Private-Jet Forecast Cut by 600 Planes as Slow Growth Zaps Sales

• About 8,600 planes are expected to be delivered through 2026
• Sales of new aircraft to total $255 billion, Honeywell says

Business-jet deliveries are dropping and won’t rebound before 2018, according to a benchmark forecast of corporate aircraft demand over the next decade.

Honeywell International Inc. lowered its annual long-term forecast for private jets by 7 percent, or 600 aircraft, as emerging markets suffer from low commodity prices and the U.S. economy limps along at a slow pace.

As many as 8,600 new planes are expected to be delivered from 2016 through 2026, down from 9,200 in last year’s outlook, according to a survey of more than 1,500 business-jet operators worldwide. Sales of those aircraft are estimated at $255 billion, down from $270 billion in the previous study.

“We have a fair amount of uncertainty and instability in the economy and political environment around the world right now,” said Charles Park, director of market analysis at Honeywell’s aerospace unit.

The number of used jets for sale that are less than five years old has increased and prices continue to drop, which drags on demand for new aircraft, Park said. The introduction of new models from manufacturers such as Gulfstream and Bombardier Inc. in 2018 should stimulate sales, he said.

Cutting Back

Those planemakers have announced production cuts for some models that eventually will help stem supply in the market and reduce the drop in used-jet prices, said Shawn Vick, chairman of Global Jet Capital, which finances aircraft purchases and is backed by Blackstone Group, Franklin Square Capital Partners and the Carlyle Group. Although it will take time for the lower output to affect the market, Vick said he’s starting to see some pockets of “value stabilization.”

“We’re clearly in an environment where there has been oversupply,” said Vick, whose company agreed last year to buy General Electric Co.’s corporate-jet-financing business and expects to underwrite $500 million of aircraft purchases this year. “It’s the right course of action.”

Over the next five years, North America is expected to garner 65 percent of jet purchases, up from 61 percent in last year’s survey, while Europe’s share is set to remain unchanged at 14 percent, Honeywell said. Asia’s share will increase to as much as 6 percent from 4 percent and the Middle East will be less than 4 percent, falling short of its historical range of 4 percent to 7 percent.

Latin America’s estimated share over the next five years will fall to 12 percent from 18 percent last year as sales cool in Mexico and Venezuela, Park said. Pent-up demand in Brazil will boost purchases in that country over the period, Park said.

2018 Rebound

Worldwide business-jet deliveries will decline to 645 this year and to 625 next year before rebounding back to 645 in 2018, according to a report by Seth Seifman, an analyst with JPMorgan Chase & Co. Deliveries had increased in 2014 to 689 and remained the same last year. They hit an all-time high of 1,136 in 2008.

Not everyone sees gloom in the private-jet market. Business for Directional Aviation, which owns the fractional operator Flexjet, is up about 15 percent from last year and profit will increase more than that.

“People are flying,” said Kenn Ricci, principal of Directional. “Excuse me for not commiserating with my manufacturer friends, but that helps us because we get better deals on airplanes.”

Flexjet increased its order for Bombardier Challenger 350s to 40 last year. A year earlier, the company agreed to purchase 50 Gulfstream jets manufactured by General Dynamics Corp., including a G650 that will be delivered this year. It also is taking deliveries of Legacy 450s made by Brazilian planemaker Embraer SA.

In the end, it will take faster economic growth to rev up sales of new business jets. The need for flying privately increases when companies are growing quickly and executives must travel to multiple cities in a hurry, Vick said.

“People are going to be very, very certain that marketplaces are there before they double-down and expand rapidly,” Vick said. “That’s the mode that everybody is in and I think it’s appropriate.”

Source:   http://www.bloomberg.com