Posted October 8, 2008 2:26 PM
By Gary Crichlow
Business Jet Market Overview
The Market Defined
Business (or corporate) aviation is one of the most important segments of general aviation. The universe spanned by purpose-built business jet types is quite wide, ranging from small, four-seat, short-range aircraft to large business airliners that can carry up to 19 passengers 7,000 miles nonstop – and of course, even larger commercial jets, all the way to the A380 can be, have been, and will be converted to corporate usage. For the purposes of this article, we will restrict our view to purpose-built business jet types. These fall into several fairly distinct categories (although the classification is not always neat), outlined below:
BUSINESS JET ASSET CLASS CATEGORIES | |
Category & Size | Example Types |
Very Light Jet |
|
MTOW under 10,000lb | Cessna Mustang |
3–6 passengers | Eclipse 500 |
List Price $1–4m | Embraer Phenom 100 |
Typical Max. Range: 1,000nm |
|
Entry Level |
|
MTOW 10-13,000lb | Cessna CJ1+/CJ2+ |
4–6 passengers | Premier 1A |
List Price $3–6m | Sino Swearingen SJ30 |
Typical Max. Range: 1,000–1,500nm |
|
Light |
|
MTOW 14-20,000lb | Cessna CJ3 |
6–8 passengers | Hawker 400XP |
List Price $6–8m | Cessna Citation Encore+ |
Typical Max. Range: 1,250–1,750nm |
|
Light-Medium |
|
MTOW 20-30,000lb | Cessna Citation XLS+ |
6–8 passengers | Bombardier Learjet 40XR/45XR/60XR |
List Price $10–16m | Gulfstream G150 |
Typical Max. Range: 1,500–2,500nm |
|
Medium |
|
MTOW 33-50,000lb | Gulfstream G200 |
8–10 passengers | Cessna Citation X |
List Price $19–30m | Hawker 4000 |
Typical Max. Range: 3,000–4,000nm | Bombardier Challenger 300 |
| Dassault Falcon 900 & 2000 families |
| Bombardier Challenger 605 |
| Embraer Legacy 600 |
Heavy Long Range |
|
MTOW 50-80,000lb |
|
8–14 passengers | Bombardier Global 5000 |
List Price $26–35m | Gulfstream G350/450 |
Typical Max. Range:4,000–5,000nm |
|
Heavy Ultra-Long Range |
|
MTOW 50-95,000lb | Bombardier Global XRS |
12–18 passengers | Dassault Falcon 7X |
List Price $37+m | Gulfstream G500/G550/G650 |
Typical Max. Range: 6,000–7,000nm |
|
Airliner Business Jets (“Bizliners”) |
|
MTOW 145-180,000lb | Airbus ACJ Family |
18–50 passengers | Boeing BBJ Family |
List Price $50-65m |
|
Typical Max. Range: 4,000–6,500nm |
|
The business aircraft fleet is characterised by an extremely large, fragmented customer base, most of whom operate one aircraft. Historically, the US has accounted for well over 75% of the fleet; however, even though the US-based fleet continues to grow, it has been outpaced by international demand in recent years. Manufacturers report that their orderbooks are now evenly split between US-based and international customers.
Business jets have generally exhibited stronger value resilience over time when compared to commercial aircraft. As an example, in the chart below we’ve illustrated the historical Market Value trends for two different commercial types and two different business jet types over the past nine years.
Compared to the commercial airliner market, the business jet market has a relatively large number of competing manufacturers offering multiple products in all sectors, with updated aircraft models being introduced at a much faster rate and more rapid turnover of fleets by customers for newer and/or larger models. How quickly the used inventory is sold is indicative of the health of the business jet market.
The used market shows an overwhelming preference for brand-new aircraft, or as close to brand-new as possible: as such, the most desirable “like-new” models drive the values of older examples. If the market is tight enough, even out-of-production predecessor variants may also see positive pressure on values (for example, Gulfstream G-V values are very much driven by the Gulfstream G550 which superseded it); conversely, in a balanced market or in a downturn, the oldest examples are almost always the first to show softening in value. A normal supply situation is usually deemed to be where some 10% of the business jet inventory is available. Availability below 10% illustrates a stable to strong market.
In addition to age, an absence of damage history, a low total time accrual, technology and avionics specification, maintenance condition and history, presence of a transferable maintenance support programme, ownership pedigree and interior are all important considerations from a value perspective. The relative influence of these considerations on a particular sale are governed to a great extent by the prevailing market conditions for the aircraft type — its capabilities versus those of competing alternatives, the manufacturer’s backlog (if in current production), and the number of aircraft available for sale on the used market. The general perception of the economic climate is also crucial: in times of positive economic growth where confidence is high, sellers are generally more willing to hold out for asking price; conversely in a downturn, buyers have more leverage in negotiating discounts.
The business jet market has so far shown much greater resilience than the commercial aircraft market to the credit crunch and the economic slowdown it has precipitated. This is due in no small part to the rise in demand outside the United States over recent years since the last economic downturn – no longer content to be the dumping ground of ageing fleets discarded by US owners, Latin America, Russia & the CIS, the Middle East and other developing regions are accounting for an increasing share of the global orderbook for brand-new aircraft. For many aircraft models, international orders now surpass those from US buyers. From a values perspective, those aircraft types with the strongest international exposure – typically large-cabin, long-range aircraft – appear to be faring relatively well in the current climate.
On the used business jet side, the value performance and outlook is “mixed” – some aircraft types continue to do well in terms of their Market Value retention, many remain stable, and many have shown softening values. In general, the largest, most range-capable types continue to do well on the used market, particularly given the extremely large backlogs that exist for aircraft types at the upper end of the market.
In terms of outlook, there is a growing consensus that the market has generally peaked, although it remains to be seen how much of a downturn there will be. Prospective buyers have been showing more willingness to either push more aggressively for discounts, or hold back from making a purchase decision in hopes of seeing asking prices drop, whereas on the other hand many sellers are still looking to command prices that only a few months ago would have been achievable.
Nevertheless, sales activity on the whole has remained robust, particularly from international buyers; the weak US dollar had caused many US prospective buyers to defer purchasing. Now that the US dollar shows signs of strengthening, many US buyers are adopting a “wait-and-see” approach.
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