft: Pre-Owned BizJet Transactions Set to Grow

In November, Jetcraft released its Five-Year Pre-Owned Business Aviation Market Forecast. Company President Chad Anderson provides a summary for AvBuyer....

Drawing upon nearly 60 years of industry knowledge, Jetcraft has prepared its latest forecast using a mix of quantitative and qualitative techniques. 

This time around, we are focusing our predictions solely on the pre-owned Business Aviation market, an area often excluded from other industry outlooks, and which is a particular strength of ours.

Moreover, for the first time, our forecast is enriched by the introduction of trends from our own past transactional data and customer insights.

The report predicts 10,183 preowned transactions to be completed over the next five years, representing $48.8bn in value.

During the five-year period we will see pre-owned transaction volume and value recovering to steady growth, despite the challenges of the past year, reaching 2,271 pre-owned transactions worth $11.1bn annually by 2024.

This is a healthy level of growth that Jetcraft believes is sustainable and achievable.

In our previous forecasts, we predicted a downturn. Although it has taken place sooner than we thought, we were prepared and, as a result, are in a much stronger position than we were in 2008, the last big downturn for our industry.

Circumstances now are very different from that balloon economy time, the aircraft OEMs have a balanced supply chain that doesn’t let aircraft values get out of sync, which, in turn, fosters a healthy pre-owned market.

Value Realized in 2020

In 2020, we’ve seen the value of our industry further realized. With minimized commercial airline schedules and flights, Business Aviation has become more attractive to several first-time users. Offering flexibility and control, flying privately is now being prioritized due to its ability to reduce passenger touchpoints, limiting contact with others at the airport and during flight.

While many entrants to the industry may first experience Business Aviation through charter, fractional or jet card solutions, once exposed to this form of travel, the path to ownership begins.

From June 2020 onwards flight hours and private jet transactions picked up as initial Covid-19 restrictions eased and lockdowns lifted. While the year was stop-and-start for travel, Q4 2020 was as busy as Q4 2019 for Jetcraft, with regards to transactions, and we’re confident that the start of 2021 will continue this positive trend.

Business Aviation is resilient, and our forecast shows it has begun to stabilize from the effects of Covid-19. Furthermore, trends in international trade activity bode well for industry growth.

Large Jet Market Potential

Globalization is not going away; the World Trade Organization is still forecasting international trade will increase in 2021. And the number of Ultra-High-Net-Worth Individuals (UHNWIs), another key driver in Business Aviation transactions, is set to grow by 5% per annum until 2024.

Our own transaction data shows 81% of our buyers under 50 years old purchase Large Jets, and that High Net-Worth buyer types are more likely to invest in this aircraft segment as compared to Corporations and Governments, who may face closer scrutiny over budgets and travel spend.

If you are a tech entrepreneur or CEO who has been successful at a young age, you're more likely to buy a Large Jet because it fits with your lifestyle and the global nature of your business. 

These trends truly demonstrate the potential of the Large Jet category, which remains poised for long-term growth.

In Conclusion…

The strength and ingenuity that Business Aviation has demonstrated throughout this pandemic provides us with confidence for the future. We’ve all had time to reflect on how we travel, and what it means to us. Faceto- face meetings will still be important, long after this is over, and Business Aviation has a big role to play in developing those relationships.

Chad Anderson is the President of Jetcraft. 

With almost 60 years' industry experience, approximately 700 transactions achieved over the last ten years’ worth $12.5bn, and 20 offices worldwide, Jetcraft has a unique ability to offer critical market intelligence in every market locale.

MI www.jetcraft.com/knowledge/market-forecast/

Flight Activity - Global Review

Almost 60,000 fewer Business Aviation sectors were flown globally in November 2020 compared to November 2019, according to WingX Advance. That represents a Year-over-Year (YoY) decline of 17% - modestly worse than October’s YoY trend.

For business jet and turboprop activity, November proved to be a variable month with a big dip in the first two weeks, and then a Thanksgiving-powered recovery in the second half.

The improved North American trend diverted from a weaker European market. Elsewhere in the world:

• Business Aviation flight activity across Asia in November was within 5% of normal;
• Activity was above normal for Oceania;
• Robust overall activity was seen in South America; and
• An improving 9% deficit for flight activity was recorded in Africa.

North America

The four-day Thanksgiving period saw 33,227 Business Aviation departures in the US, a decline of just under 10% compared to Thanksgiving 2019. That compares to a 16% YoY decline during the rest of the month. Within the US:

• Arizona and Colorado stood out with almost 10% growth in arrivals during Thanksgiving.
• Oregon, Indiana, Wyoming, and Utah all saw substantial YoY growth.
• Flight departures out of the Dakotas was up more than 30%.
• Notably, Business Aviation activity out of Florida was down 9% during Thanksgiving (though Florida activity was up by 3% for the full month).

