Jet deliveries set to fall 30% in 2020
|After the Global Financial Crisis business jet manufacturers got a lot of criticism for not cutting production fast enough. Some of this was unfair as slowing production is difficult and expensive. But Covid-19 has managed to do it straight away.|
In the second quarter of 2020, Bombardier, Embraer, Gulfstream and Textron delivered 88 jets. This is a remarkable achievement when they all had to stop production because of Coronavirus. But it is 40 fewer jets than in the same three months of 2019.
Overall, OEMs look set to deliver 30% fewer jets and turboprops – around 560 aircraft compared with 809 last year.
Bombardier delivered 20 aircraft in its second quarter, down from 35 in the same period of 2019; Embraer 13 down from 25; Textron 23 jets down from 46; and 11 King Airs down from 16. Dassault delivered 16 Falcons in the first half of 2020, one less than in 2019.
Gulfstream was an outlier delivering an impressive 32 aircraft (26 large cabin and six mid-cabin), one more than in the same quarter of 2019 (when it delivered 23 large cabin jets).
Selling aircraft was also hard during the quarter.
Dassault’s book-to-bill ratio (the number of aircraft ordered divided by the number of aircraft delivered) was 0.37 for the first half of 2020. Gulfstream’s was 0.54 for the quarter compared with 1.03 in the same three months of 2019 – and 0.8 for the first six months of the year.
It is too early to say that this is a trend and it is unsurprising that companies and individuals were not ordering aircraft during lock-down.
“We actually feel reasonably good about the 0.5 to 1 book-to-bill under the circumstances,” said Phebe Novakovic, chairwoman and CEO of Gulfstream’s parent General Dynamics in an analyst call last week. “Sales activity in the quarter was extremely difficult exacerbated by fears concerning the economy, by inability to travel, by inability to arrange demonstration flights and by difficulty getting before the customers other than by telephone.” She says they are also seeing increased interest from Asia and Europe.
“Right now, we certainly have seen a pick-up. It’s particularly in the turboprops and the light jets, which is encouraging. We’re not seeing as much activity yet in terms of the Latitudes and Longitudes, for instance, but there’s a lot of dialogue going on,” said Scott Donnelly chairman, President and CEO of Textron. “And since those are primarily corporate-oriented aircraft, as people are coming back, most businesses are worried about getting their own businesses up and operating. But certainly, the dialogues are there. And as people go into the end of the year and certainly beginning of 2021, we expect to see an uptick in the order activity there as well.”
The fall in new orders hit backlogs. But they are still decent. Bombardier’s is $15bn, Gulfstream’s $12.1bn, Textron’s $1.4bn and Dassault’s $1bn.
“Our backlog is holding up pretty strongly, which is in marked contrast to 2008-09 for example where the backlog experienced some significant erosion,” said Novakovic. “We haven’t seen many defaults. That differentiates this downturn from other two I have lived through: the 2001 tech bubble and then 2008/09.”
Services have become more important to all OEMs and service centres were busy during lockdowns. While the margins are better on services, demand is driven by business jet utilisation which will be down for the year. The latest data from WINGX shows that US business jet flights were down 20% in July 2020 compared with July 2019, with European flights down 15%. Manufacturers, however, are growing market share by adding facilities (Gulfstream has just opened its new UK facility) and acquiring others. Dassault’s sales were up 7.5%, despite delivering fewer aircraft thanks to its acquisitions of ExecuJet’s and TAG’s maintenance businesses. You can expect all OEMs to keep focusing on services.
The one thing that all OEMs (and everyone else) shares is uncertainty about the next few months.
“We expect the next few quarters will be challenging and difficult to predict, as it is still unclear how the pandemic will unfold and what path the economic recovery will take,” said Eric Martel, President and CEO of Bombardier. Martel who took over on April 6th, 2020 during the height of Montreal’s lockdown, added: “I certainly did not expect my first quarter to be so challenging.”
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