Ascend G650 aircraft analysis

Alasdair Whyte

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Once it enters service, the G650 will be the standard-setter — at least for the time being.Gulfstream’s arch-rival Bombardier will inevitably develop a competitive response, and Gulfstream itself has filed name patents for names such as the G700, G750 and G800, indicating that the manufacturer has longer-term plans for yet more sophisticated (and possible larger) models,” says Gary Crichlow, senior aviation analyst, Ascend Worldwide.

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The Gulfstream G650’s target numbers are impressive: 7,000nm-range with eight passengers, or shorter distances at its maximum operating cruise speed of Mach 0.925 – the industry’s highest.

The G650 will compete with other ultra-long range jets at the very top of the business jet market. Because of their range capability, these aircraft are used primarily to connect global financial centres in North America, Europe and Asia-Pacific with one another and with fast-growing emerging markets. The international nature of their usage has meant that business jets in this segment have historically shown greater resilience in the face of economic turbulence. A comparison of the geographic distribution of the total business jet fleet and the ultra-long range fleet underscores their relatively broad global appeal.

In the “good years” between the post-9/11 downturn and the current economic malaise, ultra-long range jets were the primary beneficiaries of burgeoning demand for business aircraft in regions outside the traditional US and Western European markets, particularly in Russia, the Middle East and Asia.  When the G650 was launched in 2008, the market for ultra-long range jets was at its height: lead times for ordering new jets were four to five years, and used jets were commanding significant premiums for immediate availability.  When ordering for the G650 commenced, the market response was immediate and dramatic: according to parent company General Dynamics, the G650 accumulated some 100 orders within three months of its launch.

However, the scope of the financial crisis that followed not long after, and the resulting economic downturn that persists today, had a profound impact on the ultra-long range market.  Restrictions on global capital flows severely curtailed the international trade that underlies ultra-long range jets’ utility, as well as making it much more difficult to finance acquisitions of these top-of-the-line aircraft.

The status associated with owning a flagship ultra-long range jet has always been a strong attraction.  However, it has worked against them to some extent in the current climate, particularly in the US.  There, the business jet quickly became a symbol of the corporate excess widely blamed for the current financial malaise, following the now infamous appearance of the three largest US automakers, via corporate jets, in Washington to ask for government funds in November 2008.  In the media firestorm that ensued, many large corporations responded by shuttering their corporate flight departments, deferring deliveries and placing their corporate aircraft up for sale.  As a result, the ultra-long range segment, which up until that point had been performing relatively well, joined the rest of the business jet market in decline: between September 2008 and March 2009, values tumbled by as much as one-third. Relatively new Gulfstream G550s and Global Express XRS’s that previously could have commanded prices in the mid-$50 millions were now worth less than $40 million.

The swiftness and extent of the decline begs the question: what sort of market will the G650 encounter when it enters the market in 2012? No-one can be certain.  But if we take a look at the long-term relative value performance of newly-delivered ultra-long range jets such as the Gulfstream G-V and G550, Bombardier’s Global Express and XRS, and Dassault’s Falcon 7X, it appears that, if the period between 2007 and 2008 was the party, the market is now clearly in the hangover phase.  We believe the G650 will most likely enter a market in 2012 that is almost sober, or at best just recently recovered – although we acknowledge that there is significant risk to that view should the market go through a “double-dip” recession.  If the market has recovered by then, we expect the euphoria the ultra-long range market was experiencing in 2008 will remain tempered by the still-fresh memory of the financial crisis that followed.

But despite the turmoil of the past few years and volatility of the next few, it’s important to bear in mind that the business jet market remains firmly coupled to the underlying market driver of economic growth and international trade activity.  This means that the question of recovery is not a question of if, but when.  The ultra-long range segment we expect will outperform the rest of the industry: certainly its mid- to long-term outlook is overwhelmingly positive, and in the short-term we expect it to be amongst the first business jet segments to recover.

Within this segment, once it enters service the G650 will be the standard-setter – at least for the time being.  Gulfstream’s archrival Bombardier will inevitably develop a competitive response, and Gulfstream itself has filed name patents for names such as the G700, G750 and G800, indicating that the manufacturer has longer-term plans for yet more sophisticated (and possible larger) models.

Gary Crichlow
Senior Aviation Analyst
Ascend
www.ascendworldwide.com

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