OEMs have ‘substantial cushion’ against economic downturn
OEMs have a backlog of orders that will give them some protection against any potential economic downturn, according to Global Jet Capital’s (GJC) Q2 Market Brief.
Strong orders drove OEM book-to-bill ratios to reach 1.8:1 in the second quarter (Q2) , indicating an abundance of demand. The report said OEM’s have a backlog worth $46.4bn, an increase of 49% compared with the previous year, giving them “substantial cushion” against any potential downturn.
“OEMs again reported strong order activity that has increased backlogs across the industry and supported a strong pricing environment,” GJC said. “With strong demand and pragmatic behaviour by the OEMs, today’s business jet market is resilient and should fare well even in an economic downturn.”
Lead times for OEMs are extending well into 2024 for most manufacturers and even longer in some cases. Of the major OEMs, Bombardier had the biggest backlog of the quarter, said GJC.
The value of business jet transactions has also increased, rising 14% in dollar volume in the first half of the year to $14.8bn compared with $12.9bn in the first half of 2021, driven by strong pre-owned activity and steady growth in new deliveries. The recovery was led by the pre-owned market, which increased 28.1% in the first half of the year compared with the first half of 2021. The dollar value of new deliveries increased 1% as manufacturers worked to meet demand.
New buyers have also bolstered flight operations, helping to increase them by 22.4% compared with Q2 2021 due to airline problems. GJC expects the industry to retain these new users, as historical patterns suggest they will “become accustomed to the safety, convenience and productivity that come with flying aboard a business aircraft”.
Inventory levels increased slightly in Q2 according to the report but remained “well below historic levels”. GJC said reports from industry observers indicate that some aircraft owners may be motivated to sell their aircraft to take advantage of current prices. “Whatever the cause, if it continues, this trend may provide a healthier level of supply to buyers,” it said. “Listings will also receive a boost when new deliveries begin to pick up, with owners marketing their current aircraft after taking delivery of new aircraft.”
Earlier this month, Corporate Jet Investor’s (CJI’s) One Minute Week reported the strengthening book-to-bill ratios of Textron Aviation, Bombardier, Gulfstream and Embraer.