Weaker markets are in store for business jets in 2019, according to the latest report by Bloomberg intelligence.
The research conducted by George Ferguson, Team Aerospace, BI senior industry analyst and Douglas Rothacker, Team Aerospace, Autos BI industry analyst, suggests that there is slowing global economic growth, especially outside the US, and higher production rates.
In the report it's said: "As the largest market for business jets, the US should buffer the weakness as its GDP (gross domestic product) growth slows less than other global markets. Good corporate profits and recent US tax-law changes that allow 100% depreciation in the first year should support sales for the largest business jets bought by corporations.
"Small and midsize cabin jets will face more challenges on larger used inventory and higher production rates. Large-cabin jets are seeing rising production and larger used inventory, too, though it matters less as corporations, which represent core demand, usually buy new."
It's suggested that the output of light business jets may jump 10% in 2019 to about 265 aircraft. Combined with an increasing number of used aircraft for sale and higher fuel prices, we expect the pricing environment to be soft, pressuring margins at Embraer and Textron, the largest builders of light business jets. Honda is ramping up its Hondajet production to 50 in 2019, after missing this target in 2018, while Pilatus may reach 30 this year.
Embraer hasn't trimmed output of Phenom models, the bulk of its business-jet franchise, as it defends share, which pressures pricing.
The larger Phenom 300 fare better than the smaller 100, though deliveries have declined for five years. Textron will maintain its production of its smaller business jets, which are generally older, contributing to the overflow of new aircraft.
The analysts continue, saying: "The market in 2019 should have less demand than in 2018 on softer global growth, in our view, while supply reaches 2016 levels. Cessna's Longitude deliveries start this year, delayed from 2018, with about 20 supermidsize jets expected to compete with the popular Bombardier Challenger 350, Dassault Falcon 2000 and Embraer Legacy 650. Embraer expects its Praetor 500s and 600s to boost its deliveries in the second half of the year.
"The midsize market has considerable corporate exposure, helped by the new 100% depreciation rules. Supply in the used market rose to about 260 aircraft, which will constrain pricing, though with an average age of about nine years, these won't appeal to core corporate and fractional operators."
The Bloomberg Intelligence report states that large-cabin business-jet prices are likely flat at best, and may be lower, in 2019 as production rises on new models from Bombardier and Gulfstream in the second half of the year. Resilient demand on depreciation rules and good U.S. corporate profitability should support demand, though slowing growth (excluding US GDP) and more planes do hurt.
In the report it's said: "We expect pressure in the long-range segment, given Gulfstream will keep its G650 production flat, even as Bombardier delivers 18 of the competing Global 7500 in 2H. Gulfstream could deliver 15 of the new G600 in 2H. Production for the new models are booked for the next two years.
"Higher used supply is now slightly above new 2019 output, though this affects the segment less than in light and medium jets, as corporate and fractional customers prefer to buy new."