JP Morgan issues business jet monthly report


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 companies covered, including Bombardier, Embraer, General Dynamics, Honeywell, Rockwell Collins, Spirit AeroSystems, and Textron.

JP Morgan says
there appears to be little sign of improvement. Overall demand looks weaker
amid expectations for decelerating global economic growth, though the high end
of the market remains far more vibrant than the lower end. Among recent data
points, Bombardier’s Q3 book-to-bill of 0.7x fell from the prior three
quarters, but orders are lumpy and 2011 is still shaping up well at 1.3x. Other
less than robust indicators include a fourth consecutive month of higher used
inventories-though used pricing improved-and a second consecutive decline in
flight ops. Hawker is slowing development of the Hawker 200, reflecting
pressure on lighter jets, and anecdotally we did not sense much optimism at the
Dubai Air Show. Light jet weakness has been a persistent theme and increased US activity
appears needed to turn it around. Emerging markets have supported large jet
demand, and a softening EM GDP growth outlook is worth watching, yet we expect
demand to remain solid.

Morgan reports
that the used inventory has increased for the fourth consecutive month. The used
inventory of in-production models increased 30 bps in November to 11.1%., the
first month above 11.0% since April. Inventories have now increased 80 bps
since July and are now down only 20 bps YTD. By category, Heavy, Medium, and
Light jet inventories were up 0.2%, 0.1%, and 0.6%, respectively. Gulfstream
(+0.6%), Cessna (+0.5%), and Bombardier (+0.4%) posted higher inventories,
while Dassault (-0.1%) and Hawker Beechcraft (-0.1%) had fewer inventories.
Embraer inventories were flat.

The Average
asking price increased to $10.71 mn in November and has now recovered ~1% from
this cycle’s low of $10.62 mn, set in July. Stabilisation is a good sign, but
we would like a firmer trend and/or a return to inventory declines before
drawing positive conclusions about new jet demand. Price behavior was mixed,
with Heavy and Medium jet prices increasing 0.1% and 2.5%, respectively, and Light
jet prices decreasing 0.9%. 14 of 24 tracked models experienced price
increases, while 10 saw declines.

October flight
ops fell 0.5% year on year, this followed a 2.1% decline in September and
flight ops had not fallen in consecutive months since late 2009. Flight ops are
now up only 3.6% year to date, though the data comes from the FAA and is
therefore skewed toward the US,
missing other countries where flight ops are likely growing. Nevertheless, the
size of the US
installed base means it still accounts for the bulk of global flight ops.