European market forecasts paint a mixed picture
Against a background of broadly optimistic forecasts for a slowly recovering global business aviation sector, prospects for the industry in Europe include a lower share of new aircraft deliveries, increasing numbers of international flights and ambitions to upgrade to larger, longer-range equipment, say manufacturers.
Bombardier Aerospace believes that, with worldwide business indicators having improved, the long-term market fundamentals are strong, giving grounds for cautious optimism that “demand for new business jets will return.” Its first 20-year market forecast, published last year (a new one is imminent ahead of next month’s Paris Air Show), foresees two decades that will show growth returning.
More recently, Embraer forecast in March that marketwide demand for new business jets would reach 1,200 per year by 2020, with 10,000 deliveries (valued at $210 billion) predicted for this decade. In the narrower, “light-, medium- and large-aircraft” sectors addressed by Bombardier, the Canadian manufacturer said 10,500 aircraft (worth $254 billion) will be shipped in the period, with a further 15,500 (worth $407 billion) following during 2020-29. Deliveries in 2011 will remain below 700 before the industry begins “another period of expansion in 2012.” according to Honeywell Aerospace market survey results (factored for predicted economic growth).
In this global context, Embraer expects combined Europe/Middle East/Africa demand to account for a third of the 10-year revenues, compared with the 43.2-percent share that will be generated by U.S. sales. It predicts that 50 percent of overall deliveries will comprise entry-level, light and mid-light models, while 26 percent would be large, ultra-large or ultra-long-range types.
The Brazilian manufacturer said the executive jet market is recovering from the global financial crisis much more slowly than is commercial aviation, despite increases in stock-market price indices and corporate profits that normally might be expected to stimulate orders. Recent world events also might have had a negative effect. “The political turmoil in the Middle East and the recent earthquake in Japan may bring additional risks to the recovery trend,” said Embraer, which this year expects business jet deliveries to exceed orders.
Resumption of global economic growth will translate into an expected strong recovery in the demand for business jets, according to Bombardier. It said the “near-collapse of financial markets” in 2008 “precipitated a sharp downturn” in business aviation that had “a significant impact through order deferrals and cancellations, and decreasing production rates,” which confirmed the sector’s cyclical nature. “The precipitous and rapid decline in 2009 resulted in cancellations exceeding gross orders, causing a significant reduction in firm order backlogs and aircraft deliveries,” the report concluded.
For Honeywell, “the majority of European countries are now showing positive real GDP growth,” but with the dollar expected to decline against leading European currencies (such as the euro, pound sterling and Swiss franc) “as interest rates remain low and deficits are sizeable,” the market might improve. “This should result in some potential tailwind for new-jet demand, driven by improving rates of growth and business expansion in Eastern Europe and Russia after 2010,” said the U.S. engine and avionics supplier.
Economy a Concern
Meanwhile, Bombardier’s forecast betrayed its reservations about European market prospects. While last year had seen the “green shoots” of recovery in the U.S. and “strong growth” in emerging economies, “unfortunately, lagging growth in Europe remains a concern.” In contrast, Honeywell confirms a slight upward trend in North American operators expecting to buy aircraft in the coming five years, but has detected a “retreat” in such expectations in other regions, “most noticeably in Europe and in the Middle East.”
According to Bombardier statistics, the 2003-08 period saw Europe’s share of worldwide deliveries jump from 12 percent to 31 percent, “fueled by the strong euro relative to the U.S. dollar, significant economic growth and the emergence of branded charter business jet operators.” But Honeywell reported last fall that since then the region’s share has returned to a more traditional 19 percent.
Nevertheless, in this decade, Europe will take the second largest number of deliveries, some 2,500 units, said Bombardier. By 2019, the fleet will have grown from 1,780 to 3,700 aircraft. Honeywell put the combined value of Europe, Africa and Middle East shipments in the coming 10 years at $65.5 billion, second only to North America’s $91 billion.
The company’s market survey suggests that European purchase plans are timed mainly in the near-term–the 2011-13 period. Embraer has demonstrated its belief in this market with announced plans to open five additional European service centers.
Significant Replacement Market
Europe’s growing installed base will create a significant replacement market in coming years, according to Bombardier, with Honeywell identifying such principal considerations as “age, range improvement [and] cabin size.” The Honeywell survey showed European “purchase expectations equal to nearly 34 percent of the current fleet, well above the 25-percent level” that prevailed during 2001-06. “A decade of relatively strong purchase intentions continues to position Europe as the second-largest regional consumer of business aircraft,” said its report.
European survey participants reported “a great deal of interest in moving into larger, longer-range and lower-cost models,” according to Honeywell. “Large- and mid-cabin models outpolled small-cabin aircraft by a five-to-one margin in purchase plans.”
But this interest in new equipment is not reflected in expected demand for previously owned aircraft in the region. “Used-jet purchase plans rose in North America, Asia and Middle East/Africa, but continued to decline in Europe and Latin America,” reported Honeywell.
More International Flights
Europe’s business jet operators expect to work their airplanes harder and to make a greater number of international flights. “All regions posted a shift toward increased usage in the near-term,” said Honeywell, confirming trends detected by FAA and Eurocontrol. In fact, cross-border operations are growing more quickly than is domestic activity. “International flights are recovering more rapidly than domestic missions in the U.S. and Europe,” it said. Honeywell concluded that most classes of aircraft in Europe are making up to 8 percent more such flights each year.
Bombardier reported that while the market remains subject to short-term cyclic trends the future remains positive. “We believe that the long-term market drivers of growth for the business jet industry remain solid,” it said. “These market drivers include wealth creation, emerging markets, increased globalization of trade, replacement demand and market accessibility.”