Maintaining Altitude

But despite the lower numbers, major manufacturers remain stoic.

“The strong level of energy and positive mood of customers at NBAA’s [National Business Aviation Association] convention reflects the industry’s continued recovery from the recession and gives GAMA members good reason to feel optimistic about the future,” GAMA CEO Pete Bunce said. “While our members enjoyed another strong quarter of billings, not all of the news is good; the industry still faces significant challenges, particularly in the small and mid-size jet markets. ”

By the numbers

In the third quarter this year there were modest signs of improvement, with the seven leading manufacturers delivering 138 units – four more than the same period last year. The value of those orders increased by some 22 per cent, in a large part reflecting growing demand for higher value large-cabin aircraft, which are increasingly leading sales while mid- and small-cabin jets continue their three-year downward sales trend.

North American manufacturers have accounted for 311 of the 421 business jets sold so far this calendar year. South America’s Embraer shipped 66 of the total, while in Europe Dassault Falcon Jet and Airbus accounted for 44.

Gulfstream in particular has been buoyed by the successes of its large-cabin jets. Year-to-date, some 87 of the total 103 aircraft shipped have been in the large-cabin category. In the third quarter alone, 53 of the 59 jets Gulfstream delivered were G650, G550 and G450 models.

“Slowly but surely, the market is returning. One of the advantages Gulfstream has is the geographic diversity of its portfolio. As demand in one area slows, we’ve seen other areas pick up,” explained Roger Sperry, Gulfstream’s senior regional VP international sales.

“We have a pretty balanced order book in terms of our geographic mix. In North America we’ve seen the return of the Fortune 500 market as companies begin upgrading their fleets. More than 50 per cent of our backlog is international with the largest portion being Asia Pacific. We continue to see strong demand from the emerging markets of Brazil, Russia and China. ” But competitive tensions are growing. Of the 120 aircraft shipped by Bombardier so far this year, 45 were Global 5000 and 6000 models, showing the company’s share of large-cabin sales is facing stiff competition.

“While the business aviation sector continues to recover, we are still facing challenging conditions at this time,” Bombardier’s Nilesh Pattanayak, regional VP sales for Asia Pacific told Australian Aviation. “Nevertheless, we are starting to see some signs of recovery. Bombardier expects that business aircraft market deliveries will begin to increase year-over-year starting in 2014. ” In Bombardier’s third quarter financial results published in late October, the strain of market conditions and competition was showing, with the company reporting a US$300 million reduction in revenues to US$2 billion. Perhaps more telling was the receipt of just 26 net orders compared to 83 in the previous corresponding period.

Bombardier CEO Pierre Beaudoin said about the results: “. . . the low order intake and overall market conditions were a disappointment. ” In the smaller cabin categories, Embraer shunned the trend towards

The industry still faces challenges, particularly in the small and mid-size jet markets.

larger aircraft with its popular Phenom series accounting for 52 of the total 66 units shipped from Brazil. The manufacturer, while seeing signs of recovery amid the increasingly competitive market, has also seen new aircraft sales stymied as a result of the burgeoning used aircraft market that resulted from the GFC.

“One thing we noticed is that the GFC caused a surge in the number of pre-owned aircraft in the market,” said Jose Eduardo Costas, Embraer Executive Jets VP for sales and marketing in Asia Pacific.

“As a result of this, demand for new aircraft fell, forcing manufacturers to slow down their production. Different market segments such as entry level and ultra-large aircraft, and geographical regions were affected by this, but to different extents. For example, the sales of larger aircraft initially suffered less than smaller cabin planes. ” Costas explained that despite this trend: “We delivered 99 jets in both 2011 and 2012, despite the total market deliveries having dropped six per cent in the same period. While the total value of market deliveries fell two per cent, the value of our deliveries grew by 15 per cent and our deliveries now account for 15 per cent of all business jet deliveries. ” Cessna, meanwhile, shipped 77 aircraft in the small to medium-cabin category, demonstrating its niche in the market segment continues to generate interest, particularly with the flow of new models released to the market.

