Honeywell Aerospace Forecasts $233 Billion in New Business Jet Sales Through 2017
Record Delivery Pace Continues into 2009 on Strong International Order Intake
More Than 1,300 New Deliveries Projected for 2008;14,000 New Business Jet Deliveries Through 2017;
2007 Survey Purchase Plans up 20%
Increases in Fractional Ownership and Jet Cards Adding New Demand
NBAA, ATLANTA.– In its 16th annual Business Aviation Outlook issued today, Honeywell (NYSE: HON) forecasts delivery of approximately 14,000 new business aircraft from 2007 through 2017, generating industry sales of $233 billion.
2007 marks the fourth year of industry expansion since the last trough in 2003. Year-to-date, the number of aircraft delivered is up almost 11 percent compared with the same point in 2006 and industry-wide sales are up just over 12 percent, according to Honeywell Aerospace. For 2007, Honeywell Aerospace forecasts deliveries of over 1,000 new business jets for the first time in history, up from 861 in 2006. Deliveries in 2008 are expected to exceed 1,300.
Year to date new jet orders have risen over 100% over first half 2006 levels. Available measures of total industry book to bill ratio have exceeded 2.0 thus far in 2007. “Industry growth has moved into unparalleled territory,” said Rob Wilson, President, Business & General Aviation, Honeywell Aerospace. “2007 is a record year for the industry,” Wilson said, and “order intake across most business jet categories remains very strong, with little discernable affect from recent stock market fluctuations and with backlogs exceeding two and one half years worth of deliveries, 2008 will likely be another banner year for the industry.”
Global Purchase Expectations Increase
The 2007 survey indicates record aircraft deliveries will continue into 2008. North American purchase expectations declined slightly, but expectations in all other world regions expanded significantly. Overall, respondents to this year’s survey said they expect to replace or expand the equivalent of about 33 percent of their fleets over the next five years, up from about 26 percent in the 2006 survey.
The increase in overall purchase expectations is supported by the increasingly global nature of the industry. International buyers now account for about 50 percent of the new aircraft deliveries projected over the next five years. Purchase expectations trended up in Asia, Africa and the Middle East and rose strongly in Europe. Aggregating all regions, five-year purchase expectations were well above the 24 percent average recorded over the last six years. Between 2008 and 2012, the 2007 survey forecasts demand for 4,600 aircraft globally, not including demand from Fractional ownership or branded charter start up businesses.
In North America, 2007 survey respondents said they expect to replace or expand about 20 percent of their fleets during the next five years. “The level of purchase expectations in North America remains significant,” Wilson said. “Despite slower economic growth and recent credit and stock market fluctuations, survey purchase plans lost less than one percent of their 2006 levels. Just like last year, we continue to hear concerns about high fuel costs, taxes, user fees and ease-of-use issues such as Temporary Flight Restrictions in the United States.”
Despite those responses, overall buying plans in the region held relatively steady, with replacement plans actually increasing and offsetting some of the slowdown in plans for fleet expansion. Honeywell’s baseline forecast assumes lower than three percent U.S. GDP growth in the short term. Should the U.S. economy outperform those estimates purchase expectations could strengthen further.
In other regions, five-year purchase expectations gained strength. In Europe, purchase expectations of 47 percent were up significantly compared with 2006, and are well above the 25 percent-or-better levels that have prevailed since 2001. “Seven consecutive years of strong purchase intentions in Europe is a great track record, and confirms the value operators receive from using business jets,” Wilson said.
The strength of the Euro against the dollar certainly contributes as an incentive to buy new aircraft, as does the increased wealth and business expansion anticipated in Eastern Europe and Russia. Overall, European operators reported a particularly strong increase in replacing their fleets, while holding fleet expansion plans more in line with 2006 levels. A great deal of interest in moving into larger and rangier models was reported by European respondents and charter / managed fleet operators contributed to the improved purchase plans as well.
The Asia/Africa/Middle East region once again ranks as the area with the highest purchase expectations. Purchase expectations grew for the fifth consecutive year to record levels exceeding 50 percent, again attaining the highest readings in the history of the survey. Middle East and selected African economies continue to benefit from higher oil prices and expect to be active buyers. Confidence in Asian economic growth remains high boosting interest in longer-range aircraft with state-of-the-art avionics.
