The mood at NBAA is upbeat, despite a bit of uncertainty for the longer term. While the short-term looks quite positive, with business aircraft activity up over pre-pandemic levels in the US and Europe and manufacturers book to bill ratios solidly positive for 2022. Concerns emerged in several areas, including economic conditions, environmental considerations, supply chain constraints, and returns on future investment during a period of technological change and the potential for obsolescence. But with new orders now delivering into 2024, 2025, and 2026 depending on the model, most of the manufacturers remain optimistic and, while following those trends, seem less concerned than one might expect.
There was solid growth in business aviation during the pandemic, and now the question turns to how many of these first-time customers will remain as future general aviation customers. To a great degree, that depends on their experiences, and the business jet OEMs, fractional ownership, and charter operators who are keenly aware that these new customers are typically younger than traditional aircraft customers. One executive indicated that with the next generation, it’s the experience that counts, and that experience needs to be end-to-end. That end-to-end experience could eventually include urban air mobility connections and every manufacturer has an increased focus on customer support. The industry now views how the experience is handled when something goes wrong with the aircraft to potentially be a competitive differentiator.
Virtually all of the OEMs are investing in additional capacity for maintenance, with Bombardier and Gulfstream opening previously announced facilities and Dassault announcing a major new facility in the United States at Melbourne, Florida.
The major players are well aware of the potential threats on the horizon but remain less concerned about economic conditions. They primarily view today’s situation as quite different from the 2008 recession and feel that most of their customers, who after all can afford a business jet, are unlikely to be as seriously impacted as during the 2008 recession and the stigma on business aircraft. President Obama criticized the big three US automakers that flew to Washington DC on private jets.
Economic conditions in the post-pandemic environment spurred inflation and the specter of a potential recession gave central banks actions to counteract inflation. A recession runs the risk of reversing the positive growth patterns and returning to the relatively flat markets in recent years since the record delivery levels in 2008. As a result of economic fears, manufacturers are leery of moving to higher production rates, and some model orders, won’t be delivered until 2026-2027.
Short-term supply chain constraints are aiding the decision process to keep production rates relatively flat, as simply maintaining existing rates is a challenge for many industry players. According to Embraer, items with 120-day lead time pre-pandemic can now range to 540 days, and the company is planning accordingly to ensure their production plans can be met. Raising rates is difficult in the near term, customers need to enter the queue for the next open delivery slots, often a few years off. While customers want airplanes now, and the used market is tight, the first signs of increasing used aircraft availability are signaling a reversing trend in the supply-demand balance, which today remains a seller’s market.
Environmental concerns have emerged, and the number of new companies measuring carbon output and providing mitigation solutions is growing rapidly. People want to be carbon neutral, but the industry cannot quite get there yet. Sustainable Aviation Fuel is the near-term solution, but most aircraft today can only operate with 50% SAF. The engine makers are working diligently to get to 100% as quickly as possible. As the low-hanging fruit, most OEMs are partnering for additional SAF allocations and using SAF for all of their flights. But widespread distribution remains difficult, and the availability, cost, and infrastructure for biofuels are lacking and will take a few years to evolve.
The larger concern is European activism against business aviation as environmentally unsound. The French government is considering additional taxes or perhaps even restrictions on business aircraft, much to the dismay of Eric Trappier, CEO at Bordeaux-based Dassault Aviation. While the business aircraft industry has made remarkable strides in recent years, the perception of private jets being a tool of the top 1% presents the potential for a politically-driven populist backlash. Additional taxation or flight restrictions could have a chilling impact on business aviation growth should they be enacted.
Electrification is viewed as the future – as a part of the 2050 goal for zero-carbon business aviation. Embraer, with its corporate-wide initiative encompassing commercial, business, and urban air mobility sectors, is leveraging its corporate technology and engineering assets to be a leader. Textron announced the creation of an eAviation business unit, leveraging the technology from its recent acquisition of Pipistrel as well as Bell Helicopters. Most of the other manufacturers have research and development teams looking into technologies from batteries to hydrogen in parallel with the development of conventional technologies. The engine manufacturers, whose livelihood today depends on internal combustion engines are also investing heavily in R&D. All of that investment should pay off with some breakthroughs over the next decade.
Aircraft are likely to change as well. Bombardier is researching blended wing designs for future business jets as a way to achieve an additional 20% in fuel economy through aerodynamics. Their next airplane may look quite different from today’s models if the preliminary results of their initial R&D are confirmed.
Focusing on the next few years, Honeywell released their annual business aviation forecast, projecting 8,500 business jets through 2032, with 38% heavy and long-range, 26% medium, and 36% small jets. This is slightly higher than our AirInsight forecast, which calls for 7,841 during the next decade.
Overall, the mood at NBAA is positive, with some nagging doubts in the background wondering if the good times will hold, or whether a black swan event could change conditions.
We will have more to come on our NBAA coverage as the week progresses.
