$233bn in aircraft sales forecast

24th Sep 2007

In its 16th annual
Business Aviation Outlook Honeywell has forecast
delivery of approximately 14,000 new business aircraft from 2007 through
2017, generating industry sales of $233 billion.2007 marks the fourth year of industry expansion since the last trough
in 2003. Year-to-date, the number of aircraft delivered is up almost 11
percent compared with the same point in 2006 and industry-wide sales are up
just over 12 percent, according to Honeywell Aerospace. For 2007, Honeywell
Aerospace forecasts deliveries of over 1,000 new business jets for the
first time in history, up from 861 in 2006. Deliveries in 2008 are expected
to exceed 1,300.
  Year to date new jet orders have risen over 100% over first half 2006
levels. Available measures of total industry book to bill ratio have
exceeded 2.0 thus far in 2007. “Industry growth has moved into unparalleled
territory,” said Rob Wilson, President, Business & General Aviation,
Honeywell Aerospace. “2007 is a record year for the industry,” Wilson said,
and “order intake across most business jet categories remains very strong,
with little discernable effect from recent stock market fluctuations and
with backlogs exceeding two and one half years worth of deliveries, 2008
will likely be another banner year for the industry.”
  Global Purchase Expectations Increase
  The 2007 survey indicates record aircraft deliveries will continue into
2008. North American purchase expectations declined slightly, but
expectations in all other world regions expanded significantly. Overall,
respondents to this year’s survey said they expect to replace or expand the
equivalent of about 33 percent of their fleets over the next five years, up
from about 26 percent in the 2006 survey.
  The increase in overall purchase expectations is supported by the
increasingly global nature of the industry. International buyers now
account for about 50 percent of the new aircraft deliveries projected over
the next five years. Purchase expectations trended up in Asia, Africa and
the Middle East and rose strongly in Europe. Aggregating all regions,
five-year purchase expectations were well above the 24 percent average
recorded over the last six years. Between 2008 and 2012, the 2007 survey
forecasts demand for 4,600 aircraft globally, not including demand from
Fractional ownership or branded charter start up businesses.
  In North America, 2007 survey respondents said they expect to replace
or expand about 20 percent of their fleets during the next five years. “The
level of purchase expectations in North America remains significant,”
Wilson said. “Despite slower economic growth and recent credit and stock
market fluctuations, survey purchase plans lost less than one percent of
their 2006 levels. Just like last year, we continue to hear concerns about
high fuel costs, taxes, user fees and ease-of-use issues such as Temporary
Flight Restrictions in the United States.”
  Despite those responses, overall buying plans in the region held
relatively steady, with replacement plans actually increasing and
offsetting some of the slowdown in plans for fleet expansion. Honeywell’s
baseline forecast assumes lower than three percent U.S. GDP growth in the
short term. Should the U.S. economy outperform those estimates purchase
expectations could strengthen further.
  In other regions, five-year purchase expectations gained strength. In
Europe, purchase expectations of 47 percent were up significantly compared
with 2006, and are well above the 25 percent-or-better levels that have
prevailed since 2001. “Seven consecutive years of strong purchase
intentions in Europe is a great track record, and confirms the value
operators receive from using business jets,” Wilson said.
  The strength of the Euro against the dollar certainly contributes as an
incentive to buy new aircraft, as does the increased wealth and business
expansion anticipated in Eastern Europe and Russia. Overall, European
operators reported a particularly strong increase in replacing their
fleets, while holding fleet expansion plans more in line with 2006 levels.
A great deal of interest in moving into larger and rangier models was
reported by European respondents and charter/managed fleet operators
contributed to the improved purchase plans as well.
  The Asia/Africa/Middle East region once again ranks as the area with
the highest purchase expectations. Purchase expectations grew for the fifth
consecutive year to record levels exceeding 50 percent, again attaining the
highest readings in the history of the survey. Middle East and selected
African economies continue to benefit from higher oil prices and expect to
be active buyers. Confidence in Asian economic growth remains high boosting
interest in longer-range aircraft with state-of-the-art avionics.
