EVA talks to Jetcraft President Chad Anderson about the company’s latest 10-year forecast
Jetcraft’s second 10-year market outlook, going out to 2025, could be fairly summed up in two words, ‘subdued growth’. The appropriate emotional response would be “Ohhhh… Yay!” After all, growth is growth, and where there is growth, even subdued growth, a resilient, resourceful sector – and business aviation is nothing if not that – will find a way of making a profit and staying healthy.
Besides, forecasts are just forecasts. Things could turn out a lot better than that – or a lot worse, take your pick. Me? I’d opt for “wait and see…” These are uncertain times, with global monetary policy dominated by unprecedented central bank interventions, and with massive macro-economic forces in play. Good luck predicting how the confluence of all these factors will turn out 10 years hence.
What is clear is that the executive summary to Jetcraft’s forecast should be mandatory reading for anyone remotely interested in business aviation. I’m highly tempted to reproduce it in its entirety, but hey, it can be Googled in an instant so no need…
Jetcraft probably sells more pre-owned business jets than anyone else on the planet and has an amazing worldwide informal intelligence network. The key finding in its forecast, summed up in the foreword to the forecast by Jetcraft Chairman Jahid Fazal-Karim, is that by 2025 we can expect to see fewer jets sold, for less money, than Jetcraft anticipated in last year’s 10-year forecast.
The company’s 2016 market forecast calls for 7,879 unit deliveries, worth US$248 billion in 2015 money, to be realised over the next decade. Last year’s forecast had predicted 8,755 aircraft deliveries worth $271.1 billion, giving us around a 10% shrinkage in units and an 8.5% reduction in cash generated. Not great, but not exactly a total disaster either… unless the next few years see a similar steady downward revision in units and cash. Perish the thought…
Q: To start with the present, how has 2016 been for Jetcraft so far?
A: As a company we are ahead of what we were doing last year, which was a record-breaking year for us. Already we are up by 10 to 15% in unit count and at the pace we are going, by the end of the year we will be ahead of last year by the same amount, 10 to 15%, in revenue terms as well.
Q: What changes, if any, are you seeing so far in 2016?
A: The deals are definitely getting more sophisticated, but the real benefit for us this year is that there are predictable deals to be done and there is plenty for us to work on. What is making these deals more sophisticated is that for the most part the buyers are current owners. So to buy a new Global or a new Gulfstream 650, they are coming out of another product. No one likes down time, so you have to structure the deal in a way that allows them a more or less seamless transition.
Q: Are people prepared to take hefty discounts when they are moving away from a jet that they have bought inside the last five to 10 years?
A: There is depreciation of course, when you are trading in a pre-owned aircraft against a new aircraft. But you have to remember that anyone selling a pre-owned aircraft today probably purchased it somewhere around the 2010 to 2012 time frame, and that was after the significant value decrease in 2010. So the aircraft have depreciated quite a bit, but they are also getting a lot more for their money. The new aircraft are bringing so much additional value in all the innovations, new technologies and improved life cycle costs, that there is enough there to make the owner comfortable with his or her new purchase.
Today we see a large number of ongoing trades out there. The product mix that we are seeing is very much still dominated by the larger, longer range aircraft.
Q: Are you seeing sales predominantly from US buyers?
A: By no means all of our orders are coming from the US. About 50% of our transactions this year have been US-based and if you take some of our peers in the industry, the percentage of US-based trades would probably be far higher. Our bright spot, by way of contrast, has been Asia, where we have had 20% of our results to date, a surprisingly strong proportion, really. Europe has not been bad. It has contributed around 16 to 17% of our results, which is consistent with the numbers we put out in our forecast.
Q: How do you view India in terms of potential demand?
A: India definitely has a strong enough economy and enough high net worth individuals and strong companies to be a very interesting source of future demand for business aviation aircraft. However, today there are just too many bureaucratic issues and too many obstacles in the general operating environment for business aviation to thrive there. It is a very substantial region, but it is still in the ‘wait-and-see’ category.
However, Asia as a whole is very interesting. China chilled off with the austerity measures and anti-corruption measures where people got nervous about anything that looked like extravagance. But there are a lot of very good users and buyers of aircraft outside of China and there is still a strong demand for large lift. Overall, our results from the region are improving, and we are seeing a mixed demand for pre-owned and new aircraft. But much of this is coming from outside China, from places like Indonesia.
Q: What are you seeing in the light jets market?
A: I think you are going to see some improvement in this market based on the new products that are coming to market through the period covered by our 10-year forecast. Light jets still comprise around 15 to 20% of our business. Not everyone needs big aircraft. Everyone starts somewhere and light jets are a great starting point. They often lead on to the purchase of larger aircraft so they are very important to the whole sector.
The key here is that it is very hard to go backwards. Once someone starts off with a light jet in business aviation, they do not tend to return to scheduled airlines. You don’t see a whole lot of people pulling out of business aviation. We’ve got HondaJet coming along, plus the Pilatus PC-24, Embraer’s Phenoms and Textron’s M2 and their recently announced single-engine turboprop. All this will create some additional excitement in the light aircraft sector. These are efficient, technologically advanced products and will help to improve the health of the sector.
Q: How much excitement do advances in avionics generate?
A: As a pilot myself, for those of us in the front of the aircraft, avionics are very exciting. There is so much new technology out there now that is very intuitive for pilots to use. There are also some advances in regulatory requirements that are making life easier for the pilots. They can now text with aircraft traffic control to get clearances – all this is going to make aircraft safer in the long term.
From a sales perspective all this is a boost as well. Some aircraft are just not going to be a sound economic proposition to upgrade to the latest avionics. If you are going to upgrade the cockpit in those aircraft, it is going to make more sense to put that investment into a new or upgraded pre-owned aircraft. So all this helps to create transactions.
Where people have not replaced their aircraft for the last five to seven years, they tend to start to feel the need to upgrade. Many have been waiting and postponing buying while they waited for global markets to stabilise. Technological advances help to push things along and we are seeing numbers of them coming off the fence now and looking to buy.
Q: US companies have been cash rich as far as their balance sheets are concerned, for some time now. Do you see that helping aircraft sales?
A: In general North American clients are very cash rich. For a long time, from 2008 onwards, they tended to use the cash to buy stock back or to reinvest in their company. Purchasing aircraft or refreshing their fleet was not a high priority for many US companies and operators. So now they’ve done a great job with their businesses and they have moved on to focus on equipment purchases that will help them achieve their longer term objectives. Business jets fall into this category.
We are now seeing big, healthy US companies finally saying: “I can’t wait any longer to replace my fleet. Now is the time.” That tells us that the market is sound and is going to get healthier in the medium to longer term. Also, it seems clear that we will see larger and longer range aircraft taking the largest market share of new aircraft. Looking at the new models coming through from the OEMs they are clearly heavily focused on the larger cabin market, which is consistent with the demand that we are seeing.
Q: Are these new models coming into a saturated market or do you see them generating fresh demand?
A: New models will naturally create turnover. There will be some new buyers, but many existing buyers will be looking to upgrade. New models generate excitement. Of course, you want to make sure that you do not over supply any one market segment. That creates all kinds of pricing issues. However, overall, we are seeing a very reasonable product turnover plan from the various OEMs, so I think things will be pretty balanced over the next 10 years.