Following the continued post-pandemic rise in private aviation, the business aviation industry is looking to close out the year on a high note, according to market analyst Rolland Vincent. Speaking last month at the NATA Aviation Business Conference, he told the audience, “I think this is going to be a very busy Q4, and maybe busier even than last year.”
The last quarter of the year is typically the largest in terms of deliveries. As an example, Embraer has been known to announce more than half of its annual deliveries in the fourth quarter alone. However, Vincent noted that other factors will be in play this year to provide a boost. “We’re going to see the end of 100 percent bonus depreciation this year in the U.S., which is by far the largest market for aircraft.” As a result, he sees customers eager to receive their aircraft by year-end. As well he added, the results of the U.S. midterm elections could inject some uncertainty in terms of future policies.
While the OEMs have seen their book-to-bill ratios climb to 2:1, meaning they are receiving two aircraft orders for every one they deliver, Vincent expects strong fourth deliveries will lower that number. “We’re going to see that book-to-bill drop to about one by the end of the year,” he said. “Don’t be disturbed if you see it drop, we’ve been expecting it for a while.”
Though the business jet makers sit on a backlog that increased by 20 percent over the past six months to $50 billion, Vincent expects the volume of incoming orders will not be sustainable, as all indications point towards a looming recession. As well, he believes the current wait will also temper the enthusiasm of some customers. With those backlogs extending out 30 months for some models, and no need for OEMs to offer decreases in pricing, Vincent expects some customers will decide to delay their order until the backlog diminishes and prices drop.
“The supply chains are holding us back,” he added. “The OEMs would like to produce more airplanes, but they can’t because the supply chains are not keeping up, so in a way, it’s helping them build backlog and keep pricing strong.”
Inflation will also play a role in aircraft orders. “Consumer price index in the United States is 8.2 percent right now,” said Vincent. “We haven’t seen numbers like that since the early 1970s.” He explained how inflation combined with lingering supply chain bottlenecks wrought largely by Covid present a double problem for the industry. “If inflation is 8 percent in the United States right now, it may be 15 percent in our very specific supply chain, so yes we are going to see stronger pricing, and that in itself is going to temper a little bit of the demand.”
In addition, the Federal Reserve’s recent three-quarter of a percent hike in interest rates—with the specter of more on the horizon—may also provide some headwinds on the order climate.
While forecasting market trends is never a simple exercise, Vincent noted traditional economic indicators can no longer be relied upon. While there was a Covid-induced recession in 2020, the market came roaring back to the point that the industry did not even notice that there were two consecutive quarters of negative economic growth this year, which is traditionally one of the harbingers of recession. “Technically it was not considered a recession because the labor markets didn’t soften, we didn’t see an unemployment spike,” said Vincent.
For this year, Vincent expects new jet deliveries to exceed 2021’s totals by 5 percent, and by another 8 percent in 2023. He believes next year will exceed 2019’s delivery total of 809 aircraft. Over the next decade, the 10-year forecast is for approximately 8,225 new jet deliveries with a value of $260 billion.
In the torrid preowned market, the number of aircraft for sale remains at historically low levels, according to Vincent, “We’ve never seen this and we’ve been doing this for over 30 years.” He described the conundrum of how there were 3,450 preowned transactions over the past year versus only 950 aircraft listed on market. “What’s going on is airplanes are transacting so quickly off market [that] they aren’t even listed; days on market—zero!”
That pace of sales has so outstripped the traditional industry databases that they have been currently relegated to lagging indicators. Yet, Vincent noted perhaps the beginning of a trend at the lower end of the market with the number of available light jets starting to increase. “Think about what’s going on there, people normally spend their own money on these types of aircraft, they’re being cautious, maybe they are putting the airplane up for sale,” said Vincent. “That’s an early indicator of change. I’m not saying there’s any fire going on but watch. Stuff like that is happening at the lower end of the market.”
Vincent, who is the founder and director of the JetNet iQ quarterly survey, also shared some of the findings from the latest survey. For the past 12 years, the company has communicated with thousands of business aircraft owners and operators to take the pulse of the market, and in this latest installment, the mood among them is optimistic. “Nearly 63 percent believe we are past the low point in the current business cycle,” said Vincent. And while there has been much discussion over the “stickiness” of the new customers entering the private aviation market, the survey results showed an overwhelming 77 percent of respondents believe demand from those new users will either increase or remain the same over the next five years.
When asked what is holding them back from purchasing another aircraft, nearly 18 percent indicated they don’t need another aircraft, followed closely by those who believe the purchase prices are too high. While past business cycles would see an airplane replaced after as little as five years, operators are now holding on to their jets for double that span these days.
Also being felt are staffing demands with 73 percent of North American operators signaling they have experienced some difficulty recruiting pilots with the desired credentials over the past year. “I think it’s because the airlines have recovered more quickly here than anywhere, and they’ve been drawing talent out of us,” Vincent stated. The shortage of aircraft mechanics is a global one, and both deficits are serving to put wage pressures on the operators to attract and retain talent.