Modest growth prospects for global BizAv: Honeywell
The business jet aviation industry is likely facing a modest pace for near-term orders due to an uncertain economic and political environment along with a very competitive used aircraft market, per the 26th annual Global Business Aviation Outlook released by Honeywell.
The Global Business Aviation Outlook forecasts up to 8,300 new business jet deliveries worth $249 billion from 2017 to 2027, down 2-3 percentage points from the 2016 10-year forecast.
“Declining used aircraft prices, continued low commodities prices, and economic and political uncertainties in many business jet markets remain as near-term concerns for new jet purchases, leading to a modest growth in 2018,” said Ben Driggs, president, Americas Aftermarket, Honeywell Aerospace. “That said, there are several new and exciting aircraft models coming to market, which will drive solid growth in new business jet purchases in the midterm and long term.”
Key global findings in the 2017 Honeywell outlook include:
• Deliveries of approximately 620-640 new jets in 2017, a decline of roughly 30 aircraft year over year. This pullback comes on the heels of a moderate decrease in 2016 and is largely due to slower order rates for mature airplane models and a transition to new models slated for late 2017 and 2018.
• Operators plan to make new jet purchases equivalent to about 19 per cent of their fleets over the next five years as replacements or additions to their current fleet, a decrease of 8 percentage points compared with the 2016 survey results.
• Of the total purchase plans for new business jets, 19 per cent are intended to occur by the end of 2018, while 17 per cent and 14 per cent are scheduled for 2019 and 2020, respectively.
• Operators continue to focus on larger-cabin aircraft classes, ranging from the super mid-size through ultralong range, which are expected to account for more than 85 per cent of all expenditures on new business jets in the next five years.
• The longer-range forecast through 2027 projects a 3-4 per cent average annual growth rate despite the lower short-term outlook as new models and projected improved economic performance will contribute to industry growth.
• Declines in five-year operator purchase plans are offset in the long-term forecast by new programs entering service, improved economic performance and higher commodity prices, resulting in only a small decline in the overall outlook.
Breakdown by Region
Brazil, Russia, India, China (BRIC) – Significant decline in Chinese and Russian purchase plans compared with last year drive lower BRIC results.
• Continuing the trend started in 2014, BRIC purchase plans are down this year following the rebound in 2016, reaching just over 19 per cent. This rate aligns the BRIC composite to the world purchase plan rate.
• Brazil remained a bright spot by recording the strongest new aircraft purchase plans in the survey from a major aircraft market, though overall buying plans also declined year over year.
• The combined BRIC countries’ near-term demand profile has shifted somewhat later in the forecast period this year, with only 24 percent of intended new jet purchases scheduled for the next two years.
Asia Pacific – Impacted by regional tensions, purchase plans are down significantly from last year and back to 2014 and 2015 levels.
• Operators in Asia Pacific report new jet acquisition plans for 13 per cent of their fleet over the next five years, down significantly from last year and reflecting concerns about increased regional tensions.
• Based on the expressed level of purchase plans, Asia Pacific would represent close to a 6 per cent share of global new jet demand over the next five years.
• Only 27 per cent of Asian respondents plan to schedule their new purchases within the first two years of the five-year horizon.
Middle East and Africa – Slightly lower purchase plans were reported, impacted by political tensions and ongoing conflict in the region in tandem with a stalled recovery in oil prices.
• The share of projected five-year global demand attributed to the Middle East and Africa is 4 per cent this year, in line with the historical range of 4-7 per cent.
• In the Middle East and Africa, 18 per cent of respondents said they will replace or add to their fleet with a new jet purchase, down from 21 percent last year but in line with the overall world average.
• In line with the global average, about 36 per cent of operators responding to the survey plan to schedule their new purchase within the first two years of the five-year horizon.
Latin America – Only region with higher purchase plans in 2017 compared with last year. Slightly lower Brazilian purchase plans compared with 2016 results are offset by significantly higher purchase plans in Mexico.
• 29 percent of the Latin America sample fleet is expected to be replaced or added to with new jet purchases over the next five years — 2-3 points higher than last year’s survey. Increased plans from Mexican operators and resilience in the Brazilian operator base helped drive higher results this year, despite flat oil prices so far in 2017.
• About 34 percent of this region’s projected purchases are planned for between 2017 and 2019, lower than the worldwide average of 36 per cent.
Based on the current purchase plan levels, Latin America would represent 15 per cent of total projected demand over the next five years.
North America – New aircraft acquisition plans in North America are lower in this year’s survey than last year’s.
• An estimated 61 per cent of projected global demand comes from North American operators over the next five years.
• New jet purchase plan levels decreased 9 points in North America, the industry’s largest market with 65 per cent of the installed base. Purchase plans in this region contributed significantly to driving the world average purchase plan rate down to 19 per cent. New jet purchases are roughly in line with 2014 and 2015 survey results.
• On a positive note, about 39 per cent of operators responding to the survey plan to schedule their new purchase within the first two years of the five-year horizon. This is 3 percentage points higher than last year’s survey.
Europe – With operators still contending with sluggish growth, the uncertain effects of Brexit, a refugee and migrant surge, and continual threats of terrorism, new jet purchase plans declined significantly in this year’s survey.
• Europe’s purchase expectations declined this year to close to 19 per cent, a drop of 11 percentage points compared with last year’s results.
• Despite the decline in new jet purchase plans, Europe’s share of estimated global five-year demand remained at near 14 per cent in the 2017 survey.
• A comparison of the planned timing for European purchases indicates a cautious approach to timing the replacement of expansion of the fleets with new acquisitions. Only 33 per cent of new jet purchases are expected in the first two years of the survey, while close to 45 percent are scheduled for 2022 and beyond.
Used jets and flight activity
Turning to used jets and flight activity, the pace of flight activity in the past year has recovered somewhat with survey respondents in all regions of the world except Asia reporting higher utilization in 2017.
With respect to the used jet market:
• Despite improvement of 7 per cent year over year in overall inventory levels, asking prices are still declining overall, especially for medium- and long-range aircraft.
• On a positive note, the total number of recent model jets (less than 10 years old) listed for resale is down 15 per cent year over year and now represents less than 8 per cent of the installed base.
• In proportion to the level of overall listings, however, the share of recent model jets for sale is still more than 30 per cent of total listings in comparison with pre-recession levels of 15 to 20 per cent.
• Survey respondents increased their used jet acquisition plans by about 1 percentage point, equating to 25 per cent of their fleets in the next five years. All regions’ used jet purchase plans were up or stable. The increase in used jet purchase plans clearly aligns with the reduction of used inventory for sale and could result in favourable pricing pressure on used jets in the medium term.
Making an impact on business decisions
This annual outlook reflects topical operator concerns, but also identifies longer-cycle trends that Honeywell uses in its own product decision process. The survey has helped identify opportunities for investments in flight-efficiency upgrades, expanded propulsion offerings, innovative safety products, services, upgrades and enhanced aircraft connectivity offerings. The survey also contributes to Honeywell’s business pursuit strategy and helps position Honeywell consistently on high-value platforms in growth sectors.
Honeywell’s forecast methodology is based on multiple sources including, but not limited to, macroeconomic analyses, original equipment manufacturers’ production and development plans shared with the company, and expert deliberations from aerospace industry leaders. Honeywell also utilizes information gathered from interviews conducted during the forecasting cycle with over 1,500 nonfractional business jet operators worldwide.
The survey sample is representative of the entire industry in terms of geography, operation and fleet composition. This comprehensive approach provides Honeywell with unique insights into operator sentiments, preferences and concerns, and provides considerable insight into product development needs and opportunities.
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