OVERVIEW
The rapid expansion of the business jet market during the post-COVID recovery period slowed in 2023, although most indicators remained strong in comparison to pre-COVID levels.
Business jet flight operations were down year-over-year, inventory levels climbed from an early 2022 low point, supply chain and labor constraints held back new deliveries, and pre-owned transactions slowed from recent high levels. Furthermore, while the economy proved resilient in 2023, many consumers, businesses, and economists remained uncertain about the future. Still, the business jet market had a positive finish to 2023: flight operations were strong, backlogs and lead-times at major OEMs were up, and inventory remained low, leaving the industry well positioned to weather any future economic downturn.
Q4 2023 HIGHLIGHTS
- The global economy remained resilient in 2023 despite headwinds, but uncertainty remains moving into 2024.
- Flight operations declined 1 percent year-over-year in Q4 2023 but were 17 percent above Q4 2019 levels, demonstrating systemic expansion in the user base for business aviation.
- OEM book-to-bill ratios were around 1-to-1 in Q4 with backlogs remaining at high levels, placing OEMs in a position to weather an economic downturn.
- Transactions declined in 2023 due to slower-than-expected new deliveries (attributable to ongoing supply chain and labor issues) and price driven inertia between buyers and sellers in the pre-owned market.
- As more sellers publicly listed their aircraft, business jet inventory levels increased in 2023, although levels for the overall fleet remained below historical averages.
- Most aircraft models reverted to historical depreciation profiles in Q4 2023, albeit from a higher starting point following a firming in values over 2021-22.
The global economy was more resilient in 2023 than many economists expected. By the end of the year, it became clear that growth, driven by strong consumer spending, continued at a solid pace in most of the world even as inflation gradually declined.ii Despite stronger-than-expected growth in 2023, headwinds continued to build heading in 2024. Wars in Ukraine and Israel, relatively high interest rates (despite plans by many central banks to reduce them in 2024), 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 may all contribute to slower growth in 2024.iii
Still, the likelihood of a “soft landing” has increased, even as slow growth or a mild recession remains a possibility. Central banks are expected to shift their focus from rate increases to rate decreasesiv and the job market remains tight,v factors that will support economic stability in 2024.
In Q4 2023, flight operations declined 0.9 percent from a year earlier. Both the U.S. and Europe experienced declines following strong growth in the immediate post-COVID recovery. Charter operations also experienced a decline from post-COVID highs. At the same time, flight operations in regions outside North America and Europe grew, demonstrating strong global demand for business aviation.
Even as departures declined year-over-year, demand remained above pre-COVID levels. Q4 2023 departures were 17 percent higher than in Q4 2019. In the full year 2023, departures were 15.1 percent higher than in 2019. Some passengers who utilized business jets in the post-COVID recovery period began to return to commercial airlines as health and safety concerns diminished. It was widely expected that many of the new users of business aviation would return to commercial airlines as the world normalized.vii However, due to the industry’s inherent value proposition – including personal safety, flexibility, productivity, and comfort – a substantial proportion of new users continued to utilize business aviation in 2023, demonstrating a systemic expansion of the user base. 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 1.7 percent year-over-year in Q4 2023 to $41 billion (excluding Dassault and Embraer). Orders were lower than the high levels seen in late 2021 and early 2022 but were in line with Q4 2022 and pre-COVID levels. Supply chain and labor constraints continued to prevent OEMs from increasing production levels in Q4, even as revenue increased due to strong pricing. Stable orders and the inability to increase production resulted in a book-to-bill ratio of 1-to-1 in Q4 and OEMs expect book-to-bill ratios to remain around 1-to-1 in 2024.
![Chart-4[12]](https://www.globaljetcapital.com/hubfs/Chart-4-Feb-14-2024-02-59-52-9098-PM.svg)
Note that Q4 2023 figures reflect preliminary data and may increase as more transactions are reported to the FAA and data providers.
Both the new and pre-owned markets declined in 2023 compared to previous year levels. In the new aircraft market, manufacturers worked to resolve supply chain and labor constraints to boost production. Despite overcoming many issues, challenges persist in acquiring key components and hiring enough labor to meet demand. As a result, unit volume ticked up slightly, but not at the rate manufacturers planned, and dollar volume declined. While these constraints have lowered overall transaction volume, fewer new deliveries may help limit inventory growth and support healthier values for the market.
Much of the decline in the pre-owned segment was expected as economic uncertainty increased and growth slowed while the business jet market normalized following a strong 2021 and 2022. In addition, inertia between sellers looking to maintain post-pandemic value gains and buyers waiting for values to return to historical depreciation levels slowed transaction volume in the pre-owned market. Relatively steep inclines in interest rates also suppressed demand. Heading into 2024, new deliveries may increase with the certification of new aircraft models while pre-owned transactions should remain largely stable as buyers and sellers continue to acclimate to a new market dynamic.
