JP Morgan says business jet market is improving

JP Morgan’s report for September 2013 suggests some subtle improvements in the global business jet market.

JP Morgan reported some positive developments across the business jet market in its report for September 2013.

“Demand for business jets is far from robust, but at the margin, some developments suggest improvement,” the report stated.

JP Morgan cited a 4.7 per cent rise in US flight operations in July 2013  and described Directional Aviation Capital’s order for 85 Bombardier jets as a sign that confidence may be returning.

Read highlights from the report below:

US flight operations grew 4.7 per cent year-on-year in July, the best result since May-11 and the fourth consecutive month of year-on-year growth.

It has been hard to imagine a broad based recovery without US operators flying more, and recent data shows an important step in this direction. In addition, we wrote last month about the material downtick in the proportion of 0-5-year-old aircraft for sale, and we estimate that this proportion remained steady in August.

Finally, Directional Aviation’s order for 85 Bombardier jets suggests some confidence in the outlook – including for light and mid-size jets – from a knowledgeable industry player.

We believe the average price trend over time for a range of jets is meaningful and in recent years it has been an accurate indicator that demand remains weak, despite signs of life elsewhere.

On the macro front, weaker emerging market economies, which have been important sources of demand for larger cabin jets, are a concern. An intriguing possibility in light of potential stronger developed market demand and softening emerging market demand could be a reversal of the relative strength of larger jets and weakness of smaller jets that has been in place since the financial crisis, though it is way too early to conclude that the market will develop in this manner.

According to the company, used inventories increased by 10 bps m/m in August. Inventories for sale increased to 10.2 per cent, remaining in the tight 10.1-10.3 per cent range of the past eight months. Medium jets increased by 40 bps, with heavy and light jets flattish. We estimate the proportion of the toddler and pre-K fleet (0-5 year old aircraft) available for sale fell 10 bps to 6.7 per cent, in line with the long term average. Average asking price declined 1.1% in August.

JP Morgan said that pricing fell for the fourth consecutive month and was down 14 per cent year-on-year. Pricing was weakest for medium jets, which fell 2.5 per cent, primarily driven by Learjet 55/60, which is likely ending production. Heavy jet pricing also declined by 0.9 per cent, while light jets were flattish.

Flight operations are finally improving. US flight operations grew 4.7 per cent year-on-year in July, bringing year-to-date growth to 1.3 per cent. The current four-month streak of year-on-year growth below 1 per cent is increasingly looking like a meaningful improvement in the trend. Still, flight operations remain 16 per cent below July 2007, and even relative to July 2011, flight operations are up only a moderate 5.7 per cent. In Europe, flight operations grew 0.6 per cent year-on-year in August, the first positive growth since March 2012.