Global aircraft slowdown

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Bombardier is cutting 1,750 people that build Global 5000s and Global 6000s because of lack of demand. This is not news that an OEM wants to announce, especially just before an important airshow like EBACE. It should (but probably will not) dampen the mood in Geneva.

EBACE opens when Europe is still a pretty grim place to sell or operate business jets. Bombardier is specifically blaming a fall in buyers from Latin America, China and Russia. But Europeans are hardly queuing up to order aircraft either. The C-Series clearly influenced this decision to cut staff (it now influences every decision at Bombardier) but others have seen demand for larger aircraft fall as well.

It is generally true that larger aircraft have had a better downturn than small aircraft. Optimists have been waiting for smaller aircraft to catch up. Pessimists now see larger aircraft coming down.

Amstat says that just 10.5% of heavy jets are for sale (up from 9.8% in January; down from 11.7% 12 months ago). This is below the 20 year average of 12% and should be nothing to worry about.

Despite this values for for large pre-owned aircraft including G550s, Globals and Falcons all fell sharply last quarter (the exception being the G650). Some of these aircraft have lost 10% of their value in the last 90 days.

There are buyers (especially in the US), but there are too many sellers. One broker said that if you have a top of the range aircraft priced at more than $30 million you can sell it fairly easily; but in the $20 million range you will be stuck with it for much longer.

When you add the significant number of large jets that were financed on operating leases in 2007 and 2008 (which are now being returned to financiers to be sold) it is hard to see why large cabin values will harden.

This is not the end of the world. We have all got used to this new environment and many brokers, financiers and operators are busy. But the upturn promised at EBACE in 2014, 2013, 2012, 2011, 2010, 2009 and (even) 2008 has not yet arrived.

Enjoy EBACE 2015.

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