Thanksgiving in Canada took activity to within 6% of normal there – much stronger than the 20% shortfall recorded in October.

Europe

In Europe, the biggest markets were suffering the most, with UK flights down by half, YoY, for November. Business Aviation activity in Germany – which grew YoY in August – was down by over 30%, and Italy has been badly affected by second Lockdown (flights were down by 36%).

France is less affected (relatively speaking), and flights were down 21% YoY in November. Meanwhile flights from Switzerland, Norway and Sweden were all within 10% of normal YoY.

The outliers continued to be Russia, Turkey, and Greece, and activity was well up compared with November 2019. “Just as the US airlines saw the busiest traffic since March during Thanksgiving, Business Aviation activity also climbed close to its pandemic peak, lifting the overall trend for November,” summarized Richard Koe, Managing Director, WingX.

“The resulting impact of crowded airports on virus infections may influence ongoing travel behavior, with renewed spikes persuading more newcomers to fly private as a health precaution.

“In Europe, the dynamic variations in lockdown 2.0 were clearly suppressing flight activity, especially in Western Europe,” he concluded, adding that “in Eastern Europe, Russia and Turkey, lighter restrictions and larger domestic geography encouraged a much stronger recovery during November.”

MI www.wingx-advance.com

In-Service Aircraft Values & Maintenance Condition

Monthly transactions continued to close at the end of 2020 just as one would expect during a normal Q4. Asset Insight’s November 30th market analysis provided the statistical evidence…

Covering 134 fixed-wing models, and 2,111 aircraft listed for sale, Asset Insight’s data showed available inventory had decreased an additional 2.9% during November, equating to a drop of 3.3% Year-to-Date (YTD) for 2020.

Large Jet inventory rose a nominal 0.4%, but was the only group to register an increase. Meanwhile Mid-Size Jets, Light Jets, and Turboprops all registered further reductions of 3.9%, 3.3%, and 4.6%, respectively.

Aircraft Values

The tracked fleet’s average Ask Price decreased for the first time in three months, but only by 0.9% (following October’s 12-month high), resulting in an Ask Price increase YTD of 0.8%. All four groups contributed, with Large Jet prices falling 3.4%, Mid-Size Jets decreasing 1.6%, Light Jets 3.0%, and Turboprops 1.5%.

Inventory Fleet Maintenance Condition

Overall buyer interest in lower quality assets improved the inventory fleet’s asset quality in November, and, while Maintenance Exposure increased, the rise was nominal. Asset Insight’s tracked inventory recorded the following…

• The Quality Rating posted its second consecutive 12-month high figure, 5.371, continuing the fleet’s run within the ‘Excellent’ range throughout 2020 on Asset Insight’s scale of - 2.5 to 10.
• Maintenance Exposure, an aircraft accumulated/embedded maintenance expense, worsened (increased) 1.4%, to $1.454m, signaling that upcoming maintenance events for inventory aircraft, though fewer in number, will be slightly more expensive occurrences.

Maintenance Exposure to Ask Price (ETP) Ratio

The ETP Ratio is a useful indicator of an aircraft’s marketability. It is computed by dividing the asset's Maintenance Exposure (the financial liability accrued with respect to future scheduled maintenance events) by its Ask Price.

‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s time on the market increases, usually by more than 30%. During Q3 2020, assets whose ETP Ratio was 40% or more were listed for sale 50% longer, on average, than aircraft whose Ratio was below 40% (269 versus 404 Days on Market).

November’s market overview revealed that nearly 49% of the tracked models, and almost 53% of the tracked fleet, posted an ETP Ratio greater than 40%. November’s fleet ETP Ratio rose (worsened) to 70.1% from October’s 69.8%, a figure slightly worse than the 12-month average for a second consecutive month.

• Turboprops registered the best ETP Ratio at 40.6%, and the group posted its second consecutive 12-month low (best) figure.
• Large Jets improved, for a second month in a row, to 59.4% - a Ratio halfway between the group’s 12-month low and average figures.
• Mid-Size Jets worsened slightly to 69.0%, but the figure was just off last month’s 12-month low of 68.9%.
• Sellers have tried to increase Light Jet Ask Prices to no avail. The group’s ETP Ratio continues to climb, setting an all-time high/worst figure in November of 102%.

Market Summary

November’s inventory continued to hover around 10% of the active fleet, favoring neither buyers nor sellers. Large Jets and Turboprops led the way with figures in the 8% range. Mid-Size Jet and Light Jet inventory improved to 12% and 10%, respectively.

