China Bizjet Fleet Expansion Slowing
While many in the business aviation industry still eye China as fertile territory, a new report from business aviation consulting firm Asian Sky Group (ASG) predicts the Greater China market will see less than half the growth it experienced last year. In its First-half 2013 Greater China Fleet Additions Report, the Hong Kong-based company says that the Chinese fleet of new and used business jets is expected to increase by approximately 18 percent this year, compared with 40-percent growth last year (albeit from a smaller base total). In total, 96 business jets were added last year in China; through the first six months of this year, just 37 jets were added, Asian Sky Group’s data shows. According to aviation industry data provider JetNet, 314 business jets are currently operating in the region.
Asian Sky attributes the reduced growth to several factors, including the overall slowing of the Chinese economy “and, in particular, cooling measures in certain industry segments.” Other impacts are austerity measures introduced by China’s government and a shift in focus to organic growth. As Chinese business jet buyers become more educated, the decision-making process has become more protracted.
Of the 37 jets (new and used) delivered to the region in the first half, more than a third (13) were Gulfstreams, followed by Bombardier (10), Dassault Falcon (9), Embraer (3) and Boeing (2). While Gulfstream has thus far dominated the Chinese bizjet market (led by its G550 and G450, with 56 and 31 aircraft in the region respectively, according to JetNet), Bombardier now has more than 100 business jets operating in the area. Dassault has begun to make inroads, too, accounting for nearly a quarter of the private jets delivered to the region in the first half, including seven Falcon 7Xs, the most of any aircraft type. Despite Gulfstream’s changing the name of the G250 to G280 specifically to cater to Chinese cultural sensibilities, none of the new super-midsize jets has been delivered to the region yet.
Asian Sky Group says that Chinese buyers are also slowly gaining a better understanding of the value of pre-owned aircraft purchases, with used airplanes accounting for 19 percent of the fleet growth in the region in the first half. In the first six months of the year seven pre-owned jets entered the region: three Bombardier Challengers, and a pair each from Gulfstream (G200) and Embraer (Legacy 600).
While the large-cabin, long-range jets still reign, some Chinese companies are now interested in buying a second aircraft that is supplemental to a chairman’s “flagship” and available to more related subsidiaries and/or other management levels, according to the report.
It hasn’t been a one-way trip into China for business jets, as the market has recently seen the deletion of some older G550s and G200s and Hawker 800s.
On the regulatory side, China’s CAAC has delegated aircraft importation approvals to its regional offices. As a result, the time required for such transactions has been reduced to as little as three months from six and even eight months. The number of companies holding AOC approval is increasing, with 18 rubber-stamped in the first half of the year alone, compared with 28 AOCs granted last year. All private jets registered in China must be managed by an AOC, so the increasing number of approved companies expands the potential pool of aircraft management providers. The recent increase brings the total number of AOCs in China to 186.
The Chinese charter market experienced significant downward pressure on price during the first half of the year due to an oversupply in capacity as new aircraft owners trying to reduce operating expenses are entering the market. A “gray market” of Part 91 charters exists, typified by one CEO offering the use of his aircraft to another for a “special price.” Such “illegal” private transactions represent as much as 30 percent of the current market, according to the study. While business charters saw a slight increase during the first half of the year, austerity measures have slashed the number of government VIP charters, resulting in a net decrease in charter activity.
Faced with these conditions, operators are being forced to consider changes to their fleet utilization, such as focusing less on domestic charters and offering short-term leases on their aircraft. “There has to be a correction in the size of the charter fleet to align it more closely with demand,” Asian Sky Group general manager Jeffery Lowe told AIN, predicting that if there is such a downward adjustment Gulfstream and Bombardier aircraft will experience the greatest exposure. One example he cited is Deer Jet’s fleet of 19 G550s, some of which he expects could be sold or offered for lease.