As GAMA releases latest aircraft delivery figures for the first half of the year, P1’s Mid-Term Bizjet Report looks at global trends to see who is selling what, where, and which manufacturers are coping best against strong economic headwinds.
The latest aircraft delivery figures from the General Aviation Manufacturers Association (GAMA) make for interesting, if gloomy, reading. Shipments across the board are down, with billings also falling disproportionately.
On initial inspection, it looks like better news for business jet manufacturers, with 2016 Q2 deliveries hitting 170, as opposed to 122 in Q1 – a huge rise of 39%. However, a look back over GAMA reports from recent years shows this is a familiar pattern – and the figures require much deeper analysis to gain a greater insight into the current state of the business aviation industry.
Such analysis is complicated and open to a degree of interpretation, so P1 decided to pull out some key stats and also try to place those in a global economic context – no easy feat in a time of turmoil in commodity markets, forex fluctuations and political flux.
Against this backdrop we also look at the performance of key manufacturers to determine what they are selling, and in what numbers, in a bid to ascertain who is winning the battle and who is struggling in difficult times.
According to the GAMA report, industry airplane shipments declined 4.5% to 970 units, and airplane billings fell 11% from US$10.4 billion to US$9.3 billion. If you think that sounds tough, spare a thought for the helicopter segment. Rotorcraft shipments plummeted 16.1%, from 467 units during the same period a year ago to 392 units in 2016. Billings fell a huge 32.5%, from US$2.1 billion to US$1.4 billion.
“In a challenging global climate, every segment of the fixed-wing and rotorcraft market showed declines for the first half of 2016,” said GAMA President and CEO Pete Bunce. “As we saw at AirVenture last week, general aviation manufacturers are working hard to regain momentum by delivering innovative new products and technologies that enhance safety and provide substantial improvement in capability.”
Bunce went on to express concern at the failure to overhaul the FAA’s certification process, which he says would allow the industry to “continue to move forward”.
While streamlining of certification would be a welcome fillip for the industry, there is no denying the oversized elephant in the room – the underperforming global economy and consistent failure of emerging markets to meet expected demand (see Brazil, India and China).
The latest GAMA report showed that Piston deliveries were down 4.5% (from 464 to 443 units). Turboprop shipments declined 4.9% (247 to 235 units). And 292 business jets were shipped in the first half of 2016, which represents a 4.3% dip from the 305 units shipped during the same period last year.
You have to be thinking now, it all sounds a bit gloomy, and let’s not sugar-coat this as anything but bad news. However, you may also be thinking that it could have been much worse. What may be most alarming for manufacturers, especially of large cabin aircraft, is the apparent drop in prices that new aircraft are attaining in a buyer’s market.
Manufacturers are having to cut their prices, and over supply and weak demand is pushing down the price of pre-owned jets – even those with almost mythical historic demand, like Gulfstream’s world-beating G650. One G650 we spotted had its price tag slashed by US$10 million.
Brokers around the world tend to agree that prices have not only come down but have done so more than expected.
“While the US remains strong, demand from emerging markets is markedly less than previous years, resulting in an overall decrease in demand globally and buyers pushing for greater value in new aircraft purchases,” says Chad Anderson, President of brokers Jetcraft.
“That being said, there are still buyers out there. In 2016 we recorded our best ever first half (43 transactions, US$884 million in value) following our strongest ever year in 2015.
“While market conditions remain challenging, these results show that there is still significant activity in some areas across the world.”
Despite this optimism, comparison of Q2 billings figures from GAMA over the past four years highlights the severity of this fall in prices. Billings were US$5,731 million in Q2 2013, rising slightly in 2014 to US$5,741 million and again in 2015 to US$5,857 million. In contrast, Q2 billings in 2016 were US$5,327 million – a year-on-year drop of US$530 million.
Business jet sales seem to have bucked a trend in recent years, with GAMA showing that Q2 performance has been strong over the last four years. In 2013, there were 154 business jets delivered in Q2, 164 in 2014, 171 in 2015, and a stable 170 this year.
In times of trouble (financial and political) and sluggish global growth, that performance seems pretty good. It is well known that business aircraft sales tend to follow global GDP figures, and both the World Bank and International Monetary Fund predict brighter skies ahead, as early as 2017. The IMF’s World Economic Outlook forecasts global growth at 3.4% in 2016 and 3.6% in 2017.
Growth in the all-important advanced economies is projected to rise by 0.2% in 2016 to 2.1%, and hold steady in 2017. Overall activity remains resilient in the United States, but with dollar strength weighing on manufacturing activity.
In the eurozone, stronger private consumption supported by lower oil prices and easy financial conditions is outweighing a weakening in net exports. Growth in Japan is also expected to firm in 2016, on the back of fiscal support, lower oil prices, accommodative financial conditions, and rising incomes.
Growth in emerging market and developing economies is projected to increase from 4% in 2015 to 4.3 and 4.7% in 2016 and 2017, respectively. Growth in China is expected to slow to 6.3% in 2016 and 6.0% in 2017 as the economy continues to rebalance. India and emerging Asia are projected to continue growing at a robust pace. Higher growth is also projected for the Middle East, but despite new efforts to diversify regional economies, much depends there on the price of crude.
Perhaps one of the most telling stats to come out of these GAMA figures is another geographical one.
In 2013, 54% of aircraft deliveries were to the United States, 15% to Europe, 14% to Asia Pacific, 11% to Latin America and 6% to Middle East and Africa.
By 2015, there had been a sizeable shift, with 62% to the US, 12% to Europe, 13% to Asia Pacific, 9% to Latin America and 4% to Middle East and Africa.
