The recent history for the business jet market has not been robust, particularly at the low end of the market. The following chart shows deliveries over the last 15 years based on data from GAMA, and AirInsight’s estimate for 2013. The downward trend has continued since the record deliveries in 2008. The question is whether the rapid ramp up from 2004-2008 was a bubble that burst, or an indication of where demand should normally fall?
The latest data, as reported by Joe Nadol at JPMorgan in his Business Jet Monthly, indicate that pre-owned aircraft inventories are down to 10.3%, and that inventories of “young” pre-owned aircraft declined to their lowest level since July 2008. At its peak, more than 20% of the fleet was for sale, and it has taken five years for the market to adjust to its new level. It appears that the sector has finally reached bottom, and that prices have fallen to market clearing levels. That provides the basis for some optimism.
Traffic data, however, are mixed, with October showing an increase and November a slight decrease year over year, so it is difficult to state that business jet travel is truly back on a growth path. Nonetheless, the trend in recent months has been more positive than negative. Should we be optimistic yet? Having seen forecasts for recovery in 2009, 2010, 2011, 2012 and 2013, we remain skeptical. But the data are finally showing some light at the end of the tunnel.
The high end of the market, which remained flat during the recession, appears to continue to show strength, while the low end of the market remains quite weak. We believe the recovery will continue from top down, with potential growth for the large Gulfstream and Global Express models in 2014, and the beginning of a recovery, albeit quite slow, at the low end of the market. However, we expect that recovery to be quite spotty, with some models faring much better than others.
Overall, it appears that the business jet market could be positioned for a recovery in 2014. The question is how quickly this could occur and whether it will truly materialize after year end, or be slow in coming to the second half or 2015. We believe the end of the recession may finally be in sight, but it has taken five years to get to that point, and may take another 18-24 months to fully take effect.