OVERVIEW
The business jet market has recovered well from a brief disruption in the early phases of COVID-19 and has returned to the steady growth trajectory it was on before the pandemic.
Business jet flight operations and transactions – led by continued pre-owned demand – increased in Q1 2022, continuing a trend that started in the second half of 2020. OEMs reported strong order activity that has increased backlogs across the industry, while balanced supply and demand has led to a healthy pricing environment. Although there are challenges, economic growth is expected to continue, further supporting the business jet sector. Strong industry conditions will be sustained as businesses reopen offices and business travel continues to resume.
Q1 2022 HIGHLIGHTS
- Global economic growth is forecast to continue throughout 2022 and 2023, despite challenges such as the war in Ukraine and persistent inflation.
- Driven by entry of new customers into the market as well as a return by established users, business jet flight operations increased 35.8 percent compared to Q1 2021.
- Strong orders drove OEM book-to-bill ratios to 1.9-to-1 in Q1 2022, with backlogs reaching $38.8 billion.
- Pre-owned transactions were up 36 percent in Q1 2022 compared to a year ago, driving the overall market up 6.8 percent.
- Inventory levels continued to decline and remained at historic lows.
- With demand high and supply remaining at low levels, business jet bluebook values increased.
Following a strong 2021, the global economy continued to expand in Q1 2022, with GDP increasing 4 percent. Economists are tracking challenges to future growth, including a war in Ukraine and persistent inflation. The war in Ukraine is a human tragedy that will impact many lives and may have localized economic effects, such as reducing the availability of oil and gas in Europe. However, Oxford Economics projects the conflict to have minimal effect on global GDP growth.ii In terms of inflation, central banks around the world are tightening monetary policy, which will eventually reduce inflation.
With these events so far having a limited effect on the global economy, economists do not expect these events to stop growth. For example, Oxford Economics continues to project global GDP will sustain an average rate of growth of more than 3 percent throughout 2022 and into 2023, despite quarterly fluctuations.iii Furthermore, even a Q1 decline in U.S. GDP is not as bad as it first appears upon further analysis. A report issued by Wells Fargo indicates that net exports and inventory increases combined to reduce GDP growth by 4 percentage points. These two highly volatile metrics are expected to rebound, while underlying consumer and business demand remain strong.iv
Business jet flight operations have recovered from the low point reached during the early phases of the COVID-19 pandemic and have returned to the pre-pandemic trend of steady growth. Flight operations in Q1 2022 were 20 percent above levels in Q1 2019 and 35.8 percent above year-ago levels. vi
This increase in demand, driven by the entry of new customers into the market, has benefited business jet operators and manufacturers alike. Although many people began using business aviation to avoid potentially crowded airports, historical patterns suggest a substantial number will continue to utilize business aviation as they become accustomed to the safety, convenience, and productivity that come with flying aboard a business aircraft. Furthermore, surveys of business jet users, including both established and new users, indicate the vast majority will continue to utilize business aviation following the pandemic. vii
Due to the war in Ukraine, flights departing from Belarus, Russia, and Ukraine are down significantly. In Q1, flights were down 3.4 percent compared to Q1 2019. Flights from the region in March 2022 were down an even higher 55 percent compared to March 2019. However, flights departing from other countries have continued to grow as mentioned above.viii As such, the war has had little impact on global flight operations.
Overall, flight operations remain a bright spot for the business aviation market. The return of large corporate business travel should drive continued growth in business jet flight operations, benefiting the market as a whole.
Business jet manufacturers reported strong results in Q1 2022, continuing a trend that began at the end of 2020. New users to the business jet market, habitual pre-owned buyers ordering new aircraft due to low pre-owned inventory, typical replacement and trade up patterns, and fleet operators who are experiencing increased demand for their services are driving high orders. As a result, the industry-wide book-to-bill ratio was 1.9-to-1 and backlogs increased to $38.8 billion – a 52.8 percent increase from a year earlier. Manufacturers report that their sales pipelines remain strong. The expected introduction of new aircraft models over the next few years, along with continued strong sales pipelines, will continue to drive positive results for manufacturers.
Note that Q1 2022 figures are based on preliminary data and may increase as more transactions are reported.
In Q1 2022, new and pre-owned transaction dollar volume increased 6.8 percent compared to Q1 2022. Continuing a trend seen throughout 2021, the recovery in business jet transactions was led by the pre-owned market, which increased 36 percent in Q1 2022 from a year earlier.
The number of pre-owned transactions increased despite low inventory (which can reduce selection for buyers), demonstrating both strong demand and market efficiency in connecting motivated buyers with motivated sellers. Strong demand drove the number of 2021 pre-owned transactions to the highest level on record and the market has so far surpassed that level in early 2022. That said, it is possible there will be some slowdown in the pre-owned market as new deliveries pick up later in the year and the market continues to normalize.
New deliveries remained low, down 16.7 percent compared to Q1 2021. However, the new market was healthier than this metric would suggest. As stated above, manufacturer backlogs have increased substantially, driven by strong orders. OEMs remain committed to gradually increasing production rates, with steady production increases anticipated throughout 2022 and beyond.
