Bleak outlook for business jet market


According to J.P.Morgan’s projections on the business jet market, the future of deliveries is not looking very bright.

After a peak in 2008, deliveries decreased until 2013 and then went up by 4%. However, 2016 marked the beginning of a new decline with 660 deliveries (same level as 2013) and a forecasted 625 deliveries in 2017. However, “growth should resume in 2018 but we estimate only a 4% CAGR through 2020 for now,” the report explains.

Usually, demand for business jets goes along with corporate profits. But this has not been the case lately as corporate profits did grow unlike bizjets demand. J.P.Morgan’s analysts, Mr Seth Seifman, Benjamin Arnstein, Michael Rednor and Shivang Badaya, attribute “the disconnect to several factors, including the degree to which too many aircraft were built in 2006-2009, the stigma attached to bizjets during the last recession, the halting nature of recovery and the low level of confidence that has characterized it, and a focus on cost cutting—which does not favour buying business jets— relative to sales growth as a profit driver.”

Demand is not as high as could have been expected and this is due to various reasons such as the macro backdrop, new models being introduced on the market, “users’ willingness to access fleet operators’ jets vs buying their own, the possibility that accelerated depreciation emerges from US tax reform, and the persistence of owner frustration with the steep residual value declines of recent years.”

Considering all these elements, it is no surprise that the delivery forecasts for the next 10 years have been decreasing by 10% in average for 5 years.

Long-range jet, Medium jet, and Lights jet deliveries have dropped respectively 29%, 8% and 11% year on year. On the used market, inventory for all three types of jets has been decreasing, and so has the average asking price, which went down 0.6% to $11 million. “Price increase for Medium jets (+4.5%) and Light jets (+0.3%) was more than offset by a 2.0% decrease in Heavy jet prices.”

Written by ADIT – The Bulletin and republished with permission.