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November 29, 2016

Jahid Fazal-Karim on the Private Jet Market

By Samantha Coles

While chartering jets is a dynamic and innovative market, it is also a stable and growing sector of the global economy.

screen-shot-2016-11-29-at-17-13-53The private jet market is changing. New providers and new patterns of ownership are challenging traditional patterns. And, with more options than ever for travelers to fly private, including charter and fractional ownership, the industry is as accessible as it has ever been. This, at least, is the popular perception of how the industry is moving.

But while it is true this is a dynamic and innovative market, talk of revolutions in jet ownership is the sort of thing that makes those considering a jet purchase, whether for the first time or as a replacement or upgrade, ask more questions. Naturally, consumers wonder whether now is the right time to take this leap, or whether they should hold back and wait to see what all these new developments might mean for them.

This is one reason why, after more than 50 years in the industry, Jetcraft launched its first 10-year market forecast last year. The idea behind the report is that intelligence and insight gained from taking a long-term look ahead might help buyers and sellers make sense of what is happening and understand trends in the short and medium term, as well as up to a decade into the future.

Because of the widespread perception that the market moves so quickly, we will repeat this 10-year forecast annually, allowing us to make rolling forecasts and comparisons each year. This year, the second of these annual 10-year forecasts confirms, for example, that things have moved on a little from last year.

It also shows that while there remains a generally positive outlook in the market, there are still some short-term hurdles to be overcome.

What is not changing any time soon is the clear dominance of the North American market in global terms. The private aviation industry is much more developed in the US than anywhere else.

Europe is also classified as a mature, albeit smaller, market, and we are seeing activity in regions where many have seen little business potential, particularly throughout Asia. But there are clear short-term challenges as a result of key macroeconomic trends – a slowdown in wealth creation, the migration of ultra-high-net-worth individuals from emerging market economies and the fluctuation in oil prices.

In truth, the industry has struggled to return to activity levels seen before the 2008 financial crisis. And, world events over the past 12 months have certainly continued this trend. That being said, we appear to be at the midpoint of a recovery in the current economic cycle, and as a result the overall mood is one of optimism.

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screen-shot-2016-11-29-at-17-14-06Looking ahead, our forecast calls for 7,879 unit deliveries, representing $248bn in revenues to be realized over the next 10 years. Our model suggests 2021 will be a peak year for aircraft deliveries, and we’re expecting the launch of multiple models over the forecast period, introducing innovative and transformative technologies, especially with the higher-end segments.

We are predicting that Pratt & Whitney Canada will overtake Rolls-Royce as the primary supplier of jet engines. And, we expect both Cessna and Gulfstream to remain market leaders. The former will retain its crown as the leading provider in terms of the numbers of units sold, while Gulfstream will remain at number one in terms of revenues.

When it comes to the market for pre-owned aircraft, while the number of available pre-owned jets is somewhat lower than the long-term historical average of 13 percent (inventory as a proportion of inservice fleet), there is little evidence that this is boosting residual or resale values, especially for five-year-old aircraft.

One natural consequence of this may be that sellers who paid higher prices three to four years ago are reluctant to offer their aircraft for sale, further slowing the market.

But despite this, the general market picture for the longer term remains pretty positive. It seems clear from our long-term forecasts that business aviation will continue to experience some growth. And, based on Jetcraft’s own recent results, which were the company’s best since its formation 54 years ago, there is some credence to the idea that a feeling of solidity is returning and that there is activity, albeit muted, in emerging markets.

Jahid Fazal-Karim is chairmanof Jetcraft. To read the Jetcraft 2016 Market Forecast, click here.

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