Bigger Business Jets Take Off
July 4, 2013
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  • Demand for bigger, longer-range business jets is coming to the rescue of an aviation sector that had a spectacular fall from grace during the global financial crisis, manufacturers say.

    As far-flung destinations in Africa and Asia, such as Angola and Mongolia, attract more business travelers and corporate jets become more fuel-efficient and can travel farther afield, companies are in the market for big-cabin corporate aircraft for long, intercontinental trips.

    Firms also find it cheaper to send larger teams by private jet when commercial flights to destinations such as Luanda, Angola, and Ulaanbaatar, Mongolia, tend to be fully booked and expensive, requiring long layovers to get return flights, according to industry observers.

    The recovery is still hesitant. Demand, particularly for smaller jets, is still affected by the stigma attached to corporate jets after politicians, shareholders and employees turned on them as an indecent perk rather than a legitimate business tool. Anglo American AAL.LN -2.06% PLC, the global mining group, recently sold its business jet as part of a renewed cost-cutting effort. Orders are still thin on the ground in the U.S., the world’s biggest business-jet market, and in Europe.

    But for the first time in years, all five of the world’s largest manufacturers of business jets—Bombardier Inc., BBD.B.T +0.43% Textron Inc.’s TXT +0.70% Cessna Aircraft, Dassault Aviation SA, AM.FR -1.42% Embraer SA EMBR3.BR -0.64% and General Dynamics Corp.’s GD +1.10% Gulfstream Aerospace—exhibited at this year’s Paris Air Show, Europe’s biggest aerospace trade event. New purchases were few—just 32 firm orders and 20 options for Bombardier jets potentially valued at as much as $1.84 billion—compared with nearly $150 billion of firm orders for commercial jetliners announced at the show, but the mood was relatively upbeat.

    “The market is emerging from the crisis of recent years, but it remains convalescent,” said Eric Trappier, the boss of Dassault Aviation. The French group’s Falcon Jet Corp. subsidiary is one of the main players in the medium-to-large end of the corporate-jet market.

    “We’re still seeing sustained levels of interest for our [larger planes], but it’s still a challenge; people are taking longer to take decisions,” said Trevor Lambarth, head of sales for Europe at Bombardier.

    Latest data back the view that emerging-market demand is underpinning the overall appetite for corporate jets. Shipments of business aircraft to customers in North America and Europe fell 1.4% and 0.9%, respectively, last year, but they rose 7.7% to Africa and the Middle East, 8.9% in Asia-Pacific and 14% in Latin America, according to the General Aviation Manufacturers Association. Overall, the industry delivered 129 business jets world-wide in the first quarter of this year, a 4% increase from the same period a year earlier, according to the industry group.

    Between 2006 and 2011, the number of corporate-jet flights from Europe to emerging-market countries increased by 32%, while those to Asia doubled, according to a recent study by the European Business Aviation Association.

    Michelin, ML.FR -2.06% for example, relies heavily on its four corporate jets to shuttle employees around its 80 plants world-wide. The aircraft are “absolutely fundamental” for business, said Jean-Dominique Senard, the chief executive of the French tire maker.

    Michelin uses small jets—two Falcon 50s in Europe and two Hawker jets in the U.S.—to reach out to its plants in North and South America, Europe and Asia, though their limited range means they have to refuel to travel longer distances. They offer savings in traveling time and fatigue and increase the productivity of key employees even within Europe, according to company officials. “Our planes are flying all the time, for example ferrying employees from France to our plant in Serbia,” Mr. Senard said. However, Michelin currently has no plans to upgrade its fleet, he said.

    In Africa’s fragmented air-travel market, there are often few flights between capital cities, especially going east to west, forcing passengers to fly via third destinations to complete their journeys at extra cost and time. The European Business Aviation Association study found that 96% of the city pairs served by business aircraft had no daily scheduled direct flights.

    “In the past, someone doing business in Africa would go through Paris or London to get there,” said Bombardier’s Mr. Lambarth. “Now you’re seeing Chinese investment companies doing business in Africa and flying direct, and South Americans are going across to Asia. India, too, is emerging. Obviously the long distances to get to these places mean you need a longer-range airplane.”

    The need for longer trips is boosting demand for big jets such as the $65 million Gulfstream G650, a top-of-the-range model with a maximum range of 8,000 miles that can carry up to 18 passengers, according to the manufacturer.

    Large aircraft accounted for just over 40% of total business-jet shipments last year, according to GAMA. This trend is expected to continue, and the large jet segment will represent nearly 70% of the total market by value over the coming decade, said Rob Wilson, president of the business and general aviation division of Honeywell Aerospace, a unit of Honeywell International Inc. HON +1.10%

    As in the automobile industry, new, more sophisticated and more fuel-efficient models tend to drive sales in the corporate jet market. Several new aircraft are being launched or are under development that could whet buyers’ appetites. As well as the new Gulfstream G650, they include Cessna’s new Sovereign and Citation X jets and Bombardier’s Challenger 350.

    Still, the business-aircraft segment remains some way from the booming market conditions of the years before the global financial crisis. “In this climate, all the big industrial companies are reviewing their investment strategies and where they put their euros and dollars,” said Bombardier’s Mr. Lambarth, referring to recent deferred orders in France, Germany and the U.K.