  In Latin America, operators reported a strong level of purchase
expectations. Just over 38 percent of current fleets are expected to be
replaced or added to over the next five years. Purchase plans recovered
from the lower 2006 level by eight points, and interest is high in
historical terms, exceeding all prior survey levels except 2006. Latin
American purchase plans were influenced in the 2007 survey by several
sometimes contradictory factors. The region still reflects the positive
impact of elevated energy prices on regional economies, including those of
Mexico, Venezuela and Brazil. On the other hand, concern over potential
political instability was mentioned again in 2007 as a reason to postpone
new aircraft purchases.
  Chief reasons cited for replacement of current aircraft remain
consistent with prior surveys, with age leading overall and range
improvement also listed as an important criteria in every region. European
operators listed more spacious cabins as an important reason for
replacement aircraft followed by longer range. Improved speed, comfort and
updated technology in avionics and engines also appear as leading reasons
for aircraft replacement across all regions.
  Factoring in projected record aircraft deliveries in 2007 and the
increased global purchase expectations noted above, this year’s Business
Aviation Outlook forecasts another record-setting year in 2007. Beyond
2008, the outlook remains strong, with annual deliveries expected to run in
the 1,200 - 1,400 range for the balance of the decade, with only modest
cyclical variability.
  Five-year purchase expectations for used jets also stayed in line with
2006 results and continued a modest rate of improvement. Purchases of used
aircraft have been at relatively high levels for several years, resulting
in firming prices and a declining inventory of late-model jets. Over the
last few quarters average asking prices have trended upward and supply as
measured by share of active fleet for sale has trended downward, moving in
line with survey results over the past two years. Recent sales activity has
been particularly strong with second quarter 2007 unit sales posting the
highest second quarter level in 5 years. Current average pricing is running
nearly 14 percent ahead of levels from the same period a year ago though
there is obviously some variability on a by model basis. Large backlogs in
the new jet sector also contribute to stronger used jet business
environment since few slots are available on many models until 2010 or
  “World economic conditions play a key part in the industry expansion
we’ve experienced but steady gains in aircraft value offered to operators
also stimulates growth. Value to the operator takes the form of improved
aircraft reliability, mission flexibility, cabin productivity, comfort and
convenience,” Wilson said. “Historically, Honeywell Aerospace’s Business
Aviation Outlook shows increases in purchase plans and subsequent aircraft
deliveries tend to be highly associated with the introduction of new
aircraft. Manufacturers help stimulate demand with new models incorporating
advances in aviation technology within the larger global economic
framework,” he said. “Improved engines, safety systems, cockpit avionics
and cabin information and comfort improvements along with advances in
aerodynamic design continue to deliver compelling gains in value to fleet
operators, pilots and passengers.”
  Global Economy and New Product Pipeline Favor Long-Term Growth
  Most of the economic factors that support demand for business jets
favor continued industry growth. Estimates of growth in U.S. gross domestic
product continue to project slower growth over the next 12 to 18 months,
but stronger growth subsequently resumes. Regional economic growth rates
are all generally favorable for the industry, especially within Central
Europe, Asia, the Middle East and Sub-Saharan Africa. In addition,
Honeywell Aerospace’s “Customer Benefit Index,” a key component of the
forecast, which tracks the perceived value offered by business jets to
fleet owners and operators, also continues to trend upward. “Tying all
these factors together with the improved purchase plans from the 2007
operator survey, continues to paint a broadly positive picture for the
industry,” Wilson added.
  Owners of fleets serving fractional shareholders and Jet Card
purchasers continue to provide a substantial portion of total industry
demand. Fractional fleet operators still account for about 15-18 percent of
the backlog for business jets but have seen inroads made in their overall
share of backlog and new deliveries by the large number of orders placed by
traditional operators and Charter providers over the last one-to-two years.
New deliveries to fractional fleet operators should range between 110 and
150 aircraft annually through the forecast period. Sales of new ownership
shares have flattened significantly since 2004 but are back in positive
territory thus far in 2007. Sales of jet cards, which offer business jet
access in smaller blocks of flight hours without a long-term financial
commitment or equity stake remain strong as well. New branded charter
operations continue to place sizable aircraft orders, especially of new
Very Light Jet (VLJ) class aircraft and adding to total aircraft demand.
