Positive bizav indicators counter industry uncertainty

Avatar for Lisa GordonBy Lisa Gordon | July 11, 2019

Estimated reading time 7 minutes, 2 seconds.

Canada’s 528 business aircraft aren’t used as much as they could be, according to industry analyst Rolland Vincent, a presenter at the 2019 Canadian Business Aviation Association (CBAA) conference in Calgary.

Vincent predicted 1.6 per cent growth in gross domestic product (GDP) for Canada this year, while the U.S. is estimated to come in around 2.2 per cent. Michael Durning Photo
Vincent predicted 1.6 per cent growth in gross domestic product (GDP) for Canada this year, while the U.S. is estimated to come in around 2.2 per cent. Michael Durning Photo

Vincent, who is president of Rolland Vincent Associates and the creator and founder of JETNETiQ, delivered a “state of the market” summary to business aviation professionals at the show.

“We have the most productive business tools in the world, business aircraft, but we don’t use them much,” he said. “They fly one tenth of commercial aircraft hours. Why aren’t we using them more?”

Vincent’s most recent data indicates that Canadian business aircraft fly an average of 332 hours per year, per airplane. Just over half of this country’s bizav fleet has flown 250 hours a year or less in the preceding 12 months. Overall utilization remains low, despite the fact that Canada ranks fourth in the world for business jet concentration, and jumps to second place for turboprops.

This is in line with JETNETiQ’s survey of 17,000 fixed-wing turbine business aircraft owners and operators from 132 countries around the world, where 48 per cent of aircraft flew 250 hours or less in the prior 12 months, and the average annual hours per aircraft was 333.

This relatively low utilization can be attributed to a number of factors, including worldwide events such as an impending U.S. election cycle, Brexit, and reports of slowing economies. The U.S., Canada and Europe represent about 80 per cent of the worldwide business jet fleet, and economic blips in these regions reverberate through the bizav industry.

Vincent predicted 1.6 per cent growth in gross domestic product (GDP) for Canada this year, while the U.S. is estimated to come in around 2.2 per cent.

Despite the fact that U.S. corporate profits are at all-time highs, flight activity has not rebounded following the 2008 crisis – even though there has been underlying fleet growth. “We’re still waiting for bizav to catch up,” said Vincent.

The pre-owned aircraft market has enjoyed a recent boom, with 4.5 aircraft sold for every new sale.

“We’ve never seen transactions like this in pre-owned,” commented Vincent. “That’s been driven by attractive values and high inventory, and people are excited about that. But through May 2019 year to date, transactions are down 20 per cent year-over-year. We’re watching that carefully. Partly this is because the inventory available has been diminished, but we’re also seeing a slowdown in transactions.”

He added that the reducing inventory is an indication of the business aircraft market returning to health.

There are other indications of a recovery, too. 2018 was the best year for aircraft delivery volume since the 2008 economic crisis. Vincent expects that OEM delivery numbers from the General Aviation Manufacturers Association (GAMA), should be up this year, too, driven by recently certified aircraft such as the Gulfstream G600, Pilatus PC-24 and Bombardier Global 7500.

For OEMs, another indicator of attaining a more solid footing is their backlog of firm orders.

“For the first time since the 2008 crisis, OEM backlogs finally began to rebound in 2019,” said Vincent. “After 11 years, we finally see backlogs increasing; Bombardier and Gulfstream are the two that hold a lot of the backlog.”

The Canadian picture

In spite of several positive indicators of overall industry growth, Vincent said a recent Canadian survey indicated that 60 per cent of respondents either strongly agreed or somewhat agreed that an economic slowdown in the next 12 months was increasingly possible. This is roughly on par with global results, where 57.9 per cent of respondents felt the same way.

In fact, this gloomy outlook carried through when respondents were asked to describe the current bizav market conditions. A survey of 50 respondents from Canada indicated that half of them felt the industry was past the low point. However, 30 per cent felt the low point has not yet been reached, while another 20 per cent felt industry is currently at its lowest.

“The market has changed,” said Vincent. “A couple of quarters ago in mid-2018, [industry optimism] was the best we ever measured. But now, in Q2 2019, it has declined pretty dramatically. People are reacting to the U.S. election cycle, world happenings, etc. But we need to stop and think – and not react to the noise out there.”

In addition, Canadian respondents in particular were pessimistic about the current labour supply. A whopping 90.6 per cent of respondents said they are now experiencing difficulties recruiting and retaining pilots, mechanics and technicians. Globally, that number drops to 72.2 per cent – still significant, but it appears Canada in particular is feeling a more acute labour squeeze.

Operators are also concerned about the current Boeing 737 Max investigation, indicating they expect it will delay U.S. Federal Aviation Administration certification of new business aircraft.

When it comes to their next purchase, Canadian buyers were split into various camps, with 17.9 per cent planning to buy a multi-engine turboprop; 6.3 per cent a single-engine turboprop; and 13.7 per cent a mid-size jet, among other types.

Turboprops feature strongly in the Canadian aircraft fleet. As of June 30, 2019, 33.2 per cent of this country’s business aircraft were multi-engine turboprops and 27.5 per cent were single-engine turboprops. This contrasts significantly to the U.S., where just 21.9 and 15.5 per cent were multi- and single-engine turboprops, respectively.

“If you want to buy a new bizjet today, there are 40 models available, with most models delivering around 12 aircraft per year on average. We feel the industry is offering too much to the market for the demand,” said Vincent, who added that the average aircraft value today is $28 million.

As for the future, Vincent presented his global 2019-2028 business jet delivery forecast by size category. In total, JETNETiQ predicts 7,100 units will be delivered during this period, totaling $237 billion. The greatest percentage of sales proceeds will be realized from the large ultra-long-range jet segment, at 49.4 per cent of revenues.

In the same time frame, the organization predicted 4,260 business turboprop aircraft will be delivered, totaling $19.1 billion in revenues.

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