Climbing up?

The numbers, however, reflect sustained turnover in the market, something the industry’s peak association, the Australian Business Aviation Association (ABAA) sees as proof that business aviation provides essential transportation services for a growing number of Australian companies.

David Bell, ABAA Executive Director said he expects solid growth in business aircraft numbers in Australia of about five per cent per annum for the next five years.

It is a view shared by local dealers of business aircraft.

Steve Padgett, managing director of Aeromil Pacific, Cessna dealer for Australia and New Zealand, says the dominance of used aircraft on the market is affecting new aircraft sales.

“New aircraft sales have been fairly slow, but our used jet business has been quite robust,” he explained. Aeromil has sold five used aircraft this year against one new CJ4 to be delivered in November.

“It would be fair to say we’ve had more than average availability (of used aircraft) in Australia. There are still so many used aircraft on the market as a result of the GFC that there’s plenty to choose from. Another factor is that the availability of new aircraft is less than it was 12 months ago so that is contributing to buoyant sales of used aircraft,” Padgett said, but adding, “But we are seeing interest in new aircraft again.”

With a surplus of used aircraft on the market that Padgett believes will take at least two years to clear, the pricing of both used and new aircraft remains keen, a trend seen across all manufacturers.

As Padgett explains: “The pricing of new aircraft has not gone up dramatically over the last couple of years and as the used fleet decreases we’ll start to see a lot more interest in new planes, and in fact we’re already starting to see that.”

“We’re upbeat for 2013. Cessna is one of the few manufacturers coming out with new product.”

During 2013 Cessna will launch its Mustang II on the market to add to the 15 Mustangs already in service in this region, followed by the Latitude and Longitude large-cabin aircraft.

“So we have something new to sell,” Padgett said. And there’s a lot of expectation for the two larger-cabin aircraft, particularly with the trans-continental range offered by both and pricing under $15 million.

Meanwhile, Tony Jones of Hawker Pacific said business sales enquiries are up across all markets.

“This is normally a good indicator of an improvement in demand over the next six months – and Asia continues to be strong,” Jones added, noting the ongoing malaise in the world economy, which he says has “dampened enthusiasm”.

Like Aeromil, Hawker Pacific is seeing a high proportion of used aircraft enquiries and sales.

Jones said: “A high percentage of the initial inquires we field are for used aircraft. Once the client gathers the data and makes the ‘new versus used’ comparison, and if they meet the profile of a new buyer, they generally select a new aircraft over used. The delta between new and used is more normal these days with the bargains of 2009 no longer available. Having said that, our used trading activity is up but more as a result of our deliberate strategy to offer a greater range of good quality used aircraft through our affiliation with suppliers around the world and our ability to provide seamless delivery service to the client.”

Like other operators, while demand remains sluggish despite a more upbeat outlook, Hawker Pacific is looking to other areas of its business to sustain revenue.

“We’re continuing to maintain a focus on strengthening our market leadership by investing in our MRO businesses and services, sales teams and more,” Jones said. “Our avionics facility in Cairns, for example, has doubled its workforce since 2006 and our sales teams are working hard to secure sales in the region, one of the latest fleet deals being the sale of up to 26 DA40s to Flight Training Adelaide. Our New Zealand facility in Auckland has also just secured a five-year supply and maintenance contact for the RNZAF. We’re busy.”

Looking to 2013, Jones said Australia is somewhat bucking the trend in western markets. “I think steady demand for the next five years will continue, however, replacement aircraft will have the major share of the transactions over first-time buyers.”

The average age of business jet aircraft globally is 15.9 years, while 60 per cent of the fleet is less than 15 years old. With 85 per cent of all new jet sales coming from existing jet owners, the development of more fuel and operationally efficient aircraft has intrinsic potential to stimulate demand.

“I think steady demand for the next five years will continue.”

Global trends

The trends in Australia are following closely those of overseas. Director of the International Business Aviation Council (IBAC) Peter Ingleton is seeing signs of recovery.

“There is continuing slow recovery globally, especially in Asia – China in particular – Brazil and the Middle East where there is strong growth.

Statistics from the General Aviation Manufacturers Association (GAMA) broadly bear out the IBAC’s view. For the first nine months of 2012 business jet sales have remained largely on par with 2011 shipment rates – a modest 0.2 per cent increase to 428 jets shipped to the end of September this year.

Activity during the third quarter was sorely depressed compared to the second quarter. Comparisons show that there were 171 business jets shipped in the second quarter – an impressive 13.1 per cent increase in shipments compared to the first six months of 2011. However, only 134 units were shipped between July and September, reducing that growth to near-stable.

At this year’s National Business Aviation Association (NBAA) convention in Florida, GAMA chairman Caroline Daniels said the economic outlook has boosted hopes of the progressive recovery of the business aviation sector, attendees at this year’s NBAA conference in Florida have been told.

