Mon, Oct 10, 2011 - Page 10 News List

Business jet sales set to boom next year

Bloomberg

Business-jet sales could increase worldwide starting next year as emerging-market demand blunts a sluggish US economy that fueled a probable decline this year, Honeywell International Inc projected.

Purchase expectations are growing in Asia, followed by the Middle East and Africa, while the free-fall in developed markets like North America following 2008’s recession has stabilized, according to an annual survey of 1,500 companies by the Morris Township, New Jersey-based avionics and cockpit-instruments maker.

Companies also have cash to spend now, compensating for individuals that might hold back amid economic uncertainty, Honeywell’s business and general aviation unit president Rob Wilson said in an interview.

Replacement of aging planes has combined with international travel demand to boost potential sales of longer-range models, he said.

“Cautious optimism” will be a theme at the National Business Aviation Association’s annual conference that starts today in Las Vegas, Wilson said.

“We’re figuring out how to make the most of it in uncertain times,” he said.

Customers continue to say that they still intend to buy new aircraft over the next five years, though some have pushed back the timing to the latter half of that period, Wilson said.

Air-travel demand has been boosted by growing trade between Africa and China, a run-up in commodity prices and oil, and the exploration of new business opportunities in those regions, Wilson said.

By the time the survey was conducted between May and August, much of the turmoil in the larger Middle East countries had settled down, he said.

Global deliveries will probably decline to between 600 and 650 from 732 last year then climb to just under 700 next year, Honeywell projected.

Business-jet manufacturers are building new models with greater range to lure buyers away from the used-aircraft market. General Dynamics Corp’s Gulfstream, Textron Inc’s Cessna and Embraer SA are all developing new planes to enter service over the next two years.

While a good leading indicator of future demand, prices are still far below 2008’s peak levels, indicating fleet managers remain cautious, some analysts have said.

How “increasingly acute macro concerns” are affecting business-jet demand will be a key topic at the business-jet association’s meeting, Joseph Nadol, an analyst with JPMorgan Chase & Co in New York, wrote in a note on Friday.

“We would not be surprised by a continuation of recent trends, including solid demand for larger, long-range jets, primarily from emerging markets, and far more modest demand for light jets,” due in part to economic weakness in the US, Nadol wrote.

Bigger jets that can fly further and are favored by corporate fleets are faring better than smaller planes that interest individual buyers, Wilson said.

Demand for small and -medium-sized jets is likely to remain stagnant, Honeywell said. As planemakers use up long-held inventory, parts makers may see a pickup before planemakers do.

John Saabas, who runs Pratt & Whitney Canada, the biggest maker of engines for small and medium-sized business aircraft, said he does not expect gains until the end of next year.

“We have an opportunity on the engine side, just because the inventory levels have been depleted so much over the last couple of years,” Saabas said in an interview. “When it comes to growth in the whole market, that takes more time. People have to negotiate deals. The latest events in the US and Europe — people were going to wait out deals, wait and see what happens. That’s where some of the more softness part comes in.”

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