  “Advances in technology are sought by every manufacturer. Innovation to
improve cabin comfort, extend range, broaden mission capability and produce
business jets that are highly productive, cost-efficient assets is ongoing
across the industry, and is coming from existing and emerging business
aircraft OEM’s,” Wilson said. “Gains in new aircraft capability and
flexibility, incremental demand from fractional ownership and jet cards,
airline use of business jets, branded charter operations and special
mission applications, are all fueling unprecedented business jet demand.”
  “U.S. commercial airlines in particular continue to run extraordinary
load factors and have suffered from schedule fidelity issues. Such
conditions may result in fractional and charter fleet operators carrying
more and more traffic,” Wilson said. “If trends continue, shared ownership
and charter fleets likely will continue to have high utilization rates and
any resulting in capacity bottlenecks could fuel additional aircraft
  Replacement demand for new aircraft is also a significant source of new
jet purchases in the Fractional segment. High utilization and the desire to
maintain consistent passenger experience and hold down operating costs
contributes to fractional replacement rates at shorter intervals than
typical for many traditional operator groups.
  Near-Term Demand Well-Distributed Across Aircraft Classes
  Based on new jet models mentioned by survey respondents, the 2007
Business Aviation Outlook projects fairly balanced demand growth across
most business jet segments over the next five years. Medium and
medium-large aircraft together account for about 25 percent of the
projected demand through 2012. Light and light-medium aircraft make up
about 19 percent of projected five-year demand. The largest grouping is in
long-range and ultra long-range aircraft at 26 percent. The strength in the
long and ultra long-range segment is consistent with the last two year’s
findings and reflects increased need for aircraft capable of trans-Pacific
flights, as well as the growth in demand in other regions requiring more
long range operations as trade and economic growth flourish.
  North America is expected to account for about 50 percent of business
jet deliveries over the next five years, a lower-than-proportional share of
global demand reflecting somewhat slower growth in the region and the very
high levels of purchase expectations in all other areas. Honeywell has
reported on this trend for several years and the survey is tracking with
observed shifts in orders and deliveries very closely.
  Asia is up strongly and is expected to account for up to 15 percent of
total business jet demand in the next five years. Europe rebounded
strongly, and if realized, European demand will contribute about 22 percent
of the world total. Latin America follows at 10 percent and The Middle
East/Africa region remains steady over last year at four percent. While
these percentages have shifted somewhat, the overall demand pool has grown
so individual regions are still absorbing significant numbers of new
aircraft into their fleets, even if percentage share slips a few points.
  Demand Trends by Aircraft Segment
  The 2007 Business Aviation Outlook provides the following estimates of
demand trends by aircraft class
  Long-Range and Ultra Long-Range: Deliveries of aircraft in these
segments are projected to top 2,000 in the forecast period Deliveries might
range as high as 225 aircraft and should average 170 to 190 per year over
much of the forecast period. Aircraft in this category include the
Bombardier Global Express and Global 5000, Challenger 850, Gulfstream G450,
G500 and G550, Falcon 900EX, Falcon 900DX and the new Falcon F7X.
  Large: Honeywell Aerospace again forecasts delivery of more than 1,300
large business jets over the forecast period. Near-term, deliveries are
expected to run around 120 aircraft in 2007 and 2008 then decline slightly
to a stable level of around 100-110 aircraft per year until trending up
again in 2013 and beyond. Aircraft in this category include the Challenger
604/605, Gulfstream 350, Falcon 2000, Falcon 2000DX and EX, the Future
Super-Midsize Falcon and Embraer Legacy 600.
  Medium and Medium-Large: Combined, new aircraft deliveries in these
segments are forecast to approach 280 annually in 2007 and average around
280-300 units annually for several years. Deliveries for the forecast
period should total more than 2,600 aircraft. Jets in these segments
continue to enjoy strong interest from fractional fleet operators. Growth
in these segments is also being fueled by the introduction of new models,
both near-term and in the later years of the forecast period. Among the
newer aircraft in these segments are the Citation Sovereign, Gulfstream
G150, Hawker 900XP, Hawker 850XP and Hawker 4000. Established platforms
include the Bombardier Challenger 300, Citation X, Gulfstream G200, Falcon
50EX, and Learjet 60.
