JP Morgan Business Jet Monthly: April 2013
This report contains JP Morgan’s industry delivery projections plus data on market share and the used market. The industry is an important driver for many stocks the company cover, including BBD/B, TXT, GD, ERJ, and COL.
This report contains JP Morgan’s industry delivery projections plus data on market share and the used market. The industry is an important driver for many stocks the company cover, including BBD/B, TXT, GD, ERJ, and COL.
According to JP Morgan there is little evidence that new jet demand is gathering momentum. Though not all this year’s news has been bad, as for example used inventories continue to decline slowly, demand for new business jets does not on balance appear to be improving yet.
Inventory remains elevated for younger jets, used pricing has not bottomed, and flight ops are barely growing in the US and shrinking in Europe. The Chinese government’s austerity campaign is another concern. Business jets do not appear to be a target thus far, but this could change, depressing demand at least for a time in an important growth market. We estimate that China (including Hong Kong and Macau) took ~6% of new deliveries during the 2010-2012 period, including ~17% of Gulfstream deliveries.
Q1 deliveries probably will not be overly impressive. Given the atmosphere outlined above, along with cautious anecdotal commentary from management teams and industry participants, as well as preliminary delivery data that does not look robust, we are not expecting a particularly strong Q1. We could see the market recovering in future quarters enough to overcome a weak Q1 and we do not expect cuts to 2013 delivery forecasts at this point, but we do expect cautious commentary and mediocre order metrics.
The company says that used inventories were down 20 bps in March. The used inventory of in-production models fell to 10.2%, the bottom of the 10.2-11.2% range in which inventories have hovered since the start of 2011, and we could soon see inventory break below 10% for the first time since Sept-08.
This would be a positive indicator, albeit in the context of the other data points cited above. Light jets drove the March decline, falling 60 bps, while inventories for Heavy jets (+10 bps) and Medium jets (+20 bps) were marginally higher. Inventory for the “toddler and pre-K” fleet (aircraft 0-5 years old) remains elevated at an estimated 7.7%, and this is a reason to discount the impact that falling overall inventory could have on demand for new aircraft.
Average asking price down 0.5% m/m in March. Used pricing weakened further, falling for the eighth time in 12 months. Persistent declines have been a signal that new demand would remain weak, and judging by recent readings a near term recovery is unlikely. Prices fell by 60 bps for Heavy jets in March and by 80 bps for Medium jets, while Light jet pricing improved by 0.2%. Flight ops improvement took a modest step backward in February.
The headline number for US flight ops was a 3.8% decline, and while this converts to only a 0.4% decline when adjusting for the extra day last year due to the leap year, it still represents a slowdown from the low single digit gains from Oct 2012 through Jan 2013. European flight ops fell 4.8% y/y in Feb (-1.4% adjusted for the leap year).