JP Morgan Business Jet Monthly for July 2012


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 we cover, including BBD, ERJ, GD, HON, COL, and TXT.

JP Morgan sees some business jet data improving, but macro economic data could lead to a 2H reversal. Slower global growth should hold back new business jet demand in 2H, particularly for smaller jets, though the data is not showing it yet as the used market improved a bit more in June.

Historically, however, bizjet demand follows corporate profits; so,falling earnings estimates and downward guidance revisions do not bode particularly well. Corporations replacing older jets have been a key demand driver recently, especially in the US, and macro anxiety could push out some of this replacement demand. As deliveries remain near a cyclical bottom, the primary risk appears to be the delay of a recovery rather than another material step down. We forecast 5% delivery growth this year to 720 business jets following three years of declines totaling nearly 40%. Our expectations for this growth as well as continued improvement in 2013 are subject to change depending upon how disruptive the slowing global economy becomes.

JP Morgan says that Q2 earnings should provide some insight. Much of the downturn in economic indicators has occurred over the past two months; so, it is too early to have a good sense of how new bizjet demand will fare, but we hope for some color when companies report Q2 starting later this month. TXT should report July 19 and GD July 25. They also expect ERJ in late July and Bombardier on Aug 9. Among suppliers, HON reports July 18 and COL on July 24. Used data has held up in May and June, though the past two summer slowdowns have resulted in 2H weakness, including an 80 bp increase in used inventory from July-Nov 2011 and a 50 bp increase from July-Oct 2010.

JP Morgan says that the used inventory declined 20 bps in June. Used inventory of in-production models is now 10.4%, down from 11.1% in Feb, and it has fallen 10-20 bps in each of the past four months. Heavy, Medium and Light jet inventories declined 30 bps, 10 bps and 10 bps, respectively. The “toddler and pre-K” fleet (aircraft 0-5 years old) has not fared as well, however, with the portion of the fleet available for sale edging up an estimated 30 bps in May to 7.1%, or
20 bps above year end. By eliminating older aircraft that may never get sold, we view this as an important indicator of trends in the new market.

JP Morgan says that the avg asking price is flat in June. YTD, prices are down 6% and remain at the bottom for this cycle after being flat or down sequentially for nine of the past twelve months. Prices for Heavy and Light jets were down 0.8% and 0.2%, respectively, while Medium jet prices were up 2.6%.

JP Morgan says that flight ops remain weak. US bizjet flight ops were flat y/y in May, according to data the FAA released last week, and they remain flat YTD as well. Flight ops are up 21% from May 2009 but remain 19% below the May 2007 level. In Europe, takeoffs and landings continue to decline. There were down 2.6% y/y in June and 3.5% in 1H.