OVERVIEW
Coming off a very strong 2021 and 2022, the business jet market began to normalize in Q1 2023.
Flight operations were down compared to 2022 (although still higher than pre-COVID levels), book-to-bill ratios were around 1-to-1, listings approached 2019 levels, transactions were down from highs in 2022, and values stabilized. The biggest question going forward for the industry is the threat of overall economic recession. Overall, the business jet market remains in a strong position, with demand and backlogs remaining at high levels and inventory remaining at low levels.
Q1 2023 HIGHLIGHTS
- The economy remained resilient in Q1 2023. However, persistent inflation forced central banks to continue to raise interest rates, which many economists expect will slow future growth.
- Flight operations declined 4.7 percent year-over-year in Q1 2023, but were 14.1 percent above Q1 2019 levels, demonstrating continued demand for business aviation.
- OEM orders and deliveries remained in line and backlogs ended the quarter 14.2 percent higher than Q1 2022 and flat sequentially.
- Transactions declined in Q1 2023 due to slower-than-expected new deliveries, attributable to supply chain issues and a slowdown in the pre-owned market as buyers and sellers adjust to new market conditions.
- Business jet inventory levels increased in Q1 2023 as more sellers publicly listed their aircraft, although levels remain well below pre-Covid levels.
- Increases in aircraft values began to stabilize in Q1 2023, normalizing from highs in Q3 2022.
The global economy was stronger than expected in Q1 2023. In Europe, gas storage over the summer kept prices low and drove consumer sentiment higher. As a result, economic activity increased in the quarter, even though most economists had expected contraction in Q1.ii In the U.S., the labor market remained resilient in the face of rising interest rates, enabling continued strong consumer spending.iii In China, economic reopening following COVID-19 lockdowns has led to renewed growth. iv
Still, economic headwinds remain. Persistent inflation has forced central banks to raise interest rates, creating a difficult environment for the banking sector. While many economists do not see signs of systemic risk, some banks have suffered from a higher interest rate environment. This has led to the failure of some sizable financial institutions. Many economists project a recession in major economies to occur this year. However, stronger-than-expected growth in Q1 continues to support the market’s expectation that any recession will likely be mild and short-lived. v
Flight operations declined in Q1 2023. Departures were down 4.7 percent year-over-year and 6.2 percent compared to Q4 2022. Declines were led by the US and Europe, both of which experienced strong growth in the immediate post-COVID recovery. Charter operations also experienced a decline from post-COVID highs.
Demand remains well above pre-COVID levels, with Q1 2023 departures 14.1 percent higher than Q1 2019. A certain level of decline from post-COVID highs was expected as some users returned to commercial airlines (or reduced frequency of use of business aviation) as health and safety concerns diminished.vii Still, business aviation remains a “sticky” service with a strong value proposition (including flexibility, productivity, and comfort). Flight operations will likely find a new normal level that is lower than highs in 2022, but higher than pre-COVID levels.
OEM backlogs increased 14.2 percent year-over-year in Q1 2023. Orders declined from high levels seen in 2022 but remained in line with deliveries as buyers replace and trade up from older aircraft or expand their fleet. The industrywide book-to-bill ratio also remained at a healthy 1.04-to-1. Rigorous OEM discipline along with supply chain constraints have prevented rapid production buildups. As a result, OEM backlogs are expected to remain at strong levels even if economic worries slow orders going forward.
Note that Q1 2023 figures reflect preliminary FAA data and may increase as more transactions are reported.
Transaction activity slowed in Q1 2023, with both the new and pre-owned markets declining compared to year-ago levels. In the new aircraft market, manufacturers continued their efforts to resolve supply chain constraints that have slowed production increases. Most manufacturers forecast increasing production and deliveries gradually throughout 2023. By the end of the year, total deliveries will likely outpace 2022 levels.
The pre-owned market has slowed as buyers and sellers adjust to a more typical supply and demand environment. Throughout 2021 and the first half of 2022, strong demand led to extremely low inventory levels. That level of demand was not sustainable and as transactions slowed inventory levels (see below) began to normalize. Activity levels are expected to pick up again later in the year as the market reaches a new equilibrium—although lower overall volume is expected in 2023 compared to 2022.
