Long-Term Forecast For Up to 11,000 New Business Jet Shipments Valued At $225 Billion In Sales Through 2020
Near-Term Economic Environment Expected to Temper New Jet Orders and Deliveries Into 2011
Business Aviation Operations Recovery Gaining Traction In Both U.S. And Europe
International Demand Continues To Drive Future Industry Growth
NBAA, ATLANTA, Oct. 17, 2010 – In the 19th edition of its annual Business Aviation Outlook issued today, Honeywell (NYSE: HON) forecasts delivery of approximately 11,000 new business jets from 2010 through 2020, generating estimated industry sales in excess of $225 billion. This represents approximately a 10 percent increase in total expected industry sales value versus the prior ten year horizon forecasted in Honeywell’s Business Aviation Outlook in 2009.
For 2010, Honeywell Aerospace estimates deliveries of 675-700 new business jets, down 16-17 percent from 849 in 2009 mainly due to continued global economic weakness as well as overarching concerns about government debt, austerity programs, export growth, financing costs, and general availability. Expected deliveries in 2011 will also fall below 700. Five-year buyer interest has softened from 2009, and new purchase plans are slightly below 2007-2008 levels observed in the 2007-2008 industry growth period. However, based on survey responses and factoring in economic growth forecasts, the industry should begin another period of expansion in 2012.
“This year, operators outside North America have become more cautious about the strength and pace of the recovery. While they are still looking beyond the current economic climate and anticipating a return to improved business conditions, they have tempered near-term expectations and buying decisions, as reflected in the current delivery forecast,” said Rob Wilson, President, Business and General Aviation, Honeywell Aerospace. “Despite the slow pace of economic recovery, North American operators responding to the Honeywell survey indicated their overall new jet purchase plans for the five-year horizon were largely unchanged from a year ago.
“These more cautious international purchase plans have resulted in overall five-year demand for new jets resembling levels similar to those we saw in the 2007-2008 time frame, but still above those seen in the post 9/11 recovery cycle.
“Despite a torpid recovery, there have been relatively few program cancellations and delays,” continued Wilson, “so the pipeline of new high-value models supporting long-term growth remains strong. Our survey indicates that international demand will still remain significant and contribute to longer-term growth.
“The retail value of jet shipments has not declined to the same extent, registering mid-to-high single digit erosion this year, due to the relative strength of large cabin aircraft. The industry should begin another period of expansion by 2012,” Wilson said.
Global Purchase Expectations Soften in Latest Survey
North American purchase expectations remained largely unchanged, rising by about one point, but expectations in other world regions softened to varying degrees. Following last year’s unprecedentedly strong international results, this is not wholly unexpected.
International demand now accounts for 40-45 percent of the new aircraft purchase plans projected over the next five years after just exceeding 50 percent in the 2009 survey. Honeywell forecasts that international deliveries will continue to reflect this global shift in share, which is well above the current international business jet fleet share.
Aggregating all regions, five-year purchase expectations are now at a 30 percent level. Purchase expectations trended slightly up in North America, but retreated in other regions, most noticeably in Europe and in the Middle East. Latin American and Asian results softened to a lesser extent.
“The level of caution varies somewhat by region,” added Wilson. “We noted last year that the timing of planned purchases in the five-year window was heavily shifted in most regions to the post-2010 timeframe. That still remains the case, with roughly 90 percent of planned purchases timed for 2011 or after. Acting on these purchase plans in 2011 and 2012 is critical to giving the recovery momentum, as current backlogs will not sustain delivery levels indefinitely. If this occurs, we will start back on the path toward recovery and expansion in the industry.”
Honeywell’s 2010 survey still indicates a potential demand for more than 5,000 aircraft globally during the 2011-2015 period, excluding demand from fractional ownership or branded charter start-up businesses and piston aircraft owner trade-ups into jet aircraft. As reported last year, a sharp recovery in deliveries remains less probable, since this potential demand has to be translated to orders and, in turn, to increases in production, which will take some time to implement if purchase intentions remain near current levels.
The survey also showed a modest but steady shift to large cabin models in overall buying plans. This result aligns with the relatively strong performance of large cabin model deliveries thus far this year.
North America Expectations
North American survey respondents said they expect to purchase aircraft equal to about 26 percent of their existing fleets for replacement or expansion during the next five years.
“North American purchase expectations edged up slightly,” Wilson said. “Despite the slow pace of recent economic growth in the U.S. and the ongoing concerns over job growth and credit restrictions, the survey indicates that purchases over the next five-year period are planned at levels similar to those reported in our 2009 survey, reflecting the value and productivity these aircraft deliver.
“The timing of new aircraft purchases in the five-year window in this year’s survey is still heavily weighted to 2011 and beyond,” Wilson said. “Overall buying plans in the region improved slightly, with replacement plans supporting the increase. Plans for fleet expansion were unchanged.”