In Latin America, operators reported a strong level of purchase expectations. Just over 38 percent of current fleets are expected to be replaced or added to over the next five years. Purchase plans recovered from the lower 2006 level by eight points, and interest is high in historical terms, exceeding all prior survey levels except 2006. Latin American purchase plans were influenced in the 2007 survey by several sometimes contradictory factors. The region still reflects the positive impact of elevated energy prices on regional economies, including those of Mexico, Venezuela and Brazil. On the other hand, concern over potential political instability was mentioned again in 2007 as a reason to postpone new aircraft purchases.
Chief reasons cited for replacement of current aircraft remain consistent with prior surveys, with age leading overall and range improvement also listed as an important criteria in every region. European operators listed more spacious cabins as an important reason for replacement aircraft followed by longer range. Improved speed, comfort and updated technology in avionics and engines also appear as leading reasons for aircraft replacement across all regions.
Factoring in projected record aircraft deliveries in 2007 and the increased global purchase expectations noted above, this year’s Business Aviation Outlook forecasts another record-setting year in 2007. Beyond 2008, the outlook remains strong, with annual deliveries expected to run in the 1,200-1,400 range for the balance of the decade, with only modest cyclical variability.
Five-year purchase expectations for used jets also stayed in line with 2006 results and continued a modest rate of improvement. Purchases of used aircraft have been at relatively high levels for several years, resulting in firming prices and a declining inventory of late-model jets. Over the last few quarters average asking prices have trended upward and supply as measured by share of active fleet for sale has trended downward, moving in line with survey results over the past two years. Recent sales activity has been particularly strong with second quarter 2007 unit sales posting the highest second quarter level in 5 years. Current average pricing is running nearly 14 percent ahead of levels from the same period a year ago though there is obviously some variability on a by model basis. Large backlogs in the new jet sector also contribute to stronger used jet business environment since few slots are available on many models until 2010 or beyond.
“World economic conditions play a key part in the industry expansion we’ve experienced but steady gains in aircraft value offered to operators also stimulates growth. Value to the operator takes the form of improved aircraft reliability, mission flexibility, cabin productivity, comfort and convenience,” Wilson said. “Historically, Honeywell Aerospace’s Business Aviation Outlook shows increases in purchase plans and subsequent aircraft deliveries tend to be highly associated with the introduction of new aircraft. Manufacturers help stimulate demand with new models incorporating advances in aviation technology within the larger global economic framework,” he said.
“Improved engines, safety systems, cockpit avionics and cabin information and comfort improvements along with advances in aerodynamic design continue to deliver compelling gains in value to fleet operators, pilots and passengers.”
Global Economy and New Product Pipeline Favor Long-Term Growth
Most of the economic factors that support demand for business jets favor continued industry growth. Estimates of growth in U.S. gross domestic product continue to project slower growth over the next 12 to 18 months, but stronger growth subsequently resumes. Regional economic growth rates are all generally favorable for the industry, especially within Central Europe, Asia, the Middle East and Sub-Saharan Africa. In addition, Honeywell Aerospace’s “Customer Benefit Index,” a key component of the forecast, which tracks the perceived value offered by business jets to fleet owners and operators, also continues to trend upward. “Tying all these factors together with the improved purchase plans from the 2007 operator survey, continues to paint a broadly positive picture for the industry,” Wilson added.
Owners of fleets serving fractional shareholders and Jet Card purchasers continue to provide a substantial portion of total industry demand. Fractional fleet operators still account for about 15-18 percent of the backlog for business jets but have seen inroads made in their overall share of backlog and new deliveries by the large number of orders placed by traditional operators and Charter providers over the last one-to-two years. New deliveries to fractional fleet operators should range between 110 and 150 aircraft annually through the forecast period. Sales of new ownership shares have flattened significantly since 2004 but are back in positive territory thus far in 2007. Sales of jet cards, which offer business jet access in smaller blocks of flight hours without a long-term financial commitment or equity stake remain strong as well. New branded charter operations continue to place sizable aircraft orders, especially of new Very Light Jet (VLJ) class aircraft and adding to total aircraft demand.
