How European business aviation fared in 2013

opinion

by Alasdair Whyte

December 20, 2013

Despite an emergence from recession, Richard Koe, managing director of WINGX Advance, says European aircraft deliveries and prices are still languishing, while flight activity is muted.

The Citation Mustang was up 8% in November 2013 (Photo: John Lythgoe).

A year ago the European economy was in a parlous state. Looking ahead into 2013, there was considerable concern that the single currency zone might even collapse under the pressure of sovereign debt crises. In fact, disaster was averted, the EU exiting recession in the second half of the year and still on track for a tepid recovery in 2014. This trend should be a locomotive for business aviation in Europe to move out of its five year recession.

Unlike previous economic recessions, however, the great recession-turned-timid recovery seems to have decoupled from business aviation. Aircraft deliveries and prices are still languishing, a major capacity overhang remains in place and flight activity is muted. It may be a question of timing – in the US, well into the recovery and after 18 months of strong corporate profitability, the business aviation market is back on a growth curve. In Europe, comparable activity indexes are looking bleak.

The size of the European ultra-long-range fleet grew by 10.4% and utilisation increased by 12.3%.

Flight activity falls

Year to date, in terms of business aviation flight activity, Europe is 2.7 per cent down on 2012, which was 3.1 per cent down on 2011. Demand for flights is 11 per cent off its peak in 2008 and given that the fleet has grown some 12.5 per cent in the last five years, utilisation per aircraft is off by more than 20 per cent. Overall, aircraft prices have fallen by about the same margin and inventory for sale is close to 15 per cent. With the fleet’s average age in Europe a relatively elderly 11 years, much of the fleet for sale will likely stay on the shelf.

A year ago, there was some optimism that the European business aviation market would rebound in 2013. New deliveries of at least 150 aircraft were forecast and by mid-year at EBACE, many of the industry’s leading players were heralding green shoots of recovery. Now we’re in December and less than 90 have been delivered. Meanwhile flight activity has slumped across all five of Europe’s top markets. To give you a flavour, combined departures from the UK and Germany have fallen on average by more than 650 flights per month.

Ukraine was the biggest gainer for European business aviation activity.

Bright spots in Spain and Ukraine

There were however some bright spots in the 2013 gloom. Spain is the only large European market with activity growth, which seems to be running ahead of a fragile recovery. Business aviation in Ukraine is belying the local economy’s recession, with 6 per cent growth in year-to-date flights. There has been at least some growth in 2013 in a scattering of small markets in Southern Europe, Benelux and the Baltic states. But for optimists it’s disappointing to see flight declines in former-growth stars like Russia and Turkey.

Ultra-long-range jets thrive

Still, you don’t need to be an optimist to be enjoying the sustained growth in at least one business aviation niche. The demand for ultra-long range jets has been relentless throughout the year, with activity running more than 15 per cent ahead of 2012. Bombardier’s Global Express, for example, has flown 37,857 flight hours in Europe year to date, some 6,000 more than in 2012. Specifically in charter flights, it’s 47 per cent up on last year. In the UK, where overall activity is 5 per cent down, Bombardier’s heavy jets are flying 9 per cent more than in 2012.

The hotspot in demand for the most expensive and high-performance aircraft is not unique to Europe; from the larger US market to the small but fast emerging business aviation markets in Asia, big jets are selling well. Of course, neither is this premium demand unique to business aviation; the ultra-high-net-worth customer behind this demand has thrived throughout the recession. Even in the stagnant European market, if your business is focused on this part of the trade, you’re probably doing well.

Corporations and small businesses stop flying

Conversely, demand for the mainstay mid-size and light jet aircraft fleets in Europe has seen unremitting decline in 2013. Mid-size jets have flown 10 per cent less year-to-date, weighed down by the out-of-favour Hawker 700-800 series, which has flown 2,000 fewer flights this year, and the Learjet 60, on which private flights, for example, have fallen more than 35 per cent in 2013.

In part, this decline – pretty much unbroken since 2008 – reflects the uncertain outlook of this fleet’s primary customer: the corporations. In Europe at least, their belief in the net benefits of business aviation hasn’t recovered from the downturn. This is equally the case of light jets, whose audience of small and medium size enterprises still hasn’t come out of hiding. With light jet activity comprising 30 per cent of all jet departures, this is bad news for the industry.

Light jets lose out to VLJs and super mid-size

Lack of business conviction in private jet usage per se is not the whole story however. While it’s clear that the traditional mid-size and light jet fleets have seen demand slump in 2013, other fleet segments – aside from the ultra-long range jets – have increased activity. Super mid-size aircraft are in demand, particularly from charter customers. In fact, the Bombardier Challenger 300 has flown 20 per cent more charter flights this year compared to last. Quite probably, many of the mid-size aircraft’s erstwhile customers are switching to these aircraft’s superior combination of price and performance.

Even more so, it is evident that very light jets are stealing customer share from the light jet fleet. VLJs are flying 5 per cent more than last year and the Citation Mustang was 8 per cent up in November.

The Mustang now has a 10 per cent market share of all light jet activity and it will be interesting whether it can sustain this incursion in 2014. Its popularity is partly down to the aircraft’s operating efficiency, but also reflects several operators’ success in harnessing these advantages to a dedicated charter fleet.

Looking ahead

Overall, we forecast that these major contours of business aviation activity in Europe in 2013 will continue into 2014. The top end of the market will set the pace; much of the fleet, which is older and no longer cost competitive, will see activity subside; and experienced customers will favour the demonstrable value-for-money of current and newcomer aircraft in the very light and super midsize fleets.

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For more on European business aviation, head to the WINGX Advance website and download the company’s monthly reports.