FALCON 7X
AIRCRAFT PRODUCTION FORECASTS
We’re not alone in saying that the recovery has begun. by Mike Potts
ix months ago, just after the first quarter shipment report was released by the General Aviation Manufacturer’s Association in March, we cautiously suggested there might be some evidence that the long-awaited recovery in business aviation may have begun. The clue? A subtle but definitely identifiable improvement in single-engine shipments compared with the rest of the market – which was still clearly in freefall at the time. Three months later we noted the same trend in the GAMA numbers, and suggested "maybe it’s true…" Singles, after all, have always led business aviation turnarounds in the past. Well now it’s official – we are no
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longer a lone voice in the wilderness saying that recovery has begun. At this year’s National Business Aviation Association Annual Meeting and Convention in Orlando last month, two of the industry’s most respected forecasts – the Honeywell Business Aviation Outlook and Rolls-Royce’s annual 20-Year Business Jet Forecast, both predicted that recovery is on the way, and coming a year or more sooner than either had thought was possible a year ago. As if to reinforce the good news, the NBAA had a record number of exhibitors and record attendance. You could feel the positive vibes in the Hall, and at least one beleaguered media representative recorded more than 30 miles (yes – really 30 miles!!!) in a pedometer experiment to
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see how far reporters walked to gather all the news at the three-day event. Yes, the show was big and people were upbeat.
WHAT ABOUT THESE OPTIMISTIC FORECASTS?
Well, the good news is that they are based on really solid research. Honeywell talked with representatives of more than 1,000 corporate flight departments, consulted with all the major airframe and power plant builders, and studied all of the other sources it has developed in 17 years of refining its forecast. The Rolls-Royce forecast is similarly grounded in a solid cross section of data gathered from across the industry by people who have done this before. What all the research shows is that ✈
Aircraft Index see Page 2
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CITATION MUSTANG
we’ve hit bottom and should be on the rebound. The remainder of this year and the first part of 2004 will still be tough sledding for the jet manufacturers, but the sum total of 2004 should be a marked improvement over 2003 and in 2005 the industry should be sailing smoothly again, with deliveries potentially topping the 600-unit mark. That would be a 20percent improvement over the predicted 2003 totals. For the rest of the market – used aircraft and new airplanes in the piston and turboprop segments – recovery can be expected to precede the jet market by a couple of quarters if historic trends are any indication. What happens after 2005 will be really good according to both forecasts. Business jet sales should climb steadily for the remainder of the decade, and perhaps beyond. Honeywell predicts an upward trend at least through 2013, with sales rising above 2001’s record levels by 2008 and staying there for the next five years. Rolls-Royce is a little less optimistic about the out years, predicting the market will peak around 2011 and experience a pretty sharp downturn in the three or four years that follow. Recovery from this downturn will get underway in 2016 according to the Rolls-Royce market model and experience five or six strong
years before again settling back sometime in the early 2020s. Rolls-Royce is also a little less optimistic than Honeywell about the peak of the currently developing recovery, which Rolls thinks will crest at around 800 units in the 2010–2011 timeframe. Honeywell is forecasting the business jet market to grow more quickly, reaching the 800-unit range by 2008 and to be pushing above 850 by 2013 – a time when Rolls-Royce believes we will once again be in a recession. The difference between these two views of how quickly and how much the market will grow, and how long it will remain healthy, is significant. Honeywell expects 7,700 jet deliveries between 2003 and 2013 while Rolls-Royce foresees 6,520 in the period 2003 through 2012. There’s a lot more here than just a discrepancy in the number of airplane deliveries predicted. In the world according to Rolls-Royce, there will be a significant evolution in the shape of the market over the next 20 years, with an increasing number of customers choosing to fly ever-larger airplanes. In this future, more than 70 percent of the jets sold in the next two decades will be in the light-medium category or larger. Rolls-Royce foresees long-range and
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very-long-range large jets accounting for more than 20 percent of the total market. If Rolls-Royce is correct, fewer than 30 percent of the new jets sold will be in the entry level or light jet categories – segments that today account for 55 percent of total jet sales. Moreover, the long-range category – BBJs, GVs and the like – will nearly equal the entry-level jets in unit deliveries. How’s that for a brave new world? Honeywell’s view of the future is a bit more conventional, with the very-light and light jets being the biggest categories throughout most of the decade, followed closely by the medium jet group. In the out years after 2010, the medium-large category gains enough market share to become the largest single segment in the Honeywell version of the future, followed closely by the very-light segment. One interesting difference between the two forecasts lies in how the airplanes are categorized. Honeywell’s survey recognizes an increasingly large number of jet segments – eight of them in the current count. For the record, they include (from smallest to largest) very-light, light, lightmedium, medium, medium-large, large, long-range and ultra-long-range. Rolls-Royce doesn’t quite agree, choosing to segment the same business jet world into just six categories: Entry, ✈
Aircraft Index see Page 2
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EMBRAER LEGACY
Significantly, neither Honeywell nor Rolls-Royce has included in their forecast any estimate of the market for ultra-light jets, except that Honeywell does make provision for Cessna’s Mustang. RollsRoyce observes that the ultra-light category, which it identifies as "personal jets," could have the potential to significantly disrupt the lower end of the market, but doesn’t speculate on what this disarray might entail.
PERSPECTIVES ON DRIVING MARKET FORCES
light, light-medium, medium, long-range and very long range. Can you remember when there were just three categories – light, medium and heavy? Rolls-Royce does recognize one additional category, which is also not listed among Honeywell’s eight. Rolls-Royce’s extra category is Bizliners, which it thinks will capture one percent of the total market over the near 20 years, for a total of 202 airplanes. Honeywell, in a footnote, recognizes the existence of Business Liners (presumably the same thing), but doesn’t count them in its total market for the years 2003 to 2013. In addition to their somewhat differing views of the market, particularly in the out years, Rolls-Royce and Honeywell also disagree on exactly what market forces are driving the recovery. "It’s the economy," says Honeywell, with a nod toward improving new orders in recent months. New model backlogs will give a boost to near term deliveries, Honeywell predicts, and new products now in development will fuel long-term growth in the market. Fractional share sales, which fell off during the recession, will recover next year as the economy picks up. The Rolls-Royce view of the recovery is
a bit more complex. Its forecast cites growing interest in business aircraft for reasons of security and convenience, combined with increased acceptance of business aviation in the recovering economy. Other factors include sustained development of fractional programs and a growing replacement demand driven by a predicted large increase in the retirement of first generation jets. If Rolls-Royce is correct in its assessment, this will be significant. To date, Rolls-Royce says, only 7 percent of all business jets built have been retired. With 25 percent of the current jet fleet now more than 20 years old, Rolls-Royce thinks as many as 5,000 airframes could be replacement candidates in the next 20 years. If true, that will make for many happy aircraft salesmen in the years to come. Bottom line, there are differences in how the Honeywell and Rolls-Royce forecasts see the world of business jets evolving. But whatever their differences, both agree the recovery is coming and the years ahead are going to be very good ones for business aircraft sales. Any way you cut it, that’s good news.
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Aircraft Index see Page 2