OVERVIEW
In Q1 2024, the business jet market continued to normalize following the record high utilization and demand associated with the post COVID-19 pandemic period.
Flight operations and transaction volume declined year-over-year and inventory levels rose. The economy also continued to face a variety of challenges impacting growth. Despite these challenges, business aviation remained resilient. Flight operations were above pre-COVID-19 levels, OEMs reported strong backlog growth, and inventory remained low, especially for younger, more desirable aircraft. As things stand, the industry is well positioned to weather any future economic downturn.
Q1 2024 HIGHLIGHTS
- Many economists have raised their forecasts for 2024, but challenges to future growth persist.
- Flight operations declined 2 percent year-over-year in Q1 2024 but were 16 percent above Q1 2019 levels, reflecting an enduring expansion in the user base for business aviation.
- OEM book-to-bill ratios were around 1.3-to-1 in Q1 with backlogs growing, demonstrating continued demand for new aircraft.
- Transactions declined in Q1 2024 due to slower-than-expected new deliveries (attributable to ongoing supply chain and labor issues and delays in aircraft certification) and price-driven inertia between buyers and sellers in the pre-owned market.
- Aircraft inventory increased in Q1. But it is important to note that a split between older aircraft and younger aircraft has emerged. Older aircraft inventory continued to increase, while inventory of younger aircraft has been stable for three quarters.
- Most aircraft models continued to experience depreciation in line with historical norms during Q1 2024. However, younger aircraft have been more stable than older aircraft.
Many economists have raised their forecasts for growth in 2024. Still, economic growth is expected to slow slightly from a surprisingly strong 2023.ii Many of the headwinds that affected the economy in 2023 remain, including wars in Ukraine and Israel, high interest rates, and persistent inflation. Other factors that may negatively affect economic growth in 2024 include continued de-globalization and trade conflicts, major elections in countries making up 38.1 percent of global GDP, structural growth challenges in China, and disruptions in Europe.iii
There are also some notable tailwinds as well. East Asia, South Asia, and Central America are expected to experience strong growth in 2024, the Eurozone has begun to recover from slow growth in the second half of 2023, and China remains resilient despite challenges.iv And although the U.S. experienced slower GDP growth and surprisingly strong inflation in Q1, both appear to be correcting in early Q2. The global economy is expected to remain stable in 2024.v
In Q1 2024, flight operations declined 1.9 percent from a year earlier. Declines occurred around the world due to continued normalization of usage in the U.S. and Europe, as well as geopolitical threats in Europe, the Middle East, and Africa. Fractional operators remain the strongest segment in the market and continue to demonstrate strong growth and sustained demand.
Even as departures declined year-over-year, demand remained above pre-COVID-19 levels. Q1 2024 departures were 15.7 percent higher than in Q1 2019, continuing a trend from 2023 when departures were 15.1 percent higher than in 2019. In 2023 and early 2024, some passengers who utilized business jets in the post-COVID-19 recovery period returned to commercial airlines—a trend that was widely anticipated.vii However, due to the industry’s inherent value proposition – including personal safety, flexibility, productivity, and comfort – there has been a systemic expansion of the user base with a substantial proportion of these new users continuing to utilize business aviation in 2024. As such, flight operations were lower than the peak witnessed in 2022, but higher than pre-pandemic levels with steady and sustainable growth expected going forward.
OEM backlogs increased 4.8 percent year-over-year in Q1 2024 to $46.4 billion (excluding Dassault which does not provide quarterly updates). While industry-wide orders in Q1 were lower than the high levels in 2022, they were 32.4 percent higher than in Q1 2023. Strong orders were driven by high demand for business jets and continued low inventory of young pre-owned aircraft. At the same time, revenue (largely driven by deliveries) increased only 6 percent year-over-year. While Q1 revenue was strong, it was not as strong as many OEMs expected due to continued supply chain and labor constraints and delays in aircraft certification. As a result of high orders and lower-than-expected deliveries, book-to-bill ratios were 1.3-to-1 in Q1. These levels were higher than many industry observers expected, not to mention expectations from the OEMs themselves. Going forward, OEMs expect book-to-bill ratios to remain around 1-to-1 in 2024.
Note that Q1 2024 figures reflect preliminary data and may increase as more transactions are reported to the FAA and data providers.
In Q1 2024, new deliveries held steady compared to Q1 2023 while pre-owned transactions continued a trend of decline (although pre-owned dollar volume increased). New deliveries have been held back by supply chain and labor constraints since the end of the COVID-19 pandemic, a factor that continues to affect the market. Another factor holding up deliveries has been delays in new aircraft certification. Several new aircraft received long awaited certification in late 2023 and early 2024, which should drive up deliveries later in the year.
The pre-owned market continues to suffer from economic uncertainty (despite stronger than expected growth) as well as inertia between sellers looking to maintain post-pandemic value gains and buyers waiting for values to return closer to historical levels. ”Higher for longer” interest rates have also affected demand on the margin. Newly certified models making their way into service may create more liquidity in the pre-owned market, driving up transactions. As an early indication, many brokers reported increased user activity in Q1 that may lead to more sales later in the year.
