Business jet makers’ factories have been humming at a higher pace this year, but with fears of a recession rising, the outlook for sales of new planes is softening, according to a new forecast by Honeywell, with more owners expressing an interest in buying used models.
Based on a survey of 1,600 corporate flight departments and charter operators covering 13.5% of the world business jet fleet, Honeywell projects aircraft makers will deliver roughly 7,600 new business jets worth $248 billion from 2020 to 2029, down 1.2 percentage points in dollar terms from last year’s forecast.
New business jet deliveries were up 12.5% in the first half of 2019, according to data compiled by the General Aviation Manufacturers Association. A spate of highly anticipated new large and midsize jets are hitting the market, including Bombardier’s $75 million Global 7500, the largest and longest-range business jet yet produced; the Gulfstream G600, the second-largest plane built by the unit of General Dynamics; and the Cessna Longitude, Textron’s largest and most expensive plane. The Honeywell survey suggests the new models are stimulating demand for the next the next three years, after which deliveries could fall off. Respondents expect 57% of their new jet purchases over the decade will come in the next three years, up five percentage points from last year’s survey.
Large cabin jets will account for 42% of planes sold through 2029 and 73% of total dollar value, according to Honeywell, which released the forecast ahead of the industry’s biggest annual gathering, the NBAA Business Aviation Convention, which will be held this week in Las Vegas.
Meanwhile, corporate flight departments expressed a much greater interest in buying used planes. The survey found operators expect to make purchases of used jets equivalent to 32% of their fleets, up eight percentage points from last year.
It’s a worrying forecast for business jet makers, whose heavy spending on developing new planes over the past decade has arguably done more to arrest a decline in sales rather than drive new growth, analysts say, with the notable exception of the hot-selling Gulfstream G650.
The shift in interest from new to used in Honeywell’s survey was pronounced in North America, which accounts for roughly 60% of the global market for business jets, with a 2 percentage point decline in planned new jet purchases to the equivalent of 15% of operators’ fleets, and an 11 percentage point increase in plans to buy used, equivalent to a third of the fleet, the highest level in five years.
It’s a significant change, says Gaetan Handfield, senior manager for marketing analysis at Honeywell.
“The perception of the used market is that it’s a good market for getting deals,” he says.
With the average age of used jets on the market increasing, asking prices have fallen 26% since the third quarter of 2015, according to a recent JPMorgan Chase research note.
However, Handfield thinks some of the businesses that say they’re going to buy used may end up shifting their money to new planes since roughly 20% to 25% said they were aiming to purchase used models of aircraft that only recently started to roll out of factories or will debut in the next year. Handfield thinks there won’t be enough of those young planes on the used market to go around.
Used plane sales have generally remained stubbornly higher than the historical average since the Great Recession, accounting for about 80% of total sales, with new jet sales last year off 49% from the 2008 peak of 1,154.
This year the used market has seemed to be slowing, with sales off 13% to 1,415 planes through the first three quarters compared to the same period a year ago, according to data provider AMSTAT.
Business aviation analyst Brian Foley thinks that trend is likely to continue as the novelty wears off of the 2017 U.S. tax law change that allowed companies to write off 100% of the cost of a plane in the first year, including used jets, which used to have less favorable tax treatment than new planes. “Many of those who could benefit from the tax change have already done so,” he says.
With Europe faltering economically, Honeywell’s survey found planned purchases of new jets are down 5 percentage points to an equivalent of 28% of the current fleet, paced by a decline in demand in Germany and France.