2015 Business Aviation Outlook - Sunny Skies?

 

2014 was an interesting year for the aviation economy. There were strong signs of improvement but still there was a feeling of wariness.  Globally, corporate profits were increasing in 2014 with estimates of 5% real GDP growth in the US. According to CNN Money, the number of billionaires doubled in the past six years. Both of those represent a growing set of buyers for turbine aircraft, especially business jets. New aircraft sales volume in 2014 looks to be about $21 billion. The US Dollar was up 11% this past year, a good sign for those Americans purchasing non-US goods (hurray for Dassault and Embraer?).  

Oil is now at $50 per barrel. Good news for turbine fuel prices, bad news for the oil & gas industry. I heard two Texans exclaim how strong the oil market was recently, but they were talking about Texas-produced olive oil! There are no signs of significant oil price increases, so that should help with the cost of flying in 2015.

Aviation International News reported a 10% increase in print advertising in 2014. Given the state of most print media, this is almost miraculous. Looking at AIN's December issue I counted 15 full-page ads - six from the aircraft manufacturers. That shows some hope on the part of their advertisers for as good year ahead.

New aircraft sales should continue to do well in 2015. Not because of bonus depreciation, but because of pent up demand. Business and high net worth individuals have the cash and look to be spending more of it. Lenders are also competing for quality - both assets and clients.

Used aircraft prices pretty much stabilized in 2014. We finally saw the recovery in the light jet market. Aircraft for sale data from AMSTAT shows the number of days to sell a light jet in 2014 was 326 days. Close to that for the large jets (312 days) and a bit worse than medium jets (283 days). The percentage of the business jet fleet for sales remains at just over 10%. Still, there is a bifurcated market for used business jets. Those built in the late 1990s and newer with updated avionic systems and engines on guaranteed hourly programs are selling well. Older business jets are still not faring as well. As an example, 18% of the active Citation II fleet is for sale as compared to 4% of the Citation CJ2+ fleet. A used business jet with ADS-B Out, RVSM, and engines on a guaranteed hourly program will sell first and for more than others who lack that equipment. 

The turboprop market seems unremarkable. Medium turboprops (AMSTAT lists King Air 200/350, PC-12, et al in this category) are at 6.6% of the active fleet for sale which indicates a sellers' market. But prices are not climbing. 

The helicopter market, especially for the larger turbine models, is beginning to feel the pain of lower oil prices. The demand for helicopters in the oil and gas markets is a major driver in that market. A client who owns a small helicopter charter company said that helicopters make money when everyone else is miserable:  high oil prices, forest fires, flooding, and accidents! It may take a year or more for the declining oil prices to significantly impact new helicopter orders. Still, there is a looming shortage of trained helicopter pilots and look for that to continue. 

With increased flying comes increased need for maintenance. MROs should do well this year. Avionics shops should be running at full capacity. Less than 5,000 of the 200,000 US registered aircraft have been equipped with ADS-B Out. The FAA says midnight on December 31, 2019 is still the deadline with no exceptions.  

I think 2015 will be a growth year for business aviation and aviation in general. Nations whose economies that are not dependent on oil revenues should do well for aircraft sales.  As always, managing costs and focusing on the customer will be important for all of us. Good luck to you in 2015.