Outlook for Business Jet Market Looking Up

Industry experts say 2013 should mark the bottom of the market and that 2014 should bring a modest upturn.


Feb. 05--It's been a long time coming, but growth in the business jet market appears set to resume this year.

Industry experts say 2013 should mark the bottom of the market and that 2014 should bring a modest upturn.

That's welcome news for Wichita, where planemakers Cessna Aircraft and Bombardier Learjet build jets in the light to medium end of the market.

That market segment was the hardest hit over the past six years, as recovery from the recession has been slow to stalled.

"Wichita is where we put all of our pain as an industry," said Teal Group aviation analyst Richard Aboulafia. "This could finally be the year we see progress, and, hopefully, it's sustainable."

The market for large business jets recovered faster.

"The big end of the market is doing great," Aboulafia said.

Rolland Vincent, an aviation consultant with Rolland Vincent Associates, predicts manufacturers will deliver more business jets this year than in 2013.

Aboulafia also predicts long-term growth.

"We think there's a good five-year run-up coming," Aboulafia said.

Scott Donnelly, chairman and CEO of Textron, Cessna's parent company, said the market remains challenging.

And increases in deliveries will be driven by new products.

"I don't think we are expecting any dramatic change in terms of the market dynamic that's out there," Donnelly told analysts in a conference call last month.

However, deliveries at Cessna Aircraft are expected to increase in 2014 due to the introduction of new products, such as the Citation M2, Sovereign and Citation X, Donnelly said.

Aboulafia predicts Cessna will deliver 160 Citations this year, up from 139 in 2013, and for growth to continue for several years.

At the same time, he predicts Bombardier Learjet, which delivered 29 Learjets last year, will deliver 36 Wichita-assembled Learjets in 2014.

It's been difficult for analysts and experts to predict when demand for light and medium-size business jets would rebound.

"This is a tough one," Donnelly told analysts. "We've been guessing at this for quite a number of years now."

Key metrics such as the number of used aircraft on the market have been favorable, Donnelly said.

"The used market has been quite active again," he said. And customer surveys show that people are more bullish, especially in the U.S.

Still, this has been no normal economic cycle, said Ed Bolen, president and CEO of the National Business Aviation Association, an industry trade group.

The economic contraction that began in 2008 was the most significant since the Great Depression, Bolen said. With the economic turmoil, orders for business jets dried up.

Recovery in the business jet market will be different as well.

In past cycles, the general aviation industry looked to the strength of the U.S. economy to gauge when recovery would occur, Bolen said.

Today, it's a global industry.

"We continue to be concerned about what's going on around the economies in Latin America and in Europe, which are sort of our second- and third-largest markets classically for those light midsized business jets," Donnelly said.

Other indicators once used to foretell an improving market have not proved reliable this time.

"Corporate profits don't mean much; stock prices don't mean much," Aboulafia said. "They used to."

Today, the big issues are the ability to finance aircraft and the used-airplane market.

Finance terms aren't what they once were, and the used-business jet inventory, while dropping, is still a factor, Aboulafia said. The picture in those two areas is improving, however.

Business confidence in the small to midsize market is improving as well.

That should drive an increase in orders this year and "probably deliveries, too," primarily in the fourth quarter of 2014, Aboulafia said.

There are other reasons for optimism, said Bolen of the NBAA.

Besides an improving used market, fuel sales and flight activity levels are rising, and the economy is improving, he said.

And airplanes in operation today are aging, "which would suggest they need to be replaced at some point," Bolen said.

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