JETNET iQ State of the Market Report
Topics included the latest information on business aircraft transactions, inventory and utilization, and the factors driving people to buy—or delay buying—aircraft. Key results from JETNET iQ’s quarterly Global Business Aviation Surveys, which poll fixed-wing turbine aircraft owners and operators in more than 100 countries, were revealed, including those from the just-completed Q3 2012 JETNET iQ Report.
Inventory for Sale – Returning to Normal
After a sharp spike in 2009 when jet inventory for sale peaked just above 17% of the fleet, inventory levels have drifted slowly downward to about 13.5% in October 2012. Jet inventory for sale has stabilized at about 2,500 units worldwide, while turboprop inventory has declined to about 1,200 units. On a trailing twelve month (TTM) basis, full-sale transactions for all categories of business jets were up 4.1% through September 2012 over 2011 full year, with average asking price increasing by 3.6%. Days-on-market for jets sold in the last 12 months averaged 379 days on a TTM basis, virtually unchanged over 2011. Full-sale transactions for business turboprops were down 2.7% on a TTM basis versus 2011 full year, with average asking price falling by 3.6%.
Turboprop days-on-market increased to 350 days on a TTM basis through September 2012, up 5.4% over 2011 full year. Business jet inventory rates appear to be on a path to return to pre-recession levels in the next 18-24 months. Turboprop markets are typically less cyclical, and turboprop inventories are now approaching prerecession levels.
US Business Jet Utilization – Where’s the Lift?
Despite record corporate profits, U.S. business jet utilization has yet to fully recover from the effects of the 2007/2008 economic recession. Utilization as measured by cycles (takeoffs or landings) fell sharply in 2008 and 2009, and has been on a tepid recovery path since then. Cycles are estimated to be about 25% below the prior trend line established in 2001. On a trailing twelve months (TTM) basis through April 2012, the latest period for which data are available, US corporate after-tax profits have slipped back somewhat from 2011.
Jet cycles on a TTM basis through August 2012 were up just 0.1% over the same period the year before. Jet Deliveries and Corporate Profits – Falling Out of Sync?
The historically close correlation between US after-tax corporate profits and business jet deliveries has been a hallmark of the business aviation industry for many years, with delivery data lagged by 2 years to represent typical decision, transaction, production and backlog timelines. Since the 2007/2008 economic recession, this relationship has de-coupled, arguably on a temporary basis. Clearly, corporations reined in their capital spending and stockpiled cash with the onset of so much uncertainty in the credit markets. A large number of organizations deferred new aircraft replacement decisions, with many opting to retain and in some cases refurbish their current aircraft. Some 38% of surveyed owners and operators in Q3 2012 indicate they have delayed a new aircraft purchase decision since 2008, driven by lower utilization requirements and less attractive trade-in conditions in the gyrating economic and fiscal environment. About 30% of Q3 2012 respondents say they have recently opted to refurbish an aircraft
instead of replacing it with a new or pre-owned model.
Sharp rebounds in corporate profitability beginning in 2009 have recently begun to crystallize in the form of new US orders from the Fortune 500, a harbinger of better days ahead for the industry.
Timing of the Bounce
The timing of the next rebound in business aviation is top of mind for many industry stakeholders. JETNET iQ believes this rebound is underway, albeit in its early stages. 2012 has produced generally mixed results in net new order activity and book-to-bill performance. Since 2009, industry net orders have been lower than unit deliveries, eroding backlogs. Indications from almost all aircraft OEMs are that deliveries are exceeding net new order intake year-to-date through Q3 2012. Gulfstream and Bombardier appear to be in the strongest backlog position in total units and value.
Ultimately, demand depends on buyer sentiment, which is influenced by both quantifiable and unquantifiable factors. Buyer perceptions and intentions are vital in understanding and predicting behavior and the state
of the market. Factors include fair pricing, predictable valuations, reasonable and stable regulations, unfettered access to airports and airways, and value for the investment.
With this in mind, JETNET iQ has established several indices of market sentiment to reflect the perceptions and intentions of aircraft owners and operators worldwide.
JETNET iQ Current Market
A simple question such as “Where are we in the current business cycle?” evokes a wide range of responses. Encouragingly, 52% of owners and operators in Q3 2012 believe that we are past the low point in the current business cycle. Regionally, results are highest in North America (57%), where 61% of the turbine fleet is registered, and lowest in Europe (40%). In Q3 2012, JETNET iQ estimates that the overall sentiment of the market is +34%, up from +25% in Q2 2012. This measures the difference between those who believe we are past the low point and those who say we have not yet reached the low point.
Among respondents who made or influenced their organization’s last aircraft purchase, those who believe we are past the low point outnumber those who say we have not yet reached the low point by a factor of
2.6 to 1.