Continuing a trend that started in the latter half of 2022, aircraft listings increased in Q1 2024. While increases in late 2022 and early 2023 benefitted from comparison with very low levels of listings in 2021 and early 2022, listings of older aircraft drove the increase. Listings of 13-year-old and older aircraft rose 11.4 percent in Q1 2024 compared to only 4.3 percent for 12-year-old and younger aircraft and 9.3 percent for the whole market. Aircraft older than 16 years increased at an even faster rate of 22.6 percent. This is a natural outcome of the high degree of activity in the older segment of the market during COVID-19 since the market is now stabilizing.
Inventory levels ended Q1 2024 at 7.1 percent of the total fleet. Inventory for the whole fleet was higher than the historical low point of 3.1 percent at the end of Q1 2022 but still below average levels of 10 to 11 percent over the last decade. As with aircraft listings, the increase in inventory was largely driven by older aircraft. In fact, inventory of 12-year-old and newer aircraft has largely stabilized since Q2 2023 between 4.7 percent and 4.8 percent of the fleet. On the other hand, 13-year-old and older aircraft stood at 8.4 percent.
Inventory is expected to continue to increase due to additional listings of older aircraft. However, continued demand for newer high-quality aircraft should keep overall inventory numbers from reaching the historical average of 10 to 11 percent in 2024.
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. Values vary on a model-by-model basis and 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.
As inventory increased in 2023 and into 2024, price negotiations between buyers and sellers became more balanced than in the previous two years. As a result, average business jet bluebook values declined 1.1 percent in Q1 2024 compared to Q1 2023 following two years of value increases.
The changes in value show variation across the installed base. As mentioned above, inventory of 12-year-old and younger aircraft remained level as a percentage of the overall fleet for the last three quarters. As a result, values for these younger aircraft also remained stable in Q1 2024, rising at 0.2 percent compared to Q1 2023. On the other hand, the supply of 13-year-old and older aircraft increased at a much faster rate, causing values to decline 4.1 percent year-over-year.
The relatively strong performance of younger aircraft compared to older aircraft is a return to pre-COVID-19 trends. In the earlier post-pandemic period, values of older aircraft outperformed younger aircraft as many buyers chose to acquire older aircraft during the peak of the market in the absence of alternatives. As the market normalized in late 2023 and into 2024, values of younger aircraft have performed better.
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 supply and demand are well-balanced now and should support stable aircraft values.
\ CONCLUSION
In Q1 2024, the business jet market continued to normalize from a period of rapid growth following the COVID-19 pandemic.
Flight operations and transactions slowed from all-time highs; however, flight operations remained well above pre-COVID-19 levels and transactions remained within the range of historical averages. Over the past few quarters, a shift has emerged with aircraft inventory and values. During the post-COVID expansion, older aircraft became very popular due to their wide availability. However, as the market has normalized, demand for these aircraft has declined. As a result, aircraft listings and inventory for aircraft older than 12 years have increased, while values for this segment have declined. At the same time, inventories and values for 12-year-old and younger aircraft have remained largely stable. In addition to steadiness in the young pre-owned market, OEMs continue to report strong order intake and rising backlogs. As a result, the business jet market is in a strong position to remain resilient to any potential economic disruptions.
DID YOU KNOW AN OPERATING LEASE PROVIDES AN OWNERSHIP EXPERIENCE WITHOUT BEING IN THE FULL BUSINESS OF OWNING AN AIRCRAFT?
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.
Sometimes a client’s initial buying concept changes once they’ve taken delivery of their new aircraft. That’s where a financing specialist like Global Jet Capital can help. After initially acquiring an aircraft utilizing a loan with their primary bank, this client subsequently decided to free up their bank credit line for other business priorities. Global Jet Capital used its deep experience with complex, multi-jurisdictional transactions to develop a bespoke funding structure that aligned with the overall capital structure of the company. We did it quickly and efficiently—following our ethos of always listening intently to understand the client’s objectives and then developing meticulously conceived solutions.
Demonstrating the flexibility of an operating lease, Global Jet Capital worked with a customer looking to upgrade to a larger aircraft while transitioning out of their current aircraft. As a global aircraft financing specialist, Global Jet Capital has a predictable flow of high quality off-lease aircraft. Global Jet Capital identified a highly desirable aircraft coming off lease that would meet our client’s expanded mission profile. We then structured the transaction to enable them to take possession of the new aircraft without losing access to their current jet during the transition.
Demonstrating our unique ability to execute complex deals, Global Jet Capital further cemented our strong, decade-long relationship with a client by financing their recent order for a replacement aircraft. We used our experience with this valued client to anticipate their needs and live up to their high expectations, moving from proposal to closing in just two weeks. The client took advantage of our pre-delivery financing product, enabling them to use their capital to grow their business. Furthermore, our flexible approach to the client’s existing aircraft lease ensures they will have an aircraft to meet their needs throughout this transition.
Notes
iOxford Economics, iiWells Fargo, iiiWells Fargo, ivWells Fargo, vWells Fargo, viWingX and Global Jet Capital Analysis, viiAIN, viiiCompany financial reports. Dassault does not report Q1 results, so graph only shows data for Bombardier, Cessna, 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
