Are Happy Days Here Again? (Hint: Almost)

October 13, 2017 | Author: Gaetan Handfield

As I walked around the 2017 National Business Aviation Association (NBAA) show last week, I was struck by something: Everyone I talked to seemed optimistic. Both customers and competitors were recording more activity this year than last. There is a sense in the industry that we are about to turn the corner and grow again.

It’s no news that for the past several years, since the Great Recession that started from the financial crisis of 2008, business aviation has been operating in a difficult environment, and for obvious reasons. Even after the recession ended and the big economic indicators improved, one difficult reality has held this industry back. Many companies had prudently sold off a lot of what they considered nonessential capital investments, like business jets. This flooded the market with perfectly good, used aircraft, which undercut new aircraft on price. Why should a company buy a brand new jet when there were so many relatively new used ones for sale? And at bargain basement prices!

So despite the economy growing again and companies making profits, it has taken several years for this bubble of used inventory to shrink. In the meantime prices of used aircraft have been falling steadily since 2009. This year alone, we saw a 16-percent drop in used aircraft prices listed for sale when compared to last year.

Another reason for the slow in new aircraft sales in recent years has been lower commodity prices. For markets like the Middle East, Russia, Brazil and Mexico, whose economies were riding high on $100 per barrel oil prices, when oil hit a low of $29 customers had to scale back and many operators ended up having to sell their aircraft. The good news is that oil prices have rebounded since a low in January 2016 and that will positively impact demand from those regions. Another factor that will stimulate demand in the coming years is that the business jet industry will be benefitting from the introduction of a wide range of next-generation aircraft with features that are proving to be quite attractive to customers: quieter, more fuel-efficient engines; digital connectivity; longer ranges; more spacious cabins and modern cockpits. These fit beautifully into Honeywell’s own business model since these are the very areas where we excel.

So what should we expect? While each year in the past decade has seen typical new aircraft deliveries in the 640 to 700 range, we can now expect an average between 750 and 800 from 2019 to 2027. Put another way, while the industry will be declining by about 3 percent in 2017, starting next year, we expect 2 percent growth, and then rising to a 3 to 4 percent average annual growth rate for 2019 to 2027.

So all that activity I saw at NBAA this year is signaling that we are seeing the light at the end of the tunnel. The slower market of the past nine years seems to be finally turning the corner. The next several years should be very good for the business jet industry in general, and for Honeywell in particular.

Gaetan Handfield

Gaetan Handfield

Senior Manager, Marketing Analysis, Honeywell Aerospace

Gaetan Handfield is Senior Manager of Marketing Analysis at Honeywell Aerospace, and he has been with the company since 2016. With over 20 years of experience in the aerospace industry, Gaetan is an expert in his field.

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