The number of aircraft listed for sale started to decline in late 2020 as owners held onto their business jets during COVID-19. That trend continued throughout 2021 and into 2022, when listings were 14.7 percent lower than 2021. However, by the end of Q1 2022, the trend appeared to be moderating. The number of listings in March were equivalent to March 2019, the last full month of March before COVID-19. While still early, this may indicate that the market is beginning to normalize, enabling a healthier level of supply to be available to buyers. Listings will also receive a boost when new deliveries begin to pick up, driving owners to market current aircraft once they take delivery of new aircraft.
Strong pre-owned transactions and fewer aircraft listings led to declining business jet inventory. By the end of Q1 2022, inventory stood at 3.1 percent of the total fleet – lower than at any time during the last two years and representing an all-time low. Furthermore, inventory of aircraft younger than 13 years old (typically seen as more desirable) was only 1.8 percent of the global fleet.
Going forward, business jet inventories will not be substantially affected by the war in Ukraine. Most estimates place the total number of business jets owned by Russian entities at between only 250 to 450 aircraft, or about 1 to 2 percent of the global installed base. In addition, tough Western sanctions on Russian entities reduce the likelihood of these aircraft being listed on open markets in the near future, further preventing Russian aircraft from increasing aircraft inventory.
The above chart compares the year-over-year percentage change in the bluebook value of like-aged aircraft over time (e.g., the difference between the value of an eight-year-old aircraft from one year to the next). Global Jet Capital analyzes a basket of aircraft as a proxy for the overall market. Observed increases or decreases in value are not necessarily applicable to any specific aircraft make/model. For the value of a specific aircraft, please contact a licensed aircraft appraiser.
With demand high and supply remaining at low levels, business jet bluebook values increased in Q1 2022. Overall bluebook values climbed 20.1 percent on average compared to a year ago, with prices having appreciated even more in some cases. On a model-by-model basis, values varied, with some aircraft outperforming others in the market.
It should be noted that the percentage increases are off a lower base in 2021 and, largely speaking, values have recovered to pre-Covid levels. In some cases, values may have exceeded pre-COVID levels, supported by new demand/supply dynamics around specific models. On a long-term basis, business jet values are following typical patterns for the industry and continue to demonstrate depreciation levels consistent with historical norms. As such, this recovery in values is more of a reversion to a long-term norm vs. a reflection of a significant departure from it.
Though the world remains in a fluid situation, users of business jets are enjoying the comfort, convenience, and productivity that these assets provide. As a result, demand has been high while disciplined production rates by manufacturers kept supply low. The outcome is a sellers’ market. While prices can fluctuate model by model and deal by deal, reports have emerged of buyers offering high premiums to get quality aircraft. While the market shows signs of normalizing, there are no clear signs indicating which direction the market will go in the future.
Global Jet Capital is a leader in the business jet financing market, providing leases and loans for both new and used aircraft. Our customers are diverse but all value flexible financing solutions for their aircraft. Below is a brief overview of a few recent transactions that Global Jet Capital facilitated.
Global Jet Capital was awarded a deal to provide senior debt financing to a new North American client by providing a flexible structure and term to the loan that met the client’s needs.
For this Italian client, Global Jet Capital demonstrated market leading speed and efficiency by closing a finance lease in a matter of weeks. During that time, Global Jet Capital worked closely with the client to ensure taxes and registration were handled smoothly.
Global Jet Capital was able to meet an existing client’s needs with an attractive package that included a pre-delivery payment (PDP) loan along with a competitive operating lease that will enable the customer to move seamlessly into their new aircraft once it’s ready for delivery.
\ CONCLUSION
The business jet industry continued to demonstrate healthy market dynamics in Q1 2022.
The market has largely recovered from a brief disruption during the early phases of the COVID-19 pandemic and has returned to the long-term growth trajectory it was on pre-pandemic. New users have driven increases in business jet flight operations and pre-owned transactions continued at a high level. Manufacturers reported strong order intake, driving up backlogs, while disciplined production rates have driven down pre-owned aircraft inventory.
Economists are tracking challenges to future growth, such as the war in Ukraine and persistent inflation. However, most believe these will not significantly reduce global growth. That fact, combined with sustained demand for business jets, should continue to drive steady growth in the business jet market.
Notes
iOxford Economics, iiOxford Economics, iiiOxford Economics, ivWells Fargo, vWingX and Global Jet Capital Analysis, viWingX and Global Jet Capital Analysis, viiPrivate Jet Card Comparisons, viiiWingX and Global Jet Capital Analysis, ixCompany financial reports. Dassault does not report Q1 results and is not included in this analysis. xJetNet and Global Jet Capital Analysis. Units are in parentheses., xiAmstat and Global Jet Capital Analysis, xiiJetNet and Global Jet Capital Analysis, xiiiAircraft Bluebook and Global Jet Capital analysis
