JP Morgan Business Jet Monthly: April 2012


This report contains the JP Morgan industry delivery projections plus data on market share and the used market. The industry is an important driver for many stocks they cover, including BBD, ERJ, GD, HON, COL, and TXT.

JP Morgan says that Q1 earnings reports should offer better insight into smaller jet demand. The smaller end of the market is the one piece that has yet to really pick up, and there has been some level of controversy in recent months as to whether we are seeing early signs of a recovery or not. While improving US economic conditions should support demand, flight ops growth remains anemic and used market signals are mixed. We will be looking primarily at order activity, with changes to company forecasts (up or down) probably not likely this early in the year.

Looking at the market as a whole, several OEMs have been cautious, as Bombardier, Dassault, and Embraer have guided for flattish deliveries for CY12, while the two new platforms (G650 and G280) are driving the anticipated delivery growth at Gulfstream. Cessna has been more aggressive, guiding to a low double digit sales increase. TXT reports on April 18, supplier COL reports on April 19, and we expect GD to report on April 25. Bombardier will report on May 10.

They say that used inventory has declined 20 bps but younger inventory increased by 30 bps. Used inventory of in-production models fell to 10.9% and has now been hovering around the 11% level for six months. Medium jets drove the decline, falling 60 bps, while Light jets fell 20 bps and Heavy jets were flat. Inventory of the younger “toddler and pre-K” fleet (0-5 years) had been declining in recent months, but it ticked up 30 bps to an estimated 7.0%.

JP Morgan says that average asking price declined 1.7% sequentially. Used pricing remains soft, with prices declining for the third consecutive month and the ninth month of the last 12. Prices fell for Medium (-2.7%) and Heavy (-1.6%) jets, partially offset by a 0.4% increase for Light jets.

They say flight ops were flat excluding the impact of the leap year. Including the extra day, flight ops increased 3.7% y/y in February. FAA flight ops have essentially been completely flat since midyear 2011, and faster growth would give us greater confidence that demand is improving in the US, which we view as the key market for a recovery in smaller bizjets.

Finally, JP Morgan says Hawker are moving closer to bankruptcy. S&P downgraded Hawker Beechcraft to D after the company missed a ~$28 mn payment to bondholders. Hawker expects to file its 2011 10-K by April 16, indicating that we could see news about the company’s recapitalization efforts by then as well, with press reports indicating that one option is a pre-arranged bankruptcy that would result in lenders providing ~$500 mn in debtor-in-possession financing. Leading lenders already agreed last week to provide Hawker with $120 mn and forego interest payments and suspend covenants until June 29.