JP Morgan Business Jet Monthly: February 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 companies we cover, including Bombardier, Embraer, General Dynamics, Honeywell, Rockwell Collins, Spirit AeroSystems, and Textron.

JP Morgan ask, are we approaching the turn? They sense an eagerness for a pickup in the long depressed bizjet market, particularly at the lower end, but continue to observe mixed signals. They don’t expect a near term recovery, while further downside is likely limited given 3+ years of weak demand. COL indicated that each major OEM plans to raise rates this year, from mid single to high double digits, though several OEMs had to dial back rate expectations last year. They are looking for an 8% increase in deliveries this year (ex VLJs), which appears toward the low end of what OEMs are planning, but with the G650 entering service and higher Global 5000/6000 rates, the bar for single digit growth does not look especially high and probably requires only a modest pickup for smaller jets, where softness has been most persistent.

They believe that recent signals are mixed. There were pockets of strength in Q4 but they did not see a decisive turn. Gulfstream’s 1.0x book-to-bill was solid, particularly in light of 12 G650 green deliveries, but large jets and international customers drove orders again, suggesting demand is not expanding to other areas. Bombardier’s bizjet book-to-bill for November and December was 0.9x, also solid but not stellar. They estimate that book-to-bill at Cessna was 0.7x, and management guided to double digit sales growth in 2012. This was better than expected, but Cessna remains far from sold out this year and orders still trail deliveries. Embraer, Hawker, and Dassault will report Q4 later. Other indicators were also mixed. We view the US as an important driver of the next major leg of a recovery, and FAA flights ops fell another 2.9% y/y in December. Used inventories did not improve overall in January and remain high in historical terms, while used pricing weakened. Anecdotally, we have been hearing that large Fortune 500 companies have been quietly returning to the market, but again the demand is largely focused on the higher end.

JP Morgan sees the used inventory flat in January. Used inventory of in-production models remained at 10.8% after a 30 bp decline in December and increases in each of the preceding four months. Heavy and Light jets each fell 10 bps, while Medium jets were up 10 bps. Bombardier, Embraer, and HB saw inventory fall of 20-30 bps, while Dassault and Cessna were up 10-20 bps. Gulfstream was flat.

The average asking price declined 2.1% in Januaryprices reached the lowest level since 1998 and were down 7.2% y/y. All categories-Heavy (-1.9%), Medium (-3.1%), and Light (-1.8%)-saw prices falling. Prices for 18 of 25 tracked models fell last month, with Gulfstream G200 experiencing the most significant drop (18%).

JP Morgan sees that 2011 ended with December flight ops down 2.9% y/y. Growth for 2011 came in at 3% vs 11% in 2010. Flight ops decelerated through the year, remaining flat in 2H and declining in Q4. 1H growth was 6% y/y.