A political clampdown on all things luxurious on the mainland that is in its third year has the Chinese private jet market bracing for another tough 12 months.
Last year was already the slowest for growth in the market since it came into being in the late 2000s. Now, the spending fears have been joined by a clearly slowing economy - a combination expected to further weaken demand that leaves aircraft manufacturers, charter operators and leasing companies in a scramble for customers.
"Companies that have dived in at a boom time between 2009 and 2012 are now having a harder time selling or leasing these aircraft in a tighter business jet market," said David Yu, the managing director of aviation investor Inception Aviation. "Financing is selective, potential buyers are cautious and some owners want to get rid of their planes for a variety of reasons."
Jeffrey Lowe, the managing director of Hong Kong-based consultancy Asian Sky Group, which produces the annual Asia-Pacific business jet fleet report, said backlogs of new orders and new aircraft deliveries were a thing of the past.
According to the report, the greater China region was home to 439 of Asia's 744 business jets at the end of last year, with 297 on the mainland and 114 in Hong Kong. That represents a net addition of 59 jets in the year, or growth of only 15.5 percent, compared with 49.8 percent in 2012 and 42.3 percent in 2011.
At this month's Asian Business Aviation Convention and Exhibition (ABACE) in Shanghai, aircraft vendors and Civil Aviation Administration of China officials were stressing the utility rather than the luxury aspect of business aviation.
"Business jets are not fancy toys. They are just useful tools for efficient air transport," CAAC deputy administrator Wang Zhiqing said.
While the buyers of business jets on the mainland have always been private companies rather than state-owned enterprises, SOEs and the government had been key customers for private charter services before President Xi Jinping's anti-corruption campaign erased that demand.
"The charter market is particularly bad," Lowe said. "The biggest charterer was the government. Now that has disappeared."
The mainland business jet market had a preference for bigger, more expensive aircraft from day one, resulting in large-cabin, long-range models dominating the greater China fleet. Gulfstream and Bombardier are the manufacturers with by far the biggest market share.
Gulfstream's G550, which seats up to 18 and counts Alibaba Group Holding's Jack Ma Yun and Dalian Wanda Group's Wang Jianlin as owners, is the most popular model in the region, followed by the smaller G450 seating up to 16.
Deer Jet, founded by HNA Group in 1995 to provide the first charter service on the mainland, is the oldest and largest business jet operator there with 83 jets - 63 are client-owned.
"Wealth-flaunting used to be a factor in Chinese customers' aircraft choices," Deer Jet chief executive Zhang Peng said. "Now, they are learning to choose mission-appropriate aircraft."
Zhang said the company had no plans to buy more planes.
Asian Sky's data shows all manufacturers, with the exception of Boeing and Embraer which had small market shares, delivered fewer aircraft into China last year than in 2013.
While Gulfstream and Bombardier still added the most aircraft last year, Lowe said they were also the ones most exposed to competition from Chinese leasing firms, which are their customers but are now also trying to sell to the same end users.
"You have all the Chinese leasing companies that had aircraft on their order books that they have to find homes for," Lowe said.
Minsheng Financial Leasing, Asia's largest business aircraft lessor with a fleet of 180 jets, signed a deal for 60 Gulfstream jets in April last year in what was the manufacturer's largest single order. The planes will start delivery later this year.
"Back in 2014 the leasing companies all dived in and placed the orders directly with the [manufacturers]," Lowe said. "Now those planes are being delivered [during] a down market. So to a certain extent these guys are all left holding the bags now."
He estimates that 30 new aircraft from five Chinese leasing companies with no customers are hanging over the market this year. "It is not a small number," he said. "Where those planes find homes and how they are going to be managed by the leasing companies and how they are going to be managed by the [manufacturers] as well is going to be very interesting, because there are only so many buyers out there."
Minsheng announced at ABACE the establishment of an online trading platform for second-hand business jets.
"The first generation of business jets that entered China around 2009, mostly brand new, are now approaching the five-year age that is the typical time a jet spends with one owner," Minsheng vice-president Wang Fuhou said. "In mature markets, 9 to 15 percent of the fleet gets replaced every year. We believe there will be a lot of pre-owned transactions to come as the Chinese market matures."
Jolie Howard, a vice-president of sales at CIT Business Aircraft Finance, estimates transactions of pre-owned aircraft have grown in the past three years to account for half of the Chinese market. But exporting planes out of the mainland could be a headache.
Howard said the logistics hassles and legal complexities involved in deregistering a mainland plane were new for most brokers, while Lowe said mainland-owned planes had unfairly been viewed as less well-managed, which affected valuations.
The "new normal" for business aviation in China may not be as bad as the "flat is the new up" heard in market banter, but the market is certainly headed for a period of slow growth - something inevitable on the way to maturity. Asian Sky's fleet report forecasts the greater China fleet will grow by just under 10 per cent this year.
"I don't think we will ever see the same kind of growth rate [in 2012] again," Lowe said.
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