Business-Jet Outlook Is Scaled Back: Full Recovery for Deliveries Likely Remains a Decade Away

By  Jon Ostrower

The Wall Street Journal 

Oct. 20, 2013 10:05 p.m. ET

 
LAS VEGAS—Manufacturing of new business jets isn't likely to recover to pre-recession levels for at least another decade, according to a closely watched new forecast that trimmed the number of aircraft deliveries over the next 10 years by about 8% from the year-earlier projection.

The annual forecast from Honeywell International Inc. estimates global deliveries of as many as 9,250 new business jets from 2013 to 2022, down from the "nearly 10,000" guidance provided in 2012.

Deliveries of new business jets halved from their 2008 peak of 1,315 to 672 last year, according to the General Aviation Manufacturers Association, an industry trade group. Deliveries have fallen for four straight years, with the business staging a slow and uneven recovery from the aftermath of the financial crisis that reduced the order backlogs of many smaller manufacturers, forcing some to cut production or exit the market.

Honeywell makes products including cabin electronics, navigation systems and jet engines for corporate aircraft. Its forecast comes on the eve of the industry's largest trade show, the National Business Aviation Association annual convention that starts here on Monday.

While fewer deliveries are forecast over the next decade, Honeywell said the business-jet market is valued at $250 billion, some 2% to 3% higher than its forecast last year.

That growth is driven by the increasing share deliveries of the largest long-range jets from plane makers such as Bombardier Inc. and Gulfstream Aerospace Corp., a unit of General Dynamics Corp.  Some 80% of the dollar value and 60% of the units will come from jets that cost about $25 million each and up, Honeywell said.

While commercial-jetliner deliveries are rising to new records, the number for new business aircraft is expected to decline to a range of 600 to 625 this year.

Rob Wilson, president of Honeywell's business and general-aviation unit, said he expects manufacturers to return to their 2008 sales peak by 2016 with about $22 billion in deliveries, spurred by the introduction of new, larger models. However, the annual volume of aircraft deliveries isn't expected to return to 2008 levels any time in the next decade, Mr. Wilson said.

The tough conditions in the market were underscored on Friday by Cessna Aircraft Co. The Textron Inc. unit posted a $23 million third-quarter loss amid fewer deliveries of smaller jets. Cessna revenue fell 24% from a year earlier to $593 million.

Cessna and its rivals face competition from each other and heavily discounted used aircraft, many of them nearly new.

Scott Donnelly, Textron's chief executive, said during a conference call to discuss the results that its own used jets still pose "significant competition" to Cessna. He added that while the number for sale continues to drop, "the pace of that is not as fast as we'd like."

Honeywell also measures future acquisition plans to forecast demand regionally. Mr. Wilson said jet-buying plans of operators in Brazil, Russia, India and China—future drivers of industry growth—"reflect a slight tempering of enthusiasm compared to a year ago," with reduced acquisition plans for the next five years.

However, Honeywell said operators in North America—which accounts for more than half of projected global demand—have experienced a slight uptick in buying plans, anticipating a mid-decade acceleration "affirming the region's indisputable importance to the industry's future."

Source:   http://online.wsj.com