Alasdair Whyte

GJC clearly now the plane has gone

During the first English lockdown our local pub had to cancel a planned Psychic Night. While clairvoyants surely have no excuses, it is just another example of how difficult predicting anything is. You must admire Global Jet Capital’s bravery in publishing its business jet transaction forecast now.

The aircraft finance company – which is backed by The Carlyle Group, AE Industrial Partners, and FS/KKR Advisor and raises debt from the bond markets – has taken its private forecast public.

“Before we launched in 2014, we were exploring a ton of transaction data to work out the size of our addressable market among other things,” Andrew Farrant, chief marketing officer, Global Jet Capital, told Corporate Jet Investor. “Understanding our market is core to what we do. Every day we are sifting through market data to help better understand and shape our business.”

The forecast covers both new and used aircraft deals and makes for optimistic reading – particularly for people involved in pre-owned transactions. Global Jet Capital forecasts total transactions of $162.1bn between 2021 and 2025, a compound annual growth rate of 7.4%.

“One thing that the industry has shown throughout the last 30 years is that business jets are very liquid assets,” says Farrant. “Even in the height of the Global Financial Crisis we still saw 2,500 to 3,000 new and pre-owned transactions.”

This was also true in 2020 where 2,534 pre-owned aircraft deals, worth $11.3bn, closed. Global Jet Capital estimates that 2021 will be even better – with 2,635 transactions worth $13.3bn. By 2025 it expects that the pre-owned aircraft sales market will be worth $16.2bn – with 2,959 transactions.

The finance company’s forecast for new deliveries assumes that OEMs build back production slowly. Last year manufacturers delivered 602 business jets down from 794 in 2019. Global Jet Capital does not expect them to speed up production fast. It forecasts 673 deliveries this year, 685 in 2022, 690 in 2023, 778 in 2024 and 784 in 2025.

It expects deliveries of all types to rise but that heavy and medium jets will increase faster. Global Jet Capital believes that deliveries of medium jets will see a compound annual growth rate (CAGR) of 7.6% with heavies at 6.2% – compared with an overall increase of 5.4%.

In dollar terms, Global Jet Capital expects OEMs to deliver aircraft worth $20.03bn in 2025 – up from $14.11bn in 2020. While this may seem like a significant rise it is less than the total value of aircraft delivered in 2007 ($20.13bn), 2008 ($23.18bn) or 2015 ($21.53bn).

“OEM attitudes to production have changed since the 2000s,” says Farrant. “They are very focused on finding the right balance between supply and demand and are showing great leadership here.”

The US is leading the recovery from Covid. Global Jet Capital expects this to continue with North America; accounting for 75% of all transactions (and 78% of pre-owned deals) in the next five years.

Over the next five years it forecasts North American buyers taking 2,269 new aircraft and buying 12,446 pre-owned aircraft. It expects Latin America to be next (223 new/1,450 used) followed by Europe (629 new/1,275 used); Asia (352 new/588 used); and the Middle East and Africa (133 new/297 used).

Global Jet Capital joins a small club of non-OEM and consultant forecasters – including JetcraftSo how confident is it in its predictions? “We have used a top-down econometric forecast and trained it over 30 years of business jet transaction data,” says Bill Ostrove, market intelligence analyst at Global Jet Capital, who joined from consultancy Forecast International in 2019. “But there are, of course, always risks with economic forecasts or Black Swan events. But this works both ways – things could also be better.”

Farrant agrees: “There are risks – including pre-owned inventory going down, negative economic events or new users leaving. But in my 30 years in this industry, we have seen that once people get used to using business aircraft it is a very hard thing to give up.”

 

Predicting the future is challenging for clairvoyants and business jet companies.

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