The business jet market still faces a delivery trough this year and next, but engine-builder Rolls-Royce foresees a slow upturn in 2005 that should continue at least until 2012.

Rolls-Royce predicts a decrease in deliveries in 2003 and 2004–relative to 2002–as a result of slow economic growth and continued market uncertainty. A company study found that deliveries this year will likely total 500 units, down 25 percent from last year and 35 percent from 2001. Next year is likely to be about the same.

“We think we are at the bottom of the market,” said Ian Aitken, president of Rolls-Royce corporate aircraft. “We see a gradual improvement in 2005.” The company forecasts market demand for 6,520 aircraft valued at $24 billion between 2003 and 2012. Over the next 20 years, it expects 13,950 aircraft deliveries valued at $54 billion.

“In 2003, the business jet industry demonstrated increased interest in entry-level airplanes, complementing the numerous new models developed over the last five years to serve the midsize and large market sectors,” Aitken said yesterday. “The product strategy of the dedicated business jet manufacturers reflects the unique aspect of this market–the desire of thousands of buyers to acquire a product tailored to their own individual requirements, and also buy into the latest innovation.”

Like its airline counterparts, the business jet market has reached critical mass and is now largely driven by macroeconomic trends. But unlike the airlines, the discretionary element of business jet buying creates volatility in orders and deliveries. The decrease in deliveries this year and next is a result of slow economic growth and continued market uncertainty.

The growth of fractionally owned aircraft–which led the way for meteoric sales growth in the last part of the 1990s and into 2000 and 2001–will continue over the long run but at a slower rate between 2003 and 2005.

According to the Rolls-Royce market forecast for business jets, released last month at the NBAA Convention in Orlando, Fla., the falloff in deliveries for fractional operators is in line with overall business jet declines. Rolls-Royce cautioned that some fractional company shakeout is possible over the medium term as manufacturers decide whether fractional operations are part of their core business and examine profitability.

Meanwhile, airframe retirements will play an increasingly larger role through the forecast period, as owners wrestle with the costs of equipping for reduced vertical separation minimums and aging aircraft.

The key market drivers for business jet orders and deliveries will be the economy, the airline environment, used aircraft retirements, fractional programs, regulation and introductions of new models.

Rolls-Royce said that five new models are being introduced this year and six next year. One wild card in the mix is the development of the new “personal jets,” which could disrupt the lower tier of the market.

“Our analysis of the market shows a wave of business jet retirements in the next 10 to 20 years that will need to be replaced, especially in the light- to medium-aircraft categories,” said Aitkin. “Our data show that 25 percent of the business jet fleet is 20 years of age or older, which shows that as many as 5,000 aircraft will need to be replaced over the forecast period.” Only 7 percent of all delivered business jets have been retired, and there is a large inventory of used aircraft on the market, although it is flattening.

Even though the Rolls-Royce forecast describes the economy as rebounding and gaining momentum, it questioned whether it is sustainable. Further, there is a large order backlog from the fractional providers “that has to be watched closely because it will affect production.”