“Advances in technology are sought by every manufacturer. Innovation to improve cabin comfort, extend range, broaden mission capability and produce business jets that are highly productive, cost-efficient assets is ongoing across the industry, and is coming from existing and emerging business aircraft OEM’s,” Wilson said. “Gains in new aircraft capability and flexibility, incremental demand from fractional ownership and jet cards, airline use of business jets, branded charter operations and special mission applications, are all fueling unprecedented business jet demand.”
“U.S. commercial airlines in particular continue to run extraordinary load factors and have suffered from schedule fidelity issues. Such conditions may result in fractional and charter fleet operators carrying more and more traffic,” Wilson said. “If trends continue, shared ownership and charter fleets likely will continue to have high utilization rates and any resulting in capacity bottlenecks could fuel additional aircraft demand.”
Replacement demand for new aircraft is also a significant source of new jet purchases in the Fractional segment. High utilization and the desire to maintain consistent passenger experience and hold down operating costs contributes to fractional replacement rates at shorter intervals than typical for many traditional operator groups
Near-Term Demand Well-Distributed Across Aircraft Classes
Based on new jet models mentioned by survey respondents, the 2007 Business Aviation Outlook projects fairly balanced demand growth across most business jet segments over the next five years. Medium and medium-large aircraft together account for about 25 percent of the projected demand through 2012. Light and light-medium aircraft make up about 19 percent of projected five-year demand. The largest grouping is in long-range and ultra long-range aircraft at 26 percent. The strength in the long and ultra-long -range segment is consistent with the last two year’s findings and reflects increased need for aircraft capable of trans-Pacific flights, as well as the growth in demand in other regions requiring more long range operations as trade and economic growth flourish.
North America is expected to account for about 50 percent of business jet deliveries over the next five years, a lower-than-proportional share of global demand reflecting somewhat slower growth in the region and the very high levels of purchase expectations in all other areas. Honeywell has reported on this trend for several years and the survey is tracking with observed shifts in orders and deliveries very closely.
Asia is up strongly and is expected to account for up to 15 percent of total business jet demand in the next five years. Europe rebounded strongly, and if realized, European demand will contribute about 22 percent of the world total. Latin America follows at 10 percent and The Middle East/Africa region remains steady over last year at four percent. While these percentages have shifted somewhat, the overall demand pool has grown so individual regions are still absorbing significant numbers of new aircraft into their fleets, even if percentage share slips a few points.
Demand Trends by Aircraft Segment
The 2007 Business Aviation Outlook provides the following estimates of demand trends by aircraft class:
Long-Range and Ultra Long-Range: Deliveries of aircraft in these segments are projected to top 2,000 in the forecast period Deliveries might range as high as 225 aircraft and should average 170 to 190 per year over much of the forecast period. Aircraft in this category include the Bombardier Global Express and Global 5000, Challenger 850, Gulfstream G450, G500 and G550, Falcon 900EX, Falcon 900DX and the new Falcon F7X.
Large: Honeywell Aerospace again forecasts delivery of more than 1,300 large business jets over the forecast period. Near-term, deliveries are expected to run around 120 aircraft in 2007 and 2008 then decline slightly to a stable level of around 100-110 aircraft per year until trending up again in 2013 and beyond. Aircraft in this category include the Challenger 604/605, Gulfstream 350, Falcon 2000, Falcon 2000DX and EX, the Future Super-Midsize Falcon and Embraer Legacy 600.
Medium and Medium-Large: Combined, new aircraft deliveries in these segments are forecast to approach 280 annually in 2007 and average around 280-300 units annually for several years. Deliveries for the forecast period should total more than 2,600 aircraft. Jets in these segments continue to enjoy strong interest from fractional fleet operators. Growth in these segments is also being fueled by the introduction of new models, both near-term and in the later years of the forecast period. Among the newer aircraft in these segments are the Citation Sovereign, Gulfstream G150, Hawker 900XP, Hawker 850XP and Hawker 4000. Established platforms include the Bombardier Challenger 300, Citation X, Gulfstream G200, Falcon 50EX, and Learjet 60.