So far, 2016 is showing an increasing dependence on the US, with 72% of deliveries so far. Europe is also showing considerable appetite, with a staggering 22% of deliveries in 2016 – almost double the figure for 2015 as a whole. That leaves less than 3% in South America and a similar figure for the Rest of the World.
So, with positive noises about a global upturn, who is selling well, and who is scrambling to seal the next deal?
Bombardier is aiming to sell 150 aircraft in 2016 and looks to be on track after a decent Q2 following a weak start to the year. Back in May 2015 the Canadian company looked to be in crisis when it halted production of its large-cabin business jets, laying off 1,750 workers on its Global 5000 and 6000s. That move looks to have paid off, with Brad Nolen, director of product strategy and marketing at Bombardier, claiming the decision was taken to protect the value of their aircraft and properly reflect demand. Nolen also told the media that some competitors saw their aircraft depreciate up to three times as much as a Global last year.
However, there are some people who have been pointing the finger at Bombardier – blaming the company for the current sharp drop in prices across the industry.
Whatever, deliveries seem healthy and orders are also coming in, while the much-maligned CSeries airliner. Bombardier delivered the first new jet to Swiss International Air Lines at the end of June, and the plane went into service in July.
The share price has also doubled this calendar year on the back of fresh orders, deliveries and a positive outlook.
Speculation about a possible sale of the Learjet brand, to rivals Textron, is also adding extra spice to proceedings.
Textron’s Cessna has had an interesting year, too. With a portfolio spanning 14 aircraft (from the Skyhawk to Citation X+), Cirrus delivered 103 aircraft in Q2 2016. This compares to 127 aircraft in the same period last year, and yet billings for 2016 are significantly up – US$508 million compared to US$440 million.
That can partly be explained by a substantial drop in small aircraft sales (like the Skyhawk selling 20 units compared to 47 in 2015) while sales of the new large-cabin Latitude have taken off, with 9 delivered in the last quarter.
Sales of the Citation M2 were also strong, up from 4 in Q1 to 13 in Q2, while their Grand Caravan EX also proved popular with 16 deliveries, up from 9.
Cirrus continues to perform, with YOY deliveries up 30% in Q2, with 96 aircraft billing in excess of US$72 million according to GAMA. The SR22 shipped 44 units but that was topped by the SR22T on 47 deliveries – up from 27 in Q1. Things can surely only get better for Cirrus, with its first production Vision Jet also making its maiden flight in May.
French firm Daher-Socata is in something of a transition in 2016 as it begins delivery of the world’s fastest single-engine turboprop TBM 930 upgrade to the TBM 900. Daher delivered 13 of the TBM 930s in Q2, at the expense of the 900 which saw zero deliveries. Nicolas, Chabbert, Senior Vice President of Daher’s Airplane Business Unit, said the broadened TBM product line – based on the TBM 900 and TBM 930 – meets the evolving needs of many operators, with European regulations that should soon enable commercial passenger operations using the aircraft.
Dassault delivered 77 business jets in 2013, including the Falcon 900LX, 2000LX, 2000LXS, 2000S and 7X. In 2014, that figure dropped to 66 aircraft, and in 2015 just 55. This is a worrying downward trend for the renowned manufacturer, and the first half of 2016 has yielded just 15 deliveries, according to GAMA. Last year, they had delivered 18 aircraft by the end of Q2. Worth noting though – those 15 deliveries saw billings of US$656 million.
It’s another important year for Dassault, with their new flagship Falcon 8X having recently gained EASA certification, and first deliveries due in Q4. There are currently 12 aircraft in cabin outfitting at Little Rock, so it will be interesting to see how the 8X sells in turbulent times as a premium product.
Diamond Aircraft has been pushing the new twin-engine DA62 this year after first deliveries in Q4 2015. Taking 11 of those to market in Q2 saw Diamond boost billings for the year to date to US$45 million for 72 aircraft – in 2015 they delivered 144 aircraft for US$63.5 million. You do the math.
It’s been a topsy-turvy 2016 so far for Brazilian company Embraer. Q1 saw them deliver 12 Phenom and 11 Legacy business jets, while Q2 saw 23 Phenom deliveries and just 3 Legacy 500s. That saw billings drop by 39% despite 3 more aircraft being delivered. That’s a shift that Embraer will be keen to reverse, but seemingly endemic for large cabin aircraft right now.
With billings so far this year of an eye-watering US$3,274 million, Gulfstream is ahead of its nearest rival Bombardier by a cool US$474 million. That’s by delivering 61 aircraft so far this year, at an average of US$53.7 million. That’s US$53.7 million – each. The especially good news for Gulfstream is the continuing sales strength of its larger cabin aircraft, including the 450, 550, 650 and 650ER. So far those aircraft have accounted for 46 of the 61 deliveries in 2016.
The Honda Aircraft Company delivered two HA-420 HondaJets at the end of 2015, three aircraft in Q1 2016 and 7 in Q2. That means so far sales have accounted for US$45 million since the launch of the long-awaited VLJ which had an estimated development cost in the billions of dollars. Honda has said it hopes to build 40 in year 1 and then 60 aircraft a year. With a price tag of US$4.5 million, Honda are clearly in the aircraft business for the long haul having invested heavily in R&D spanning a generation and its base in Greensboro.
Swiss masters Pilatus seem to be going from strength to strength with their all-conquering PC-12 (that has spawned competition in the Cessna Denali).
That won’t bother Pilatus too much, as it has the PC-24 eagerly waiting in the wings and current deliveries continue to impress. In Q2 Pilatus deliver 22 PC-12s – double what they achieved in Q2 2015.