Alasdair Whyte

Discipline and prudence replace cautious optimism

In the next few weeks, the large business jet manufacturers will report their fourth quarter figures. This is what they are going to say.

From 2009 to 2020, it was rare for any business jet OEM to speak in public for more than a few minutes without using the phrase: “Cautiously optimistic.”  Now, when everyone is genuinely optimistic about 2022, they will stress the importance of “discipline” or “prudence”.

They will all say: demand remains strong; backlogs have continued to firm up; and pricing has strengthened. Most will also mention how they are managing supply chain challenges.

They will all say: demand remains strong; backlogs have continued to firm up; and pricing has strengthened. Most will also mention how they are managing supply chain challenges.

It is easy to be confident about this because all parts of the market are seeing strong demand. There are no signs of this easing – especially with pre-owned inventory at record lows.

All the major manufacturers grew their backlogs in the first three quarters of 2021. They continued to book more orders in the fourth quarter than the aircraft they delivered. Dassault has already said that its Falcon backlog went from 34 aircraft in December 2020 to 55 at the end of 2021.

They should end 2022 with even stronger orderbooks. “Corporate America is back. We did not do our normal buying from the OEMs in 2020 for corporates,” says Don Dwyer, co-managing partner, Guardian Jet. “Some returned at the end of 2021 and a lot more are back in 2022. this is definitely going to be a big year for corporate buyers.”

The good news for OEMs is that flight departments are less frustrated by backlogs than impulsive individuals. “These are very strategic buyers and are happy to wait for aircraft,” says Dwyer.

Desperate buyers who act quickly, may be able to still get new aircraft in 2022. Most will have to wait until 2023. “Backlogs are much stronger but not every company has been a winner with Covid. There are a few companies out there that would be happy to defer deliveries by a year or two or sell positions. OEMs have their numbers on speed dial now,” says Steve Varsano, founder of The Jet Business. “There are also some buyers taking deliveries this year that are open to offers with premiums. But there are not speculators on new aircraft like in 2008.”

Fleet operators – like Flexjet, NetJets and VistaJet – that ordered before the boom are also well positioned. NetJets, alone is taking 75 new aircraft in 2022 – this will be close to one in 10 of all aircraft deliveries.

Stronger backlogs are also allowing OEMs to increase pricing. Gulfstream has raised list prices by $1m on its G500 (now $49.5m) and G600 ($59.5m). All are negotiating harder with buyers. “Prices have firmed but we have not seen OEMs being greedy,” says Dwyer. “They are being smart about it.”

Varsano agrees: “Manufacturers do not need to negotiate on price now as they may have before the current market rush and are much stricter with numbers now.”

Even if suppliers can step up (and this is so complicated only the OEMs know), CEOs are keen to keep backlogs and pricing firm. Even if it means missing out on a few sales.

“We speak to investors and analysts, and they are telling us to focus on margin, free cashflow, debt and not market share,” says one chief executive speaking off-record.

He then mentioned the importance of discipline and prudence.

Dassault has revealed that its Falcon backlog rose from 34 aircraft in December 2020 to 55 at the end of 2021. Pictured is the under-development Falcon 6X. 

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