JP Morgan issues business jet monthly report
Initial reports shows that the market might be perking up
JP Morgan has issued their business jet monthly report dated August 2011. This report contains their industry delivery projections plus data on market share and the used aircraft market. The JP Morgan covers many companies, including Bombardier, Embraer, General Dynamics, Honeywell, Rockwell Collins, Spirit AeroSystems, and Textron.
OE demand showed signs of perking up in Q2. Updates from bizjet OEMs were generally encouraging, though mixed signals persist. The gap between the healthier high end and the still sluggish lower end remained in place, with the strongest numbers coming from
Gulfstream, with an estimated 1.5x book-to-bill. Dassault’s 22 net orders for 1H11 look good in light of 2H10 weakness but less impressive in the context of the 65 deliveries expected in 2011, a target management lowered by 5. ERJ sounded more optimistic but management is still filling Legacy slots for this year. Cessna’s tone was more measured but estimated net orders reached 15-20 and management still sees a 2H pickup. Bombardier will report on 31 August and we expect continued order strength, though perhaps not at the level of the past two quarters.
But macro concerns cloud the outlook. The sustainability of the nascent recovery we’ve seen will depend in large part on macro developments, and the outlook on this front has clearly grown more precarious in recent weeks. If another recession begins, the good
news for bizjets is that a recovery never took hold in earnest, so the main risk is that it is simply pushed out further. The Q2 deliveries GAMA reported last week were 57% off the Q2 peak in 2008, so the risk of another downturn of similar magnitude looks minimal. This cannot be said for other aerospace end-markets, in which demand has hit new highs, and it should offer some relative protection. A recession would certainly cause us to revisit the recovery we assume begins next year, but we do believe that bizjets are somewhat
insulated from further rate cuts.
Used inventory declined by 10 bps. Used inventory of in production models reached 10.3% in July. By category, Medium (-20 bps) and Light (-30 bps) jet inventories were down from June, while Heavy jet inventories increased 20 bps. Inventories declined for Hawker Beechcraft (-0.4%), Cessna (-0.4%), and Dassault (-0.1%), while they increased for Embraer (+100 bps) and Gulfstream (+40 bps). Bombardier remained flat.
Average asking price declined 0.6%. Average price fell to US$10.62m in July and is down 5.3% year on year. Heavy jet prices decreased 0.7%, while Medium and Light jet prices remained flat. Prices for half the 24 models we track fell.
GAMA deliveries were down 30% year on year in Q2. Year To Date, 261 deliveries were 26% below 1H10. Q2 deliveries were down at all OEMs, with Dassault (-18) and Embraer (-17) deliveries down the most. By category, Heavy, Medium, and Light jet deliveries
were down 31%, 16%, and 12%, respectively. (Dassault accounted for nearly 80% of the Heavy jet decline.)
Flight operations up ~3.0% year on year in June 2911, with seasonally adjusted flight operations up ~21% from the 2009 low but remain ~21% below the 2007 peak.