In early January 2020, while the COVID-19 virus outbreak was viewed as a distant threat by most of the western world, Jean Sémiramoth, founding partner of business aircraft consulting firm The Sharp Wings was asked his views on how the market for business aircraft could develop: “I expect values of pre-owned aircraft to be under more pressure overall and therefore, for certain models, some further correction in values and depreciation rates will be evident,” he replied at the time.
Although business aviation did not collapse to the same extent as commercial aviation, the sector has not escaped the global impact of the COVID-19 pandemic and its widespread effects on the economy. The Sharp Wings says this impact was far more devastating than that of Brexit, continuing trade tensions and the rise of environmental concerns.
Sémiramoth evaluates the current status to see how financiers, owners and operators can navigate the months ahead. “There is a near unanimous consensus across the industry that acknowledges pre-owned aircraft values are down. From turboprops to large-cabin, long-range business jets we're seeing a reduction of roughly 10 to 25 per cent across the past 12 months,” he notes.
According to the company, in those national economies where business aviation is prominent, higher fluctuations have been observed in pre-owned aircraft values, notably large-cabin, long-range business jets. This segment has been the most affected by international travel restrictions and enforced border shutdowns to cope with the persistence and resurgence of the pandemic. Until vaccines and/or medical treatments are widely available and international travel restrictions can be lifted this may be an indication of what to expect for 2021.
In the light of curtailed production, Sémiramoth continues: “It remains to be seen whether these prudent and smart decisions will be enough to mitigate the risk of over-supply and unsold inventories. The downturn business aviation is now going through means a lean time for orders, and this is continuing to put pressure on aircraft manufacturer backlogs. Will this push aircraft manufacturers to be more aggressive on pricing across their entire product portfolios, putting downward pressure on pre-owned aircraft market values? This is clearly a likely scenario.”
The Sharp Wings observes that the COVID-19 crisis does not overshadow the fact that 2020 has been a year of exciting developments in business aviation. Bombardier has become the only major stand-alone business aircraft manufacturer, at a time when business aviation just entered a new downturn, whilst Boeing pulled out of a planned Embraer tie-up, raising questions on what could be next for Embraer Executive Jets.
Gulfstream's retaliation to the Global 7500, the G700, seems on track for service entry in 2022 with no less than five aircraft engaged in the flight test programme over the past ten months. In Europe, Airbus successfully launched the long awaited ACJ TwoTwenty, opening a new market segment which could well reshuffle the cards in the large-cabin, long-range business jet sector; whilst Dassault Aviation just rolled out its even longer awaited new flagship, the Falcon 6X, raising the bar even higher in its category, and a new model is likely to be revealed in 2021. When these new types, and other fairly recent models (G500/600, Global 6500/5500, Praetor 600/500, Citation Longitude and PC-24) are all in full production, they should stimulate the market.
Sustainable aviation fuels have also made significant inroads in business aviation over the past year. “Somewhat ironically, COVID-19 has brought new users to business aviation through the clear demonstration of the sector's valuable attributes, although this has been essentially for leisure and private travel, as opposed to business purposes for now,” Sémiramoth adds.
There is also hope on the horizon, particularly for the large-cabin, long-range business jet sector, with the forthcoming arrival of several vaccines, which will enable travel restrictions to be lifted. An analysis of historical values during and after previous downturns shows, from The Sharp Wings' data, that pre-owned business aircraft values tend not to fully recover, with the noticeable exception of newest generation models especially when introduced at the low point of the downturn. “We see no factor or reason why this would be any different this time,” Sémiramoth concludes.