Daniels said while the industry remains a “mixed picture”: “This year we have seen continued growth in corporate profits and in global gross domestic product figures, both good signs for future shipments.”

However, Daniels saw the continuing squeeze on financing as a potential obstacle to that recovery, saying: “We believe there’s pent-up demand and if credit conditions were eased, we might see an impact on orders, shipments and billings.”

GAMA’s president and CEO Pete Bruce said: “We are starting to see positive signs. When coupled with the positive trend we are seeing in the used market, we may finally be witnessing the start of recovery.”

According to Hawker Beechcraft’s Singapore office, Asia has seen a surge in business aircraft sales in the last five years, with average growth during that period of 139 per cent.

What is of particular interest is that this increase has occurred during the global financial crisis. While some parts of Asia have been comparatively immune to global economic issues by virtue of their internal strength, it is the growing number of high net worth individuals (HNWIs) that is seen to be driving sales.

Singapore, which accounts for only 3.3 per cent of total turbine registered aircraft in Asia, has witnessed a 500 per cent increase in aircraft sales between 2007 and 2011. Hawker Beechcraft said: “(An indication of Singapore’s) economic strength is that the country’s number of HNWIs is expected to grow by 47 per cent between 2011 and 2015. Its ultra-HNWI population is expected to grow by 49 per cent over the same period.”

However strong Hawker Beechcraft’s sales have been in Asia recently, the announcement it intends to dispose of – or close – its Hawker business jet line as it emerges from Chapter 11 will create concern for owners of existing aircraft and for those who have orders pending delivery.

Locally, Hawker Pacific sees Australia as being more robust than other markets.

“Australia has been a far more robust market than the traditional markets of the US and Europe in recent years. Whilst demand has been down this year, Australia continues to rate well against these markets.”

This view is in stark contrast to that in the United States, where Embraer is lamenting a lack of HNWI-driven sales. According to Embraer’s president of executive jets, Ernest Edwards, there are signs of recovery in small jets – the area worst affected by global economic influences – but there is no sign of recovery in large jets, at least in the North American market. He said despite the number of HNWIs in the US, they are not buying larger corporate aircraft. “We don’t know what they’re doing with the money,” Edwards said, adding: “We believe they’re sitting on the money,” he was reported as saying in Flightglobal.

Embraer is thus taking a cautious approach to its sales predictions for the coming 10 years of between 780 and 930 airframes depending on various economic scenarios. At its best, this would produce revenue for Embraer of approximately US$24 billion.

So far in 2012 the company has sold 46 business jets, comprising 40 light jets and six large jets, 13 of which were sold in the third quarter. Of those 13, one was a Legacy 650 and one Lineage 1000. However, this year Embraer missed out on a massive order in June from NetJets, which wrote orders for up to 425 aircraft with Bombardier and Cessna worth US$9.6 billion.

As part of the deal, Bombardier received orders for up to 275 Challengers, of which 100 are firm orders for 75 Challenger 300s and 25 Challenger 605s worth US$2.6 billion at list prices.

The recent NetJets order has boosted an already strong position for Bombardier. In 2011 it sold 45 per cent of all business jets and retains 32 per cent market by number of aircraft in the global business jet fleet, or 38 per cent based on revenue marketshare. By the first quarter of 2012 its marketshare by aircraft was 51 per cent.

The company says: “The business jet industry is progressing well on a prolonged and gradual recovery from the steep industry downturn of 2009-10”. Bombardier points to global economic recovery and sees growth of HNWIs as giving rigidity to its upbeat claims.

“A high portion of billionaires are business jet owners. A March 2012 report from Forbes estimated a record number of billionaires at 1226 worldwide, a 4 per cent increase over 2011.”

In its 20-year forecast, Bombardier says it expects the worldwide business jet fleet to grow from a 2011 base of 21,900 aircraft to 31,500 aircraft (net of retirements) by 2031. New aircraft sales in this period are estimated at 24,000 with a value of US$648 billion.

For 2012, Bombardier sees worldwide business jet deliveries being on par with 2011 – around 600 aircraft, with an acceleration of deliveries from 2013. However, it does not see recovery to pre-2008 levels until after 2016 assuming the current economic trends continue.

Distilling this into the Asia Pacific region, Bombardier’s forecasts show demand for 370 aircraft between 2012 and 2021, and 615 aircraft between 2022 and 2031 at an average six per cent annual compound growth rate. This would bring the region’s fleet to 1,170 aircraft by 2031.

“(The) fleet per 100 million population is expected to grow from 36 to 95 over the next 20 years,” Bombardier says about the Asia Pacific region.

