Global trade drop should not cause long-range jet panic
The global elite has been partying at the World Economic Forum in Davos. Despite the free fondue, the atmosphere was apparently subdued. This may be because one of the star speakers was the Iranian foreign minister. The heyday of globalisation, when everyone was excited about BRIC countries, feels a long way away.
Large aircraft manufacturers lived through this trend with companies and entrepreneurs embracing their ultra-long products. This continued even after the Global Financial Crisis. But with the world contracting, could we finally see demand for ultra-long aircraft falling?
Global trade figures are worrying. The United Nations Conference on Trade and Development (UNCTAD) tracks this. In December, UNCTAD said it was heading into 2024 feeling “highly uncertain and generally pessimistic” and things have only got worse since then. This was after a bad 2023 when global trade fell by 4.5% – a drop of $1.5trn. It also fell in 2021 and 2022.
UNCTAD publishes trading data for 15 different markets. Only two of these – road vehicles and transport equipment (which includes aircraft) – saw annual growth in 2023. The textile sector was down 13%. Communications equipment fell 17%.
But a few bad years of data should not distract you from the long-term trend, says Dr Wilson Mahabir, an academic, former ambassador and geopolitical specialist. “I am highly optimistic about global growth trends. Recent concerns about global economic outlook notwithstanding, east Asian and south Asian economies’ rising share of global output will continue to grow sharply and almost entirely at the expense of Group of Seven countries, meaning that global economic power, or at least income shares, will shift steadily eastward in the coming decades.”
Mahabir, who has advised several business jet manufacturers and airlines on international strategy, is optimistic. “Corporate jet manufacturers should be focused on and targeting these emerging markets with significant growth potential as multinational corporations domiciled in these regions will seek to further influence their success through ownership of highly efficient business jets,” he says.
The 2023 UNCTAD data was not all bad news. Trade in goods fell 7.5%, but trade in services rose 7%. Senior people involved in the services industry – finance, consulting, tourism and others – are more likely to travel on a business jet than on a cargo ship.
Physical trade is, of course, still important to business aviation. A lot of international business jet flights involve corporations visiting suppliers – including commodity providers. Mahabir believes that the oil market may have downplayed the risk of the Hamas-Israel conflict disrupting oil supply. There is a strong link between higher commodity prices and demand for business jets.
There has been a lot of discussion about nearshoring. You hear anecdotes about US companies, for example, reducing their dependency on Chinese suppliers and moving factories to Mexico. But the threat of this is exaggerated. UNCTAD says that most companies are not bringing back production, instead they are moving it to politically friendly countries that are still cheap. It calls this “friend-shoring.” We are seeing a lot of companies in south-east Asia buying business jets because of this trend.
Geopolitical uncertainty clearly creates problems for businesses. But this means corporates will still need to travel long distances to see suppliers and customers to solve them. They will, however, be more careful about where they travel and it is a lot easier to keep your senior management team safe on a business jet.
And the world is not getting any smaller. “The movement of significant global wealth from the West to the East will most certainly influence the demand for global private jet travel and particularly long-range corporate jets between these regions,” says Mahabir.
Uncle Tad may be pessimistic about global trade. But Globals (and Falcons and Gulfstreams) will keep trading.
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