Honeywell’s baseline forecast is based on 2.3 to 2.6 percent U.S. Gross Domestic Product growth this year, and positive growth on the order of just over 2 percent in 2011 and near 3 percent in 2012. Volatility in economic forecasts over the past few years are giving way to more consistent estimates, with recent forecasts from several sources settling in this range.
Regional Purchase Expectations
In other regions, five-year purchase expectations were lower, though in some cases still in-line with results posted in the 2006-2008 expansion cycle. In Europe, purchase expectations equal to nearly 34 percent of the current fleet were off from the all-time high level recorded in 2009 but still well above the 25 percent levels that prevailed between 2001 and 2006.
“A decade of relatively strong purchase intentions in Europe, despite recent lackluster economic growth, continues to position Europe as the second largest regional consumer of business aircraft. Strong major trading partner currencies, such as the Euro, Pound, Swiss Franc, the Ruble and Renminbi, against the dollar, act as a purchase incentive for new aircraft,” Wilson said. “In the longer term, the dollar is projected to show secular declines against most of these currencies for some time, as interest rates remain low and deficits are sizable. This trend should result in some potential tailwind for new jet demand, driven by improving rates of growth and business expansion expected in Eastern Europe and Russia after 2010.”
Overall, European operators reduced their desire to replace their existing fleets compared to the all-time record 2009 survey findings, back more in-line with 2008 levels. European plans for fleet expansion also softened, but to a lesser extent.
Purchase plans are timed predominantly in the 2011-2013 period, demonstrating a more restrained posture than seen last year and falling into a profile similar to the North American responses. The survey reflects a great deal of interest in moving into larger, longer-range and lower cost models, as reported by European respondents. Large and mid-cabin models outpolled small cabin aircraft by a five-to-one margin in purchase plans.
Asia, Africa and Middle East Expectations
The Asia, Africa, and Middle East regions have traditionally ranked as the areas with the highest purchase expectations regardless of the economic environment. In the 2010 survey, this remains the case for Asia; however, Africa and Middle East purchase plans have moved more in- line with the overall world average. Purchase expectations of nearly 30 percent recorded in Africa and the Middle East were off markedly from the record 2009 level, but still above North American levels for replacement and expansion rates over the next five years.
The revisions in purchase plans came from lowered fleet replacement rates. Fleet expansion demand actually increased by about two points compared to last year. Middle East and selected African economies have become more cautious in their outlook for sustained economic growth, no doubt stemming from the leveling out of oil prices through much of the year and the outlook for slower increases in oil demand coupled to the reduced pace of economic growth. Operators in these regions still expect to be active buyers – at or near the world average rate. Operator plans to buy are still timed sooner than in Latin America, North America and Europe but lose momentum in the mid forecast period, whereas the other regions exhibit increased purchase plan timelines over the next few years. Planned purchases, even at the world average, will still result in more rapid regional growth in the Middle East and Africa than is expected in North America.
Asian purchase plans posted an 18-point decline in the 2010 survey versus the year earlier. Despite the reduction, they remain high compared to other regions and from a historical perspective. Total replacement and expansion plans are 40 percent for the region in the 2010 survey, after approaching 60 percent last year.
Clearly the relatively mild initial impact of the global recession on major Asian economies such as China and India is still helping support a more optimistic level of interest in business jets than in other regions. On the other hand, the slower recovery of major trading partner economies and some concerns regarding export fueled growth and Chinese real-estate markets has increased the caution level operators displayed in the 2010 survey.
Confidence in Asian and Middle Eastern economic growth in the intermediate and long-term remains high, boosting interest in longer-range, larger aircraft with better operating economics. Concerns over new duty time restrictions, noise and cost of regulatory compliance were voiced in this region as well.
In Latin America, operators reported slightly lower levels of purchase expectations in the 2010 survey. Operators in this region report plans to purchase new aircraft equal to about 35 percent of current fleets for replacement or expansion over the next five years.
Purchase plans declined from the 2009 survey by about five points, though interest is still high in historical terms, and in-line with, or beating, survey levels from 2007 and prior.
Latin American operators’ plans seem to be pragmatic about the outlook for economic growth in the region and remain cautious about the current environment but relatively upbeat about long term prospects. As a result, Latin American operators are still looking at significant new aircraft purchases in the five-year period, but 85 percent are timed for 2011 or thereafter. Range and more modern avionics equipment were leading reasons for replacing existing models.
Fleet Replacement Drivers
Chief reasons to replace current aircraft remain relatively consistent with prior surveys; with age, range improvement, cabin size are all listed as important criteria in every region. In particular, range demands increased in importance in this year’s survey. A desire to replace current models and gain the benefit for a warranty holiday also gained prominence this year, and new technologies in avionics and engines are also still mentioned as reasons for aircraft replacement.
