Written by Chad Anderson, Jetcraft President
The continued unpredictability of the business aviation sector and the impact of certain world events throughout the past 12 months have directly impacted our long-term growth outlook for the business aviation sector. Accordingly, we adjusted our predictions of deliveries and revenues in our recently released 2016 Market Forecast from last year’s projections resulting in numbers that now point to 7,879 unit deliveries worth $248 billion, from 8,755 worth $271 billion in 2015.
To get a clearer view on what is contributing to these deliverables and revenues projections, we took a closer look at macro-economic issues that will impact the state of our industry over the next ten years. Specifically, our 2016 forecast compares how the private jet aviation sector’s business will fare against certain economic trends– a slowdown in wealth creation, the migration of ultra-high net worth individuals (UHNWIs) from emerging market economies and the fluctuation of oil prices – as well as how our industry’s growth compares with past business cycles.
Here are some of the key challenges we’re seeing, as well as the reasons we continue to remain positive.
- Oil Price Fluctuations— in order for the business aviation sector to experience a material increase in aircraft orders from emerging markets again, namely from Russia and Brazil, the price of oil needs to increase to +$80 dollars (our estimate) per barrel.
- Wealth Migration— The slower rebound of emerging markets such as Brazil and Russia is also causing a migration of Ultra High Net Worth Individuals (UHNWIs) from those regions. This trend may not only have lasting effects on the regions themselves, but also to the global business aviation sector as it negatively impacts the growth of regional business aviation if there are less indigenous users of it.
- Pre-owned Market–While pre-owned business aircraft inventory is lower than the historical average level of 13% (inventory as a percentage of in-service fleet), there is little evidence of an increase in residual values for 5-year old aircraft (a key benchmark due to the typical ownership period in North America). This has led to lags in purchasing and a slowing of the overall market.
- North America Market Strength— North America will account for 60 percent of new business jet deliveries (4,727 aircraft), up six percent from last year’s forecast. When other markets are down and North America is up, it balances our sector overall. Likewise, the existence of pent-up demand may ignite once companies draw down the use of available cash to fund share buybacks and shift it toward capital expenditures on equipment instead.
- Increased Innovation— The planned introduction of nine new aircraft throughout the next five years will again stimulate replacement demand by introducing new technology and aircraft capabilities, sustaining growth until at least 2021.
These are just a few highlights of our market assessment. Despite challenges, the industry is still growing, albeit slower than some had hoped, and we do believe solidity is returning in some areas. As an example, 2015 was a record year for Jetcraft (the best since the company’s formation 54 years ago), and 2016 is on track to improve on that performance. Overall, we remain optimistic for the future of business aviation, and a settling of the market to a more regular pattern should materialize over the long term. For our complete analysis, you can download our forecast here.