In October the company announced a landmark deal in which its Citation Mustang is being flown in China for the first time, with two Mustangs operating charters to high-altitude airports of around 13,000 feet. The first delivery is imminent, with the second delivery scheduled for 2014.

In the turboprop market, the venerable Beech King Air series has seen 84 aircraft shipped so far this

We see good opportunities in Asia Pacific, mainly China, India and Indonesia. JOSE EDUARDO COSTAS

year, demonstrating its continued popularity. In 2012, the Asia Pacific region was second only to the US for deliveries of turboprop aircraft, with the King Air series accounting for a significant proportion of those sales.

Overall, GAMA forecast in its 2012 market outlook that the number of business jets worldwide will grow at an average four per cent through to 2032 – the highest rate of all general aviation categories – from 12,000 units to nearly 27,000. Turboprop sales were projected to grow at less than one per cent over the same period.

With 2013 proving to be a year of continued uncertainty for business jet deliveries, it will be interesting to see whether GAMA’s forecast is eased back in line with the palpably mixed results for this year. Similarly, the high growth rates so far this year of turboprops may also cause a revision in projected deliveries.

Emerging markets

In the last six years, the Asia Pacific region has gained a greater overall share of business jet sales while other previously dominant markets have declined. In 2007 the region accounted for just 4. 2 per cent of total deliveries yet in 2012 that share had grown to 11. 8 per cent. That contrasts with the US where business jet sales share has fallen from 58. 3 per cent in 2007 to 49. 7 per cent.

The trends point to a fundamental shift in the market and the importance of the Asia Pacific region to manufacturers is beginning to pay dividends to companies investing in the region.

“We are optimistic about the corporate aircraft market, as evidenced by the investments we’ve made in our business,” Sperry said about Gulfstream’s expansion in the region. The company has opened a service centre in Beijing, becoming the first CAAC-approved service facility in mainland China. It has also tripled the size of its maintenance hangars at its Jet Aviation facility in Singapore to accommodate up to five G650s simultaneously, and has opened the first business jet training facility in Asia Pacific with G450 and G550 simulators in Hong Kong with Flight Safety.

Tony Jones, chief operating officer for Hawker Pacific in Asia also sees strong movement in the region, saying customers are moving towards purchasing decisions in the near-term.

“Emerging markets like Asia – which have been carrying the bulk of activity – will most likely expand faster than the more advanced economies. We’re seeing steady growth in the private sector to update and renew aircraft, particularly as a number of aircraft begin to reach the end of their manufacturers’ warranty,” Jones added.

“Internationally there is a strong sense that the market is improving. We’re moving into a new phase where inventory levels are decreasing and lead times are growing – bringing it back to more ‘normal’ market conditions. ” For Embraer, the Asia Pacific region’s steady four to five per cent marketshare over the past five years “may have less roots in demand, and much more in regulations and infrastructure – or lack thereof,” according to Costas, which he said has “rendered a business aviation environment that is less friendly than expected. ” “We see good opportunities in Asia Pacific, mainly China, India and Indonesia. They remain very good markets for us where our aircraft have been well accepted and remain popular. However, we also see opportunities in most of the other Asia Pacific countries as their economies grow and companies expand throughout the region,” Costas added.

Recognising the potential of the market, Embraer has made a direct investment in China, establishing Harbin Embraer Aircraft Industry Company, a joint venture with Aviation Industry Corporation of China (AVIC). In August the venture completed the maiden flight of first locally-assembled Legacy 650, with the first delivery planned before the end of this year.

Bombardier’s new market outlook is consistent with the broader views about emerging markets.

