JP Morgan Business Jet Monthly: March 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 they cover, including BBD/B, TXT, GD, ERJ, and COL.
JP Morgan said that the high end business jets is still strong and the low end still weak. New business jet demand remains weak, especially at the small end, but there have been intermittent signs of recovery and they believe the commentary at their recent JP Morgan Aviation, Transportation & Defense conference was consistent with this view.
COL is not seeing much from the smaller side of the market, and while Embraer indicated it had seen a few positive data points, management is not yet ready to call this a trend. Bombardier is still upbeat about larger aircraft, with Global deliveries expected to rise each of the next few years. The low end remains tough for Bombardier, and among mid-to-large jets, we have some concerns about Challenger 605 demand.
The company said that the industry backlog is stable. Industry backlog ended 2012 at about $40 bn, consistent with each of the last two years and still down >50% from the peak level in 2008. We estimate that half of this backlog is attributable to the G650 and the Global family.
Legacy 500 entry into service may be slipping a bit. Embraer has indicated that it expects the Legacy 500 to enter service in 1H14. We had recalled the target as early 2014, and therefore 1H14 leaves room for a later EIS, though management indicated that the test flight program is proceeding well.
Morgan said that used inventories are up 10 bps in February. Used inventory of in-production models was 10.4%, up 10 bps from January and still in the 10.2-10.8% range exhibited throughout 2012. Heavy jet inventories fell 10 bps, while Medium jets rose 40 bps and Light jets were flat. While inventory rose for several Medium jets, the Gulfstream G100/150 saw a particularly steep increase. Inventory for the “toddler and pre-K” fleet (aircraft 0-5 years old) ticked down 10 bps in Jan to 7.6% (the data lags by a month). This is high in historical terms, but it is the second consecutive decline, suggesting that the upward trend we observed through much of 2012 may be turning.
Average asking price is up 0.3% in February. Used pricing has been trending down since 2008, and we expect stabilization at some point; however, 2012 included two flat months and two sequential upticks, each followed by a decline, so it is too soon tell whether the Feb improvement indicates that the bottom is at hand. Heavy jet pricing improved 90 bps on Gulfstream G500/550/V strength, while Medium jet pricing fell 60 bps and Light jet pricing fell 80 bps.
JP Morgan said that there is slow improvement in flight ops. At 2.1% y/y in January, US flight ops growth is hardly robust but activity is showing signs of life after a flattish 2012. Flight ops growth has now been positive for four consecutive months, albeit in the 0-3% range. The TTM average for Jan 2013 was up 0.7% y/y and has been inching up for five consecutive months. In Europe, flight ops continue to decline, falling 2.6% in January.