Business jet makers are pulling in one of their best order performances in years this year, with book-to-bill for the five major OEMs collectively topping 1:1 for the first time in a decade, said Rolland Vincent, managing director of JetNet iQ (Booth 4449) and president of Rolland Vincent Associates. But he cautioned that deliveries for 2018 will remain slightly down from last year.

Bombardier, Dassault, Embraer, Gulfstream, and Textron Aviation all logged a greater than 1:1 book-to-bill in the first half, he said, adding, “This was an impressive turnaround from results of the past many years.” These orders help position deliveries to climb by an anticipated 7 percent next year, according to Vincent.

However, the book-to-bill ratios also received a boost from another key denominator—weaker delivery performance this year. Twin-engine business jet deliveries were down 8 percent year-over-year in the first half, “largely driven by the fact that most OEMs are in a transition phase from current production to new—and in many cases, not yet certified—models,” he said.

JetNet estimates deliveries will be down 2 percent this year. But that will improve next year as manufacturers ramp up on programs such as the Gulfstream G500 and G600, Bombardier Global 7500, Cessna Citation Longitude, and Pilatus PC-24.

Production rate increases tilt toward newly- and recently-certified models. “We are not yet seeing evidence of a broad-based order recovery,” Vincent said. “Order backlogs have only now just stabilized for the big five OEMs as a total, after double-digit percentage declines in 2015, 2016, and 2017.”

Further, based on company filings, 84 percent of the business jet backlog is with just two companies—Bombardier and Gulfstream. 

“We estimate that backlogs at Embraer and Textron represent considerably less than one year’s production. This does not provide management with the confidence they would like to have to reset production rates,” he said. “We are still awaiting a clear signal that the very light and light jet market segments have recovered.” Order rates for the midsize and light jets still have not returned to levels that would be expected.

Vincent also expresses the view that too many aircraft and OEMs are in the market given the number of existing customers. “There is much work to be done to bring new customers, and new talent, into the industry,” he said.

Preowned a Seller's Market

The preowned market, meanwhile, has turned into a seller’s market, particularly for those offering aircraft aged less than 10 years. “With virtually no very young inventory for sale, sellers of these assets are clearly in the driver’s seat in the negotiations,” Vincent said.

As younger aircraft become difficult to find, prices are beginning to firm and residual values, which have been experiencing double-digit declines each year and now more in the single-digit range. In turn, business jet manufacturers are reporting firm pricing, even though some still have unsold inventory this year, Vincent added.

The U.S. continues to dominate—74 percent of all full sales transactions of preowned business jets in the first nine months were for aircraft based in the U.S. and about 60 percent of new aircraft deliveries have gone to the U.S., according to JetNet records. Further, Vincent added, JetNet iQ’s third-quarter survey revealed business aircraft owners and operators in North America “are the most optimistic of any region of the world.”

The strength of the U.S. economy—with forecasts for 2.9 percent GDP growth and corporate profits topping $2 trillion on an annual after-tax basis—and new tax laws are helping to bolster this optimism. “U.S. consumer confidence is near an all-time high, and the U.S. unemployment rate has slipped below 4 percent,” he added.

However, despite this promise, Vincent sees some clouds on the horizon. Many economists see a slowdown in key economies next year—the U.S., Europe, China, Canada, and Australia, which combine for 80 percent of the business jet fleet. Trade tensions, weak currencies relative to the U.S. dollar, Brexit uncertainties, and higher U.S. inflation and interests “are already with us or on the near-term horizon,” Vincent pointed out.

Specific to the business aviation community, he added, pilot and maintenance technician shortages are already affecting the industry. This is compelling significant increase in labor costs. Commercial airlines have been hiring much of the available labor, as Boeing and Airbus both are on the path to more than 60 narrowbody deliveries a month. “The pressure on the talent pipeline shows no signs of abating,” he said.