Biz jet market not flying high
February 11, 2003
(Reuters) — For some corporate executives, it's back to long lines at crowded airports and a bag of pretzels for lunch.
Sales of business jets, once the ultimate status symbols, have cooled with the U.S. economy, and industry watchers say they may not rebound until 2005. The sleek stratospheric board rooms have come to represent corporate greed for some, and for others are simply no longer affordable.
Annual sales of private jets with names like Gulfstream and Lear more than tripled in the economic expansion through the end of the last century. Whether sales of the jets, which can fetch $45 million, ever return to the glory days depends greatly on U.S. economic health, analysts say.
Business jet shipments totaled about $11 billion worldwide in 2002, down about 15 percent from 2001, and are expected to be flat to lower in 2003, Ed Bolen, president of the General Aviation Manufacturers Association, told Reuters.
"The biggest single influence is the economy, and when that turns around is anyone's guess," Bolen said, adding that sales are three times higher than six years ago despite the drop.
Most manufacturers look to 2004 or even 2005 before a turn around starts because new business jet orders typically trail a recovery by nine months to a year, with production responding about three months after that, Bolen said.
Sales could drop 40 percent from the peak, said Richard Aboulafia, aerospace analyst at the Virginia-based Teal Group.
"It's obvious that the market is heading down, hopefully it won't head down to where it used to be," he said. "It depends on corporate profits, but assuming the traditional forces are in play, there is no reason we cannot have an upturn by 2006 in terms of production, obviously earlier in terms of orders."
JET MAKERS GRIM
The main business jet makers — units of Bombardier Inc., General Dynamic's Corp., Textron Inc., Raytheon Co. and Dassault Aviation — largely have hurt parent-company earnings because of soft demand.
Boeing Co. and Airbus offer modified 737 and A319 airliners as business jets, mainly for world leaders.
Manufacturers concede that 2003 will be challenging and say they would need a crystal ball beyond that. They also have been bit by excess inventory of used jets traded in by customers.
Still, sales of new entry level jets have been good and top-of-the-line planes have been largely unaffected by the weak turn in sales.
"People who buy (high-end jets) are billionaires anyway and they don't care about little things like economic recessions," said Paul Nisbet, an analyst at JSA Research.
Bombardier has introduced four new corporate jet models in the past year. List prices for the jets range from about $6.5 million list for a recently introduced small Learjet 40 to about $44 million for the Global Express top-end jet.
Gulfstream, a General Dynamics unit known for plush, fast and ultralong-range jets, has started building a G150 at about $11 million, as well as its $45 million top-end G550.
Textron's Cessna unit expects as many as eight lean quarters. It has had more interest in introductory jets like the Citation Mustang, listed at about $2.3 million, than for its mid-sized Citation X, which runs about $19 million.
Raytheon, which builds Beech and Hawker business jets, does not expect an uptick in orders for up to 18 months. A rebound after that depends largely on the economy. The new $5 million entry-level Premier 1 and $18 million super mid-sized Hawker Horizon have had better sales than existing models.
Dassault expects the poor economy to hit Falcon business jet sales, which it has come to rely on to offset weak sales of Mirage and Rafale military jets.
UNDERLYING DEMAND
"We are seeing that the companies that have business jets are flying them quite a bit ... that is a good sign in terms of the future," Bolen said. "Companies tend to defer capital expenditures in a slow economy. We have reason to believe there will be strong demand, but we need to see the turnaround."
The Sept. 11 attacks heightened security concerns for some corporations and increased security at airports lengthened waits for passengers, both potential reasons to increase use of business jets that board outside main terminals or airports.
However, corporation's have become more frugal because of the downturn and it may take a long time before they return to the old ways, if they ever do, after the economy recovers.
"At this point, the outlook is very cloudy," said Michael Boyd, an air industry consultant. "Investing in a $20 million to $25 million business jet right now, that kind of money will buy a lot of (commercial) air travel."
Businesses have even turned to low-fare airlines and buying restricted tickets to cut costs, and major U.S. airlines have started experimenting with lower walk-up fares to compete with low-cost carriers for the business travel dollar. |