“North America and Europe still account for our biggest markets, however other regions such as China and Latin America continue to grow and have the potential to see a rapid growth of business jet deliveries in the coming years,” Pattanayak said, adding: “There is also a new demand for emerging markets such as Indonesia, Thailand and the Philippines. ”

Local markets

Translating the faint optimism reflected in global markets to Australia and New Zealand, growth is expected to be modest but sustained.

“It is pleasing to observe that we have not suffered anywhere near the downturn experienced in those countries as a consequence of the GFC,” CEO of the Australian

2013 has been flatter than anticipated. TONY JONES

Business Aviation Association (ABAA) David Bell said. “We have been insulated to some extent due to the resilience of the Australian economy during recent years and our continuing low unemployment.

“Most business aircraft buyers are reasonably immune to the slowing Australian economy, but this would change in the unlikely event of a recession. ” As a result, Bell sees business aviation operations within Australia and overseas growing at a modest rate during 2014.

However, the GFC-created surplus of used aircraft remains a tangible impediment to new aircraft sales in Australia.

Embraer’s Costas said: “Australia has tended to be more focused on pre-owned aircraft over the last three years and we see opportunities here for our Legacy 600s, Phenom 100s and Phenom 300s, not just pre-owned but also new, as well as the Legacy 500 and Legacy 450. These aircraft are well suited to the Australian environment and we hope to see these fleets flourish in the near future. ” Announced at this year’s NBAA, the Legacy 450 – offering an increased range of 2,500nm – Costas sees as particularly suited to the Australian market, “allowing coast-to-coast flying in both directions, regardless of headwinds. ” As momentum picks up, so too does the pace of marketing in this region, with all the major manufacturers bringing a steady stream of aircraft to Australia and New Zealand as new models are released.

Hawker Pacific, regional distributor for Beechcraft and Bell helicopters, has seen strong interest in new designs from the local market following demonstration tours of the Bell 407GX, Bell 412EPI and more recently the Beechcraft King Air 250 – “and with a great deal of success,” said Jones.

“There is still significant activity in Australia for a whole range of models which service small and regional requirements – that is, King Airs and smaller jets for domestic requirements and larger jets for a more regional focus.

“Clearly there is pent-up demand in Australia and Asia right now, which will bring plenty of opportunity in 2014. Election years are always a bit more difficult in terms of sales and acquisitions, and underpinned by concerns about Europe, 2013 has been flatter than anticipated,” he said “In recent years, buyers have been deferring their decisions to purchase aircraft, but as confidence in the global economy improves and new aircraft are introduced to the market (both as replacement and new models), more sales will be realised in 2014,” Jones told Australian Aviation. “We’re expecting 2014 will be a good year. ” Gulfstream’s Sperry views Australia and New Zealand as long-term growth markets. “We feel that the G280 and G650 are well suited for this market. We’ve seen solid customer interest from the region in these two new products and continue to see good demand for our existing large-cabin aircraft (G450 and G550). Our commitment to the area is evidenced by the considerable investment we continue to make in Asia Pacific in terms of service, parts, people and training. ”

New designs

Despite the current flagging sales in small and medium-size aircraft, manufacturers continue to develop and launch new models.

Embraer Executive Jets has made product enhancements to a number of its designs to improve efficiency and strengthen its competitive market position.

In the Legacy 450 and Legacy 500 programs, both of which are aimed at bolstering Embraer’s product range in the mid-size cabin market, the range of the 450 has been increased to 2,500nm with four passengers – 200nm further than its initial specification.

The Legacy 500, which first flew nearly a year ago, is heading towards certification towards the middle of 2014, the aircraft currently halfway in its 1,500hr flight test program.

The two aircraft boast around 95 per cent system commonality. The proving of systems during the Legacy 500s flight test program should ease passage for the 450, which is expected to be certified in mid-2015.

At the upper end of its product range, Embraer has introduced the Lineage 1000E. Embraer’s largest executive jet carrying up to 19 passengers, the aircraft’s range has been extended from 4,400nm to 4,600nm which “also translates into higher payload capacity for the same range and greater fuel efficiency for the same mission, and payload,” Costas explained.