Large Jets: The Large Jet group posted a slight Quality Rating improvement of 0.6%, pushing it deeper into ‘Outstanding’ territory, at 5.772. Maintenance Exposure improved slightly (0.1%) to remain above the 12-month average. Asset Insight’s tracked Large Jet inventory increased by two units, making availability 14.8% higher YTD.

November’s Ask Prices decreased 3.4% as higher quality assets replaced lower quality transacted units. We believe Large Jet sales will close 2020 with solid figures, and at values that won’t wholly disappoint sellers.

Mid-Size Jets: Buyers returned to favoring lower quality assets during November, raising the Mid-Size Jet inventory’s Quality Rating by 0.9%, while lowering (improving) Maintenance Exposure 1.4%, and setting 12-month best figures in both cases.

At 5.343, asset quality moved further into ‘Excellent’ territory, while an additional 24-unit decrease lowered the YTD inventory figure 11.4%.

The challenge for sellers is the average Ask Price, which fell 1.6% in November, but remained 2.1% higher YTD. These changes did nothing to help the ETP Ratio figure, which rose very slightly to 69% from 68.9%. Compared to January’s 87.4% Ratio, though, 2020 has offered better selling opportunities for owners of Mid-Size Jets.

Light Jets: Buyers were laser focused on higher-quality aircraft during November, lowering the inventory’s Quality Rating by 1.1% and increasing (worsening) Maintenance Exposure 3.1% to a 12-month high. Inventory decreased by 20 units for a second consecutive month, lowering YTD availability 7.8%.

Deteriorating to a quality rating of 5.178, the group managed to maintain quality within the ‘Very Good’ range, but that’s about all of the good news for sellers.

The ETP Ratio sailed to a record-high 102%, aided by Ask Prices falling 3.0% in November. Buyers had no shortage of available aircraft to choose from, and transaction prices looked likely to go even lower for owners wishing to close a sale by the end of 2020.

Turboprops: Buyers continued to remove lower quality assets from the tracked inventory, during November, to the tune of 21 aircraft. This brought overall inventory down 3.3% YTD. In other good news for both buyers and sellers, the Quality Rating rose 1.0% to a 12-month high within the ‘Very Good’ range, while Maintenance Exposure set a 12-month best (low) figure, falling 1.1%.

Ask Prices dropped 1.5%, but the figure remained above the 12-month average. Lastly, and perhaps most importantly in November, Turboprop marketability was the best it’s been during the past year as the ETP Ratio posted a 12-month low (best) figure that’s only 0.6 points away from achieving the 40% demarcation point.

That’s a figure not posted by any group since August 2016 (when the Large Jet ETP Ratio was at 39.4%).

MI www.assetinsight.com

How Were New Aircraft Shipments Looking in Q3 2020?

The General Aviation Manufacturers Association (GAMA) released its Q3 2020 delivery report in November. The results were marginally better than Q2 in some areas, but things were still pretty dismal. Mike Potts reviews…

Total airplane shipments for January to September 2020 totaled 1,521 units, 12.6% behind the 1,741 units shipped in 2019 in the same period. Although disappointing, this represents an improvement over the 21.5% reduction experienced in Q2 2020.

Billings for 2020 Year-to-Date (YTD) totaled $11.9bn, a reduction of 20.1% from the $14.9bn recorded in Q1-Q3 2019. Looking at the individuals segments:

• Jet deliveries trailed by 26.7%, after Q3. In raw numbers jets totaled 378 units compared with 516 in 2019.
• Turboprops did slightly worse, down 27.0% as unit totals amounted to 254 compared with 348 in 2019.
• The piston segment was a surprise performer, with shipments actually coming in 1.4% ahead of 2019, YTD. Piston deliveries totaled 889 units compared with 877. The uptick in piston shipments was responsible for keeping overall YTD unit deliveries closer to 2019 levels than they were in Q2.

The Business Jet Market

Turning to the specifics of the jet market, the current situation can only be regarded with sadness. We began 2020 suggesting the year could be one of the three or four best years for jet deliveries in history. Now it’s on track to be one of the worst.

Of the 10 jet OEMs reporting to GAMA, none had YTD totals ahead of 2019, and only one was level. Looking just at Q3, one OEM was level (but not the same one as in the YTD totals), eight trailed their 2019 results, and one (Dassault) doesn’t report in Q3.

The market leader was again Gulfstream, with a total of 87 shipments through September 2020. Gulfstream still trailed its January-September 2019 results by 16 units – a drop of 15.53%.

Nevertheless, Gulfstream has settled into a steady pattern, suggesting the planemaker was getting as good a handle, or better, on this coronavirus-impacted market as any of its competitors.