  Light and Light-Medium: Honeywell Aerospace anticipates deliveries of
more than 3,850 jets in these segments between 2007 and 2017, an increase
of more than 18 percent compared with delivery expectations for these
segments in last year’s Business Aviation Outlook. As previously noted, the
light and light-medium segments continue to be one of the larger areas of
operator new jet purchase plans in the 2007 survey. Aircraft in these
segments include the Hawker 400XP, Hawker 750, Citation Bravo, Citation
Encore+, CJ3 (525B), Citation XLS, Grob SPn, Embraer Phenom 300, Lear 40
and Lear 45/45XR.
  Very Light: Deliveries of business jets in this segment are poised to
accelerate rapidly off a base of around 175 units in 2007. Deliveries are
forecast to increase dramatically in 2008 and beyond, averaging just under
320 aircraft per year for the latter portion of the forecast period. The
rapid increase in projected demand reflects the introduction of new very
light jets, such as the Embraer Phenom 100 and Cessna Citation Mustang,
both of which continue to enjoy strong order backlogs. Also entering the
segment is the recently announced HondaJet. Total deliveries of very light
jets for the 2007 to 2017 period are expected to exceed 3,300. Other
production and announced aircraft in this segment include the Cessna CJ1+
and CJ2+, Beechcraft Premier I and Sino-Swearingen SJ30-2.
  Personal Jets: The 2007 Business Aviation Outlook provides an updated
look at the emerging General Aviation Jet segment. This portion of industry
demand has centered on the emergence of very light aircraft such as the
Eclipse 500, Adam 700, Diamond Jet, Cirrus, Piper Jet and others not
normally covered by the Business Aviation Outlook.
  Honeywell Aerospace projections are based on general aviation or
owner-pilot survey data collected in 2005 and corporate flight department
interest reflected in the 2007 purchase expectations survey. Total demand
potential over a 10 year period is estimated to be in the range of
6,000-7,000 very light personal jets. When combined with new-generation
low-cost aircraft carried in the Very Light segment of the Business
Aviation Outlook, the total deliveries range from 8,000-9,000 aircraft from
2007-2017 and fall directly in the range predicted by earlier Honeywell
survey research. The projections now factor in demand from fractional
ownership companies, branded charter and some emerging “air taxi”
operations that have ordered ultra-light jets as the core of their fleets.
Inclusion of these additional sources of demand has increased the outlook
over the pure owner pilot based levels reported a year ago. Additionally,
new OEM’s with credible development programs have emerged and the forecast
window has moved a year further into a period of rapidly expanding delivery
ramp up plans for established programs.
  Business Liners: The current Business Aviation Outlook does not
explicitly include aircraft in the Business Liner class (typically well
over 100,000 pounds takeoff weight and based on transport airframes).
However, purchase expectations are recorded for these models in the survey.
Deliveries of aircraft in this class are projected to total around 250
through 2017 and should average more than 20 aircraft per year in the
forecast period. Aircraft represented in this segment include the Boeing
BBJ series, the Airbus Elite A318 and Airbus Corporate Jetliner as well as
the Lineage 1000 from Embraer, plus corporate versions of twin aisle
aircraft. This segment comprises an additional $15 billion of business
aircraft sales.
  The Honeywell Aerospace Business Aviation Outlook and the purchase
expectations it summarizes are a snapshot of expected business aircraft
sales at a point in time and reflect fleet operators’ views of current
events, such as political and economic conditions, fuel costs and changes
in regulations, taxes and user fees that would affect expected sales in the
near term. Honeywell Aerospace’s Business Aviation Outlook does not reflect
the impact of unforeseen events such as a war, major economic shock, fuel
crisis or new regulatory restrictions. The Outlook is based in part on
Global Insight’s baseline economic forecast assumptions that call for
economic growth at quarterly rates in the two-to-three percent range for
the next six quarters, and exceeding three percent thereafter.
  Honeywell Aerospace has produced its Business Aviation Outlook for 21
years and has shared the findings publicly for the last 16 years. This
year’s Business Aviation Outlook is derived from interviews with over 1,500
corporate flight departments around the world that operate more than 15
percent of the world’s turbine-powered fixed-wing aircraft. The Outlook is
also shaped by information from aircraft manufacturers, other industry
sources and Honeywell Aerospace’s analysis of the impact of various
economic indicators on industry demand trends. Honeywell’s Business
Aviation Outlook tracks purchase expectations for business jets with gross
take-off weight (GTOW) of less than 100,000 pounds.


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