“In spite of the gradual recovery of the global market conditions and lower demand for new planes compared to before the global financial crisis, we are committed to introducing new technologies and enhanced services,” he said, pointing to service quality and reliability being an even more important consideration for customers in the competitive environment.

“We remain committed to providing the best customer support and our recent ratings in the AIN Product Support Survey shows that while we were rated second globally for the second consecutive year, we are closing the gap and edging closer to the top spot. ” Embraer has created and maintains a service network with about 70 Embraer-owned and authorised service centers globally, of which 11 are in Australia, India and Singapore.

On the eve of the NBAA convention Bombardier affirmed the eight-seat Learjet 85 will enter service around the third quarter of next year, with the first flight on track for before the end of this year.

Earlier in the year Bombardier launched its Challenger 350 about which Pattanayak said the company has received “tremendous feedback”. The new aircraft adds to the already comprehensive Challenger portfolio, offering a completely new cabin with intuitive management system and increased fuel efficiency.

On larger aircraft developments, Pattanayak said: “We are continuing to achieve our milestones with the Global 7000 and Global 8000 aircraft as the program is currently in the detailed design phase. Entry into service for the Global 7000 and Global 8000 aircraft are scheduled for 2016 and 2017 respectively. ” Meanwhile Dassault has launched its first all-new business jet in more than a decade, announcing plans to build the Falcon 5X, a large-cabin 16-seat, 5,200nm range competitor to the Gulfstream 450 and Bombardier’s Global 5000.

The 5X features a wider fuselage cross-section than previous Falcons, new wing, new digital flight control system and is powered by Safran Snecma Silvercrest turbofans. Dassault projects the 5X will fly at Mach 0. 80 and burn up to a third less fuel than its older competitors. The aircraft’s first flight is expected in the first quarter of 2015, with certification planned for late 2016.

In the mid-size category, Cessna says its mid-size Latitude is “on schedule” to make its first flight in the first quarter of 2014. The new aircraft leads a period of heavy investment in new and upgraded models that this year culminatedin the first flights of two important programs representing Cessna at either end of the market spectrum.

In August Cessna flew the first production example of its newest business jet, the Citation M2. The seven-seat, 1,300nm jet, announced in September 2011, is expected to achieve type certification imminently.

Also in August Cessna conducted the first flight of its new Citation X. The longer-fuselage, longer-range jet, capable of operating nonstop between New York and London or Singapore and Tokyo, boasts two Rolls-Royce AE 3007C2 turbofan engines and is one of the few business jets permitted to operate at an altitude of 51,000 feet. Deliveries are expected to begin early in 2014.

Omnipresent challenges

Other than market competition, the business aviation sector remains vigilant for other threats.

“The business aircraft industry will likely face new challenges ahead in relation to fuel prices, environmental concerns, and rapid adoption in Asian growth markets will mean more support services for manufacturers. In Australia, regulations will continue to put the onus onto the operators, which we see more as a development rather than a constraint,” Jones offered about the bigger picture.

More specifically, the ABAA remains concerned about airport and airspace access. “Many business jet operators need to use our primary capital city airports as their aircraft cannot operate from secondary airports such as Bankstown, Moorabbin, Archerfield and Jandakot. Access to Sydney, Brisbane and Perth Airports is a real problem, particularly at peak times.

“Furthermore, the Assessment of Priorities in Australian airspace is unique in the world, placing business jet operations at a major disadvantage to RPT and scheduled charter,” Bell noted, adding: “Most other countries have a first come, first served system apart from flights such as emergencies, aeromedical and head of state. ”

The Assessment of Priorities in Australian airspace is unique in the world. DAVID BELL

Gulfstream is definitely moving confidently into the future. ROGER SPERRY

Opining on the local issues of access, Embraer’s Costas said: “The Australian aviation environment is generally quite mature and well managed, there are good airports and services throughout the country allowing business aircraft to be used as the business tool they were intended to be. However, capacity at several capital city airports is becoming a concern where there are a diminishing number of access slots during peak periods. Clearly more runways are required in these cities and whilst there are some existing plans we hope the necessary investment in infrastructure will be done in a timely manner.