Aircraft Purchase Inhibitors
Since Q2 2011, JETNET iQ has been asking the aircraft owner and operator community to rank those factors that are “top of mind” in inhibiting their organizations from making a new aircraft purchase. Beyond those organizations which simply do not need an additional aircraft, the primary inhibitors include uncertainty in the economic and regulatory environment, a decline in business activity, and challenges associated with their existing aircraft—the gap between the value and price of a new model, and the difficulties in selling it in the existing market.
With improving economic conditions in the US, coupled with post-election “getting back to business” decisions necessary to run the country, JETNET iQ believes that conditions are ripening for U.S.-based organizations
to lead a resurgence in business aviation. Early indications of demand both for replacement and growth, such as new orders from large US corporations and NetJets, are already apparent, although more indicators
need to be in alignment for a broadbased recovery to take hold.
JETNET iQ Fly/Buy Index
At NBAA 2011, JETNET introduced a new quarterly business aviation index that provides a forward look at the intentions of aircraft owners and operators to purchase new aircraft and to change their overall levels of flight hour utilization. The JETNET iQ Fly/Buy Index is a composite measure of expected flight activity and new aircraft orders over the next 12 months. Based on responses to their Global Business Aviation Surveys, the JETNET iQ Fly/Buy Index was established at a value of 100 based on market conditions at the beginning of 2011. Index values above 100 indicate a growth in flying and ordering intentions over the levels anticipated by owners and operators in Q1 2011, when JETNET iQ surveys began. The Q3 2012 Index stood at 94.0, down 6 points from the Q1 2011 baseline value. On a regional basis, Index scores have fallen below the baseline in North America and Europe, but are stronger in all other world regions.
JETNET iQ Business Jet Delivery Forecast
In the 10-year period from 2012-2021, JETNET iQ forecasts that 10,424 new business jets will be delivered, with a total delivery value of $US 253 billion, based on 2012 dollars and equipped list prices. Unit deliveries are expected to be 699 in 2012 and 732 in 2013, up 3.7% and 8.1% respectively over 2011, which they believed to be the “trough” year in the current business aviation cycle.
Current market conditions aside, JETNET iQ forecasts a strong rebound in business aviation operations and demand over the next 10 years. Primary drivers of this resurgence include a return to economic growth, the increasing internationalization of business aircraft flight operations and customers, and fleet renewal among existing customers. Replacement demand, which has been stymied by reduced business and consumer confidence in the wake of the 2007/2008 economic recession, is expected to rebound, stimulated by aging aircraft issues and an excess of new aircraft coming onto the market. The largest volume of deliveries over the next 10 years will be in the Light Jet class, with 37% of delivery units accounting for about 9% of delivery value over the next 10 years. Medium Jets will account for 33% of delivery units and 27% of delivery value, and Large Jets about 30% of units and 64% of value. By region, North America (US and Canada) is expected to take delivery of 49% of all business jets over the next 10 years, followed by Europe (19%), Asia Pacific (13%) and Latin America & Caribbean (11%).
JETNET iQ Business Jet Fleet Forecast
JETNET iQ forecasts that the business jet fleet will grow to 26,793 aircraft worldwide by the end of 2021, an increase of 45% over the 10-year forecast period. They expect about 2,100 jets to be retired or otherwise removed from service in this timeframe. North America (US and Canada) will remain the predominant base for jet registrations, but will decline as a percentage of the world fleet as other regions increase their rate of intake of new and pre-owned aircraft. North America, which today accounts for about 63% of the world jet fleet, will represent about 58% of the fleet by the end of 2021. The fastest jet fleet growth will occur in Asia Pacific.
JETNET iQ Global Business Aviation Surveys
Since Q1 2011, JETNET iQ has systematically surveyed over 3,500 owners in more than 100 countries. JETNET iQ Global Business Aviation Surveys are conducted on a quarterly basis to capture sentiments and opinions of aircraft owners and operators, the “voices of customers”.
Survey results are considered representative of the larger population with a margin of +/- 4%, 19 times out of 20. In Q3 2012, respondents numbered 507 from 60 countries, and collectively operated 1,664 fixed-wing turbine aircraft, according to JETNET records.
Survey respondent location and aircraft in operation closely mirror those of the world fleet. The distribution of survey respondents in Q3 2012 was: North America 57%, Latin America & Caribbean 20%, Europe 12%, Asia Pacific 5%, Africa 3%, Middle East and Former Soviet Union 3%.
Consistently, about one-third of JETNET iQ survey respondents hold senior management roles within their
organizations. About two-thirds of respondents are aviation professionals, including chief pilots, pilots, heads of flight operations, schedulers, dispatchers, and maintenance personnel.