Light and Light-Medium: Honeywell Aerospace anticipates deliveries of more than 3,850 jets in these segments between 2007 and 2017, an increase of more than 18 percent compared with delivery expectations for these segments in last year’s Business Aviation Outlook. As previously noted, the light and light-medium segments continue to be one of the larger areas of operator new jet purchase plans in the 2007 survey. Aircraft in these segments include the Hawker 400XP, Hawker 750, Citation Bravo, Citation Encore+, CJ3 (525B), Citation XLS, Grob SPn, Embraer Phenom 300, Lear 40 and Lear 45/45XR.
Very Light: Deliveries of business jets in this segment are poised to accelerate rapidly off a base of around 175 units in 2007. Deliveries are forecast to increase dramatically in 2008 and beyond, averaging just under 320 aircraft per year for the latter portion of the forecast period. The rapid increase in projected demand reflects the introduction of new very light jets, such as the Embraer Phenom 100 and Cessna Citation Mustang, both of which continue to enjoy strong order backlogs. Also entering the segment is the recently announced HondaJet. Total deliveries of very light jets for the 2007 to 2017 period are expected to exceed 3,300. Other production and announced aircraft in this segment include the Cessna CJ1+ and CJ2+, Beechcraft Premier I and Sino-Swearingen SJ30-2.
Personal Jets: The 2007 Business Aviation Outlook provides an updated look at the emerging General Aviation Jet segment. This portion of industry demand has centered on the emergence of very light aircraft such as the Eclipse 500, Adam 700, Diamond Jet, Cirrus, Piper Jet and others not normally covered by the Business Aviation Outlook.
Honeywell Aerospace projections are based on general aviation or owner-pilot survey data collected in 2005 and corporate flight department interest reflected in the 2007 purchase expectations survey. Total demand potential over a 10 year period is estimated to be in the range of 6,000-7,000 very light personal jets. When combined with new-generation low-cost aircraft carried in the Very Light segment of the Business Aviation Outlook, the total deliveries range from 8,000-9,000 aircraft from 2007-2017 and fall directly in the range predicted by earlier Honeywell survey research. The projections now factor in demand from fractional ownership companies, branded charter and some emerging “air taxi” operations that have ordered ultra-light jets as the core of their fleets. Inclusion of these additional sources of demand has increased the outlook over the pure owner pilot based levels reported a year ago. Additionally, new OEM’s with credible development programs have emerged and the forecast window has moved a year further into a period of rapidly expanding delivery ramp up plans for established programs.
Business Liners: The current Business Aviation Outlook does not explicitly include aircraft in the Business Liner class (typically well over 100,000 pounds takeoff weight and based on transport airframes). However, purchase expectations are recorded for these models in the survey. Deliveries of aircraft in this class are projected to total around 250 through 2017 and should average more than 20 aircraft per year in the forecast period. Aircraft represented in this segment include the Boeing BBJ series, the Airbus Elite A318 and Airbus Corporate Jetliner as well as the Lineage 1000 from Embraer, plus corporate versions of twin aisle aircraft. This segment comprises an additional $15 billion of business aircraft sales.
The Honeywell Aerospace Business Aviation Outlook and the purchase expectations it summarizes are a snapshot of expected business aircraft sales at a point in time and reflect fleet operators’ views of current events, such as political and economic conditions, fuel costs and changes in regulations, taxes and user fees that would affect expected sales in the near term. Honeywell Aerospace’s Business Aviation Outlook does not reflect the impact of unforeseen events such as a war, major economic shock, fuel crisis or new regulatory restrictions. The Outlook is based in part on Global Insight’s baseline economic forecast assumptions that call for economic growth at quarterly rates in the two-to-three percent range for the next six quarters, and exceeding three percent thereafter.
Honeywell Aerospace has produced its Business Aviation Outlook for 21 years and has shared the findings publicly for the last 16 years. This year’s Business Aviation Outlook is derived from interviews with over 1,500 corporate flight departments around the world that operate more than 15 percent of the world’s turbine-powered fixed-wing aircraft. The Outlook is also shaped by information from aircraft manufacturers, other industry sources and Honeywell Aerospace’s analysis of the impact of various economic indicators on industry demand trends. Honeywell’s Business Aviation Outlook tracks purchase expectations for business jets with gross take-off weight (GTOW) of less than 100,000 pounds.
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