Bombardier continues to invest in new products: Learjet 70, 75 and 85 (from 2013) and Global 7000 and 8000 (from 2016), although it expects larger category aircraft to sell more strongly, the converse of Embraer’s experiences so far in 2012.

“The light segment is still challenging, but we’re investing in the Learjet 70 and Learjet 75 to ensure we have the best product for when the market returns,” Bombardier told Australian Aviation, adding it has three of the new Learjets in production scheduled for service entry in 2013.

Issues

For the ABAA, continued dialogue at State and Federal levels has been important to counter the influential views of major airports and those who seek to place constraints on corporate aviation.

The ABAA’s submissions to the Productivity Commission made statements about the importance of business aviation in the role it plays to support strong corporate performance, raising in particular the need for “fair and reasonable access” to major airports such as Sydney, something the corporate sector shares with regional airlines. As part of the ABAA’s participation in global forums such as the IBAC, it encouraged its international counterparts to contribute to the Commission’s enquiry, adding weight to the argument for fair treatment as the squeeze on access tightens.

And while access remains – and for the foreseeable future will continue to remain – a philosophical cornerstone of the lobbying agenda, a prominent row is developing on airspace access and the priority – or lack thereof – afforded to business jets around major terminal areas.

Steve Padgett explained that his priority issue is airspace access around major airports, especially Sydney, Perth and now Brisbane. At present it is not having an effect on sales, however, as he explains: “If you can’t get into airports who’s going to buy an aeroplane?”

The ABAA’s 26 operating and 24 associate members, which together represent about 65 per cent of business jets in Australia, were mildly heartened by the Productivity Commission’s response to submissions from the sector.

“If you can’t get into airports, who’s going to buy an aeroplane?”

ABAA Chairman Michael Keenan said in his annual report to the Association: “Positive statements made by the Productivity Commission are a major endorsement for business aviation in Australia, with recognition that business aviation has played an important role in Australia’s participation in regional and global economic growth.”

However, Keenan expressed concern about references in the Commission’s report that would suggest it remains somewhat sympathetic to major airports’ capacity constraints.

The report says: “… grievances of the general aviation sector reflect the outcome of an inexorable trend towards major airports focusing on RPT services, rather than general aviation. The Commission considers that efficiency is likely to be enhanced through the relocation of smaller general aviation operators to secondary airports, where facilities are appropriate for the activities undertaken.”

As Keenan notes, however, for business aviation and some other operators, secondary airports are often not a realistic substitute for access to major capital city airports.

“The ABAA highlighted that for many international corporate and business travellers, flying via private aircraft was essential, with its own research suggesting that a number of governments and international companies require their executives and officers to travel on owned or chartered business aircraft. Details of these requirements can be found for many US-domiciled companies in SEC filings for listed companies. The ABAA stated that such aircraft could only use airports that had adequate runway length and aprons to accommodate a range of aircraft sizes & weights, as well as immigration & customs services.”

Exemplifying this issue as Brisbane Airports Corporation (BAC) seeks to implement a runway demand management scheme, the limitations of parts of Queensland for business aircraft were highlighted as concerns mounted around ongoing access to Brisbane Airport.

“Several business jet types are not able to utilise Archerfield Airport due to lack of adequate runway length. Gold Coast and Sunshine Coast are [also] not viable alternatives for many operators,” Keenan explained.

“Operations of both non-scheduled charter and private business jet aircraft will be adversely affected if these (BAC) proposals are implemented. This is undemocratic and does not accord with arrangements at other major Australian capital city airports,” Keenan extolled.

For its part, BAC does not see the demand management scheme as precluding corporate aviation, rather “it is about regulating the use of a constrained asset.” While in essence this is a sensible practice for major airports, its intrinsic effect is to give priority to operators with historical precedent, which, by the very nature of short-notice, ad-hoc flying performed by business aircraft, stands to exclude them from peak periods.

Airservices’ new CEO Margaret Staib told Australian Aviation access to major airports will continue to under be pressure (see elsewhere this issue), but hopes more extensive consultation with industry will arrive at a solution that is acceptable to the whole of industry. Staib has applied a high priority to consultation and getting all various sectors of the industry to jointly contribute to solutions.

Notwithstanding this, Staib described airspace capacity as “a finite resource” and that airports and scheduled, charter and business aviation operators will need to come to a pragmatic compromise, a role Staib sees Airservices as facilitating, just as it has in better managing demand and capacity at Sydney Airport through its collaborative decision-making process.

Access will remain one of the principal issues for the business aviation sector over the coming years as it contends with intractable government policies on airport community issues. More broadly, the industry’s green shoots will hopefully fully re-emerge in the coming 24 months, giving manufacturers and traders some respite from recent difficulties. The signs are promising, so long as stability remains in the global and local economic recoveries.