‘We also have the situation where business aircraft have evolved significantly over the past decade becoming quieter, more fuel efficient and with far lower emissions. These aircraft could operate into curfew-restricted airports with no-one noticing, yet political will has prevented these newer aircraft from being approved for curfew operations while older, noisier and less efficient aircraft remain on the list. We are optimistic the new government will quickly correct this anomaly,” Costas added optimistically.

The other issue that was set to affect the business aviation sector in Australia was the ADS-B mandate, coming into force on December 12. However, a last-minute reprieve by CASA for the more than 50 yet-to-be configured corporate aircraft, will see non-equipped aircraft able to operate above FL290 with a conditional two-year exemption in the radar ‘J curve’ along the east coast and west to Adelaide.

The exemption in part recognises some aircraft manufacturers have been slow to install ADS-B equipment on their newly-delivered aircraft.

On the subject of ADS-B, Costas said: “Embraer has responded fast in including, across our product line, features that the new CNS/ATM regulations require, like ADS-B capability and we have service bulletins available for the aircraft already in country. ”

Caution continued

“Over the next 12 months I expect the trends will be based on increased optimism – cautious growth. The significant confidence that is returning to the market will drive aircraft replacement programs as well as bringing first time aircraft owners back in the market,” Jones said, in an uncanny reiteration of views expressed last year.

However, he further offered: “While the conditions in 2013 were soft compared to other years, it’s important to take a moment and observe where we are right now. It is refreshing to remind ourselves that we, in Australia, are very well positioned with the right products in one of the most exciting marketplaces in the world. All indicators are pointing in the right direction and the APAC [Asia Pacific] region will continue to grow at a pace greater than markets around the world. Manufacturers are flagging production rate increases in 2014, inventory sizes are decreasing and prices for used aircraft are very much firming. ” Bombardier’s market outlook through to 2032 reflects current trends, with light and medium jets continuing to face challenges, while the large-cabin aircraft will remain in higher demand. A total of 24,000 deliveries valued at US$650 billion is projected, with the worldwide business jet fleet expected to swell from 14,875 in 2012 to 30,975 by 2032.

“While we can’t speculate the trend in the next year, we are closely monitoring the economic and sociopolitical factors and making adjustments accordingly,” Pattanyak told Australian Aviation, pointing to an expectation the industry will return to the demand level of 2007 by approximately 2016.

Bombardier admits the category in which its Learjet products compete “remains soft and is recovering slowly from the downturn”. Still, the company projects this category will generate a total of 10,500 deliveries, valued at US$119 billion, while the medium category where the Challenger 300, 350, 605 and 850 models compete shows “promising growth”. Medium category sales are expected to generate 8,000 deliveries, valued at US$238 billion.

Large aircraft sales “will witness the fastest growth”, forecasts Bombardier, with a total of 5,500 deliveries valued at US$293 billion through to 2032, representing approximately 45 per cent of total delivery revenues.

Costas of Embraer Executive Jets said: “We see that as the market recovers, the inventory of good pre-owned aircraft will decrease, making it more favourable for the sale of new aircraft. With these new aircraft entering the market, we foresee quieter, more efficient and better performing aircraft, along with more spacious cabins in each of the market segments. ” Embraer foresees the delivery of 9,250 jets in the next 10 years worth an estimated US$250 billion.

Gulfstream, which doesn’t offer market forecasts, told Australian Aviation in a reflection of its current sales-fuelled optimism: “Gulfstream is definitely moving confidently into the future. ” In conclusion David Bell said about the Australian market: “I am very confident that business aviation has a bright future in Australia if we can overcome some of the airport and airspace access issues. ”