Aircraft listings increased in Q1 2023, continuing a trend that started in the second half of 2022. The recent increases can, at least in part, be attributed to baseline effects. In Q1 2021, listings were 24 percent lower than Q1 2019 and in Q1 2022, listings were 35 percent lower than Q1 2019. Despite a 37.9 percent year-over-year increase in Q1 2023, listings remain 10 percent below Q1 2019 levels. Many aircraft sales in 2021 and the first half of 2022 involved unlisted aircraft. Aircraft sellers are now beginning to publicly list their aircraft for sale again, driving increases. Listings may continue to rise throughout 2023 as new deliveries increase, since owners will likely market their current aircraft after taking delivery of new aircraft. This was evident when listings increased in Q4 2022 as deliveries increased.
As aircraft listings increased, inventory levels also began to gradually build. By Q1 2023, inventory stood at 5.4 percent of the total fleet; higher than the 3.1 percent at the end of Q1 2022 but still well below average levels over the last decade. The inventory of aircraft younger than 13 years old (typically seen as more desirable) stood at 3.6 percent of the global fleet, an increase from the 1.8 percent seen at the end of Q1 2022 and the 3.5 percent seen at the end of Q4 2022.
Inventory is expected to continue to gradually increase throughout 2023 as the market returns to more normal conditions. Increased OEM production rates along with increased listings are likely to drive up inventory. Moving forward, higher inventory will provide buyers with more options when purchasing aircraft.
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.
Average business jet bluebook values climbed 20.9 percent in Q1 2023 compared to Q1 2022. Values varied on a model-by-model basis, with some aircraft outperforming others in the market. For example, older aircraft appreciated in value faster than newer aircraft as many buyers chose to acquire older aircraft during the peak of the market, reducing supply. Bluebook values for older aircraft were 39.9 percent higher in Q1 2023 as they provided attractive value to buyers even at elevated prices, given the relatively low usage and long useful lives of business jets.
There were signs in Q1 that values were beginning to stabilize and even normalize from highs in Q3 2022, despite year-over-year increases. The increase in average bluebook values of 20.9 percent represented a slower increase than the 29.5 percent experienced in Q4 2022, and a significant slowdown compared to the 37.2 percent experienced in Q3 2022. Between Q4 2022 and Q1 2023, jet bluebook prices were essentially flat. Furthermore, Q1 2023 increases are compared with Q1 2022 values, which still hadn’t fully recovered to pre-COVID levels. As inventory increased, price negotiations between buyers and sellers were also more balanced than in 2021 and much of 2022. It’s worth noting that business jets are depreciating assets and a steady decline in the price of an aircraft over its lifespan is to be expected. The consensus among industry players is that a stable pricing environment will reemerge as demand and supply come into balance.
\ CONCLUSION
The business jet market began to reach a new normal in Q1 2023.
Flight operations declined from highs in 2022 but remained above 2019 levels. OEM orders were down, but backlogs remained strong and book-to-bill ratios were above 1-to-1. Listings increased as more sellers resumed publicly listing their pre-owned aircraft and values began to stabilize. Transactions were down in Q1 2023, largely due to continued OEM efforts to increase production as well as a pause in pre-owned transactions.
For the remainder of the year, the global macroeconomic environment remains a concern. However, the business jet market retains the resilient position it established in 2021 and 2022. While demand has declined from all-time highs in 2022, the market continues to offer clients a strong value proposition and will therefore continue to attract customers and users.
Global Jet Capital is a leader in the business jet financing market, providing leases and loans for both new and used aircraft. Our clients 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 has facilitated.
Through our expertise and unparalleled ability to quickly document and close transactions, we executed an operating lease within an existing client’s short timeline. Global Jet Capital’s operating lease allowed our client to utilize its capital in its business rather than investing funds in its aircraft.
Global Jet Capital provided our client with an operating lease that allowed them to continue investing in their business, while also shifting residual value risk to us. Our team worked seamlessly with the client, operator, and OEM teams to deliver a highly customized solution that effectively navigated several jurisdictional and tax complexities.
A longstanding client wished to retain their existing leased aircraft for longer than the current lease expiration, as it continues to meet all their aviation needs. Our flexible and simple approach allowed for a low-cost and speedy extension of the lease. We're pleased to continue working together and look forward to maintaining a successful partnership.
Notes
iOxford Economics, iiOxford Economics, iiiWells Fargo, ivWells Fargo, vOxford Economics, viWingX and Global Jet Capital Analysis, viiAIN, viiiCompany financial reports. Dassault does not report its quarterly results therefore data is based on reports from Cessna, Bombardier, Embraer, and Gulfstream, ixJetNet and Global Jet Capital Analysis. Units are in parentheses., xAmstat and Global Jet Capital Analysis , xiJetNet and Global Jet Capital Analysis, xiiAircraft Bluebook and Global Jet Capital Analysis
