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Jet production stalls amid soaring sales
The industry is rife with opportunity, demand is high, but where are the brand new aircraft? Brian Foley explains why OEMs are failing to match sales with deliveries.
The Brian Foley Associates founder says that while new business jet sales soar, some OEMs are not building more (yet).

Since the start of the coronavirus pandemic in 2020, well-to-do travellers have been motivated to avoid the close of quarters of airline cabins, and the stampede to private air travel has yet to abate. But just as new business jet sales begin to take off after more than a decade in the doldrums, some aircraft manufacturers are temporarily stuck on the sidelines, unable to fully capitalise on the upswing. So says industry observer Brian Foley:

"While business jet charter, fractional and pre-owned segments began flourishing in mid 2020, it took a while for new aircraft sales to pick up. Finally, by mid 2021, manufacturers began reporting new aircraft unit sales that were nearly double the amounts that were being delivered, rapidly swelling backlogs.

"The timing of the long-awaited sales uptick couldn’t have come at a worse for time for General Dynamics’ Gulfstream division," says Foley, "as it reported Q4 order activity beyond anything seen since 2008 and a sales backlog up 40 per cent from the year before. At the same time the company is bringing wing production in-house and acquiring another set of tools and fixtures, all of which stifle adding any more production capacity much before 2023. Now saddled with a temporary wing shortage, it only expects to produce four more jets than last year at a time of increasing demand."

Longer term, the wing vertical integration has the chance to improve production control and profitability, but it appears to be at the expense of short term sales. Once in place there is a plan to bring up production. Still, buyers who can’t get their aircraft within a reasonable amount of time have the option of looking elsewhere, he notes.

Bombardier isn’t in much better shape to capture the market upswing right away. Despite a fourth quarter book-to-bill ratio of 1.5:1 (1.5 new sales to each one aircraft delivered) and backlogs swelling by $1.5 billion last year, 2022 deliveries are only ramping up a little compared to last year, according to CEO Eric Martel. He also suggests that the company is keeping production constant to be conservative, but Foley suggests another possible explanation is that the company does not want to bloat already high debt levels any further by spending even more on procurement and capacity expansion. Another contributor to shipments remaining flat is from the closing of Gulfstream’s Learjet division, which shipped 10 units last year in its final gasp.

"As with Gulfstream, Bombardier is signalling a more aggressive 15-20 per cent production increase in 2023," Foley reports. "Constrained production capacity could ding both their market shares in the interim until more units eventually start coming off the line.

"For the industry as whole, demand exceeding supply will translate into longer wait times for customers and the ability to raise prices and improve margins for OEMs. Still, there will be an opportunity loss for those who lose sales due to insufficient capacity. Fortunately, production and demand usually find an equilibrium sooner or later."

Despite these constraints, and barring any unforeseen shocks, Foley says the industry still believes that worldwide jet shipments will get out of their 700 unit per year rut and approach 900 units as soon as 2024, but not later than 2025. While many industry peers are not yet as optimistic, it’s hopeful that the continued flow of positive quarterly reports will demonstrate a more convincing, positive outlook.

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The general aviation aircraft industry has rebounded from pandemic-related lows. All aircraft segments saw increases in shipments in 2021, with preliminary deliveries valued at $25.2 billion, up more than 10 per cent.