Business Jet Sales May Grow in 2012 as Asia Blunts Slow Economy

By Susanna Ray and Rachel Layne - Oct 10, 2011 5:00 AM GMT+0700
Enlarge image

A Bombardier Learjet 40 XR aircraft sits parked at Million Air in White Plains, N.Y. on Aug. 3, 2011. Honeywell predicts that business jet sales may rise in 2012, spurred by demand from emerging economies. Photographer: Paul Taggart/Bloomberg

Business-jet sales may increase worldwide starting in 2012 as emerging-market demand blunts a sluggish U.S. economy that fueled a probable decline this year, Honeywell International Inc. (HON) projected.

Purchase expectations are growing in Asia, followed by the Middle East and Africa, while the free-fall in developed markets like North America following 2008’s recession has stabilized, according to an annual survey of 1,500 companies by the Morris Township, New Jersey-based avionics and cockpit-instruments maker.

Companies also have cash to spend now, compensating for individuals that might hold back amid economic uncertainty, Rob Wilson, president of Honeywell’s business and general aviation unit, said in an interview. Replacement of aging planes has combined with international travel demand to boost potential sales of longer-range models, he said.

“Cautious optimism” will be a theme at the National Business Aviation Association’s annual conference that starts today in Las Vegas, Wilson said. “We’re figuring out how to make the most of it in uncertain times.”

Customers continue to say that they still intend to buy new aircraft in the next five years, though some have pushed out the timing to the latter half of that period, Wilson said.

Air-travel demand has been boosted by growing trade between Africa and China, a run-up in commodity prices and oil, and the exploration of new business opportunities in those regions, Wilson said.

Declining Deliveries

By the time the survey was conducted between May and August, much of the turmoil in the larger Middle East countries had settled down, he said.

Global deliveries probably will decline to 600 to 650 from last year’s 732, then climb in 2012 to less than 700, Honeywell projected.

The percentage of active fleets comprised by used jets for sale has declined about four points from a peak in 2009 amid the financial crisis, the survey found.

Business-jet manufacturers are building new models with greater range to lure buyers away from the used-aircraft market. General Dynamics Corp. (GD)’s Gulfstream, Textron Inc. (TXT)’s Cessna and Embraer SA (EMBR3) are all developing new planes to enter service over the next two years.

While a good leading indicator of future demand, prices are still far below 2008’s peak levels, indicating fleet managers remain cautious, some analysts have said.

How “increasingly acute macro concerns” are affecting business-jet demand will be a key topic at the business-jet association’s meeting, Joseph Nadol, an analyst with JPMorgan Chase & Co. in New York, wrote in an Oct. 7 note.

Larger Jets

“We would not be surprised by a continuation of recent trends, including solid demand for larger, long-range jets, primarily from emerging markets, and far more modest demand for light jets,” due in part to economic weakness in the U.S., Nadol wrote.

Bigger jets that can fly farther and are favored by corporate fleets are faring better than smaller planes that interest individual buyers, Wilson said.

“The bottom half of the business-jet market, the half most dependent on external finance, imploded, falling 57.1 percent in two years” in the wake of the 2008 financial crisis, said Richard Aboulafia with Teal Group, a Fairfax, Virginia-based aviation consulting firm. “That’s the worst market drop I’ve ever seen.”

The top half, whose corporate customers are much less reliant on credit, actually grew by 1.5 percent, Aboulafia wrote in a September note.

Engine Sales

Demand for small and medium-sized jets is likely to remain stagnant, Honeywell said. As planemakers use up long-held inventory, parts makers may see a pickup before planemakers do.

John Saabas, who runs Pratt & Whitney Canada, the biggest maker of engines for small and medium-sized business aircraft, said he doesn’t expect gains until the end of 2012.

“We have an opportunity on the engine side, just because the inventory levels have been depleted so much over the last couple of years,” Saabas said in an interview. “When it comes to growth in the whole market, that takes more time. People have to negotiate deals. The latest events in the U.S. and Europe -- people were going to wait out deals, wait and see what happens. That’s where some of the more softness part comes in.”

The market overall “has held relatively stable over the last several months, albeit at already low levels, despite a worsening economic outlook,” David Strauss, an analyst with UBS Securities LLC in New York, wrote in an Oct. 6 note.

Still, Strauss warned in his monthly report that “softness in our survey of industry professionals and other key bizjet market indicators we track, including flight activity and used pricing, leaves us less optimistic about a recovery in 2012.”

To contact the reporters on this story: Rachel Layne in Boston at rlayne@bloomberg.net; Susanna Ray in Seattle at sray7@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net