JETNET LLC, a leading provider of corporate aviation information and a member of the National Aircraft Resale Association, recently announced that the number of total respondents to its JETNET iQ Global Business Aviation Surveys has now reached more than 4,000. These quarterly surveys request responses on a variety of business aviation topics, including the latest information on business aircraft transactions, inventory and utilization and the factors driving people and companies to buy—or delay buying—aircraft. The surveys are completed online in multiple languages with owners and operators of fixed-wing, turbine-powered business aircraft. JETNET says respondents to-date are based in 107 countries, thus providing a truly global perspective on business aviation markets and customer sentiments.
Following are some key highlights from JETNET’s last quarterly briefing for 3Q 2012.
Aircraft Inventory for Sale is Returning to Normal.
After a sharp spike in 2009 when jet inventory for sale peaked just above 17% of the fleet, inventory levels have drifted slowly downward to about 13.5% in October 2012. Jet inventory for sale has stabilized at about 2,500 units worldwide, while turboprop inventory has declined to about 1,200 units. On a trailing twelve month (TTM) basis, full-sale transactions for all categories of business jets were up 4.1% through September 2012 over 2011 full year, with the average asking price decreasing by 1.7%.
U.S. Business Jet Utilization Still Not Where It Was.
Despite record corporate profits, U.S. business jet utilization has yet to fully recover from the effects of the 2007/2008 economic recession. Utilization as measured by cycles (takeoffs or landings) fell sharply in 2008 and 2009, and has been on a tepid recovery path since then. Cycles are estimated to be about 25% below the prior trend line established in 2001.
Jet Deliveries and Corporate Profits Are Falling Out of Sync.
The historically close correlation between U.S. after-tax corporate profits and business jet deliveries has been a hallmark of the business aviation industry for many years, with delivery data lagged by two years to represent typical decision, transaction, production and backlog timelines. Since the 2007/2008 economic recession, this relationship has de-coupled, arguably on a temporary basis. Clearly, corporations reined in their capital spending and stockpiled cash with the onset of so much uncertainty in the credit markets. A large number of organizations deferred new aircraft replacement decisions, with many opting to retain and in some cases refurbish their current aircraft. Some 38% of surveyed owners and operators in Q3 2012 indicate they have delayed a new aircraft purchase decision since 2008, driven by lower utilization requirements and less attractive trade-in conditions in the gyrating economic and fiscal environment. About 30% of Q3 2012 respondents say they have recently opted to refurbish an aircraft instead of replacing it with a new or pre-owned model.
Timing of the Bounce
The timing of the next rebound in business aviation is top of mind for many industry stakeholders. JETNET iQ believes this rebound is underway, albeit in its early stages. 2012 has produced generally mixed results in net new order activity and book-to-bill performance. Since 2009, industry net orders have been lower than unit deliveries, eroding backlogs. Indications from almost all aircraft OEMs are that deliveries are exceeding net new order intake year-to-date through Q3 2012. Gulfstream and Bombardier appear to be in the strongest backlog position in total units and value.
Ultimately, demand depends on buyer sentiment, which is influenced by both quantifiable and unquantifiable factors. Buyer perceptions and intentions are vital in understanding and predicting behavior and the state of the market. Factors include fair pricing, predictable valuations, reasonable and stable regulations, unfettered access to airports and airways, and value for the investment.
With this in mind, JETNET iQ has established several indices of market sentiment to reflect the perceptions and intentions of aircraft owners and operators worldwide.
JETNET iQ Current Market Sentiment
A simple question such as “Where are we in the current business cycle?” evokes a wide range of responses. Encouragingly, 52% of owners and operators in Q3 2012 believe that we are past the low point in the current business cycle. Regionally, results are highest in North America (57%), where 61% of the turbine fleet is registered, and lowest in Europe (40%).
In Q3 2012, JETNET iQ estimates that the overall sentiment of the market is +34%, up from +25% in Q2 2012. This measures the difference between those who believe we are past the low point and those who say we have not yet reached the low point.
Among respondents who made or influenced their organization’s last aircraft purchase, those who believe we are past the low point outnumber those who say we have not yet reached the low point by a factor of 2.6 to 1.
Aircraft Purchase Inhibitors
Since Q2 2011, JETNET iQ has been asking the aircraft owner and operator community to rank those factors that are “top of mind” in inhibiting their organizations from making a new aircraft purchase. Beyond those organizations which simply do not need an additional aircraft, the primary inhibitors include uncertainty in the economic and regulatory environment, a decline in business activity, and challenges associated with their existing aircraft—the gap between the value and price of a new model, and the difficulties in selling it in the existing market.
With improving economic conditions in the U.S., coupled with post-election “getting back to business” decisions necessary to run the country, JETNET iQ believes that conditions are ripening for U.S.-based organizations to lead a resurgence in business aviation. Early indications of demand both for replacement and growth, such as new orders from large U.S. corporations and NetJets, are already apparent, although more indicators need to be in alignment for a broad based recovery to take hold.
In our next blog article, we will take a look at the forecast for aircraft flying trends and delivery forecasts for the next decade.
JETNET will release results of its 4th Quarter 2012 surveys in late February.
For more information about JETNET and the company’s market research services, go to http://www.jetnet.com/.