“Nothing is more important in a tough economic environment than understanding your customers' needs,” said Carl Esposito, vice president, Product Management, Honeywell Aerospace. “Whether for new or fielded aircraft, Honeywell is the only company that can deliver the comprehensive portfolio of avionics, propulsion engines, environmental control systems, auxiliary power units, and cabin productivity products that customers are demanding. In addition, Honeywell alone can dramatically extend the operational effectiveness of fielded aircraft in the NextGen flight environment with upgraded avionics capabilities. Honeywell has an unmatched competitive win record, mainly because we listen carefully to our customers and then deliver best-in-class solutions that more than meet their needs.”
Used Jets and Flight Operation Levels
The used-jet environment has shown modest improvement but remains challenging in the near-term. Over the last year, inventories of used jets for sale as a percent of the active fleet have declined by about three points off the peak levels seen in early 2009 and prices are still significantly lower than 2008 averages.
The 2010 survey recorded a modest improvement in worldwide planned used-jet purchases over the next five years, which may help maintain momentum in used inventory improvements. Used-jet purchase plans rose in North America, Asia, Africa and Middle East, but continued to decline in Europe and Latin America.
The 2010 survey recorded clear intentions regarding usage rates of business jets in the near future. All regions posted a shift in intention toward increased usage rather than decreased utilization in the near-term. These results are in-line with operational gains this year widely reported on in the U.S. (based on FAA jet cycle counts) and in Europe using similar information provided by Eurocontrol. Survey results support projections of continued recovery in operational levels into 2011.
Flight activity recovery rates are highest in percentage terms in Very Light and Ultra Long Range classes, both of which enjoy more rapidly expanding fleets in addition to recovering utilization rates. International jet flights are also recovering more rapidly than domestic missions in both the U.S. and Europe. Most aircraft segments are posting gains in the 10 to 20-percent range over 2009 levels of activity in the U.S. European rates of recovery are lower but most classes of aircraft are showing year-to-date gains in the 1 to 8 percent range. The implications of these used aircraft and jet utilization trends are significant for service providers and dealers. Economic and operating cost concerns are clearly affecting the desire to own and operate older jets as extensively as in the past. The weakest recovery rates appear to be more prevalent in the mid-cabin classes or fleets with large numbers of mature model jets.
Global Economy and New Product Pipeline Favor Recovery and Long-Term Growth
Honeywell’s current 2010 statistical forecasting model predicts a business jet delivery decline of more than 40 percent measured in dollar terms (excluding fractional and start-up jet taxi demand) with the trough occurring in 2010 or 2011. Last year a modest recovery in 2011 was anticipated, however, disappointing rates of global economic recovery have forestalled order rates and softened the 2011 outlook. The model is signaling a rather robust recovery starting in 2012 with the next cyclic peak likely to be higher than in 2008, although fairly late in the forecast period.
Overall, Honeywell believes that the longer term outlook for business aviation is still positive. The company incorporates updated survey findings, statistical model analysis, manufacturer insights, and backlog levels and timing to produce its current outlook.
Honeywell predicts deliveries will cycle down in 2010 and potentially down again slightly in 2011, with the peak-to-trough decline expected to be in the range of 40 to 45 percent on a unit basis. New jet deliveries will soften to a lesser extent on a shipment value basis due to the relatively better order and delivery performance of large cabin models, which is also mirrored in the operator survey findings. By 2012, a combination of deferred demand and more solid rates of global economic recovery will cause demand for new jets to improve. The pipeline of new high-value models also supports the long term growth scenario, in addition to improving international demand.
Despite significant cancellations and deferrals, there are still several thousand aircraft on order – many are new models scheduled for delivery post-2011. Assuming economic recovery progresses, it is still likely delivery of these aircraft will be taken, providing a boost to shipment levels as we move into the 2012-2013 period.
Honeywell Aerospace’s “Customer Benefit Index,” a key component of the long-range forecast, which tracks the perceived value offered by business jets to fleet owners and operators, also has a favorable long-term trend based on many new production models and development programs in the pipeline – even after taking into account several recent program delays and cancellations.
“Evaluating these customer values, along with the purchase plans from the 2009 operator survey, still supports a positive long-range outlook for the industry,” Wilson said.
Owners of fleets serving fractional shareholders and jet card purchasers have reduced demand sharply in the current recession. Fractional fleet operators still have reduced order backlog and continue to curtail current new aircraft additions in the face of ongoing net share sales erosion.
New jet deliveries to fractional fleet operators were off 80 percent in 2009 and through the first half of 2010, with only three new jets delivered to fractional operators. Net incremental sales of new ownership shares have deteriorated further after 2009 posted a 52 percent loss. In results largely unchanged from a year ago, Honeywell is still projecting significantly lower deliveries to this segment for the next few years as excess capacity is worked off and shareholder levels are rebuilt.
