Private-Jet Market Roars to Life and Planemakers Can’t Keep Up
(Bloomberg) -- Kenn Ricci, the chairman of Flexjet and a 30-year veteran of the private-plane business, says he’s struggling like never before to find planes to expand his fleet.
Aircraft manufacturers will just laugh if a buyer requests a new plane to be delivered within the next six months and the used market has been picked clean, according to Ricci. Flexjet has locked in purchases of 65 aircraft over the next 12 months to expand the fleet by 40%. And that’s after the company suspended sales of blocks of flight hours because it simply couldn’t keep up with demand.
“We’re buying what we can find that’s dispatchable,” said Ricci, who through investment firm Directional Aviation controls several aviation companies including Flexjet, Sentient Jet and a new unit for helicopter shuttles. “It’s a once-in-a-lifetime grab.”
With Flexjet seeing annual growth of about 30%, Ricci is confident many of his new customers will stick around even after the pandemic subsides, now that they’ve been exposed to the conveniences that come with private plane travel. Unlike the commercial airlines, the number of private-aircraft flights snapped back quickly after a sharp downturn at the beginning of the pandemic in March 2020. U.S. private-aircraft flights are on pace to be the highest since the industry’s peak in 2007 -- and that’s even as corporate travel remains subdued. Orders for new aircraft easily outpaced production during the second quarter.
After a decade of the industry grappling with overproduction and price discounts, the long-term outlook hasn’t been this good in years. Ricci’s urgent need for new aircraft -- and pre-owned inventories at record lows -- is a boon for planemakers, including Bombardier Inc., Textron Inc., Embraer SA and General Dynamics Inc.’s Gulfstream unit. Those companies had slashed deliveries in 2020 when flying declined at the onset of the pandemic and are now in a position to boost production and increase prices. This year and next are shaping up to be banner growth years for the industry, albeit from a low base.
The influx of new customers to private aviation was a surprise for Ron Draper, chief executive officer of Textron Aviation, the maker of Cessna jets. The clients are discovering how much time and hassle they can save by avoiding commercial airports and the typical delays, flight cancellations and limited destinations. Private fliers can design their own schedules and fly directly to smaller cities, making them more productive and more likely to keep flying business jets, he said.
“What this pandemic has done is brought new people into private aviation, and I see that continuing,” Draper said in an email. “With the lack of commercial flight options and the productivity of business aviation, demand should remain strong for some time.”
About two-thirds of business-jet operators plan to fly more hours next year than in 2021, according to an annual survey by Honeywell International Inc. The strong demand is buoying one of the few industries that never fully recovered from the Great Recession.
That crash caused revenue for plane manufacturers to plummet 21% in 2009 to $17.4 billion and thousands of service jobs were lost as flight operations fell 20% that year. Some aircraft makers, including Hawker Beachcraft, went bust. The era also coincided with a backlash against flying privately after fierce criticism of automaker CEOs who arrived on their corporate jets to seek bailout money from Congress.
New aircraft shipments, excluding very small jets and converted airliners, sank to 560 last year from 715 in 2019. The 2020 total was less than half of what it was 15 years earlier. Deliveries are expected to climb to 611 this year and to 647 in 2022, according to JPMorgan Chase & Co.
Annual deliveries may reach 900 new jets within five years, said Brian Foley, a private aviation consultant who had headed marketing for Dassault Aviation SA, the Paris-based maker of Falcon jets.
“I see no abatement. A lot of new users came into private aviation, and they won’t all stay, but some will,” Foley said. “This time I have hope that the industry will perform better.”
Denver-based Mesinger Jet Sales in the past has sent emails to potential customers showcasing the planes available for sale, but since the pandemic hit it’s blasting out emails in search of inventory. The market hasn’t been this lopsided on the number of buyers versus sellers for at least the 47 years that Jay Mesinger, the company’s founder, has been a private-jet broker.
“If you go to the inventory side, you’ll see there are zero for sale,” Mesinger said.
The tight used-aircraft market is compelling customers to purchase new even if they have to wait a couple of years for delivery. Still, it will take manufacturers time to rev up their supply chains.
Private jet shipments over the next decade are expected to total 7,400 at a value of $238 billion, according to the survey by Honeywell, which makes components from jet engines to cockpit controls for business aircraft. That’s higher than last year’s prediction of 7,300 worth $235 billion over 10 years. Still, that’s below a peak 2014 estimate of 9,450 jets valued at $280 billion.
Plane manufacturers are rolling out new jets with lots of bells and whistles in an attempt to stimulate sales. Dassault unveiled the Falcon 10X, the French company’s largest jet, in May. Bombardier has revamped a popular mid-sized jet that it’s now calling the Challenger 3500 and Gulfstream this month introduced two new jets -- a smaller variant of its G500 and a remake of the G650.
Flexjet says nine out of 10 recent first-time buyers of jet cards, which provide a set number of flying hours, have renewed their purchases. After the company suspended sales of jet cards to conserve capacity for its main business of selling partial aircraft ownership, 45% of those jet-card holders upped their commitment by taking on a three-year fractional lease.
Wealthy private jet fliers are unlikely to give up their new-found creature comforts, Ricci said, so demand is unlikely to wane.
“It appears sticky.”
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