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Business jet market settles after strong recovery, says GJC
The rapid expansion of the business jet market during the post-COVID recovery period slowed in 2023, although most indicators remained strong compared to pre-COVID levels. GJC discusses the market.
Read this story in our March 2024 printed issue.

In its Q4 Business Aviation Market Brief, Global Jet Capital finds that business jet flight operations were down year-over-year, inventory levels climbed from an early 2022 low point, supply chain and labour 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 the year: 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.

The highlights of 4Q23 show the global economy remaining resilient despite headwinds, but uncertainty remains moving into 2024. Flight operations declined one per cent year-over-year but were 17 per cent above Q4 2019 levels, demonstrating systemic expansion in the user base for business aviation. OEM book-to-bill ratios were around 1-to-1 with backlogs remaining at high levels, placing OEMs in a position to weather an economic downturn. Transactions declined over the year due to slower than expected new deliveries (attributable to ongoing supply chain and labour 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, although levels for the overall fleet remained below historical averages. And most aircraft models reverted to historical depreciation profiles, albeit from a higher starting point following a firming in values over 2021-22.

The global economy was more resilient 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. But headwinds continued to build going into 2024. Wars in Ukraine and Israel; relatively high interest rates despite plans by many central banks to reduce them in 2024; continued de-globalisation and trade conflicts; major elections in countries making up 38.1 per cent of global GDP; structural growth challenges in China; and disruptions in Europe may all contribute to slower growth this year.

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 decreases and the job market remains tight – factors that will support economic stability.

In Q4 2023, flight operations declined 0.9 per cent from a year earlier. Both the US 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 per cent higher than in Q4 2019. Across the whole year, departures were 15.1 per cent higher than in 2019. Some passengers who utilised 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 normalised but, due to the industry’s inherent value proposition including personal safety, flexibility, productivity and comfort, a substantial proportion of new users remained, 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 per cent 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 labour 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.

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 labour constraints to boost production. Despite overcoming many issues, challenges persist in acquiring key components and hiring enough labour 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 normalised 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 unfavourable 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 per cent below 2019 levels and listings in 2022 were 6.3 per cent 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 stabilise.

By the end of Q4 2023, inventory stood at 6.9 per cent of the total fleet. Inventory for the whole fleet is higher than the historical low point of 3.1 per cent at the end of Q1 2022 but still below average levels of around 10 to 11 per cent 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 per cent at year-end. The inventory of aircraft younger than 13 years old (typically seen as more desirable) stood at 4.8 per cent of the global fleet, an increase from the 4.7 per cent 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 per cent due to limited new deliveries from OEMs in 2024.

Average business jet bluebook values declined 0.2 per cent 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 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 per cent compared to a 0.8 per cent 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 per cent year-over-year, compared to only 28.7 per cent for younger aircraft. Before the pandemic, younger aircraft were considered more desirable to most buyers, leading to better performance in the marketplace. As the market normalised, 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.

In conclusion, the GJC analysis finds that the business jet market slowed in 2023 following rapid expansion the two previous years. 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 era continued to utilise 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.

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