Aircraft listings increased in 2023, continuing a trend that started in the latter half of 2022. The increases were, at least in part, attributable to unfavorable comparisons with 2021 and 2022 when listings dipped to historical lows. Many aircraft sales in 2021 and the first half of 2022 involved unlisted aircraft. As a result, listings in 2021 were 24.2 percent below 2019 levels and listings in 2022 were 6.3 percent below 2019 levels. In 2023, aircraft sellers resumed publicly listing their aircraft for sale, contributing to increases. Listings may continue to rise as new deliveries pick up in 2024 but should eventually stabilize.
By the end of Q4 2023, inventory stood at 6.9 percent of the total fleet. Inventory for the whole fleet is higher than the historical low point of 3.1 percent at the end of Q1 2022 but still below average levels of around 10 to 11 percent over the last decade. The increase in inventory was largely driven by older aircraft. Although all age groups experienced increases, inventory of aircraft older than 12 years stood at 8.2 percent at year-end. The inventory of aircraft younger than 13 years old (typically seen as more desirable) stood at 4.8 percent of the global fleet, an increase from the 4.7 percent seen at the end of Q3 2023.
Inventory is expected to continue to gradually increase through 2024 as the market returns to more normal conditions but should not reach the historical average of 10 to 11 percent due to limited new deliveries from OEMs 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. 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 declined 0.2 percent in Q4 2023 compared to Q4 2022, following two years of value increases. As inventory increased, price negotiations between buyers and sellers became more balanced in 2023 than in 2021 and 2022.
Values varied on a model-by-model basis and, on average, younger aircraft performed better than older aircraft. In Q4 2023 values on 13-year-old and older aircraft were down 2.9 percent compared to a 0.8 percent increase for 12-year-old and younger aircraft. This is a reversal from the trend during the earlier post-pandemic period, when older aircraft outperformed younger aircraft as many buyers chose to acquire older aircraft during the peak of the market, reducing supply. At the peak of the market in Q3 2022, bluebook values for older aircraft were up 67.6 percent year-over-year, compared to only 28.7 percent for younger aircraft. Before the COVID-19 pandemic, younger aircraft were considered more desirable to most buyers, leading to better performance in the marketplace. As the market normalized in 2023, these historical trends re-emerged, leading to more stable values for younger aircraft.
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 supply and demand come into balance.
\ CONCLUSION
The business jet market slowed in 2023 following rapid expansion in 2021 and 2022. In 2023, flight operations and transactions declined while inventory increased, and values softened.
With many economists expecting slow growth in 2024, the business jet market faces some headwinds leading into the new year. Still, flight operations remain above pre-COVID levels as many new users who entered the market in the COVID-19 era continued to utilize business aircraft. In addition, OEM backlogs and lead times remained high and pre-owned inventory was below historical averages. These factors place the business jet market in a strong position to remain resilient during any potential economic disruptions that occur in 2024.
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.
This multi-layered transaction allowed Global Jet Capital to demonstrate how our unique capabilities and insights can result in bespoke client solutions. An existing client, having reached the conclusion of a 10-year operating lease on a 2009 Gulfstream 550, was looking for a replacement aircraft that would maintain their existing mission profile while also maintaining debt neutrality—not an easy task in an environment noted for higher interest rates and general asset price escalation. Recognizing the enduring value of this well-maintained G550, we suggested a lease extension which would protect the client’s mission requirements while eliminating any CAPEX spending and allowing them to continue investing capital into their business. Our solution included an early return option for a seamless upgrade should their business travel needs evolve over the extension term, demonstrating another benefit of an operating lease and the expertise inherent in working with Global Jet Capital.
This unique transaction enabled Global Jet Capital to demonstrate the value of doing business with a flexible non-bank entity. Recognizing the quality of a well-cared for Falcon 7X, we quickly and efficiently stepped in to provide an operating lease when the client’s previous lessor was unwilling to extend their lease. Our tailored operating lease enabled the client to stay with their preferred aircraft and features flexible terms, enabling the client to meet financial planning requirements while continuing to retain their capital in growth assets.
Needing a quick and efficient way to finance both a new-delivery aircraft and the associated PDP payments while avoiding drawing down on existing banking lines, this client trusted Global Jet Capital to finance their new Challenger 3500. Once we had a full appreciation of this successful entrepreneur’s buying concept, we established a tailored program of PDP financing that would roll seamlessly into a 10-year floating finance lease with fixed payments. With speed being critical, Global Jet Capital was able to collaborate with a network of stakeholders, including the manufacturer and the client’s aircraft management company, to ensure this European-based transaction was completed on time and to the client’s exacting requirements. Unparalleled experience and a passion for business aviation allowed us to deliver a solution that met the needs of all stakeholders in this transaction.
Notes
iOxford Economics, iiWells Fargo, iiiWells Fargo, ivWells Fargo, vWells Fargo, viWingX and Global Jet Capital Analysis, viiAIN, viiiCompany financial reports. Dassault and Embraer have not reported Q4 2023 backlog as of publication date, so graph only shows data for Bombardier, Cessna, 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