Replacement demand for new aircraft contributes a significant share of new jet purchases in the fractional segment, which should support some improvement in new jet deliveries to the sector by 2011-2012. This segment’s higher utilization rates, and desire to maintain a consistent passenger experience with newer aircraft while maintaining low operating costs, leads to replacement at shorter intervals than is typical for traditional operator groups.
Near-Term Demand Shifting to Larger Aircraft Classes
Based on new jet models mentioned by survey respondents, the 2010 Business Aviation Outlook projects a slow but noticeable shift in demand profile across business jet segments over the next five years.
Medium to large aircraft, combined, account for almost 32 percent of the projected demand through 2015. Light and light-medium aircraft make up about 22 percent of projected five-year demand. The next largest groupings are in long-range and ultra-long-range aircraft at 21 percent. Sustained interest in the long and ultra-long-range segment has been present for several years and reflects increased need for aircraft capable of trans-Pacific flights, as well as the growth in demand in other regions requiring more long-range operations as trade and economic growth is still anticipated. These longer range models contribute nearly 50 percent of the dollar value of deliveries over the same period. The balance of demand is accounted for by very light aircraft, which account for roughly a quarter of the unit deliveries, but only 5 percent of the retail value of shipments.
North America is expected to account for about 58 percent of business jet deliveries over the next five years, up in the short-term due to the more cautious attitudes which have crept into the levels of purchase expectations in other areas.
Honeywell has reported on the trend toward increasing international share of business jet demand for several years, and the survey is still tracking with observed shifts in orders and deliveries very closely. Asian demand through 2015, based on the survey, slipped slightly to around 6 percent of the total on lower purchase plans aimed at fleet replacement. European demand share returned to a more traditional 19 percent. Latin America share improved roughly two points to 13 percent. The Middle East / Africa region also moved back in-line with survey findings prior to 2009’s record results. While these percentages shift somewhat each year, the overall demand pool remains fairly large so individual regions are still absorbing significant numbers of new aircraft into their fleets, even if percentage share slips a few points.
Demand Trends of Other Aircraft Segments
Personal Jets: The 2010 Business Aviation Outlook provides an updated look at the emerging personal jet segment. This portion of industry demand has been centered on the emergence of very light aircraft priced below $2.5 million and not normally covered by the Business Aviation Outlook.
The current outlook continues to reflect significantly lower deliveries for this class of jet and is heavily influenced by close monitoring of ongoing OEM developments. Current potential is limited by supply as much as demand due to the delays and disruption of several high profile projects.
With this in mind, deliveries over the next 10-year period will likely be constrained to somewhere between 500 and 1,000 very-light personal jets. When combined with new generation low-cost aircraft carried in the very-light segment of the Business Aviation Outlook, the total deliveries range from 2,600 to 3,100 aircraft from 2010 to 2020, well below the range predicted earlier by Honeywell survey research. Should plans to restart programs currently suspended or cancelled come to fruition, there could be a modest improvement in the outlook once global economic growth is on firmer footing.
Business Liners: The current Business Aviation Outlook does not explicitly include aircraft in the business liner class (typically well over 100,000 pounds takeoff weight and based on transport airframes). However, purchase expectations are recorded for these models in the survey. Forecast deliveries in this class will range around 200 to 220 aircraft through 2020 and should average roughly 20 aircraft per year in the forecast period. Aircraft represented in this segment include the Boeing BBJ series, the Airbus Elite A318 and Airbus Corporate Jetliner as well as the Lineage 1000 from Embraer, plus corporate versions of twin aisle aircraft and potential corporate versions of new regional jets. This segment comprises an additional $17 billion of business aircraft sales.
The Honeywell Aerospace Business Aviation Outlook and the purchase expectations survey summarized each year are a snapshot of expected business aircraft sales at a point in time and reflect fleet operators’ views of current events, such as political and economic conditions, fuel costs and changes in regulations, taxes and user fees that would affect expected sales in the near-term.
Honeywell Aerospace’s Business Aviation Outlook does not reflect the impact of unforeseen events such as a war, major economic shock, fuel crisis or new regulatory restrictions. The outlook is based in part on Global Insight’s baseline economic forecast assumptions that call for world economic growth at annual rates in the 3.4 to 3.7-percent range during 2010 and 2011, followed by sustained world growth rates averaging just under 4 percent through 2020.
Honeywell International (www.honeywell.com) is a Fortune 100 diversified technology and manufacturing leader, serving customers worldwide with aerospace products and services; control technologies for buildings, homes and industry; automotive products; turbochargers; and specialty materials. Based in Morris Township, N.J., Honeywell’s shares are traded on the New York, London, and Chicago Stock Exchanges. For more news and information on Honeywell, please visit www.honeywellnow.com.
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