Business jet market weathering slump

Business jet manufacturers are cautiously optimistic about the next 12 to 24 months, despite the fragile U.S. economy and the specter of the United States expanding the war on terrorism to include military strikes on Iraq.

According to Aviation Week & Space Technology, most airframe builders feel their backlogs of aircraft on firm order are large enough to ensure healthy, though significantly reduced, levels of production through the next year or so. Industry-wide, backlogs stand at 1,800 to 1,900 aircraft. Product debuts tend to stimulate market demand, with a number of new aircraft models introduced in the last 12 months. Several were unveiled at last month’s National Business Aviation Association’s 55th annual meeting and convention in Orlando, Fla. Boeing makes the BBJ and BBJ 2 business jets, based on the 737 airframe.

There also appears to be substantial pent-up demand for business jets, with many prospective buyers waiting for signs of a sustained economic recovery before committing to purchases. Economic uncertainties haven’t led to a rash of cancellations or deferrals of new aircraft orders and deliveries. And fractional ownership, manufacturers’ single largest source of new sales, is continuing to grow at the very healthy rate of about 15 percent annually.

Perhaps most importantly, the utilization of business aircraft—arguably the most meaningful measure of the health of business aviation—generally is higher than it was this time last year. Three-fourths of NBAA’s member companies, many of whom operate flight departments, are flying more than they were a year ago, NBAA President Jack Alcott said.

However, these indicators are no guarantee that the industry won’t find itself facing even more difficult market conditions this time next year, if not sooner.

JSA Research, a company that provides independent aeropspace equity research, is forecasting deliveries of 748 business jets in 2002 valued at about $11.3 billion, a decrease of 5 percent from the 787 business jets worth approximately $12.2 billion last year. Honeywell, which recently released its 11th annual business aviation outlook, forecasts 700 total deliveries this year. They don’t foresee a recovery until 2005, when larger numbers of older aircraft begin to retire and the economy, from their perspective, stabilizes.

But if there is one aspect of the current market that makes industry leaders feel jittery about the next 12 to 24 months, it’s the number of used aircraft for sale. The inventory has been rising since the summer of 1998, reaching an all-time high last May, with 1,967 aircraft on the market.