Path to Recovery - Commercial vs. Business Aviation

In examining earlier industry recessions, the path to recovery is an interesting topic. Which classes of aircraft lead the way back for the industry, and which recover more slowly? If the past is prologue, we should expect similar behavior as we pull out of our current global pandemic. The commercial aircraft market is led by regional jets, the first to be reintroduced into markets because of their low fixed costs and low aircraft mile costs. Until traffic builds to levels that require larger aircraft, re-starting routes with regional aircraft tends to make sense. In North America, where more than 40% of flights are on regional jets, a substantial portion of the market begins by “thinking small.”Our current pandemic has restricted international operations, with many international routes completely shut down. As a result, wide-body aircraft have been the most impacted, as they are both the most expensive and largest aircraft that can be operated. As traffic resumes slowly from the current pandemic, we expect narrow-body service being introduced on some trans-Atlantic routes, with smaller wide-bodies such as the 787 and A330 utilized instead of larger 777, 747, and A380 aircraft.What has happened in past recessions? We’ve looked at aircraft deliveries in the year of the event (2001 for 9-11 and 2008 for the economic recession) and compared deliveries in the following three years to determine the impact. Post 9-11, the regional jet market held the highest delivery percentage of any segment, being the only segment to grow by 2004. Thus, it might be stated that regional jets led the recovery. The chart below shows percentages by segment.In the 2008 “Great Recession” however, the same pattern did not occur. By this point, the industry was already beginning to grow substantially, especially in Asia, and demand was robust across the Board. The numbers from this period don’t show the same results of regional jets leading the was and, in fact, show the exact opposite. Virtually all segments of the industry, with the exception of regional jets, continued to boom from 2008-20011 with real growth in numbers. As a result, we cannot endorse the adage that recoveries always start from the regional jets and migrate upward. Some times and this year appears to be one of them, the regional market appears relatively quiet in terms of additional capacity from new airplanes.While airlines may, in the short-term, re-introduce routes using regional equipment, their scope clauses and union agreements require them to balance regional and mainline flying according to formulas. Unless those formulae are contractually changed, there will be at least an equal number of narrow-body aircraft returning along with them.An Opposite Pathway in the Business Jet MarketThe path to recovery for the commercial market appears to vary. But in business aviation, recoveries have historically started at the top. During the “great recession” that began in 2008, the larger aircraft, including Gulfstream and Global Express led the recovery in the industry while smaller jets lagged well behind.There are several reasons for this eventuality. First, the larger business jets provide intercontinental range and enable access to markets that smaller aircraft cannot operate. Trans-Pacific range is increasingly important to multinational companies, fueled by growing markets in the Asia-Pacific region.Second, larger business jets are typically purchased by large corporations that may be less impacted by recessions than smaller companies. These larger entities, that have ordered aircraft with custom interior completions, are less likely to cancel and order than a smaller company that would order a light aircraft with a standard interior.2008 was a record year for business jet deliveries. Looking at data from 2008-2011, a couple of years after the recession started, we can draw some conclusions about the business jet market. It is quite clear that large business jets with an intercontinental range from Gulfstream, Bombardier and Dassault retained much more of their market than other business aircraft categories. While large jets certainly aren’t recession-proof and deliveries may be deferred in an era when international flights are prohibited, we believe they will once again lead the way out of the current pandemic and its associated economic impacts.However, given the depth of the global impact of the current pandemic, we do not expect intercontinental business jets to maintain nearly 100% of their market, as the did in the last recessions. Nonetheless, it is likely that the recovery in business jets will start from the top, which benefits Bombardier, Dassault, and Gulfstream. The Bottom LineThe commercial and business aircraft markets do not move in lockstep. As a result, those players on intercontinental business jets and narrow-body aircraft may stand the best chance of quickly recovering from our current pandemic-induced industry recession.

US Flight Planner - US DoT On-Time Data	Airbus vs Boeing - Official OEM Data
US Airline Schedule Performance - US DoT Data	Daily OEM Production & Deliveries -

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