April 28, 2012
By Molly McMillin
A new business aviation forecast predicts delivery of 10,120 business jets over the next 10 years, from 2012 to 2021, valued at $257?billion.
Shipments are expected to peak in 2016 with 1,354 jets, surpassing pre-recession record deliveries in 2008. The forecast projects business jet deliveries this year of 736 units.
The third annual forecast was done by Zenith Jet, a Montreal-based business aviation services firm.
The forecast projects light jet deliveries of 3,181 with revenue of $19.6?billion in the next 10 years; deliveries of 3,099 medium-size jets with revenue of $57?billion; 3,528 deliveries of large jets, with revenue of $161.9?billion, and 312 deliveries of converted airliners, worth $18.5?billion.
Cessna Aircraft has the highest market share by units delivered over the forecast period at 26 percent, followed by Bombardier, Embraer, Gulfstream and Hawker Beechcraft.
By revenue, Bombardier has the biggest share over the next 10 years, followed by Gulfstream, Dassault, Embraer, Cessna, other manufacturers and Hawker Beechcraft.
Honeywell Aerospace’s forecast released in October was a bit more conservative than Zenith Jet’s. It forecast 10,000 business jets to be delivered in an 11-year period from 2011 to 2021, worth an estimated $230?billion.
The recovery in the business jet market has yet to take shape, even though the economy is improving, said George Tsopeis, vice president of Zenith and author of the forecast. Tsopeis also heads the firm’s consultancy practice.
Typically, there’s a 24-month lag between the return of corporate profits and a business jet recovery. This time, the lag time has come and gone.
One reason may be a change in the customer base that’s having an effect on demand and recovery, Tsopeis said.
A huge segment of customers in the medium-size and smaller jet market that emerged in the last business aviation “bull-run” has effectively retracted from the market, he said. High net-worth individuals – such as surgeons, CEOs and successful entrepreneurs – made up a large portion of that market.
They have left the market for a variety of reasons, such as decline in their net worth, unfavorable transaction terms or the loss an of appetite for ownership. They’ve not returned, he said.
That’s good and bad for Wichita business jetmakers, Tsopeis said.
“It’s bad because you can’t count on the customer base,” he said.
It’s good because the remaining owners and operators have a history and commitment to business aviation. They make for a sounder order book and the production lines tethered to them, Tsopeis said.
“I think it’s a better and more sound ground to build on,” he said. “That bodes well for Wichita.”
Here’s is Tsopeis’ outlook for Wichita’s general aviation companies:
Cessna
Cessna’s advantage is its huge installed base of customers, which will serve as opportunities for more sales as they upgrade or replace their jets, the report said. “This is currency for them,” Tsopeis said.
The company also has great product support, he said.
Cessna announced new products in October, and there are hints of more to come, he said.
Last year was a transformation for Cessna, as it managed organizational and product line issues.
“I think (Textron CEO) Scott Donnelly has finally turned his attention” from Textron’s Bell Helicopter division to Cessna, he said.
There also have been huge shake-ups in Cessna’s management, he noted.
“We hope all the changes there are not symptomatic of something that’s wrong and everybody’s fleeing the ship,” Tsopeis said. “We’re more confident it’s a case of getting rid of the old guard and putting people more in line or more in tune with the way things Mr. Donnelly and (Cessna CEO Scott Ernest) see things unfolding at Cessna.”
Cessna’s recent announcement of a major deal with Aviation Industry Corp. of China (AVIC), which includes co-production rights for the Citation Latitude and Sovereign, bodes well for the company, he said. Besides giving Cessna market share, it could also give it a partner – which includes money and technology – for a new, larger airplane.
It’s unknown, however, whether the Chinese will use the partnership as their only vehicle for investing in business aviation.
If it is, that’s good for Cessna. If not, the advantages are diminished.
Because China made business aviation and aerospace a focus and deemed the two strategic industries, “it would be hard to imagine that the Chinese would tether their entire aviation policy to just one company.”
Bombardier
Besides Gulfstream, Bombardier was the only business jetmaker to exceed last year’s guidance.
There are signs Bombardier may be rethinking its product line strategy, the report said.
“When we saw the specs for the (super mid-size) Lear 85, we said, ‘Wow. This is not your father’s Learjet,’?” Tsopeis said. “This is quite a capable aircraft in terms of performance.”
He expects future Learjets to be built in line with the Learjet 85 – a composite aircraft – rather than the Learjet 40XR and 45XR, he said.
“They’re committed to Learjet, but not at the product line strategy they currently have,” Tsopeis said.
Hawker Beechcraft
Financially troubled Hawker Beechcraft has seen significant and painful cost cutting affect people and products.
If the company decides to restructure through a bankruptcy, the upside will be a restoration of “natural program margins to their business aircraft lines,” Tsopeis said.
It no longer would be weighted down by the huge costs associated with the programs. “It provides them a new lease on life,” Tsopeis said.
Hawker Beechcraft has some “venerable brands within their stable,” he said. “If they were to retreat, I don’t see that as a good thing.”
Fixes made to the Hawker 4000 and the Hawker 200 are what the company originally envisioned. And the Hawker 800 platform, which the Hawker 750 and 900 are based on, has been the best-selling midsize model in history, he said. “There’s another opportunity there.”
Clearing the debt is only one component of fixing what’s ailing the company, he said.
Hawker Beechcraft must go through a corporate introspection to make sure its product line can compete and is viable to support a business aviation company, he said.
“If they answer yes, we’ll see what incarnation that will be,” he said. “That’s something that only they know.”
One problem is that the product lines share no common lineage with one another, which is important when a company is trying to get customers to trade up, the report said.
“In order for HBC to emerge as a viable business aviation going concern, a significant capital injection for product development must accompany the restructuring,” the report said.
http://www.kansas.com/2012/04/28/2314855/business-jet-forecast-sound-ground.html
WICHITA EAGLE