Emerging markets kept the business jet industry afloat as mature markets reeled during the Great Recession, but today the situation is completely opposite as the major economies hum, according to market analyst Brian Foley. “A decade later, emerging markets are themselves struggling. Without them, the rout in worldwide business jet unit deliveries, which roughly halved between 2008 and 2012, would have been far worse,” he said.
“Today, however, these regions have their own set of challenges that will dampen business jet sales activity outside of the more mature economies,” Foley continued. The MSCI Emerging Markets Index, which measures the combined stock performance of 24 emerging market countries, is currently down 20 percent since its January peak, he noted. Stock market declines are typically accompanied by less buyer willingness to purchase business jets, Foley said.
Currency devaluation is another headwind for aircraft sales in emerging markets, he added. In fact, the Indonesian rupiah slid to its lowest value since 1998, the Indian rupee is at a record low, and Turkey’s currency fell 27 percent against the U.S. dollar. This presents a problem because business jets are priced in dollars, meaning “it now takes a lot more local currency to buy one, which has a negative impact on sales,” according to Foley.
Other vulnerabilities of emerging markets include heightened trade tensions, areas of political and economic turmoil, tepid commodities prices, debt coupled with the end of cheap money, and a recession in South Africa, he noted.
According to GAMA data, 35.1 percent of total business jet deliveries in 2010 went to emerging markets in Asia-Pacific, Latin America, Middle East, and Africa. Last year, that percentage had sunk to 19.2 percent. “That’s nearly a halving of emerging market business jet uptake,” Foley said. “I would expect that percentage to go even lower in 2018 and not see a meaningful uptick for a few years.”
Fortunately, sales in mature markets are offsetting the delivery drop-off in emerging markets, with some business jet manufacturers now reporting a positive book-to-bill ratio. “Today’s business jet market is now more globally diversified than ever,” he concluded. “As worldwide economies are cyclical and not always synchronized, this allows pockets of strength to support the industry while giving areas of weakness time to regroup. While difficult to imagine now, it’s just a matter of time before emerging markets will again be a major contributor to private aircraft sales.”