Gulfstream reported 32 deliveries in both Q2 and Q3 2020 after opening the year with just 23 in Q1. The Savannah-based OEM looked on track to finish the year in the number one position, unless one of the others experienced a sensational Q4 surge.

The battle for second place in jet deliveries was intense, with Textron’s Cessna unit and Bombardier separated by a single shipment at the end of Q3. With 71 units, Cessna had a slender lead over Bombardier’s 70. Compared with its 2019 results, however, Bombardier was doing a little better, being down 20 units (22.22%) from the 90 recorded by the end of Q3 2019. Cessna was down 64 units (47.41%).

Cirrus continued to maintain a solid grip on fourth place with 47 deliveries YTD, down 9.62% from the same period for 2019 when it had 52. This is the lowest YTD percentage drop of any of the jet OEMs.

Meanwhile, Embraer is fifth with 43 units, down from 63 in 2019 (a reduction of 31.75%). For Q3 alone Embraer made 21 deliveries, down from 27 in Q3 2019 – a 22.22% drop. A strong Q4 surge could still carry Embraer past Cirrus. Pilatus finished Q3 2020 in sixth place with 24 deliveries, down just 11.11% from the 27 PC-24s shipped in Q1-Q3 2019. For Q3 2020 alone, Pilatus reported eight deliveries, down from 11 in 2019.

With 17 deliveries Honda was seventh, trailed closely by Dassault (which doesn’t report in Q3, but had 16 at the end of Q1-Q2 2020). In all probability, Dassault’s total will exceed Honda’s when the year-end results are tallied. Honda’s YTD total was down from 25 the year before, although looking just at Q3, Honda was level, at eight in Q3 2020 and 2019.

As usual, Airbus and Boeing brought up the rear. Airbus reported three units YTD in 2020 and 2019, making it the only jet OEM not to lose ground on a YTD basis. Boeing had made no deliveries by the end of Q3 in 2020, compared with one in 2019.

So how can we expect the jet market to finish 2020? 

If traditional patterns hold (and in 2020 there probably isn’t much reason to believe they would have), we can expect the jet market to finish between 565 and 575 units. And if that proves true, 2020 would be the worst year for jet deliveries since 2005 – sad, considering 2019 finished with 809.

The Turboprop Market

Looking at the turboprop market, the news is no better. Of eight turboprop builders, YTD seven had lower numbers in 2020 than in 2019. The eighth company is new. The numbers for just Q3 were a little more encouraging, however. Two companies saw better results, while three were even and three were down.

GAMA shows the turboprop market to be at 254 units through to the end of September 2020, but this includes the agricultural airplanes, which made up 38.6% of the total market.

Looking at just the traditional business turboprops, we have a total of 156 airplanes compared to 246 in the same period of 2019, a reduction of 36.59%. Clearly, the business turboprop segment is in much greater duress than the 27% downturn GAMA’s report implies.

Pilatus was firmly in first place, having surpassed Textron’s Beechcraft unit for the lead in Q2 2020. Daher, which was in fourth place after Q2, moved in to third. Textron’s Cessna unit, which started 2020 tied with Pilatus for second place, was relegated to fifth, behind Piper which climbed into fourth on the strength of a strong Q3.

Pilatus reported 48 units for 2020 by the end of Q3, including 19 in Q3 alone. The PC-12 manufacturer was down only slightly from the 52 units reported for the same period in 2019. 

Second-placed Beechcraft reported 33 units for the first nine months of 2020, down sharply from 61 in 2019. For just Q3, Beechcraft shipped 13 units (versus 17 in 2019). 

Daher, which now includes Kodiak, captured third place with 28 shipments, down from 45 in 2019. For Q3 alone, Daher had 13 which matched its Q3 2019 total. Fourth-placed Piper is having a comparatively good year with 23 units in the first nine months of 2020, compared with 25 in 2019. For Q3 alone, Piper is ahead, with 12 units, up from 11 the previous year.

Meanwhile, Cessna sank to fifth place with just 19 units delivered in the first nine months of 2020, compared with 56 at the same time in 2019. For Q3 alone, Cessna reported eight deliveries, down from 17 in Q3 2019.

Newcomer Epic captured sixth place in turboprop deliveries with four units. Epic had one delivery in Q3. Meanwhile, Pacific Aerospace reported its first delivery of 2020 in Q3, and is down from five in the first nine months of 2019. Bringing up the rear in the turboprop segment was Piaggio which made no deliveries before the end of Q3 2020, but had reported two in the same period for 2019.

Regardless of the final order at the top of the market, I suspect the business turboprop market will finish the year in the 230-240 unit range.