Monday, March 17, 2008
PMI Forecasts VLJ Numbers
In October 2006 PMI predicted 175 VLJs would be delivered in 2007 – the actual figure appears closer to 240, said the company, adding that much depends on the definition of “delivery”, as many of these aircraft have been delivered to customers and then immediately leased back to the manufacturer for trials and further upgrade work to original specifications. If these “leased back” aircraft were not included as deliveries then the figure of 175, for aircraft delivered and in full revenue-earning/personal pilot operations, would be accurate.
The company pegged its forecast on the accuracy of the Eclipse production performance since the aircraft is a market leader. The PMI Media report for 2007 has increased the number of Eclipse 500s it is forecasting to reach the market over the 2006 forecast – but it is still less than the 1,000 aircraft production level which Eclipse is aiming for.
It cited the volatility of the VLJ-based, air-taxi sector as a reason for the discrepancy between the manufacturer and PMI forecasts. “First, the VLJ-based air taxi sector is exploring new areas of air transport operations in much the same way as the VLJ manufacturing is exploring new sectors in the aerospace manufacturing sector,” said the company in its report published before Adam Aircraft’s demise. “Put simply, there are too many competing, untested air taxi models for them all to succeed and consolidation is inevitable. This will have a major impact on several programs since the industry relies heavily on the air-taxi sector for success. For the Eclipse 500 (with up to 60 percent of its customer base is in the air taxi and air charter market), the Adam A700 (80 percent from this market) and the Embraer Phenom 100 (50 percent), it is particularly important that the US air taxi model succeeds. If DayJet, Pogo and Linear Air succeed in taking their model to market they would account for 800 VLJs on order. Program delays have also stretched the business plans of many air taxi companies to breaking point; further delays will push many of them over the edge.”
PMI predicted that the coming overcapacity and failures will lead to many relatively new VLJs returned to the market as cheaper, used aircraft. However, a valuations market is only now developing, according to industry officials attending Jetpool’s VLJ Expo. They indicated that valuations of these aircraft were likely to remain high since the order-book for VLJ aircraft programs are so large. This could mean a redistribution of not only aircraft but delivery positions.
“Second, the current boom in the business aviation sector is unsustainable, even if there are new dynamics driving growth and new customers to sustain demand in the Far East and Middle East,” said PMI, dampening projections that see business aviation increasing more over time. “There will likely be a downturn in the 2009-2010 time-frame, [already predicted by other industry forecasters] impacting deliveries from 2011 onwards. The current ‘firm’ order backlog for all VLJs is 3,770 aircraft – but this can only be sustained if all manufacturers meet the production and delivery targets. Further slippages will lead to cancelled and transferred orders.”
The company also pointed to costs as an inhibiting factor in the market. “The cost of purchasing a VLJ is likely to rise rapidly over the next few years; ownership, operations, support and training costs outside the core business area of the USA are likely to be far higher than in the southern states of the USA,” it said. “If the US dollar strengthens over the coming months and years, non-US customers will have to revisit their business plans, while manufacturers will face increasingly higher costs to put in place maintenance networks over a large geographic area but supporting a relative small fleet.” However, the dollar hit a new low last week.
Other shocks to the industry are in the “realms of safety, environmental pressures, sudden infrastructure restrictions and fuel price hikes – that still impact major commercial airline operations,” said the company. Continued Below
Forecast VLJ Deliveries
North America remains dominant in the market in terms of customer demand, which PMI called “overwhelming” but said the potential for business aircraft development in the Far East, in particular, is huge. While the proportion of geographic demand for business aircraft has remained relatively consistent over the past few years, the opening up of more corporate and business aircraft operations in China, India, Russia, Brazil and the Middle East (Dubai and Saudi Arabia, for example), could see these proportions changing over the coming two to three years, it said.
“In talking to suppliers and potential customers there is a clear belief that US customers will dominate the early delivery slots but that markets in the Middle East, Far East, South America and Europe will grow at a rapid rate once production, certification and regulation issues are resolved,” said PMI. Continued Below
An audit of VLJ customers undertaken for the 2006 PMI Media study showed that: “Of the 3,451 VLJs on order at the start of August 2006 some 1,439 aircraft (43 percent of the total) had been bought by private owner/operators while 1,962 had been bought for commercial operations (57 percent),” according to an audit of VLJ customers for its 2006 VLJ study. Given the expected consolidation within the air taxi sector and the increase in private ownership of VLJs as a result of new single-engined aircraft reaching the market, changes to ownership models should be expected: